In early July, the Canadian Council of Insurance Regulators (CCIR) published submissions from nine industry stakeholders who commented on the CCIR’s position paper which was released in May. For the most part, the paper was well received by the industry, although certain concerns were raisedThe position paper, produced by the CCIR’s Agencies Regulation Committee (ARC), effectively outlined a chain of accountability where insurers outsource aspects of their business to MGAs, and MGAs are accountable to insurance companies who, in turn answer to provincial regulators. It also made recommendations and discussed in detail, the oversight regulators will expect insurance companies to conduct. (See The Insurance and Investment Journal, May 2012).
During the course of the CCIR’s consultation process which first got underway with the release of an issues paper in February 2011, discussions have also pushed insurance company audits, and the contracts they have with different MGAs, into the foreground of regulatory consciousness.
“I think it was necessary,” Advocis president and CEO Greg Pollock told The Insurance and Investment Journal. “There were gaps as we moved from career agency distribution to MGA distribution. I think the intent of regulators there was spot on.”
Stakeholder submissions responding to the CCIR’s May position paper were similarly supportive, both in general, and about specific aspects as well.
The creation of a national database for reporting when agents are terminated or disciplined, for example, received strong support from many of those who submitted a response. That agents are often terminated without reasons being explained or reported to regulators, essentially allowing them to pick up with another MGA where they left off, has long been a source of frustration for some MGA executives.
Several stakeholder submissions, meanwhile, point to instances where case law and regulation already exists to address the CCIR’s concerns. Others outline existing efforts already underway in the industry which, they hope, will be taken into consideration or incorporated by the Agencies Regulation Committee when drafting the CCIR’s final position.
Perhaps in a last ditch effort to make the agent-MGA relationship clear for regulators, some submissions make a point of describing the arrangement.
Advocis reiterates one oft-repeated point that “no single entity – insurer or MGA – holds a complete view of the totality of business dealings of an agent.” HUB Financial, meanwhile, details the role MGAs currently play in advisor supervision: “Generally, the MGA is not present during the sales process between the representative and the client,” they write, adding later that any expectation MGAs should verify information with a client “should be squashed, or we may as well remove the broker from the process and make the sale ourselves.”
Although the notion is not discussed outright in the CCIR’s position papers, Advocis also discourages regulators from adopting the one-on-one supervision model used in mutual funds distribution – a thought indirectly echoed by the Independent Financial Brokers (IFB) association, as well.
Specifically, the IFB points out that market concentration or reduced competition could be one unintended consequence of the CCIR’s proposal. “It is not unforeseeable that insurers and MGAs will not want the responsibility for oversight of ‘occasional’ brokers and transactions,” they say, pointing out that retired and semi-retired professionals could be squeezed out of the business prematurely, along with those who seek out niche market products for difficult-to-insure clients.
The Canadian Life and Health Insurance Association (CLHIA) response, meanwhile, is one of the most detailed in describing initiatives already underway to address matters outlined in 2011, but also points out a few assumptions made by the CCIR paper, which may not hold up well in reality at the company level.
Specifically, the CCIR says insurance company boards of directors will ultimately be accountable for any MGA “strategy” being used in product distribution. It says the board “should receive periodic reports on whether it (the MGA strategy) continues to meet the insurer’s business objectives. At least annually, it should review each MGA to ascertain its ability to continue to deliver service in the manner expected.”
The CLHIA points out that, among other things, boards are expected to take an active role in the choice, review and approval of broad strategies, and have a general understanding about risks the institution might be exposed to. “The board needs to satisfy itself that senior management is carrying out these responsibilities but it does not ordinarily become directly involved at the level of detail that would be required to approve strategies for specific channels.”
Empire Life, meanwhile, says stakeholders must first agree on what an MGA is, exactly, as the CCIR’s position falls short in this respect. “Any expectation that regulation or industry standards could be applied equally to a one-person operation on the same basis as to a national MGA…would be misplaced.”
The company also asks for clarification about the CCIR’s assertion that some insurer-MGA contracts are too vague or generic. “Before looking at any changes to MGA contracts, insurers need to know the nature of the vagueness the CCIR refers to.” Similarly, Advocis calls the CCIR out, asking to review evidence for the ARC’s conclusion that consumers want additional reassurance about agent advice and possible conflicts of interest.
Finally, I.G. Insurance Services, a subsidiary of IGM Financial, says care should be taken to avoid subjecting National Accounts – often part of a larger financial planning organization with existing regulatory requirements governing the sale of other products – to a “potentially duplicative and possibly inconsistent set of rules” regarding agent supervision and other compliance efforts. “We believe that any such rules must recognize that National Accounts should be dealt with separately and distinctly.”
Since the CCIR drafted its first MGA issues paper, several efforts have been underway to address the concerns identified. The need for business process standardization being a recurring theme, the CLHIA has been particularly active in launching initiatives that address regulator concerns, including the Standardized MGA Compliance Review Survey (CRS), for use by insurers to confirm MGAs are carrying out compliance functions, along with a package of written policies, procedures and reference materials to assist MGAs in their response to insurers.
The association says it incorporates Guideline G8, Screening Agents for Suitability and Reporting Unsuitable Agents – the CCIR recommends this guideline be used to draft insurer-MGA contracts and other materials – and adapts it for use in the MGA channel.
“The CRS has the potential to be a driving force for a high degree of standardization within in the industry,” they write. In the short-term, they say it facilitates insurance company screening. “Over the long-term, by using a common language to describe and discuss industry practices, it will be easier to identify best practices.” Member companies have agreed to use the CRS with minimal modification.
Overall, there were no surprises during the process, says Canadian Association of Independent Life Brokerage Agencies president, Paul Brown. “There’s nothing that puts the MGA business at risk, per se, and I think most MGAs are prepared to adapt to the new reality. We’re just going to have to take a wait-and-see approach to determine how it ultimately affects us.”
After reviewing stakeholder submissions, the CCIR is expected to adopt recommendations concerning regulation of MGAs. Each province will then conduct a review to assess the situation in its own jurisdiction and determine what changes it will make to its regulations.