September 16, 2005

Fraud-protection changes in BC and Alberta not yet in fraud-ridden Yukon’s future (from September 19 edition of the Yukon News)

Changes to law protecting customers from insurance broker errors and possibly fraud are being implemented in several provinces but the changes are “currently not on the table” in the Yukon, say officials.

British Columbia and Alberta will soon implement mandatory errors and omissions insurance for insurance brokers.

The revelation the Yukon isn’t following the provinces in mandating e-and-o insurance comes in the aftermath of the Territories Insurance Solutions debacle, that left more than 120 Yukoners with invalid home, business and vehicle insurance policies.

The RCMP is investigating Territories Insurance Solutions’ broker Joanne Walker, who is alleged to have collected more than $100,000 selling non-existent policies between July 2004 and July of this year.

The case ripped through Whitehorse like a chainsaw, exposing the vulnerability of consumers in an industry supposedly built on trust and the relative lack of protection the Yukon’s insurance act provides against fraud.

Walker’s licence to sell insurance has been suspended, and she has been given three months by the superintendent’s office to repay all money collected for invalid policies.

She has until September 19 to appeal the ruling.

But while BC and Alberta officials feel errors and omissions insurance will add protection for consumers, officials are unsure whether having the insurance in place in the Yukon would have protected Walker’s customers.

Errors and omissions insurance “is not a requirement under legislation right now,” said Fiona Charbonneau, the Yukon’s superintendent of insurance.

The insurance provides protection against customers unfairly being denied coverage or were provided inadequate coverage.

“The basic e-and-o certainly isn’t something that would cover in areas where there is no policy,” she said.

Though Walker allegedly sold documents that looked like insurance policies, they simply didn’t exist, leading Charbonneau to question if e-and-o insurance would have covered the consumers.

Rules in the insurance industry are complex: insurance companies are regulated by the federal government; brokers and agents selling insurance are regulated by provinces and territories.

While it appears like a disorganized affair, policies in jurisdictions tend to follow one another to maintain standards, said Trudy Lancelyn, deputy executive director with the Insurance Brokers Association of British Columbia.

BC will mandate all brokers carry errors and omissions insurance specifically to bolster consumer protection, said Lancelyn.

“If an insured suffers at the hand of a broker breaching standards of conduct, then they would be able to claim and be compensated out of the errors and omissions insurance,” she said from Vancouver.

Similar law changes are in the works in Alberta.

But the province is going one further, said Harold Baker, chief executive officer of the Independent Insurance Brokers Association of Alberta, a professional organization that also represents Yukon insurance brokers.

“From the Brokers Association’s perspective, we have endorsed here in Alberta — I’m not sure of up there — the implementation of errors and omissions requirements that extends itself to fraudulent activities,” he said from Edmonton.

“Our association is disappointed with any licenced person who would defraud a consumer.”
Each errors and omissions policy is different, making it difficult to know whether it would have covered Yukoners in the Territories Insurance case.

Enter the errors and omissions insurance grey area.

Some are certain the insurance would cover broker malfeasance.

“It’s as simple as what it sounds, errors and omissions,” said Baker. “Brokers can buy a policy that would cover them and their employees if they made an error or an omission in the issuing of a policy.”

The e-and-o policies can be required by law to be worded “to cover, for lack of a better term, fraud,” he added.

But because there are different providers of e-and-o insurance, just like other insurance categories, “it’s definitely a grey area,” what is and isn’t covered, said Baker.

“It really doesn’t sound like an error, it really doesn’t sound like an omission,” he said of the Territories Insurance case.

“It’s a question your superintendent needs to ask.”

Many brokers in Whitehorse already have e-and-o insurance, said Charbonneau, though she wasn’t able to confirm if Walker did or didn’t.

The potential reason e-and-o insurance wouldn’t cover customers is that Walker is alleged to have printed false documents and sold non-valid insurance.

Those aren’t errors and they’re not omissions, explained Charbonneau.

“When they’re not valid, what’s the difference then?” she asked rhetorically. “What’s covered?”

Another insurance vague area is funds to protect consumers.

While insurance companies have a professional fund set up to protect people in the event their insurance company goes bankrupt, and while professional organizations like the Canadian Investment Protection Fund cover mutual fund consumers from broker fraud, no one interviewed for this story could point to such a fund to compensate customers for broker fraud.

The Yukon’s insurance act is under the department of Community Services and its minister, Glenn Hart.

“When this is completed, we’ll do an analysis and provide recommendations (to Hart),” said Charbonneau.

Any changes to the act would have to be supported at the political level, she said.

An interview with Hart was requested for this story, but he did not return calls.

“Once this matter is completed, we will consider whether any changes to the insurance act are required,” said Charbonneau.
“We can’t know at this point know what those might be.”

No matter what the laws are some people will break them, said Baker.

The industry is built and based on faith and trust, he said.

“On the Alberta side of things, we’re trying to extend that faith and trust through the development of the expansion on the errors and omissions policies,” said Baker.

“I don’t know if this case would have been covered, but at the end of the day, I think it probably would have.”

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