If they do not want to be considered an anomaly in today's regulatory environment, managing general agents must work together and speak with one voice to express their concerns. That is the conclusion a number of managing general agents reached when they met at The Insurance and Investment Convention held in Montreal in November.
Yves Gosselin, regional director at MedAxio, emphasized how important it is for MGAs to have legal status. He warns that, if agents leave legislators in the dark, they could end up with aberrations like Quebec's Act respecting the distribution of financial products and services (Bill 188). Mr. Gosselin pointed out to the audience that Quebec's legislation does not mention anything about managing general agents, even though they are a core component of the distribution network. He also stressed how important it is that various industry players be present during these discussions and clearly explain the role of each player
This call to action was made as the Agencies Regulation Committee (ARC) was preparing to publish a summary of the consultations it held last year concerning the MGA model of life insurance product distribution.
Mr. Gosselin is also the spokesperson for the Working Group on Quebec MGAs, which brings together 20 agencies and held its first official meeting in March 2011, following the ARC’s publication of the initial discussion paper. The purpose of this initiative is to ensure that the concerns and needs of Quebec's managing general agents are taken into account when the regulations are eventually overhauled.
Martin Luc Derome is a senior partner at Financial Horizons Group, an MGA that is part of the working group. He says that they were an unknown commodity when the ARC consultation first began. Now, Mr. Derome believes that it is a matter of time before MGA's status is generally recognized in Quebec’s legislation.
In a brief submitted to the ARC, The Canadian Association of Independent Life Brokerage Agencies (CAILBA) said that it also sees the merits of giving MGAs a specific category of license. The association believes that the existing program for licensing is not adequate given the types of duties performed by managing general agents. What's more, it points out that the licensing rules vary widely by jurisdiction and none recognizes the special nature of MGAs.
During the panel discussion, Bob Ferguson, executive director of CAILBA, called for a level playing field at the national level. "What we are trying to do with the Canadian Council of Insurance Regulators (CCIR) is harmonize rules between provinces, because the fact that they are different is frankly ridiculous," he said. He also mentioned in passing that Quebec is a leader when it comes to making legislative progress and change. "It is often where initiatives take shape."
Mr. Ferguson said that CAILBA is working with the CCIR, the Canadian Insurance Services Regulatory Organizations (CSIRO), and the provincial regulators to develop and possibly implement a set of rules for the independent distribution network. "The goal is to evolve a better governed system and finally recognize managing general agents in legislation."
For his part, the president of the Quebec Association of Independent Personal Financial Advisors (QAIPFA), René Auger, stressed the importance that advisors be involved in the process. "They can give legislators a good idea of how things are done on the ground before any decisions are made higher up. It is therefore imperative that an organization speak on their behalf. That is why the QAIPFA exists." Mr. Auger pointed out that ultimately it is financial advisors who are most aware of the needs of consumers since they are in direct contact with them.
The process to better support the independent distribution network is a long one, according to Mr. Ferguson. "We are working in a big industry. We have approximately 76,000 financial advisors who do business with leading insurance companies. Regulatory progress is slow and there are good reasons for this. It is a good thing, because we want to make sure we build a system that works. "
The question of quotas
Discussion panel participants reacted strongly when the question of quotas imposed on agents by MGAs was raised. First, Mr. Auger stated that "If we want to offer the product that fully meets the needs of a client, it doesn't make sense to have quotas and force distributors to reach a certain volume of business."
Mr. Derome went further: "It is clear that the quotas are still rising, and it's becoming a problem. We are only asking that they be reduced, but the influence we have is minimal compared to the major insurance companies. "
"I think we need the government to get rid of these famous quotas that are an embarrassment to our industry," commented Guy Duhaime, president of Groupe Financier Multi Courtage.
Bob Ferguson stated that CAILBA was relying on the standardization of contracts between insurers and general agents.
More compliance, more consolidation
Regulations are likely to increase over the next few years, and that will become costly for MGAs. To remain profitable in a highly competitive market, some MGAs may need to merge with a competitor.
According to Mr. Gosselin, the next wave of MGA consolidation will coincide with the establishment of formal compliance mechanisms. "This will create a lot of financial pressure on agencies that will have no choice but to join the trend," he said.
As for Mr. Derome, he believes that compliance rules must be implemented and enforced. "Today, we have more and more of it, but that's nothing compared to what's coming. So it is difficult to see how smaller MGAs will put them in place and especially how they will maintain and enforce them. "
Will increasing consolidation affect the work of insurance advisors? Having lived through the experience himself, Mr. Derome said he did not think that there will be an effect on advisors. "I do not think it's going to change things as much as the consolidation of insurers, for example. Because in that case, the consolidation results in a decrease in the number of products and less competition. In his opinion, in the next five to seven years, 85% of Canadian insurance distribution will be done through five to seven MGAs.
As for Mr. Ferguson, he sees parallels with the mutual fund industry. "Ten years ago, Canada had about 460 mutual fund dealers. Now, there are less than 200. Has this had an effect on anyone? Probably not. Maybe a little, but change is normal. As for managing general agents, there are probably about 300 to 350 in Canada. With consolidation this may decrease because insurers want to limit the number of contracts that they give, since they are not able to handle them well. Is that going to affect a financial advisor? I don't think so."
Knowing that the consolidation of managing general agents will continue, is there a risk that associate general agents could eventually disappear? No, says Mr. Gosselin. "An associate agent is a potential MGA. It's part of the responsibility of managing general agents. It is a tool that will keep the industry healthy. It must be kept alive, that 's obvious."
As for Mr. Derome, he is in favour of the survival of associate agents. "I've already fought with a company to have an associate agent, but they have never wanted to give one to me. There are companies who are against it and say that it does not work, but I think it's a question of free enterprise, and that if a broker wants to assemble a team of 15 or 20 brokers, that's fine."