Check against delivery.
May 1, 2015
Quebec, QC
Good morning. Thank you for that warm introduction. What an interesting morning it has already been. We’ve certainly heard some wise and timely words about good governance and the fair treatment of consumers. Of course, these are themes that are near and dear to my heart and to my current role with the Financial Consumer Agency of Canada.
I must say that being here takes me back to my early career as a lawyer and as a leader in your industry. At the risk of dating myself, I started my career in private practice, as litigation counsel for several property and casualty insurers. Later I joined one of the leading Canadian financial services companies. Then I joined Export Development Canada, the federal government’s export credit agency.
So I learned about financial services—and insurance, in particular—from the inside out. In fact, I attended this very conference a number of times years ago and being part of this event again means a return to my roots.
From those experiences, I came to appreciate not only the legal dimensions of this business but also the retail side and, in particular, the customer service side. One of my more satisfying experiences—believe it or not—was helping to rewrite universal life insurance policies into plain language in the late 1990s. Looking back from today’s standards, I am not sure I did a very good job!
And this is one of the things I’d like to talk to you about today—that is, plain language, not ulife contracts! I will offer a brief overview of our Agency, the Financial Consumer Agency of Canada, our mandate and how we go about fulfilling that mandate. I will share our perspectives on financial literacy and plain language, specifically what they mean to you. And I’ll conclude by offering suggestions on how to move this conversation forward.
We at the Agency are sensitive to the challenges your industry is facing. The theme of this conference, Identifying and Managing Change, really says it all. During the past two days, you’ve learned about the fallout from cyber-crime. About new forms of privacy complaints. Genetic testing and proposed provincial legislation that could shape the way you do business.
These matters you’ve been discussing are of great importance. The matters I will touch upon are matters that I feel are also of great importance. I hope you’ll view my brief remarks in a positive light, as an opportunity rather than as an additional burden. I am a passionate believer in the power of financial literacy to help you build strong customer relationships. And strong customer relationships are not only good for the customer, they are also good for business!
FCAC’S ROLE
The Financial Consumer Agency of Canada has a unique role to play in Canada’s economy. We have one broad objective: to protect consumers of financial services that are offered by federal financial. We do this by ensuring that these entities comply:
- with federal financial consumer protection provisions in their governing legislation and regulations
- and with their codes of conduct and public commitments.
Our protection activities include educating consumers about their rights and responsibilities and about financial services and products in general. Let me run a brief video that explains our role better than I can.
COMPLIANCE
The compliance side of our mandate touches roughly 400 federal financial institutions. This includes 168 property and casualty insurers and 73 life and health insurers. We oversee sections of the Insurance Companies Act that are designated as consumer provisions. These include disclosure requirements regarding the cost of borrowing, and complaint-handling processes.
To give you a sense of the scope of work, in 2014–15 we investigated more than eleven hundred (1,134) cases for possible violations. That number includes all federal financial institutions—banks, trust and loan companies, and insurance companies, among others.
While I know much of your work may fall under provincial rather than federal jurisdiction, I would argue that, notwithstanding, it’s worth keeping an eye on the practices, research and other initiatives generated and led by FCAC.
As a supervisor, we try not to work in isolation because supervisory approaches and practices tend to cross-pollinate between jurisdictions. So, I think there is benefit in knowing what is going on in the broader Canadian regulatory scene, and not just what is going on in the jurisdiction that governs your organization.
Let me outline for you what is on FCAC’s plate this year. April has been a busy month. To start, we are responsible for the supervision of the implementation of the amendments to the Code of Conduct for the Credit and Debit Card Industry, announced by the federal government in mid-April.
We will also oversee the new, comprehensive consumer-protection framework introduced in the April 21 budget. This framework will highlight the importance of plain-language disclosure by financial institutions to their customers. The framework proposed is principles-based. This allows more flexibility for financial institutions in meeting the principles, and for FCAC the oversight of each institution’s compliance. In that light, it is likely that more guidance will be required to assist financial institutions in interpreting the principles.
This year, we also expect to launch Canada’s first national strategy for financial literacy. This strategy has been shaped, in part, by a 15-member steering committee. Among the members of that valuable panel is someone you may recognize: CLHIA’s own Leslie Byrnes. Leslie is making a terrific contribution to the committee’s work and for that I would like to thank her. The strategy is now in its final stages of development. It will provide Canadians with guidance on how to achieve greater money-management savvy. And it will offer everyone in the marketplace—consumers and businesses alike—a better understanding of their rights and responsibilities.
FINANCIAL LITERACY
So let’s talk a bit about financial literacy. Why is it important? Well, the number and complexity of financial products and services available to consumers continues to grow. And many Canadians lack the knowledge and skills they need to make sound financial decisions.
These are the very decisions that impact their financial well-being: their ability to budget, save and invest; the success of their entrepreneurial ventures; and the strength and stability of our overall economy.
At FCAC, we define financial literacy as having the knowledge, skills and confidence to make responsible financial decisions in one’s own best interests. It has become as important for Canadians as basic literacy and numeracy.
Do Canadians have those skills? Let’s look at data from the Canadian Financial Capability Survey. This important survey, which is sponsored by FCAC, explores how Canadians understand their financial situation, the financial services available to them, and their plans for the future. The latest survey results, from 2014, offer a mixed picture.
Only 45 percent of Canadians have household budgets, a decline since the 2009 survey.
- Nearly 60 percent of adults do not have a good idea of how much money they need to save to maintain their desired standard of living in retirement.
- 80 percent of young Canadians are not confident about their financial knowledge.
- And 30 percent are struggling to pay their bills.
At FCAC, we hear the human stories that fall out of these numbers, in the telephone calls and correspondence we receive through our Consumer Services Centre. This centre handles roughly 10,000 complaints and inquiries a year.
Insurance issues made up four percent of the complaints and inquiries, with one-third of those complaints relating to life and health insurance.
INDUSTRY’S ROLE IN FINANCIAL LITERACY
The survey results clearly indicate that Canadians need help to develop greater financial literacy, to understand what they are purchasing and what questions to ask. I would submit that all of us—in the public and private sectors—have an interest and a role to play in making this happen.
Why? Well, for one thing, when consumers have a clear idea of what they are getting into, of what they are entitled to and what they are responsible for, there will likely be fewer complaints and compliance issues downstream. Clear communication and disclosure—through plain language—means better communication and disclosure in the end. If it’s easier for consumers to understand what’s being sold, it may be that it’s easier and faster for them to buy it.
Federally regulated financial institutions are required by law to use plain language in their disclosure documentation for consumers. As I said before I believe this is good for your business. Better than any advertisement, you signal to prospective customers that you care about their interests.
I know that the financial sector, including many insurers, is working toward making it easier to read and understand information about their products.
I also know that there is room for improvement.
I say that based on the Agency’s own experience and research. The Cost of Borrowing Regulations require federally regulated financial institutions to provide their consumers with disclosure that is clear, simple and not misleading. To assist them in developing plain-language disclosure for their customers, we’ve developed five principles:
- Know your audience.
- Make your material understandable by planning your text.
- Write clearly.
- Use visuals to enhance your text.
- Test your material.
So, how are the institutions we regulate doing in implementing the plain-language principles? As a first step, the Agency studied whether financial institutions had plain-language policies and procedures in place. Initially, we found that few had developed these necessary policies and procedures; now all of them have. We plan to look at in-market documents as a next step, to gauge whether those policies and procedures are yielding the desired outcome. So, stay tuned.
I can tell you that many financial institutions already welcome the plain-language approach. Their policies and procedures include training and control measures to ensure that disclosure and other forms of communications are clear to consumers. For these organizations, plain-language rules are not merely a regulatory requirement. They are an opportunity to embed clarity in their organization. And this makes sense: communication is the carrier of our culture, and this is true of our organizations just as it is true of communities.
CONCLUSION
In the years ahead, I’m confident that most financial services firms—not just those under federal jurisdiction—will adopt the principles of clear communications with their customers and stakeholders. I’m optimistic about this because the fundamental issue for business—the value proposition—is about deepening the customer relationship.
I know from personal experience the impact of the insurance industry and the value it provides to Canadians. I know that over 21 million Canadians own more than 4 trillion dollars of life insurance. That 11 million Canadians have disability insurance. That each week, almost 1.5 billion dollars is paid out to Canadian policyholders.
Your representatives are at the front line of your organization’s relationship with its customers. A study recently published in Management Science suggests that “just-in-time” financial education tied to a particular decision may be the best way to make financial lessons stick.
At FCAC, we refer to these as “teachable moments”—helping consumers to become more financially literate by offering information at key transition points in their lives. These teachable moments include getting married, buying that first house, having a baby, and planning for retirement. Most of those happen to be times when people think about insurance, too, right?
I invite you to become increasingly engaged in strengthening the financial literacy of your policy holders.
So please help us to spread the gospel. Speak to your colleagues and refer them to our website and to the Canadian Financial Literacy Database available there. The database can add value to the service your company provides to your customers. Your representatives can encourage their clients to take the financial literacy self-assessment quiz. It will show where the customer is strong—and less so—on financial issues. Plus, the quiz results will generate a list of database resources tailored to help improve their financial abilities.
These are the opportunities where you can have a great and positive impact by helping Canadians make effective, well-informed financial decisions.
Thank you very much for inviting me to join you today. I wish you the best for the remainder of the conference.
