On may 23rd, the l’Autorité des Marchés Financiers (AMF) announced in the Notice above (in French only) that the existence of orphan policies constituted infractions under article 16 of the Act respecting the distribution of financial products and services, L.R.Q., c. D-9.2, and also under articles 4, 23 and 24 of the code of ethics of the la Chambre Finnaciere R.R.Q., c. D-9.2, r. 3.and under article 222.2 of the Insurance Act L.R.Q., c. A-32.
I am publishing this press release in the interest of the truth. The notice in question gives the impression that only the advisors and insurance companies are responsible for this very serious situation. The truth is that the AMF knew of the existence of the infractions represented by orphan policies for more than 20 years but decided to turn a blind eye to this situation and to not apply the law.
It has now been almost 3 years since I have approached the AMF with proofs regarding the existence of orphan policies in the Direct Channel of Manulife with these proofs demonstrating that clients were losing their insurance coverage because of the orphan status of their policies. I asked the intervention of the AMF to protect anymore orphan clients from losing their insurance. The reaction of the AMF was akin to a spoiled child who does not want to recognize the truth by crying, shouting, hitting and jumping up and down. This was the reaction of the AMF when confronted with the information I had. The AMF went as far as to attack the messenger in the hope that the truth would disappear
But I remained firm in my belief that the existence of orphan policies was illegal and did not waver in maintaining this position even in the face of this irrational behavior of the AMF explaining to its lawyers that not applying the law created an unacceptable situation. When the AMF still refused to listen to me, I decided to use a heavy hand with this organization to make myself understood. When the law is applied on a discriminatory basis, it is a violation of the Charter of Rights and Freedoms and there has to be consequences. As a result, I have introduced a request for a declaratory judgment 200-17-017919-135 in the Superior Court of Quebec to render certain articles of the Act pertaining to the distribution of financial products and services unconstitutional. This request will be heard on June 17th and 18th where a judge will decide if this request is receivable with Stein Monast representing the AMF and Me Jennifer Tremblay, representing the Government du Québec.
It seems that the heavy hand I used has put some sense into AMF who has finally understood its obligation and responsibilities to apply the Law. The AMF has finally informed the insurance companies through this Notice that they were required to address the problem of orphan policies immediately. However it saddens me to see that the AMF is not mature enough to act rationally by gathering and analysing all of the information regarding this issue even if it means talking to me before publishing a Notice which is erroneous. I have studied the problem of the orphan policies for 5 years and I am the only expert who understands this problem.
In this Notice, the AMF falls back on its usual strategy of blaming everything on the advisors. These advisors have nothing to do with the creation of the environment leading to the problem of orphan policies which are the result of demutualisation, industry consolidation and privatization of the distribution. Many of the policies are orphaned because the advisor who sold the policy died or the corporation or firm ceased to exist. According to this notice, the dead advisor will have to reach us beyond the grave to name their replacements. Also the AMF ignores the dynamics around distribution. Many advisors selling life insurance are attached to a firm and the policies are owned by the firm and as a result it is impossible for the advisor to name his replacement on business he does not own when they exit the insurance industry.
Now that I have extracted this Notice from the AMF, is my work done? Absolutely not! First there has been a lot of victims the result of this illegal practice. These victims have lost their insurance or other rights because their policies were orphaned. These victims have the right to be compensated for their losses by those who are responsible for these damages and those who have ignored this situation such as the insurance companies, the AMF and Chambre Financiere. My next goal will be to ensure that such compensation becomes a reality.
Second, the problem of the orphan policies is not a problem unique to Quebec even if this problem is more defined in Quebec because of the existence of the Act respecting the distribution of the financial products and services; an Act which does not exist in the other provinces. Still the existence of these policies is illegal under the Insurance Act of these provinces and I sincerely hope that the regulators of the other provinces will demonstrate more maturity than the AMF by willingly informed insurance companies in their respective provinces of the requirement to address and fix this situation immediately. If this is not done I will have no other solutions than to introduce the same judicial procedures that I have used in Quebec.
Finally addressing the problem of the orphan policies is only the beginning. I intend to address all of the gaps in the laws pertaining to the life insurance industry which allow insurance companies to use unethical commercial practices which are not in the interest of the public. No subject will be ignored. My next battle will be on transfers out of the segregated funds and the lack of disclosure associated with these transfers. To reach my goal, I will publish the most comprehensive Insurance Industry report with more than 100 pages analysing the commercial practices existing in the insurance industry.
The publishing of this report has already started and can be found in French at:
Or in English :