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CCIR consultation: industry weighs in on agent oversight question

par Donna Glasgow | April 11 2011 07:44PM

Submissions to the Canadian Council of Insurance Regulators industry consultation on the MGA distribution channel show that most stakeholders are in favour of maintaining the multiple MGA model for advisors. A range of industry associations, MGAs, insurers and advisors submitted their answers to 27 questions posed in the CCIR’s February issues paper on the MGA distribution model.

In April, the CCIR posted these submissions on its website. Question 11 asked by the CCIR addressed agent oversight. “Is it necessary that some party be in a position to monitor the overall business practices of a representative? If no,why not? If yes, which party, MGA or insurer, is in the best position to do that monitoring?

The Insurance and Investment Journal collected some of the responses to this question from key stakeholders. Advocis, The Financial Advisors Association of Canada, responded that it does not believe that it should be the responsibility of one party to monitor the total business dealings of a given representative. “We do not think it is in the consumer’s best interest to move to a single-MGA model, like is the case for mutual fund licensed advisors. The ability of the representative to access more than one MGA allows the advisor to obtain the coverage that is the most appropriate for the consumer since no one MGA offers all of the products available in today’s marketplace.”

Advocis also called into question a CCIR statement in its issues paper about there being a potential for representatives to spread questionable business among MGAs and insurers to avoid notice. “Advocis would be interested to know whether there is any evidence that this has been occurring in practice and would welcome the opportunity to discuss how to mitigate this risk. Absence evidence of a real problem, imposing a requirement that one party be responsible for oversight of a representative could lead to unintended consequences that harm consumers.”

The Independent Financial Brokers of Canada responded to the CCIR by stating that “the use of the word ‘overall’ in this question suggests that independent brokers should be accountable to and supervised by a single party, which we would not support. Brokers are accountable for each piece of business they write. This accountability extends to the client, MGA, insurance company and, ultimately, their regulator.”

Substantial impact

Representing the perspective of life insurers, The Canadian Life and Health Insurance Association said, “If there is a requirement that a single MGA monitor the overall business of a representative, this could have a substantial impact on both representatives and MGAs…most representatives have contracts with several MGAs and the most common reasons for selecting an MGA are access to insurance companies and level of service.” If the consolidation of oversight restricts an agent’s ability to put business through multiple MGAs, it would limit the representative’s ability to get desired access and service, explained the CLHIA. Meanwhile, requiring that an insurer monitor an agent’s overall business could fundamentally affect consumer choice and access to life insurance.

“As the channel has evolved, independent agents operating through MGAs offer the consumer one-stop access to the products of several insurers. It is difficult to see how this access could continue if one insurer was responsible for monitoring all the representative’s business.”

The CLHIA concluded by saying that implementing either of these requirements “would likely only be possible through regulation. Thus, while there may be advantages to placing oversight of a representative with a single person, these should be carefully assessed and weighed against the possible disadvantages that go with one option or another.”

The Canadian Association of Independent Life Brokerage Agencies (CAILBA) responded that it does not believe oversight by one party is necessary. “As to date, to our knowledge, there has been no increase in ‘unsuitable representative activity’. No change in a regulator, insurer or consumers’ ability to respond to unsuitable representative activity and no indication that the emergence of the MGA channel as the prevalent distribution model has had any impact on the number or degree of unsuitable representative activity. The current regime whereby the insurer is accountable appears to be quite adequate.”

To read the full stakeholder submissions, go to: http://www.ccir-ccrra.org/

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