A broker is approached by a high-net-worth client who wants to place their unique collector car insurance with an unlicensed US-based insurer because the rates are significantly lower. What is the broker's primary obligation?
A.
Place the coverage as requested to ensure the client is satisfied with the savings.
B.
Refuse the business because brokers are strictly prohibited from dealing with unlicensed insurers.
C.
Advise the client of the risks, obtain a signed "Unlicensed Insurer" disclosure, and ensure no licensed market is available.
D.
Tell the client to contact the US insurer directly so the broker can avoid any legal responsibility.
This question tests the broker's understanding of Legal and Regulatory Compliance regarding Unlicensed Insurers, as outlined in Ontario Regulation 991, Section 10. While the primary duty of a broker is to place business with insurers licensed in Ontario, there are specific, narrow circumstances where an unlicensed insurer can be used.
Under the RIBO Level 1 Blueprint, a broker must demonstrate the "Integrity, Ethics, and Trust" needed to handle such high-risk transactions. The broker must first conduct a "market search" to prove that no licensed insurer in Ontario is willing to take the risk. If an unlicensed insurer is the only option, the broker must provide a mandatory written disclosure to the client. This disclosure must warn the client that:
The insurer is not regulated by Ontario authorities.
There is no "compensation fund" (like PACICC) if the insurer goes bankrupt.
Legal action against the insurer may have to be pursued in a foreign jurisdiction.
The broker must obtain a signed acknowledgment from the client before binding the coverage. Choosing Option A (ignoring the rules for savings) or Option D (avoiding responsibility) constitutes professional misconduct. Option B is incorrect because the lawdoesallow it if the proper disclosures and "due diligence" are performed. The RIBO Competency Profile emphasizes that brokers must be transparent about the "suitability" of products. By following the disclosure process, the broker protects the client's right to choose while shielding the brokerage from an Errors and Omissions (E&O) claim if the foreign insurer fails to pay a claim. This situation requires high-level Critical and Analytical Thinking to balance the client's needs with strict provincial regulations.
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