The final verdict on the role and responsibilities of managing general agencies (MGAs) is out. It’s up to insurers, not MGAs, to supervise the conduct of agents selling prodcuts on their behalf.
The recommendation is one of five the Canadian Council of Insurance Regulators (CCIR) outlines in its final position paper entitled The Managing General Agencies (MGAs) Distribution Channel in the Life Insurance Industry released Monday.
“Regardless of the agent being a career agent, or an independent contractor recruited by an MGA,” the CCIR paper says, “[there is] a legal obligation on insurers to establish and maintain a system reasonably designed to ensure that agents acting on their behalf are suitable to carry on business as an agent, and comply with duties under the law.”
The Agencies Regulation Committee (ARC) — the working group of the CCIR dedicated to examining the independent channel — recommends that insurers clearly outline a requirement of “agent supervision” in their contracts with MGAs, if they haven’t already.
The CCIR suggests using the Canadian Life and Health Insurance Association’s (CLHIA) Guideline G-8 — screening agents for suitability and reporting unsuitable agents — which includes suggestions for the breadth and depth of background checking, as well as when to report unsuitable practice.
Because the CCIR has stated that insurers are ultimately on the hook for the functions they outsource to MGAs, the ARC also recommends insurers have “effective systems and controls” whenever they contract with MGAs. This means they must do their due diligence before selecting an MGA and must clearly outline the role and responsibilities of an MGA in the insurer/MGA contract. They should also have a compliance system in place for monitoring the MGAs they contract with.
The working committee also suggests that provincial regulators implement regular market conduct reviews, which ensure that agents and insurers are providing consumers with the right information to make decisions and that the products being sold are suitable.
The Financial Services Commission of Ontario (FSCO) has already included market conduct reviews as a part of its 2012 strategic plan. That initiative will include examining agent files to determine whether in fact an agent has given a client the right information, and whether a client understands the policy he or she is buying.
Finally, the ARC suggests that provincial regulators develop their own systems for determining what constitutes an MGA, associated general agency (AGA), career agent, and independent agent with or without contractual MGA relationships.
The ARC paper states: “Regulators must have a clear understanding of who are those individuals or companies currently licensed as insurance agents in their jurisdiction; what is their business model and role in the distribution of life insurance products.”
Currently, the ARC is accepting comments from stakeholders on its final position paper and will finalize its recommendations later this year. It will be up to each individual province to determine whether any changes to its currently regulatory structure are necessary.