Ontario’s insurance conduct overseer is flagging life agents whose files lack a documented needs analysis, even if such an analysis isn’t legally required.

The Financial Services Regulatory Authority (FSRA) launched its first life and health agent supervisory framework on March 29.

As part of two pilot programs, FSRA examined 240 client files of 70 agents, identifying 105 Insurance Act contraventions plus 334 “business practice” issues.

Huston Loke, executive vice-president of market conduct with FSRA, said those business practice issues included failures to perform needs analyses and failure to provide (or providing inadequate) reasons-why letters, which document the rationale behind an agent’s recommendations.

An agent “should start out by finding out what the client needs or wants, as opposed to trying to fit the client into what [the agent] might be interested in selling. So the needs analysis is there as a best practice for a good reason. But at this point, it is not a legal requirement under the Insurance Act,” said Loke.

However, if an agent is selling the consumer “a product that is not suitable or there might be a far better product that meets [the client’s] needs, then that would be a problem,” Loke said. 

Life insurance “is quite unique” because in some cases, like with permanent whole life, the product combines insurance protection and savings, Loke said. If a client buys a life insurance policy but fails to make a payment, then the policy lapses and is therefore of no use to the client, he said.

“Those are the situations that we’re trying to avoid,” Loke said.

Reasons-why letters are important particularly if customers buy a complex, long-term financial contract.

“It’s pretty helpful if the agent comes back and after having transacted the deal with [the customer], to say, ‘Here is what you bought, and here is why it’s good for you,’” Loke said. Then, the client receives “extra reassurance that this is the right product for [the client], at this time and at this stage of [the client’s] life.”

FSRA said last week its that supervisory framework means life agents in Ontario will be subject to proactive supervision for the first time since 2018.