The Department of Finance has launched an evaluation of the legislation that governs banks, insurance companies and trust companies under federal jurisdiction; the review provides an opportunity for the insurance sector to take a good look at its current state as well as address its ongoing issues.
As part of the review, the agency released an initial consultation paper which details key facts about the industry. The paper also identifies the trends that are currently affecting and are expected to continue affecting the sector.
The paper defined the current economic environment of the insurance sector, noting its low interest rates and historically high levels of consumer debt. It also addressed the high levels of concentration in certain parts of the financial sector, additionally observing that the largest financial institutions have been trending towards internationalization.
While the paper had a lot to say about the financial sector in general, two insurance-related trends stick out: the rise of fintech and the observed high levels of concentration.
Financial technology (Fintech) was one of the key emergent trends identified by the paper. The paper even credits start-up fintech companies with much of the recent innovations the financial industry is utilizing. It turns out that a number of these fintech start-ups developed consumer-facing technology that are slowly becoming a standard even among established companies. Other start-ups have focused on providing support to infrastructures by way of data analytics, smart contracts, and cybersecurity.
On the subject of high levels of concentration, the paper observed that the largest competitors in the banking and life insurance industries each control 93% and 90% of the total assets of their respective industries. The paper expressed concern whether there is sufficient competition in these sectors despite the high concentration levels.
The paper concludes with outlining three objectives that lawmakers will need to strike a balance of in the policy framework. These objectives, in turn, will give rise to questions that both the financial sector and legislators must find answers for by Nov. 15, when comments on the paper are due.
- Stability – Is the sector safe and resilient amidst pressure?
- Efficiency – Does the sector offer competitively-priced products and services? Does it pass efficiency gains to customers? Does it accommodate innovation? Does it effectively contribute to economic growth?
- Utility – Does the sector meet the financial needs of a wide range of customers, from business to families? Are their interests protected?
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