Managing General Agencies are a bit of an industry anomaly in that they’ve never really been subject to regulation specifically geared toward them, until now.
Although there have been several attempts on the part of national organizations to draft guidelines or advice, most of these are still hung up in discussion and debate with stakeholders. Given that insurance regulation is a provincial responsibility, however, the Insurance Council of British Columbia decided it was past time to give MGAs a clear outline of the regulator’s expectations.
“We waited to see how the CCIR (Canadian Council of Insurance Regulators) paper went, but because of a number of events, including a few issues in our jurisdiction, and because MGAs were looking for clarification, we felt it was time to publish the work we had done,” says Gerry Matier, ICBC executive director. “We think it will be complimentary to whatever comes out of the CCIR.”
The six-page notice, released in January, discusses and recognizes the duty MGAs have to the insurers they’re under contract with. It puts new onus on the companies to know about an agent’s abilities and background, and it spells out the duty life agents have to MGAs and insurers as well.
Although some provisions are somewhat obvious – that MGAs need to carry adequate errors and omissions insurance, or that they need to have any vague contract details or anomalies clarified in writing – other provisions will undoubtedly be welcomed by executives and compliance staff.
Notably, the Council draws a line in the sand, clearly stipulating that a number of insurance company responsibilities such as underwriting, policy issuance or claims cannot be “pushed down” to the MGA level.
Although such duties are not in dispute at the moment, Mr. Matier points out that responsibilities can evolve quite dramatically over time. “At some point MGAs may become involved in the claims process; it’s not unreasonable to believe that could happen,” he says. “If, down the road these things start to come up, we want to be on the record saying these are the duties of the insurer and they should remain there.”
New “know your agent” rules, meanwhile, address known problems in the industry where sub-par brokers are sometimes cut loose by their MGA. Oftentimes, lack of production is cited as a reason for the agent’s termination, when, in reality, the known problem is a larger question of competency or weak ethics.
“The fact that somebody has done something wrong doesn’t mean they’re going lose their career,” says Mr. Matier. “But if they have knowledge problems, competency problems or ethical problems, whatever it is, we shouldn’t be hiding from them, we should identifying them. What are the issues and how do we deal with it? How do we make sure it doesn’t happen again and how do we make sure the next consumer doesn’t get hurt by the same problems?”
In these cases traditionally, MGAs reported problem cases to insurers who in turn decided whether or not to report the problem to regulators.
“We wanted to be very clear. We think the MGAs are in an excellent position to identify issues if they do see them, and we feel they should be responsible enough to bring those to our attention.”
In the past, he says enforcement staff have encountered situations where the MGA involved could have assisted in identifying the problem before it had a chance to escalate. “I’m not saying these things would not have occurred, but they might have been identified sooner,” he says, adding that such reporting can take place formally or informally. “I’m prepared to take a phone call from an MGA on the side, saying we can’t put our finger on it, but we think this person might benefit from an inspection.”
In addition to these provisions, the notice acknowledges that an MGA’s primary duty is to the insurer, thanks to the contractual nature of the relationship. It addresses situations where an MGA might be engaged in retail sales activity by soliciting the public directly or by servicing existing business. In these cases, it says the far more stringent know your client rules that apply to retail agents will apply to the MGA as well. (Not normally the case when the business is simply acting as an intermediary.)
The notice states that, although MGAs are required to carry out all of the responsibility outlined in their contracts, failure on the part of an MGA to meet a contractual obligation “is not a valid reason for an insurer to not address a policyholder’s complaint.” It continues, saying “insurers are ultimately responsible for all of the functions contracted to and completed by MGAs.”
Failure to conduct appropriate life agent background checks, meanwhile, will be enough to call an MGA’s suitability into question – MGAs must be satisfied that business being submitted is consistent with their understanding of the life agent’s knowledge, experience, abilities and business history. Those who fail to properly review transactions outside of an agent’s skills or abilities could face disciplinary action.
Finally, the notice says life agents also have an obligation to honour their contracts as well – attempting to bypass the MGA for whatever reason, could bring an agent’s abilities and suitability into question.
“Although this paper discusses MGA distribution, I think it’s probably even more important for independent advisors to have a look at the document and read between the lines about what their responsibilities are,” says Paul Brown, CAILBA (Canadian Association of Independent Life Brokerage Agencies) and president and CEO of the IDC Worldsource Insurance Network, adding that he welcomes the paper and the clarity it brings.
As for the more obvious provisions outlined, Mr. Matier says some were included in response to circumstances in some cases or simply for the sake of clarity in others. “It’s kind of hard to hold somebody accountable when you don’t tell them what it is they should be doing,” he says.