Consumer Protection Bond

Background

Beginning on January 1, 2020, Saskatchewan’s insurance sector will be officially governed by new legislation: The Insurance Act.

Originally passed by policymakers in 2015, the ‘new Act’ was scheduled to come into force at the start of 2019. But, in response to concerns expressed by several organizations, including IBAS, the Province delayed implementation for an additional year to allow for the finalization of outstanding regulatory amendments, and to provide those affected by the Act sufficient time to review the changes and take the necessary actions to remain compliant.

One of these important changes is with respect to the IBAS Consumer Protection Fund (CPF).

The CPF was established in 1997 to provide protection for consumers against loss of premiums, fees, or other benefits due to the insolvency of, fraudulent activity of, or contravention of prevailing provincial legislation by IBAS members. This served as an approved equivalency to the mandatory $20,000 Consumer Protection Bond required under General Insurance Council of Saskatchewan (GICS) bylaws — a significant member benefit that has saved IBAS members more than $2 million over the life of the program.

Unfortunately, the new Act will remove the bond requirement from the GICS bylaws and will instead enshrine it directly in legislation. Due to the restrictive provisions and wordings in the Act, this means the CPF will no longer be recognized as a substitute for the bond requirement, effective January 1.

Path Forward

Rest assured, IBAS has been working hard over the past several months to identify a path forward that preserves member value and provides a simplified solution for Saskatchewan brokerages. At its 2019 Annual General Meeting, the IBAS membership voted to:

  • Repeal IBAS By-law No. 2, which currently governs the CPF, effective January 1, 2020;
  • Direct IBAS to purchase, on behalf of its members, an ‘umbrella’ surety bond, underwritten by SGI CANADA, that meets the statutory requirements of the Act (cumulative limit of $20,000 per brokerage). This new umbrella bond will take effect January 1, 2020, and will be included at no additional cost as part of annual IBAS membership; and
  • Convert IBAS's current CPF investments to a new Consumer Protection Bond Indemnity Fund, capitalized at $200,000, that will serve as a second and final point of indemnity should SGI CANADA be unable to recoup its losses directly from the at-fault brokerage(s) due to insolvency.

Members will functionally see no change compared to the current CPF program unless the bond is called (it has not been called in the 20-plus-year history of the CPF) — in which case, the process will be managed directly by SGI CANADA. This will keep all members in compliance with the bond requirement in the new Act without adding operational expense for brokers.