Managing general agencies operating in British Columbia are now on the hook for reviewing the insurance policies they process as well as determining the suitability of the agents they employ, representing the first time in Canada that the regulation of MGAs has been put into practice.
“In a limited way, MGAs are responsible for the business processed on behalf of an insurer and may be accountable if an insurance transaction is found not to be in a client’s best interest,” states the Insurance Council of British Columbia’s notice, entitled Roles and Responsibilities of Managing General Agents in The Distribution of Life Insurance in British Columbia, which was published on Jan. 27.
MGAs are considered “middlemen,” according to the notice. And insurance carriers typically sign a contract with MGAs — which are business entities that hold a life insurance licence — to handle several administrative functions on its behalf, such as distributing agent commissions, administering life contracts and handling complaints.
The notice seeks to clearly define an MGA’s compliance responsibilities with respect to those functions, says Gerry Matier, executive director of the ICBC, who authored the report: “We wanted to ensure that MGAs have guidelines in place to analyze transactions and the experience of agents submitting those transactions.”
For example, if a life agent who typically deals with critical illness policies sends an MGA an application for a $2-million life insurance policy, it’s up to the MGA to examine the transaction before it sends it over to the carrier.
As a tool to assist MGAs in that mission, the notice outlines a “Know Your Advisor” requirement, which will require MGAs to do a series of background checks to verify an agent’s level of expertise and experience. Any MGA that fails to do its due diligence in this respect could face disciplinary action.
MGAs will also be required to report questionable agent behaviour to regulators as well as carry a minimum amount of errors and omissions insurance.
Although MGAs are accountable for the responsibilities they are contracted for, the ICBC states that ultimately, “insurers are responsible for the functions that are contracted and completed by MGAs” — regardless of how effectively MGAs execute them.
For the most part, respectable MGAs have already been acting in accordance with these standards, says Matier. “We just wanted to add further clarification to what is already common practice.”
The industry welcomes the clarity. For instance, MGAs used to think of themselves as administrators and felt absolved the responsibility to monitor transactions, says Lawrence Ian Geller, president of L.I. Geller Insurance Agencies Ltd. of Campbellville, Ont.: “With this notice, they can no longer throw their hands up in the air, as they did in the past, and say, ‘That’s not our job’.”
Prior to the notice, actions such as conducting agent background checks and reporting bad behaviour were up to MGAs’ discretion, says Byren Innes, senior vice president and director with Toronto-based insurance consultancy NewLink Group Inc.: “These were things MGAs may or may not have done. Now, they don’t have a choice.”
Formally outlining the responsibilities of an MGA is a new step in the saga of developing regulations in the independent insurance channel. In February 2011, the Canadian Council of Insurance Regulators released its first paper that formally evaluated the independent channel and questioned the role of MGAs. The CCIR’s final recommendations on regulatory requirements for MGAs are yet to be released.
“I’d be surprised if other CCIR members go a completely different route,” Innes adds. “The ICBC has set a very practical tone for what MGA requirements need to be.”