Insurance carriers and managing general agents (MGAs) have to work together to better know their clients – in this case, independent advisors – through better supervision, training and monitoring, to ensure the public is protected from the few bad apples that crop up.
Insurance company executives told the annual meeting of the Canadian Association of Independent Life Brokerage Agencies (CAILBA) in Toronto earlier this year that ongoing regulations, especially recommendations from the Canadian Council of Insurance Regulators (CCIR), make compliance an everyday concern at all companies and this has to filter down to MGAs first, and from there, down to independent advisors.
On the positive side, MGAs are becoming more receptive to the compliance work that insurance companies are doing, said Phil Marsillo, senior vice president of distribution with Canada Life. This includes insurers developing more self-assessment tools and providing training sessions for MGAs and advisors. At the same time, CAILBA has created its own compliance toolbox specifically for MGAs.
Rick Forchuk, special advisor, retail insurance distribution with Empire Life, said MGAs should think about annual reviews with advisors to see if they are aware of compliance practices and how they follow through with them.
“Companies do regular reviews with MGAs, advisors do regular reviews with clients,” Forchuk said. “I think MGAs should have some kind of process, if they don’t already, perhaps an annual review with their advisors just to find out the snapshot of what each one is doing, what their view is on compliance, what their view is on education.”
He said some MGAs have never met their advisors, but need a face-to-face meeting with them to document what was discussed and determine if anyone is falling through the cracks.
“You can have a barrel of apples that are all good, but then an apple starts to go bad – so that’s where the knowing your advisor situation comes in.”
Marsillo suggested that MGAs use their front end to find any unusual selling practices and nip any problems in the bud.
Insurers are more active now in monitoring MGAs than they have been, looking for trends in how compliance procedures are followed, said Dennis Craig, vice-president, MGA & national account relationships at RBC Insurance.
This way, said Craig, if RBC notices the same thing happening a few times in the same quarter, it can follow up with the MGA.
MGAs should learn more about their advisors from the time they contract with them, said Marsillo. He suggested they find out not just how much business they expect to do together but the advisor’s views on being a member of Advocis and how they collect their CE credits, for example.
Since everyone in the industry is looking to protect the public, there should really be a partnership among MGAs, carriers, advisors and regulators, said Michael Dawe, senior vice president, individual insurance with Equitable Life of Canada.
Dawe said insurance carriers should perhaps be a little more hands-on in producing quarterly reports and taking them back to MGAs for discussion on sales and kinds of products.
“As an industry, we have to be more proactive with the types of processes that are out there,” said Dawe. “I think that for us, as carriers, we have to take responsibility because the [client’s] contract is with the carrier. We have to help the MGAs and get to know each of your advisors.”
At a separate panel discussion at the conference, Christopher Marrese, chief compliance officer with Equitable Life, said the CCIR paper on MGA oversight and compliance identified best practices for the industry. But that doesn’t mean that all insurers and MGAs have those best practices in place.
“Because of that, the CLHIA has been working diligently to try to create a guidance document with the purpose being to take the CCIR best practices and put it into language everyone can understand,” said Mr.Marrese. “We don’t want the CCIR to create regulations in a very prescriptive manner but to allow us to take a risk-based approach for developing what’s right for our industry and the operations of our partners.”
Meanwhile, new statistics released at the CAILBA meeting by LIMRA indicate the proportion of Canadian households that said they owned individual life insurance slipped to 43 per cent in April from 55 per cent in 2006.
At the same time, said Robert Baranoff, senior vice president, member benefits, LIMRA, some 45 per cent of Canadian households said someone in their household needs more life insurance.
The new 2013 data also indicate that 65 per cent of people questioned said that if the primary breadwinner in the household died, they would be in dire straits: 33% said they would immediately have trouble meeting everyday living expenses and 32% could only meet those expenses for several months.
Even though there are an increasing number of people who go online to find information about life insurance, Baranoff said three-quarters still want to buy face-to-face. Even among the 25-34-year-old age group, 69% said they want to buy face-to-face.
Face-to-face meetings allow people to sense whether they trust the individual from whom they are buying their insurance, he said. If trusted, he said previous studies have shown that 76% bought the insurance. Even if they didn’t trust the advisor, they still bought 36% of the time.
“The best way to determine if an advisor is trustworthy is when you look them in the eye and you can’t do that over the phone,” said Baranoff. “But if you can’t sell someone on your trustworthiness on the very first time you meet, it’s almost impossible after that.”
A survey conducted by the Million Dollar Round Table (MDRT) found that 85% of consumers find it significantly more difficult to trust advisors today than it was five years ago.
Baranoff said when LIMRA asked a group of Canadian MGAs what proportion of advisors they would trust to manage their own parents’ life savings, they responded with only 10%-25%. “If MGAs only trust 10%-25% of the advisors out there, what are John or Jane Q. Public’s chances of getting one of those people? That’s really scary.”
The customer remains king, but with life insurance advisors in Canada aging and their numbers dwindling, insurance companies are rejigging their idea as to who is their customer: the advisor or the end client? “Increasingly, insurers are thinking the end customer because long term, they are not sure how long they will be able to depend on just face-to-face distribution.”
Add on regulatory uncertainty and increasing costs in technology and MGAs are caught in a revenue squeeze. As a result, some MGAs will try to expand through economies of scale, some will diversify into new product lines, while others will aggressively merge, he said.
Still, Baranoff had some hopeful news for today’s advisor: “I think in the foreseeable future, face-to-face has a well solidified place in distribution. I don’t think you have to worry about the next five years. My prediction today is that carriers are so dependent on you today that that’s not going to away real fast – it might over time, but it’s going to be a long time.”