Tighter regulation for insurance?

Canada’s insurance regulators are considering closer oversight of the relationship between carriers and managing general agencies (MGA). While the industry has taken steps to govern itself, it may not be enough to stave off closer regulatory supervision.

The Agencies Regulation Committee (ARC) of the Canadian Council of Insurance Regulators (CCIR) has submitted a position paper for comment.

In the report, drawn from consultations with a variety of stakeholders, ARC outlined the following recommendations aimed at enhancing and harmonizing best practices in the MGA distribution channel.

Insurer-MGAs relationship

Insurers must put in place effective systems and controls governing their MGA agreements. The recommendation aims to promote harmonization of best practices in the governance and management of such agreements.

“ARC is pleased to note the voluntary initiatives that the industry is already taking in this direction with the development by the CLHIA of its standardized MGA Compliance Review Survey and by CAILBA of its Compliance Toolbox,” noted the position paper.

“Each jurisdiction will consider the steps that industry members take and will evaluate the circumstances in its own jurisdictions to determine what, if any, changes are necessary to implement the best practices.”

These changes, it added, may include industry initiatives, regulation or a combination of both approaches.

Agent supervision

Because an insurer has a duty of care to clients, they should ensure that agents selling its products are suitable, and report misconduct to regulators. This duty of care obligation is already recognized by law in some, but not all, jurisdictions.

Duty of care obligations are also contained in CLHIA Guideline G 8 – Screening Agents for Suitability and Reporting Unsuitable Agents. By incorporating these guidelines into contracts, MGAs will also be required to follow these standards.

“Following a period of transition to allow all industry participants to be in compliance, ARC recommends regulators conduct on-site examinations to make sure companies are adhering to Guideline G8,” the position paper says.

Product suitability

ARC recommends regular market conduct reviews by regulators to determine if insurers and their agents are providing consumers with adequate information to make informed decisions, and suitable product recommendations.

“Both insurance agents and insurers have an important role to ensure consumers are empowered to make informed decisions and are presented with products that are suitable to their needs,” the report said.

The objective, it said, is to understand and assess the processes agents use in making recommendations to consumers, and making sure these are effective taking into consideration the increasingly complex products in today’s insurance marketplace.

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.

“Regulators must have a clear understanding of who are those individuals or companies currently licensed as insurance agents in their jurisdiction; what is their business model and role in the distribution of life insurance products,” the paper says.

ARC is calling for comments from stakeholders to this position paper before finalizing its recommendations. It will then present them to CCIR for adoption.

Each jurisdiction will consider the recommendations and evaluate the circumstances in its own jurisdictions to determine what changes, if any, are necessary to implement them.

Read the CCIR Position Paper here.