Unlicenced insurance sales are on the rise. The impact of embedded insurance

Law firm Dentons has seen a strong uptick in activity surrounding embedded insurance, particularly as it relates to unlicensed insurance activities, attendees heard last week at Insurance Bureau of Canada’s InSight Summit.

“We’ve definitely seen a significant uptick in investigation and inquiries, especially in respect of unlicensed insurance activities,” Dentons partner Marisa Coggin said Apr. 1 during a regulatory session on embedded, affinity and digital distribution models. “So, when you think about that in the context of these programs, I think that’s very likely to continue — especially in the context of AI-driven underwriting and affinity partnerships generally, and just the potential impact that may have on customers if that’s not all done properly.”

She was responding to a question from moderator Laurie LaPalme, Dentons’ global insurance sector leader, about what trends or priorities Coggin is seeing regulators embrace to deal with embedded insurance challenges.

The risk of embedded insurance activities being performed by unlicensed individuals or entities (whether corporate or platform-based) is “probably the biggest bucket” of concern, Coggin says.

“Because you’re moving through the customer journey, and you’re starting at solicitation, and you have to think about, ‘Okay, how does the customer get introduced to the concept that there is insurance available at all?’” she says. “Because they didn’t come on this website looking for insurance, right?

“Maybe some people have that in the back of their mind, but most people will not,” Coggin says, adding that how the referral or resale partner is conveying the insurance product is also important.

Restricted licensing regimes

Are regulators accommodating the ‘new reality’ when it comes to embedded insurance?

To an extent, Coggin says.

“We’ve had the implementation of a whole plethora of restricted licensing regimes, which allow retailers and other ‘non-insurance participants,’ I’ll call them, to obtain a restricted license so that they can actually be part of the distribution process, [and] they can get compensated for their role, which I think is great.”

For example, British Columbia will be rolling out their regime in 2027, Coggin reports. And New Brunswick has a bifurcated system with incidental (embedded) sale exemptions and regulatory/restricted licensing.

Quebec has a Distribution without a Representative (DWR) regime, which allows certain insurance products to be offered by ‘distributors’ rather than by certified representatives.

But Quebec’s broker association has raised concerns around distributors such as auto and recreational vehicle dealerships being able to offer replacement insurance, in which an insurer pays compensation to replace a vehicle at a dealership the insured has chosen.

Lucie Fréchette, president of the Regroupement des cabinets de courtage d’assurance du Québec (RCCAQ), told Canadian Underwriter last month it was displeased with the province’s deferment of a legislative amendment that prohibits these dealerships from offering replacement insurance.

The provincial government has postponed the prohibition until Jan. 1, 2027, meaning at that time distributors will no longer be permitted to offer replacement insurance related to vehicles they sell or lease. The product must instead be obtained through licensed representatives and firms in Quebec, such as P&C insurance brokers or agents, Dentons said in a March 2 bulletin.

Looking to the future, Coggin anticipates embedded insurance products will expand beyond their current consumer-centric focus.

“There’s not a lot happening quite yet on cyber and on the more complex commercial risks,” Coggin says. “I do think if I had a crystal ball, that is going to come online. Because we’ve seen that in other jurisdictions, and we tend to be a little bit of a late adopter in Canada…”

That said, the complexity of certain products like cyber insurance will require more consultation.

“As we grow in complexity in this space, we’re going to have to do a lot more consultation on what does it look like to offer a cyber product, digitally and in an embedded space, and what does it look like to not have a licensed, traditional broker involved…,” Coggin says.