FSRA extends comment deadline on proposal to boost oversight of life and health insurance MGAs

In a notice spelling out the proposals, FSRA said that the new rule’s requirements, “would protect consumers by ensuring they have access to educated and professional agents who are properly screened, trained and monitored to give fair advice, offer suitable products and provide pertinent information for consumers to make informed decisions.” 

Among other things, the proposals aim to set licensing requirements for MGAs, compliance standards for MGAs (and sub-MGAs) and prescribe the responsibilities of compliance personnel at the MGAs. The legislation will require MGAs to designate a compliance representative who’s independent from the firm’s sales function.  

The proposed rule would also establish a clear chain of accountability from insurers through various intermediaries (MGAs and sub-MGAs), down to the agents on the frontline. In particular, the rule clarifies that insurers are responsible for ensuring that their MGAs are complying with the sector’s rules and regulations by adopting compliance processes to oversee their MGAs’ compliance systems.

Under the rule, the compliance systems that firms are expected to implement are to be “proportional” to their businesses — meaning that their processes are to be “reasonably” designed and resourced, given the size, complexity and riskiness of the firms involved. 

Additionally, the rule sets out the obligations that agents have to both insurers and their MGAs — including recordkeeping obligations, that they complete required training and an obligation to avoid or manage conflicts of interest. 

Growing concerns

In more clearly delineating these responsibilities and setting compliance standards for the sector, the proposals form part of a broader effort by FSRA to address growing concerns about consumer treatment in the sale of life and health insurance products through MGAs.

Those concerns were revealed most clearly in a review — carried out by FSRA between September 2020 and March 2021 — which found various regulatory gaps in the existing MGA model.  

In particular, FSRA found systemic deficiencies in the oversight of MGAs by insurers, and MGAs’ oversight of agents, which gave rise to concerns about consumer protection — including worries that a lack of strong compliance arrangements potentially exposes clients to conflicts of interest, poor suitability checks and abusive sales practices, such as churning, misrepresentation and tied selling.  

Among other things, the regulator’s review found that complex distribution chains — with MGAs and sub-MGAs standing between the agents that are dealing with clients and the insurers — exposes customers to a risk of poor treatment due to the lack of clear accountability and oversight within the distribution chain.  

“When multiple parties and complex chains of product and service distribution are involved, consumers’ interests may not be given sufficient attention and consumer harm can be exacerbated,” FSRA warned in that review. 

Specifically, FSRA found that there was a “lack of clarity” in the roles of agents, insurers and MGAs, when it came to ensuring compliance with regulatory requirements that are intended to ensure that customers are treated fairly. Where insurers have delegated certain functions to the MGAs — such as screening, training and monitoring agents — the regulator found a lack of concrete requirements spelled out in agreements between insurers and agents. And it found that the oversight of MGAs being provided by insurers wasn’t adequate to ensure that the MGAs were understanding, and following through on, their responsibilities to oversee agents.  

The review also found that, while insurers might check that MGAs have compliance policies, they aren’t properly evaluating whether those policies have been implemented, or that they are effective, on an ongoing basis.

Ultimately, the review concluded that insurers often aren’t reviewing the riskiness of agents that are selling through MGAs, or fully assessing the riskiness of the MGAs either.  

“As a result, there is an area of potential risk for consumers due to oversight and supervision gaps within MGAs, where the contracted agents directly interacting with end-consumers may not be sufficiently trained or knowledgeable,” it said. 

To address these weaknesses, FSRA initially proposed added guidance on licensing suitability for agents and MGAs, but policymakers ultimately concluded that more extensive reforms were required — resulting in the legislative changes that were passed in late 2024 and the proposed new rule from FSRA that’s now out for consultation. 

While the proposed rule aims to beef up consumer protection and bring some clarity to the allocation of compliance responsibilities within the MGA model, the rule also contemplates broadening the scope of what constitutes the work of an MGA.

For instance, the regulator suggested that it could extend MGA licensing and compliance requirements to firms that enroll clients in group insurance programs or process insurance claims. Although, for now, FSRA is focused on activities that its review found to be associated with a higher risk of consumer harm — such as the recruiting, screening, training and overseeing agents. 

As a result, under the new regime, firms that haven’t previously been considered MGAs, such as associate general agents and third-party administrators, may need to be licensed as MGAs if they engage in certain “regulated” activities — such as recruiting prospective agents, screening them for suitability, training agents and monitoring them. 

FSRA indicated that it’s also considering the development of guidance that will help firms comply with the new rule’s requirements, given the principles-based approach of the new rule and its reliance on concepts such as proportionality that leave room for interpretation. The feedback it gets on the proposed rule will help the regulator craft that guidance too.