Low profitability is one of the reasons that managing general agents (MGAs) are forced to close up shop. Some say that several firms have reduced their flexibility by offering advisors overrides that are too high.
"Insurers should step up rather than leaving it to small MGAs to hand over all of their bonuses in order to attract advisors and manage to meet their supplier's volume requirements," commented Christian Laroche, CEO of Pro Vie Insurance in interview with The Insurance and Investment Journal.
Laroche thinks the insurance companies will have to sort things out. "Insurers must look at the structure of the MGAs they deal with. Some have a minimal profit margin because they give all of their bonuses to advisors. We can not allow this. It is a situation that destroys firms."
"MGAs will often concentrate their production with one, two, or three suppliers," explains Pro Vie’s CEO. "This way they can receive compensation that will allow them to pay a higher override to advisors. It is deplorable to have to fight against these practices, ones which cause us to lose good advisors to these MGAs. Insurers should make sure that they are applying stricter rules. "
"Unable to adequately supervise their advisors"
"MGAs that act in this way reduce their structure to the point that they are unable to adequately supervise their advisors and ensure compliance," argues Laroche. "Everybody loses here, including the insurer."
"MGAs that offer too high of an override get stuck," adds Robert Frances, the CEO of PEAK Financial Group. "Their profit margin is under pressure with increased compliance measures and new regulations such as the CRM2 disclosure that is now required for mutual funds fees," he said.
He suggests that things will only become more difficult. "It also remains to be seen what kind of disclosure regulations will apply to segregated funds, and sales contests for life insurance, for example," says Frances. He believes people in both mutual funds and insurance are concerned by the disclosure and transparency requirements that are becoming the norm in the industry. In his opinion, the contracts between MGAs and insurers are bound to change and should better reflect this reality. "Overrides are established confidentially by contract with the insurer. They are not uniform. If regulators stick their noses in there, that could change," he predicts.
"There is no more room"
David Benamron is the sales director for life insurance and living benefits at MSA Financial. He notes that, on average, bonuses range between 140% and 160% of first year life insurance premiums. "When I started in the industry more than 15 years ago, the average bonus was around 100%. There is no more room."
Benamron argues that MGAs must provide more resources and support to retain advisors. "If you attract an advisor with bonuses, he will eventually leave for someone who offers more."
Michel Kirouac, VP and General Manager of Groupe Cloutier, also notes that MGAs are trying to buy volume in order to earn bigger bonuses from insurers. In order to get there, they will pay their advisors more.
"They are not providing service. They are only offering money. To survive, there has to be a balance between the two. By paying more, you might get a bigger bonus in one year with an insurer, but you will lose your credibility as an MGA. You'll also attract the kind of advisor who will leave for money. Is this really the kind of advisor we want to have?" he asks.