How to handle conflicts of interest related to insurance business activities

Published July 18, 2024

Licensees who engage in other activities, whether those are business or volunteer activities, have a responsibility to avoid conflicts of interest. When a conflict of interest arises or has the potential to arise, a licensee needs to take appropriate action before they act or continue to act on behalf of a client, an insurance company or other principal. Licensees may also be required to have consent to engage in other business activities from their insurance agency or firm, their MGAs/AGAs, insurers or other principals, and it’s expected that the organization responsible for your other business activity consents to you holding an insurance licence.

Code of Conduct 

Insurance Council’s Code of Conduct Appendix A, Conflict of Interest Guidelines, identifies situations, actions, or conduct that could lead to, or result in, a conflict of interest and assists licensees in understanding the issues relating to conflicts of interest. In addition, the guidelines provide direction on how to plan for and address situations when a conflict of interest arises, which licensees may use to manage, or avoid, such conflicts. Licensees are encouraged to review the Guidelines for more information and for examples of conflicts of interest. The following is excerpted from the Conflict of Interest Guidelines and highlights some key responsibilities and requirements:
 

• Conflicts of interest can be real, potential, apparent or perceived and exist when there is a risk that a licensee’s loyalty to or representation of a client, an insurance company, or other principal could be materially or adversely affected by a licensee’s own interests or by their duty to others, thereby improperly influencing their ability to exercise their duties as a licensee.
• Licensees should examine whether a conflict of interest exists, not only at the outset of a relationship with a client, insurance company, or other principal, but throughout the duration of the relationship.
• Licensees also have an obligation to provide appropriate disclosure to a client, insurance company or other principal, in sufficient detail of all real, potential, or apparent conflicts to ensure the client, insurance company or other principal can make informed decisions regarding their insurance business and insurance transactions. This includes:
  • In all cases, when disclosure is required, it should be made in writing.
  • Where there is a conflict or the potential for one, a licensee should either not act; or where the licensee believes they are able to properly represent the client, insurance company or other principal without the conflict having material or negative affect on the representation of the parties, then the licensee must act only where express consent of the conflict from the appropriate parties is obtained.
  • Where there is irreconcilable conflict between a licensee’s duty or responsibility, the licensee should decline to act even if consent is obtained.
  • Licensees are also required to comply with disclosure requirements included in the Financial Products Disclosure Regulation under the Financial Institutions Act. The disclosure requirements apply every time an insurance transaction takes place and include disclosing the name of the insurance company, particulars about the licensee’s relationship with the insurance company, whether a commission or compensation is paid to the licensee, that they are an insurance agent, and other specific disclosures are required where strata insurance contracts and strata corporations are involved.

Conflict of interest in strata insurance business

Council Rule 7(11.2), which came into effect on July 1, 2023, prohibits licensees from engaging in insurance business for a strata corporation where there is common ownership between the licensee and a corporation, business or other entity that provides strata management services. Common ownership includes ownership arrangements involving holding companies, immediate family, and significant partners. For more information, please refer to Notice ICN 23-001 | Conflict of Interest in Strata Insurance Business.
 

Other business activities

On the Other Business Activities page of our website, we’ve posted a list of Other Employment and Business Activities Considered by Council, which lists activities that have the potential to be, or are, so significant that a licence cannot be granted or there are conditions or restrictions placed on the licence. The list is updated from time to time and should be reviewed periodically.
 
If after becoming licensed, you become engaged in a business activity that is on the list or is similar to an activity on the List, you should be aware of the potential for conflict. Even though you are not required to notify the Insurance Council of commencing such other business activity, you are expected to modify your insurance activities in accordance with the licence conditions listed on the list and govern your practice accordingly.
 
Depending on the nature of your other business activity, or if you are licensed or operating in other provinces or territories, you may require additional or specific errors and omission (E&O) coverage for your non-Insurance Council of BC activities or you may need to amend your existing E&O policy to ensure you meet the E&O insurance requirements for your Insurance Council licence. Rule 7(11) requires licensees to maintain or be covered by E&O insurance which includes minimum coverages of $1,000,000 per claim and $2,000,000 in the aggregate for Insurance Council licensed activities. Therefore, extending your E&O policy to other business activities may make your E&O inadequate to meet your Insurance Council requirements. Consult with your E&O insurance provider to ensure your E&O policy meets your requirements and adequately covers your business activities.
 
The Insurance Council is here to help. If you have questions about your regulatory and practice requirements or are seeking practice guidance, contact a member of our Practice & Quality Assurance team at practice@insurancecouncilofbc.com, 604-695-2008 or 1-877-688-0321 (toll-free within Canada)