Issues paper raises concerns over possible regulatory gaps
On Feb. 10, regulators released an issues paper on Managing General Agencies which outlined a number of concerns and invited industry stakeholders to provide feedback on a list of questions primarily related to the roles and responsibilities of MGAs and insurers.
The 23-page issues paper entitled Managing General Agencies, Life Insurance Distribution Model is the result of two years of consultation by the Agencies Regulation Committee (ARC) of the Canadian Council of Insurance Regulators.
In an interview with The Insurance and Investment Journal, Doug McLean, executive director of B.C.’s Financial Institutions Commission and chair of the ARC group, said the main theme of the paper is the lack of clarity around insurers’ responsibilities with respect to their business carried out through the MGA channel. “From what we’ve observed, there seems to be a lack of defining roles and responsibilities.” This leads to the question, “Does an insurance company have responsibility for the sale of its product through the whole distribution channel and whether the insurance company has the necessary controls to do so?”
The paper states that the insurance industry’s transition from the career agency to the MGA model “may have created a number of risk to consumers and gaps in regulatory regimes.”
Mr. McLean says ARC is looking for feedback from working in this channel and consumers.
ARC is requesting input on the following themes: functions outsourced to MGAs; supervision of representatives; managing conflicts of interest – Industry Practices Review Committee principles; the role of MGAs in sales transactions and handling consumer complaints; compliance with privacy legislation and who is watching MGAs?
Under the theme of “Who is watching over MGAs”, the issues paper suggests that insurers may not be adequately supervising MGAs to whom they have delegated various responsibilities as they’ve moved away from the career agency model. It also raises the point that there is no specific licensing category for MGAs. Since there are no accepted minimum standards related to MGAs’ performance of their functions, “ARC is concerned that there may be inconsistencies in how MGAs operate and that there may be no clear lines of accountability.”
The paper also states that once the issues it has raised are clarified, “ARC will be in a better position to determine if the changes to the life insurance industry resulting from the growth of the MGA distribution model are significant enough that the regulatory framework must change…”
Peter Lamarche, president of CAILBA, an MGA association and president of Blonde & Little Financial Services said, “CAILBA is as pleased with the content of the issue paper as it has been with the entire collaborative industry/regulator process leading up to this point. We will now begin the process of formulating our response to the statements and questions posed in the ARC Issue Paper; we will be soliciting input from our members to ensure that CAILBA’s response is a true consensus of our members.”
Mr. McLean said the advice received by stakeholders will be compiled for review by insurance superintendents before their summer conference call. Then they will decide whether there are significant issues that need regulatory attention. If so, they will proceed with a position paper.
ARC’s issues paper on MGAs is available on CCIR’s website at www.ccir-ccrra.org/ (http://www NULL.ccir-ccrra NULL.org/). Submissions can be forwarded by April 8 to ccir-ccrra@fsco.gov.on.ca (ccir-ccrra null@null fsco NULL.gov NULL.on NULL.ca).
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