Regulators look at MGAs distribution channel in life insurance industry
Canada’s insurance regulators are looking at the relationship between life insurance carriers and managing general agencies (MGAs).
The Agencies Regulation Committee (ARC) of the Canadian Council of Insurance Regulators (CCIR) has submitted a position paper for comment.
CCIR is reviewing the regulation of managing general agencies, wholesale agencies, wholesale brokers and third-party administrators. The Committee says it will consider risks to consumers and any legislative and regulatory issues arising from the existing and potential uses of electronic commerce.
CCIRS says over the past two decades, the distribution of life insurance has changed dramatically including significant shift away from the traditional career agency model to MGA and AGA distribution models. Canadian insurance regulators, being concerned that current licensing and regulatory regimes were not developed with the type of delivery mechanism these entities represent in mind, set up ARC, with participation from members of the Canadian Insurance Services Regulatory Organization (CISRO), to identify and address risks to consumers and legislative and regulatory issues that may be arising from the activities of these entities.
A 2010 Globe and Mail study found that at least 44 percent of new life insurance policies sold in Canada went through MGAs.
If, after public consultations, CCIR agrees that significant issues exist, the Committee will develop recommendations for regulatory changes. The committee will have representation from both CCIR and CISRO, as licensing issues may be involved.
The position paper, entitled The Managing General Agencies (MGAs) Distribution Channel in the Life Insurance Industry, is the second paper from the ARC and intends to “enhance and harmonize best practices in the MGA distribution channel.”
The paper looks at six topics, namely:
- Functions Outsourced to MGAs
- Supervision of Representatives
- Managing Conflict of Interest Principles
- Role of MGAs in Sales Transactions and Handling of Consumer Complaints
- Compliance with Privacy Legislation
- Who is watching over MGAs?
The initial consultation found that there was a consensus that certain functions, including product development (although MGAs may collaborate with the insurer), claims handling, and underwriting are not currently, and should not in the future be, outsourced to MGAs. The general view is that these core insurer functions should never be delegated to MGAs as this could result in conflicts of interest and unequal treatment of customers. Respondents generally did not think that the involvement of an MGA inherently created any additional conflict of interest between a client or agent.
“It was recognized by stakeholders that commissions paid to MGAs by the insurer are not currently disclosed to consumers. However, this consultation process did not result in evidence that such disclosure would add to consumer protection,” says the paper.
In all, in the CCIR paper, the ARC recognizes that jurisdictional differences may exist and provinces may implement its recommendations in conjunction with other measures that reflect a host of other issues. Among the ARC recommendations:
On insurer relationship with MGAs: Insurers must have in place effective systems and controls whenever the use the services of an MGA
On agent supervision: Insurers should incorporate the principles in CLHIA Guideline G8 ‐ Screening Agents for Suitability and Reporting Unsuitable Agents into all of their business across Canada, including any contracts involving the outsourcing of these functions to an MGA
On product suitability: Regular market conduct reviews should be undertaken by regulators to determine if insurers and their agents are providing consumers with adequate information to make informed decisions, and suitable product recommendations
On information needs of regulators: Regulators will develop options and an action plan to make sure that adequate information on life agents and MGAs is obtained in a timely manner
CCIR cannot enforce its recommendations; it will be up to each jurisdiction to decide whether it wants to enact new policies or legislation.
The full position paper is available here. (PDF) CCIR will be accepting comments until June 30, 2012. Electronic submissions would be preferred. Please note that CCIR intends to publicly release all submissions received pursuant to this consultation process by posting them on the CCIR web site. All submissions should be forwarded to the CCIR Secretariat e‐mail: ccir‐ccrra@fsco.gov.on.ca
