MGAs speak out on regulation

Canada’s insurance industry isn’t shrinking from the proposal for a closer regulatory oversight. But key stakeholders say lots remains to be done to fulfil the regulators’ mandate.

“CAILBA and the MGA community at large will have to work diligently to ensure that their contractual obligations to insurers fairly reflect the objectives of regulators,” says Paul Brown, chairman and CEO of IDC Worldsource Insurance Network and the president of CAILBA. “And at the same time providing a framework within which the MGA can continue to operate with relative independence and with a compliance regime that makes sense.”

The proposal indicates the insurer is ultimately responsible to the consumer, regardless of the distribution system that’s employed.

“The selection, supervision and oversight of MGAs will be the responsibility of the insurance companies,” says Brown. “It is certainly clear that the MGA system itself does not present a risk to the consumer from the regulator’s perspective. In fact, it provides flexibility and choice which is in the consumer’s best interest.”

Some MGAs, he added, may be relieved to find they’re potentially not directly responsible to the consumer for product suitability or advisor supervision.

The Canadian Council of Insurance Regulators (CCIR) has done an excellent job of identifying the issues managing general agencies face, says Terri DiFlorio, president of HUB Financial.

“I was particularly pleased to see that they have embraced the idea of a national database that would assist MGAs in screening and selecting brokers,” she adds.

Byren Innes, senior vice-president and director of NewLink Group consultancy, says it is a logical and straightforward approach to cleaning up roles and responsibilities of insurers, distributors and advisors.

“I was expecting this [and] was pleased to see it; it was fascinating that [although] there were references to carrier agencies, this kind of stuff also applies to any distribution channels, not just MGAs,” said Innes. “It’s a good step and I don’t see a lot of backlash against it.”

However, he said there may be some resistance to ARC’s recommendation with regards to oversight of advisors dealing with multiple MGAs, which happens to be at odds with the Canadian Association of Independent Brokerage Agencies’ (CAILBA) position.

“One of the questions was when you have multiple places where [advisors] can do business, who is responsible for [them]; and the answer in this document is the person responsible for you is the person you write the business for,” said Innes. “That won’t make CAILBA happy because CAILBA’s position was that the agent is the person primarily responsible for product suitability.”

Accountability to consumers for the actions of rogue or negligent agents has long been a hot-button issue and is expect to continue to create some friction between the industry and its regulators.

MGA licensing was another issue that raised some eyebrows. “I was surprised that they have not supported the idea of MGA licensing,” said DiFlorio. “I thought they would go in that direction.

Innes says MGA licensing is only a means to an end. “The MGA itself is an outsourced agency; they processes business, they train people and do certain functions for the insurance company,” he said. “They don’t sell insurance per se, so they don’t fall into the licensing regime. But if the owners of the agency decide to sell life insurance then by all means they need to be licensed.”

All in all, most industry participants agree that the industry is well positioned to embrace the evolution of the compliance regime and thrive in this environment.