There’s one theme that takes the spotlight in the comments on the Canadian Council of Insurance Regulators’ issues paper on managing general agencies. Stakeholders — insurers, MGAs themselves and agents — are calling for both more clarity in what an MGA is and some form of regulation of their operations. MGAs are the only entities in the independent distribution channel that are still unregulated.

As Kingston, Ont.-based Em-pire Life Insurance Co. ’s comment notes: “There is a lack of specific rules about what an MGA does or is … Some MGAs are little more than a conduit through which business is submitted to the insurer, while others do extensive agent training [and] have sophisticated client process.”

Similar sentiments echo through the 22 submissions made to the CCIR in response to its February issues paper entitled Managing General Agencies Life Insurance Distribution Model. The CCIR asked stakeholders to answer 26 questions that pertained to issues in the sector — for example, the role and responsibilities of MGAs, the supervision issues concerning free agents that use multiple MGAs to process business and the channel’s ability to prevent and report misconduct.

The CCIR’s decision to review the MGA distribution channel is a result of the channel’s rapid and unruly growth over the past few decades. In the 1970s, insurance products were sold mainly by career agents who worked directly for insurers and sold only their employers’ products. As career agents began leaving insurers to set up their own shops and sell the products of multiple insurers, MGAs popped up as intermediaries to process that business.

As the majority of product distribution in the insurance sector shifted to the independent channel in the 1990s, MGAs evolved into much more than contract administrators. Insurers began outsourcing tasks such as complaints-handling and training to MGAs — and MGAs created their own subagencies to handle different parts of that business.

However, not all MGAs have evolved in the same fashion. As a result, a central focus of the CCIR’s review is to define what an MGA actually is. Toronto-based Canadian Life and Health Insurance Association Inc. ’s submission points out that without a standard definition of an MGA: “It’s not always clear who is responsible for what.”

For example, if an agent leaves the sector, his or her clients are left without a primary contact. The client may contact the insurer to which he or she pays premiums, and the insurer may direct queries back to the MGA. To what extent is the MGA responsible for communicating with the consumer in such a case?

Or, asks Lawrence Geller, president of Campbellville, Ont.-based L.I. Geller Insurance Agencies Ltd. , is client communication the insurer’s responsibility? “What I’m reading in these papers from stakeholders is that if MGAs are not insurers, and they are not agents but they are licensed as though they are agents, does that mean they have some responsibility to consumers?”

The CCIR paper defines an MGA as an “individual, partnership or corporation that holds at least one direct brokerage contract with a life insurance company registered to do business in Canada.”@page_break@Many of those commenting on the paper have said that definition is too broad; one way to reconcile the broad definition with the varying types of MGAs is to establish a special licensing category for MGAs, outside of the licensing requirements for agents.

This would be a way to set the base standard for what constitutes an MGA, according to the submission from Woodbridge, Ont.-based Hub Financial Inc. : “Insurance compliance is evolving without a standardized approach. [We are] supportive of imposing criteria for qualifications of an MGA, and regulators should monitor the MGA licence qualifications.”

A specialized “MGA registration/licence category,” according to the Toronto-based Canadian Association of Independent Life Brokerage Agencies, would help ensure that MGAs maintain certain standards in their businesses, especially in terms of having appropriate errors and omissions insurance coverage: “The E&O insurance for MGAs should go beyond that of individual or corporate representatives and be monitored,” the association says in its submission.

Hub’s submission notes that MGAs have had difficulty obtaining E&O coverage because of the lack of such a product in the market. However if regulators were to mandate specific E&O standards for an MGA licensing category, Toronto-based Advocis says its insurance arm, the Advocis Protection Association, would work with regulators to create one.

Agent supervision is another key concern about which the CCIR wanted stakeholder input. As the situation stands, the nature of the independent channel allows insurance agents to contract with as many MGAs as they like, as not all MGAs carry the same insurers’ products. This means no single insurer or MGA can oversee all of an agent’s business. According to a survey conducted in March by Mississauga, Ont.-based Independent Financial Brokers of Canada, most brokers typically use one MGA — although a significant number said they deal with more than five.

Within the insurer/MGA/agent triad, most stakeholders agree that the insurers are ultimately responsible for the agents that distribute their products. As the CLHIA’s submission states: “The sharing oversight does not diminish or otherwise alter the ultimate responsibility that an insurer has for the agents who represent it by selling its products.”

Most stakeholders also feel that the processes that MGAs and insurers have for detecting and reporting misconduct are sufficient. The submission from Edmonton-based Business Career College (Edmonton) Corp. states: “We believe that [the] CLHIA, [the] CCIR … [and] the provincial insurance regulators have developed models that are largely capable of handling the MGA distribution channel. Adherence to and adoption of these tools would address the issue at hand.”

Aside from defining MGAs, the BCC wants to see an update of the material in the life licence qualification program. Since the LLQP came into being, many new products, such as the tax-free savings account, have been introduced; yet, the course content has not been updated.

“The existing licensing regime, based on the LLQP, is in danger of becoming irrelevant,” the BBC wrote. “We feel that the LLQP should be subject to a fair and open review process on at least a biennial basis.” IE