Insurance Industry Practices
Several insurance practices routinely distinguish between people based on, among other things, age, sex, marital status and disability. The exceptions or defences under the Code (see Appendix) justify many such practices if they can be shown to be for valid business reasons based on sound and accepted practices, such as actuarial evidence.
The insurance industry represented by both property/casualty and life/disability sector associations contends that its risk classification practices based on age, sex, marital status and disability are shown by studies and actuarial analysis to be sound, very effective and absolutely necessary. They further contend that efforts have been made by the insurance industry to avoid discriminatory practices and seek alternatives.
The Commission acknowledges that the insurance industry has the right to use sound and accepted insurance practices and to achieve the legitimate business objective of charging premiums commensurate with risk. The Commission also understands that a move away from age, sex and marital status or other enumerated grounds as rating factors might result in significant rate dislocation and a need for restructuring of the automobile insurance rating system, for example, and would require careful consideration and involvement of the insurance industry, consumer stakeholders and government.
Currently, actuarial science rarely establishes a causal relationship between the intended purpose of insurance products and certain risk classification variables such as age, sex, marital status and disability. The Supreme Court in the Zurich decision indicated that a causal relationship was not required in any case. However, if it were possible, the Commission submits that causal relationships would be preferable because they are a more bona fide and reasonable business practice. This means, though, that the insurance industry must at least continue to “strive” to find alternate variables to age, sex, marital status and disability that might effectively assess risk (also required by the Court in Zurich), and at least begin using any effective alternative criteria to ‘fine tune’ information about risk.
In addition to risk assessment and related Code defences, consumer groups consistently raised concerns about the human rights implications of many other insurance industry practices. These include reasonableness of exclusionary periods, frequency of requests for medical information, arbitrary distinctions between physical and mental disabilities, the duty to disclose material facts on the part of the insurer and sponsor through provision of detailed contracts and benefit plans, and access to affordable dispute resolution mechanisms.
The Commission encourages FSCO to offer its dispute resolution service, that it is currently mandated to provide under the Insurance Act only for auto insurance, to life and disability insurance as well. FSCO reports that it is now exploring offering dispute resolution services to life and disability insurance companies through pilot projects on a voluntary basis. Voluntary participation by companies would not require legislative amendment. As well, FSCO is considering expanding its Ombudsman complaint resolution process to other regulated areas and other FSCO operations. FSCO also pointed out that it has the capacity to issue Cease and Desist Orders where companies are engaging in inappropriate activity.
On the matter of clear and plain language wording for insurance contracts, FSCO recently commented that as a member of the Canadian Council of Insurance Regulators, it is developing a national consumer strategy on point-of-sale disclosure and policy contract wording in the life insurance industry which will see plain language insurance contracts as part of its finished product.
Other issues identified in this Report have also been recognized by the Insurance Ombudsman as areas of concern. For example, consumers under a group long-term disability insurance policy should receive full details of the policy in the event a claim is made.
The Insurance Ombudsman, in the course of receiving complaints about insurer practices, is developing standards for complaint handling in consultation with an industry and consumer working group. Once the standards are in place, the Insurance Ombudsman will be able to look more closely at practices among disability insurers.
Finally, FSCO reports that it engages in consultation with stakeholders via a broad range of mechanisms, depending on the subject matter, including the formation of a Consumer Advisory Committee announced in July. The mandate of the committee is to provide advice from the consumer's perspective on matters that affect FSCO's regulated sectors.
The Commission is supportive of these initiatives.
In April 2000, the Ministry of Health and Long Term Care announced the establishment of a Provincial Advisory Committee on New Predictive Genetic Technologies, a group that is studying issues related to genetic testing and patenting, particularly with regard to education of providers and the public, clinical practice, legal and ethical issues, evaluation of new tests, and individuals' requirements with respect to psycho social supports. The Advisory Committee is preparing guidelines, principles, broad criteria and advice to guide future decisions on how new genetic services should be incorporated into Ontario's health care system. The Committee is also working with other federal-provincial government and non-government agencies to ensure that Ontario's policies are consistent with other provincial and national initiatives.
Strategic Directions for the Ontario Human Rights Commission
As a result of the Supreme Court decision in Zurich that gave direction to the industry to strive for the use of non-discriminatory risk assessment criteria, and also because of the relative scarcity of human rights analysis on the insurance industry, the Commission is of the opinion that it is important to give renewed and ongoing consideration to human rights issues in insurance.
The Commission has already taken several steps to address human rights issues in insurance:
- Prepared and circulated the Discussion Paper Human Rights Issues in Insurance and undertook consultation with industry representatives, consumer groups and government. The Discussion Paper continues to be available at the Commission’s Web site at www.ohrc.on.ca;
- Wrote to the Ministry of Labour requesting amendment to the Employment Standards Act with respect to sick and disability benefits under group insurance plans during pregnancy and parental leaves;
- Wrote to the Independent Life Insurance Brokers of Canada in response to their concern regarding the industry-wide use of the “Application for Contract or Sponsorship” for independent brokers and its contention that it contains questions that can lead to discrimination under the Ontario Human Rights Code.
The Commission will undertake to develop policy strategies and actions to promote the protection of human rights in insurance, including the following:
- Distribute a copy of this Report to organizations and individuals who provided input to the Commission’s consultation and make it publicly available on the Commission’s Web site.
- Encourage the insurance industry, consumer representatives and government to establish a mechanism(s) to promote dialogue and review progress on issues related to human rights in insurance. The mechanism to review human rights issues in auto insurance should also look at other jurisdictions in North America, including British Columbia and Massachusetts, and elsewhere, with respect to risk classification schemes that do not involve or that minimize reliance on the variables of age, sex or marital status.
- Continue to monitor jurisprudence related to insurance and human rights law for implications relating to policy development and complaints before the Ontario Human Rights Commission.
- Incorporate principles and rulings in case law (see Appendix) that promote protection from discrimination in insurance on prohibited grounds of the Code in the analysis of cases before the Commission.
- Consider adopting a Commission policy position that all parties to insurance contracts, including the insured, insurers and sponsors of benefit plans have the responsibility to “disclose material facts”. Individual insurer as well as industry-wide standard contracts should be in clear, plain-language. Full details on conditions, exclusions and definitions of terms found in insurance contracts and benefit plans should be provided in accordance with the “utmost good faith” requirements of the Insurance Act.
- Review current and future complaints in the context of the Supreme Court of Canada decision in Zurich. In that decision, the Court held, on the one hand, that it is reasonable to set premiums based on age, sex and marital status if there is no practical alternative, and that a causal relationship was not required. But the Court also made it clear that the insurance industry should not continue indefinitely to use discriminatory criteria for rate setting, and that "the insurance industry must strive to avoid setting premiums based on enumerated grounds". This means that on the basis of assessing to what degree “practical alternatives” for determining risk are being sought or phased in, the Commission may pursue an inquiry or bring forth a case where alternative non-discriminatory criteria are likely to demonstrate a sufficient measure of risk on either a causal (preferably) or correlative basis.
- Consider adopting a policy position that any newly proposed risk classification system, even if shown to be a better measure of risk, should not further contravene rights under the Code any more than any current classification system does. Any newly proposed system should strive to avoid determining risk based on enumerated grounds.
- Consider adopting a policy position that genetic testing and related information should not be used to deny insurance or invoke exclusionary periods on the basis of “pre-existing condition”, in accordance with the principle that the current abilities of a person with a disability and the situation's current risks are to be taken into account, rather than abilities or risks which may arise in the future.
- The Commission will communicate with the following authorities identifying human rights issues that may fall within their respective jurisdictions:
- The Superintendent of Financial Services and the Minister of Finance recommending that the Financial Services Commission of Ontario further promote the protection of human rights in insurance based on the principles set out in the Discussion Paper and this Report; and specifically, supporting FSCO’s initiative to explore offering dispute resolution services to life and disability insurance companies through pilot projects;
- The Attorney General of Ontario in support of the 1996 Study Paper on the Legal Aspects of Long-term Disability Insurance prepared for the Ontario Law Reform Commission, which recommended greater public control of underwriting criteria in insurance;
- The Financial Services Commission of Ontario and the Insurance Bureau of Canada regarding improving auto insurance data collection, reporting requirements and analysis of risk assessment, particularly with respect to the mix and relative “weighted” importance of major and minor risk assessment variables;
- The Canadian Life & Health Insurance Association with respect to specific concerns regarding variation among insurers in claims adjudication as well as inappropriate sharing of confidential information with employers leading to identification of employees with HIV-AIDS;
- The Provincial Advisory Committee on Predictive Genetic Technologies on the issue of genetic testing and denial of insurance and advise the Committee of the Commission’s position on the use of such testing;
- The Information and Privacy Commission of Ontario regarding concerns it has raised in its 2000 Annual Report including the need to protect against the discriminatory use of genetic information in insurance, employment and housing.