Playing by the rules

July 31, 2023
Vice President – Sales & Marketing at First Canadian Financial Group

Greater scrutiny means dealers need to remain vigilant about complying with financial services regulations

The regulatory environment for Financial Services in the automotive industry is always in a state of evolution. Regulators conduct market research and respond to customer complaints and industry discoveries.

As a result, governments worldwide, like the United States and Australia, have introduced measures to regulate the sale of Financial Services Office products and introduce oversight relating to compliance and transparency. Other jurisdictions will likely adopt similar regulations and best practices to remain competitive and follow the Fair Treatment of Customers laws.

There are many different approaches to compliance, but from the perspective of an insurer like First Canadian, compliance requires a proactive approach. Proper compliance will contribute to the longevity of the automotive insurance industry.

If dealerships take the appropriate actions to be compliant, they’ll create a sustainable business model where they can sell insurance products, well into the future, without undue regulatory and administrative burdens limiting their potential profit.

We’ve seen how compliance plays a crucial role in reputation management. The consequences of noncompliance can result in heavy fines, restricted licenses, or a tarnished image.

Dealerships, underwriters, warranty providers, etc., are acutely aware that public confidence and, more importantly, lack thereof in the automotive insurance marketplace, impacts the level of involvement and oversight regulators exert.

Whether it’s provincial insurance regulators, consumer protection agencies, or dealership licensing authorities, they all want to ensure that customers are treated fairly and in a transparent manner.

Dealerships help determine regulation and affect how stringent they are based on how they treat customers and whether they adhere to the law. Part of the responsibilities of a dealer or insurance provider is to:

  1. Understand the rules, regulations, and guidelines;
  2. Adhere to them; and
  3. Take comprehensive action to address indiscretions.

Establishing guidelines and best practices holds all stakeholders to a certain standard and accountability, which makes them credible in the eyes of the customer. When customers don’t trust that their dealership has their best interests at heart, they will be unmotivated to buy the products they’re selling.

Financial Services Managers foster better relationships with their customers when they work within the regulations, allowing for better conversations. The Financial Services Manager then has an opportunity to educate the customer on all the products available to them and can speak to how the product can protect the customer and why it has value.

With regulation, the customer’s perspective can shift to understand that a government body regulates these products and protects their best interests. As a result, they will feel more confident purchasing and relying on the products they buy through the dealership, which can increase customer satisfaction and dealership profitability.

We recommend that compliance be a key component of a dealer’s operations. Financial Services Managers should be able to explain the products’ terms and conditions, including limitations and exclusions, and anything that may limit a customer’s ability to qualify for or claim insurance benefits.

Dealers can speak to their financial products provider about receiving regular compliance training, annual product knowledge, and market conduct testing to remain competitive.

Organizations like the Canadian Life & Health Insurance Association (CLHIA) offer guidelines that Financial Services Managers can use for industry best practices regarding transparency and disclosure. Ultimately, customers need to be provided with sufficient and clear product information to make an informed decision.

Today, dealers are uniquely positioned to be proactive about compliance. Dealers should reach out to their dealer associations, who work closely with provincial regulators, to clarify expectations and ask questions.

If two-way communication is established, feedback from dealers can be considered before regulators roll out changes allowing for smoother integration. The more knowledgeable a dealer is about compliance requirements and best practices, the better they will meet their customer’s expectations and strengthen their image as a reputable dealer.

Here are five things dealers can do today to align with industry compliance standards and be more customer friendly:

  1. Ensure your Financial Services Managers are up-to-date on their market conduct and compliance training and possess excellent product knowledge;
  2. Review turnovers and practice customer role-play scenarios to find areas of improvement to sell your products better and be more compliant;
  3. Create and implement a compliance checklist at your dealership to standardize your disclosure procedure;
  4. Ensure you have Errors & Omissions insurance; and
  5. Conduct a self or third-party audit. You can find software solutions to help monitor and review your deal files and customer interactions to ensure you stay within regulatory requirements.

Overall, if dealers make themselves aware of the evolving nature of the regulatory environment affecting the Financial Services office, and take proactive measures, such as those we have described, it will go a long way towards remaining compliant and operating their business with peace of mind.

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