Regulators struggle with MGA model

The Canadian Council of Insurance Regulators has released an “issues paper” on the managing general agencies model of insurance distribution, and is calling on the industry for input into how the market should be regulated.

In some ways, the release of the paper is an admission that regulators still don’t have much of a grasp on how insurance is sold in Canada. The paper outlines the regulators’ concerns over a wide range of issues, including the contracts between MGAs and carriers, and who is responsible for the advisor’s actions.

“I think they struggle with the fact that any former regulation had never contemplated the MGA channel,” says Paul Brown, president and CEO of Worldsource Insurance Network. “All of a sudden, they wake up one morning and say ‘Oh my God, most of the insurance in Canada is being sold through MGAs!’ I find that a little funny—that the regulators are asleep at the switch a little bit.”

While the channel has growth explosively over the past decade, the MGA model has been around in Canada for 30 years, he says.

The CCIR paper seems most concerned with who regulates the insurance advisor, and who is supervising the MGA. The paper points out the inconsistency of the contracts between an MGA and each insurer the MGA deals with.

“There’s no standardization there at all,” says Brown. “I can see where they’ll probably be going with the regulation of MGAs, with a lot of it being about standardization and clarifying who’s accountable for what.”

Brown says the CCIR seems to be “a little off the mark” on the sales process, as the MGA has little influence over the advice or the product that the advisor is providing, and no control over advisor access for insurer marketing teams.

“The MGA channel will have to make it clear to the regulator that we’re not the ones developing the products or software,” Brown says. “We’re not the ones sitting down with the advisors every two weeks trying to get them to sell certain products. That’s the insurance company and their wholesalers that do that.”

The end result of the consultation process could solve one of the more vexing problems MGAs have faced for years: advisors who deal with multiple MGAs.

“If the regulator says the MGA has to be effectively responsible for the activities of the advisor, then [the advisor] can only have one MGA,” Brown says. “How can an MGA be responsible for an advisor who’s doing business all over the map?

Under the status quo, independent agents are not accountable to the insurer or the MGA, leaving very little oversight.

“The real issue is the regulation of financial advice,” he says. “How do you take that and put it into the bailiwick of the MGA or the insurance company? I can’t control in any way what an advisor says to a client. The advisor has no requirement to disclose any of that to me. You can audit the transactions, but you can’t audit the advice.”

Click here to read the CCIR Issues Paper.