The use of negative option marketing or billing as a marketing practice by insurance companies, whereby consumers are charged for a new product or service before they have consented, is considered by the Financial Services Commission of Ontario (FSCO) to be an unfair and deceptive act.
This practice is also not supported by RIBO and brokers may not, under any circumstances, amend coverage or add a new product or service without the express permission of the consumer.
Consumers benefit from the automatic renewal of their policies, however, consumers may not be aware when a change has been made to their policy and that there is an additional charge, particularly where consumers pay by automatic monthly premium installments. FSCO also recognizes that some insurance contracts contain provisions that allow the insurer to adjust the coverage and the resulting premium on renewal (i.e. Inflation Protection) and these types of contractual provisions are acceptable provided that consumers are made aware at the point of sale.
Most recently the Claims Protection coverage on automobile insurance and Identity Theft coverage for property insurance have been offered as new products. In most instances there is a cost for the addition of this coverage. If this is the case, the broker must obtain permission from the consumer to add the coverage to the renewal or new business.
If the coverage is read in by the insurance company, at no additional cost, there is no need to obtain consent from the consumer. However reading the coverage in and charging at the next renewal without the client’s consent would still be considered as negative optioning.
The brokerage has at all times, an obligation to provide written notification to the consumer of any policy amendments or modifications. Failure to comply with the above may result in a consumer complaint that RIBO would be required to address.
FSCO also continues to stress the need for improved disclosure and consumer information by the insurance industry. Insurers, agents and brokers are encouraged to actively sell insurance coverage by clearly explaining the benefits and costs to consumers as consumers have a right to make an informed decision.