Provincial insurance regulators say they expect to make public at the end of this month a long-awaited paper that asks a fundamental question: are consumers looked after when they buy life and health insurance in Canada?

The 25-page paper will aim to describe the distribution model for life and health insurance and then ask several questions of insurers, distributors, advisors and consumers. A two-month comment period will follow the release of the paper, which has been in the making for about two years.

The paper is the work of the Canadian Council of Insurance Regulators, an umbrella group of representatives from all the provincial and territorial bodies that oversee insurance in Canada.

“The answers will help settle whether there are risks involved for consumers,” says Doug McLean, executive director of insurance for the Financial Institutions Commission in British Columbia, the regulator driving the initiative by most accounts.

Carol Shevlin, a policy manager in Toronto with the Financial Services Commission of Ontario, which oversees insurance regulation in that province, says the paper is primarily an “issues paper, not a position paper.”

Adds Shevlin: “We’re looking for agreement of anyone and everyone in the industry that we have it right [in the paper], and then we can decide whether we need further policy or regulatory work to do.”

The CCIR paper describes ways in which the distribution of life insurance may be affecting consumers, says McLean, either directly or by challenging the effectiveness of current regulatory legislation and practices.

Managing general agencies are “middle man” firms between insurers and agents, producing large volumes of sales and collecting greater commissions from the product manufacturers than a single producer could ever hope to. But MGAs’ precise role in the sales process is murky and undefined from a regulatory perspective.

Many players in the insurance industry understand the gist of the CCIR paper because various regulators have recently spoken or written about the subject. For instance, the Insurance Council of British Columbia has published its own paper. (See story at right.)

Themes in the paper that could affect consumers include:

> By one estimate, 75% of all segregated funds are sold through MGAs, yet consumers and regulators have no central registry of these firms.

> There is lack of clarity about what role MGAs should play in overseeing the sales agents whose business they process.

> There is little to no oversight by insurance companies of MGAs, one of their main product distributors — although the federal Office of the Superintendent of Financial Institutions has written that, technically, MGAs could fall under the outsourcing guidelines on OSFI’s website.

> No licensing regime exists for MGAs.

> No educational and continuing education requirements exist for MGA operators.

> MGAs need to be better capitalized. McLean has said in the past that MGAs might consider better funded errors and omissions insurance.@page_break@> No regulation requires MGAs to employ compliance officers to ensure insurance advisors are meeting standards set out by their licensing.

Says Peter Lamarche, president of Blonde and Little Financial Services Ltd., a Windsor, Ont.-based MGA, and president of Toronto-based Canadian Association of Independent Life Brokerage Agencies: “The paper wasn’t a result of increased consumer complaints or advisor oversight. It was an information-gathering process.”

Although Lamarche won’t speculate on the specific nature of the changes his industry might see, he anticipates that sometime in the future, MGAs will have further but not too onerous compliance and oversight systems in place. Some firms might struggle, but most will have had time to develop these systems on their own.

Indeed, Terri DiFlorio, president of Woodbridge, Ont.-based Hub Financial Inc., a large national MGA that has some compliance practices in place, says, “It’s like apple pie to believe in better consumer protection” — no matter what the CCIR paper reveals.

Other insurance industry veterans who have followed the CCIR paper’s development look forward to more responsibility from the insurance industry.

Lawrence Geller, president of Campbellville, Ont.-based L.I. Geller Insurance Agencies Ltd., says that as insurance companies have distanced themselves from the actual distribution of insurance policies “to some extent, consumer protection has been lost.”

Geller, who also moderates For Advisors Only, a popular online forum for insurance advisors, describes a memorable case in which an advisor massively oversold a product with a high premium to a low-income client. “How did that case make it through?” Geller asks. “Shouldn’t the MGA have done the due diligence? Shouldn’t the underwriter have triaged this?”

Jim Rogers, a retired advisor in Vancouver, says he’d like to see insurance companies take more responsibility for how their products are described to consumers by holding MGAs to a higher standard. “A compliance officer? Bonding? Minimum free capital requirements? E&O insurance?” he wonders. Any and all of these measures, he says, might make consumers more aware about what they are buying and be better protected if there is an oversight or if there’s fraud.

Almost certainly, the CCIR paper will describe the slow erosion of the career-agency model. Many insurance manufacturers dropped this expensive distribution model and are now doing the majority of their business with advisors through MGAs, which typically have contracts with many manufacturers at a time.

Although the government of Ontario says consumers are protected because advisors themselves are licensed and the insurers are also required to maintain compliance regimes, officials admit that may not be enough. Says Scott Blodgett, senior media relations advisor with Ontario’s Ministry of Finance in Toronto: “Once the CCIR releases its report, the government will review it and will determine whether any updating of insurance legislation should be considered.”

McLean says the CCIR paper is one in a series about insurance regulation in the country. Other consultation papers will include a review of the MGA system in the property and casualty business and the roles and responsibilities of third-party administrators. IE