Insurance: Simplifying compliance

“There’s been a lot of thought lately, by both regulators and companies,” says Doug Paul, managing consultant with LOGIQ3, “on exactly ‘How do we keep track of compliance matters and screening matters and contracting matters?’ I believe there is an opportunity in the marketplace for an industry-standardized approach to this … to allow all participants – advisors, distributors and carriers – to have standard process that allows a sharing of information.”

Insurance companies are technically responsible for screening advisors for suitability under the regulatory framework.

However, in practice, the process generally is conducted at both the insurer level and at the MGA level – and it’s conducted separately by each of the MGAs and insurers with which an advisor is contracted.

This means advisors are required, on average, to submit the same information for screening to eight carriers and two to three different MGAs. The result, say insurance-sector players, is a system that’s redundant and inefficient for both advisors and firms.

“The duplicated effort is ridiculous,” says Terri DiFlorio, president of Woodbridge, Ont.-based MGA Hub Financial Inc., “to have an advisor fill out basically the same paperwork for [multiple carriers and MGAs].”

“We’re all out there collecting the same compliance information,” adds Jim Virtue, president and CEO of Calgary-based PPI Solutions Inc. “Why don’t we share it; why don’t we collect it in one place; and why don’t we share the cost of collecting it?”

LOGIQ3 proposes to do just that. The firm is working with numerous MGAs and insurers – Hub Financial and PPI Solutions among them – in an attempt to develop a repository that would include all of the information that companies gather for agent-screening purposes.

This way, advisors would submit screening information only once – and it would become accessible to all of the various parties who require it.

“It brings a more professional, organized approach to that whole process,” Paul says. “It’s about efficiencies and reducing duplication.”

LOGIQ3’s initiative could help the insurance sector meet its regulatory requirements, as set out in recommendations the Canadian Council of Insurance Regulators (CCIR) released last year. Those recommendations indicated that the CCIR wants to see more uniform standards in screening, monitoring and reporting the conduct of agents. LOGIQ3’s initiative, Paul says, would provide that standardization.

The existing advisor screening process varies slightly from firm to firm. Most firms verify an agent’s licensing and errors and omissions insurance information regularly. In some cases, these items are checked every time an agent submits business.

A more thorough screening process typically is conducted when a new advisor signs on with a firm. This includes a credit check, as well as a scan for any previous criminal convictions, disciplinary action, bankruptcy, debts and other factors that may deem the agent unsuitable to provide financial advice.

Across the insurance sector, these practices have become more onerous in recent years as regulators have made it clear they expect firms to be vigilant in this area.

“I would suggest that most companies are more vigilant today about the people we contract than we were five years ago,” says Rick Forchuk, special advisor, retail insurance distribution, with Kingston, Ont.-based Empire Life Insurance Co. “That’s been the tide that’s been sweeping through regulation over the past four or five years.”

Although few advisors are found to be unsuitable, the screening and monitoring process consumes substantial resources for insurers and MGAs.

Says Virtue: “We spend a tremendous amount of money, time and effort on areas of licensing, contracting, gathering compliance information, etc.”

Thus, Virtue believes that a centralized database of information would save considerable time and money for the insurance sector and would lead to both more efficient contracting and more effective compliance monitoring.

Although insurers and MGAs would pay a fee per advisor to access the information in the database, both would probably save a considerable amount of money vs the administrative costs associated with performing the compliance checks in-house.

So far, most players in the insurance sector appear to be supportive of the LOGIQ3 initiative.

“We all recognize,” says Forchuk, “that this would resolve a huge amount of duplication of effort from company to company.”

The initiative also is expected to lead to a smaller administrative burden for advisors. However, advisors who previously have breached their compliance responsibilities should prepare for that information to become more widely available to the firms they contract with.

LOGIQ3’s initiative aims to close certain gaps in the existing system, which make it difficult for firms to get a comprehensive picture of an agent’s compliance history.

For example, in cases in which an advisor’s contract with one insurer is terminated as a result of market-conduct issues or compliance failures, other insurers and MGAs are not always notified.

“If it’s not an issue of sufficient gravity to get to the regulatory level, nobody would know,” says Forchuk, adding that a centralized database could make this information available sectorwide.

LOGIQ3 is working to establish a collective agreement among the various players in the insurance sector to move forward with the initiative.

Once an agreement is reached, Paul says, he anticipates that it will take about a year to develop and launch the program.

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