Universal life shouldn’t be universally recommended, regulator says

With stricter managing general agent (MGA) regulation recommended for Ontario because of concerns about insurance sales practices, one large lifeco suggests MGA relationships need beefed-up fair-treatment-of-customer (FTC) principles.

On Sept. 28, the Financial Services Regulatory Authority of Ontario (FSRA), along with the Canadian Council of Insurance Regulators (CCIR), released a joint review of three MGAs’ individual life and health businesses.

One of those reviewed MGAs was selling universal life policies to some consumers who “did not have particularly high levels of wealth,” said Huston Loke, FSRA’s executive vice-president of market conduct regulation, on Tuesday during a panel on reforms in the life and health sector. The panel was part of the annual Advocis Regulatory Affairs Symposium, held in Toronto.

Agents selling “complex” coverages, such as universal life, should be trained to ensure such products are sold based on client need, FSRA and CCIR said in their review, the results of which prompted FSRA to plan for consultations in 2023 on a draft proposal to expand MGA regulation.

Universal life is a “good product” and “makes sense for a lot of customers,” Loke said during the Advocis panel, but if it’s being sold to a large portion of an MGA’s customers, FSRA starts to question whether the sales incentives are “aligned with the needs of the customers” and whether a needs analysis has been done. Loke added that in the joint review, FSRA saw a focus on products that “surprised us, given the economic situation of the clients.”

For its part, Canada Life has a compensation review committee that “ensures that the incentives and compensation we build into the sale takes into consideration critical FTC principles,” said Ali Ghiassi, vice-president of industry affairs and government relations with Canada Life, during the panel. He added that in 2020, Canada Life re-drafted its MGA contracts, embedding FTC principles, including initial screening of advisors.

“We see this as something that will need to be enhanced as we move forward,” Ghiassi said.

“Why do we have MGAs?” Loke asked. “I believe it’s because if it’s done properly, an MGA means that a customer is likely to get product they need — more choice, they can shop around and they can get good service.”

Advisor’s Edge and sister publication Investment Executive were media sponsors of the Advocis Regulatory Affairs Symposium.