Thank you, Mr. Chairman. I am Frank Zinatelli, vice-president and general counsel of the Canadian Life and Health Insurance Association Inc.
I would like to thank the committee very much for this opportunity to contribute to your review of part 4 of Bill C-38, An Act to implement certain provisions of the budget tabled in Parliament on March 29, 2012 and other measures. With your permission, Mr. Chairman, I would like to make some very short introductory comments.
The Canadian Life and Health Insurance Association represents life and health insurance companies, accounting for 99% of the life and health insurance in force across Canada. The Canadian life and health insurance industry provides products, which include individual and group life insurance; disability insurance; supplementary health insurance; individual and group annuities, including RRSPs, RRIFs, TFSAs, and pensions. The industry protects more than 26 million Canadians and over 45 million people internationally. The industry makes benefit payments of $64 billion a year to Canadians. It has almost $514 billion invested in Canada's economy, and it provides employment to nearly 135,000 Canadians. Finally, life and health insurers are regulated at the federal level under the Insurance Companies Act, and are also subject to the rules and regulations that are set out in provincial Insurance acts.
Mr. Chairman, we welcome this opportunity to appear before the committee as you seek to develop your report to Parliament. The industry is very supportive of some of the divisions contained in the bill. Let me comment briefly on two of these.
First, division 22 of part 4 would amend part III of the Canada Labour Code to require federally regulated private sector employers that provide benefits to their employees under long-term disability plans to insure those plans, subject to certain exceptions. This would require employers who have uninsured long-term disability plans to insure those plans so that in the case of bankruptcy, employees who are on long-term disability at the time of the bankruptcy will continue to receive those benefits as long as they are disabled.
The Canadian life and health insurance industry is very supportive of this legislative initiative. We believe it is critically important to ensure that employees on long-term disability are protected in the event of a plan sponsor's financial stress or insolvency. History has shown that when an employer becomes insolvent and its LTD plan is uninsured, disabled employees can sometimes lose benefits. We have had three examples of this happening in the last three decades.
Currently in Canada there is little regulation of uninsured LTD plans. There is no requirement that employers set aside adequate reserves to cover future liabilities arising from these plans. If reserves are set aside, there is no restriction on how those funds are invested. There is also no obligation to keep funds in trust to protect them from creditors. As a result, there are no protections in place to ensure that there are adequate funds available to support ongoing LTD claims in the event of an employer's bankruptcy.
Requiring that LTD plans be offered on an insured basis will provide the maximum protection for disabled employees, and will ensure that they are paid, regardless of their plan sponsor's financial situation. We believe this is the best route to address the protection of those on LTD. With insured plans, the risk and financial liabilities for providing the LTD benefits are transferred to the insurer. The insurer's responsibility with respect to disability benefits continues even when the plan sponsor experiences financial difficulties, or after the plan is terminated. Indeed, after a plan sponsor's bankruptcy, the insurer will continue benefits for disabilities that began while the group policy was in force.
In order to protect those on LTD, it is crucial that there be funds available to support all ongoing disability liabilities, even if the employer is bankrupt. We believe that the legislative initiative set out in division 22 of part 4 would be effective in achieving the public policy objective of fully protecting individuals on LTD.
As an industry we are making representations to provincial governments recommending that they make equivalent changes.
I will now turn briefly to one other matter. We note that division 2 of part 4 would amend the Trust and Loan Companies Act, the Bank Act, and the Cooperative Credit Associations Act to prohibit the issuance of life annuity-like products. The provisions of the current legislation indicating that only life insurance companies can provide life annuities are relatively clear, and I see this as a technical amendment that will be helpful in reinforcing the rules and the policy objectives already in place.
The industry greatly appreciates this opportunity to participate in the committee's review of part 4 of Bill C-38. I would be pleased to answer any questions you may have.
Thank you, Chairman.