British Columbia’s Financial Institutions Commission (FICOM) is preparing to issue guidance for insurers outlining its expectations of the systems and controls they should have in place when working with managing general agencies.
During an interview on Nov. 2, Harry James, FICOM’s director, policy initiatives, told The Insurance and Investment Journal that this guidance will be released “fairly shortly” and stems from the recommendations made in a position paper adopted in September by the Canadian Council of Insurance Regulators (CCIR) concerning the MGA channel.
Mr. James says he believes that other provincial regulators are also planning action as they follow up with the recommendations of this paper which was first released for comment in May 2012 under the name The Managing General Agencies (MGAs) Distribution Channel in the Life Insurance Industry. After a period of feedback, it was accepted by the CCIR without amendment, except that it was given a new name Strengthening the Life MGA Distribution Channel. This paper was released publicly on the CCIR’s website Nov. 6.
The appendix of the position paper gives examples of regulatory expectations. The paper states that these controls and systems would incorporate four core principles: a clear strategy for selecting, appointing and managing MGA arrangements; thorough due diligence of each MGA prior entering into the arrangement; well defined roles and responsibilities with a written agreement in place and, lastly, active oversight. This means that an insurer proactively manages MGA contracts once in place to ensure compliance with contract conditions.
FICOM which regulates insurers will work in conjunction with the Insurance Council of British Columbia on its guidance initiative. The Council will provide guidance to the MGAs.
From 12 to 18 months after the issuance of its guidance, FICOM may undertake random, on-site reviews to evaluate insurers’ systems and controls over MGAs.
These “market conduct assessments” would be targeted to find out what insurers have done to implement better oversight and controls, says Mr. James.
This fall, Mr. James, took over the role of chair of the CCIR’s Agencies Regulation Committee (ARC) which drafted the position paper. Doug McLean, B.C.’s deputy superintendent of Financial Institutions has stepped down from this role to take on other roles within the CCIR.
The ARC committee is made up of representatives from five jurisdictions, as well as from the Canadian Insurance Services Regulatory Organizations (CISRO). The jurisdictions represented on the ARC committee are: B.C., Alberta, Manitoba, Ontario and Quebec.
When it posted the adopted position paper on its website in November, the CCIR also included a letter to stakeholders which stated that “the CCIR hopes and expects that the industry will adopt the best practices outlined in this paper. This may be done voluntarily through industry guidelines and codes of practice.”
Mr. James says that throughout ARC’s review of the MGA channel, there has been a “high degree of cooperation and collaboration from the industry.” He also believes that the industry is already integrating the position paper’s recommendations. “I believe the industry has embraced those positions and is actively taking steps to improve their business practices.”
Mr. James adds that one of the functions of the ARC committee is to follow up with other jurisdictions to see what actions they are taking, but it is up to the individual jurisdictions to determine what action they wish to take based on their own needs.
The ARC committee is now gearing up to review the role and functions of Third Party Administrators (TPAs) in the industry.