The Financial Services Regulatory Authority of Ontario (FSRA) released for consultation a second set of amendments relating to Rule 2020 – 002 Unfair or Deceptive Acts or Practices Rule (UDAP Rule). The proposed amendments to the UDAP Rule relate to deferred sales charges (DSCs) in individual variable insurance contracts entered into prior to June 1, 2023. The proposals will allow insurers to simplify the information they provide customers if they provide a new sales charge option that is better than a DSC (as described in the proposed amendments to the UDAP Rule).

These special rules apply if the owner and insurer had previously agreed to make future payments to the contract on a DSC basis (e.g. under a pre-authorized payment agreement). The written disclosure that the insurer will have to provide will depend on whether they offer a new default sales charge option that is “unequivocally better” than a DSC. A sales charge will be unequivocally better for an owner if:

  • The % amount of any initial sales charge is no greater than for the DSC;
  • The management expense ratio is no greater than for the DSC;
  • No other fee or charge associated with the sales charge option is less favorable to the owner than under the DSC option; and
  • The sales charge option applied does not involve any new conflict between the interests of the owner and the interests of the insurer or an agent to the detriment of the owner.

Importantly, it is explicitly stated that an advisor chargeback option does not qualify as unequivocally better than a DSC. An advisor chargeback option is any option under an IVIC where an insurer pays compensation to an agent when an owner invests money in a segregated fund in an IVIC, and an agent that receives this compensation may need to repay all or part of it to an insurer, if the owner withdraws money from a segregated fund or changes the sales charge option. An advisor chargeback is also defined to include a charge that a reasonable insurer would consider to be an advisor chargeback sales charge option.

If the new default is better for the owner, disclosure can be sent before or promptly after first applying the new sales charge option to a deposit under the contract, describing the new charge, how it works, if other sales charge options are available and how to get more information about those charges. If the new sales charge default option is not unequivocally better than a DSC, then the insurer must provide additional disclosure prior to applying the new sales charge, designed to help the owner choose a suitable option. It must include a list of available sales charge options, how they work, and information about the fees. The insurer must obtain the owner’s consent before applying the charge or wait a reasonable time after providing notice without any reply.

The amendments are intended to, in part, reduce the cost of insurer compliance for insurers that do not need to provide owners with the more costly detailed disclosure, and reduce the time owners need to spend reviewing documents about other charges if the new charge is an unequivocally better option.

Comments on the consultation are due by June 30, 2023.

June 30, 2023