CLHIA sets out standardized compliance practices for MGAspar Donna Glasgow | October 16 2014 01:06PM
The Canadian Life and Health Insurance Association has issued a new reference document aimed at providing Canada’s managing general agencies with standardized guidelines as they develop and implement their compliance programs.With an emphasis on advisor screening, assessment and ongoing monitoring, this document is intended to help MGAs better manage risk. The paper is part of an effort by the industry to address concerns previously raised by regulators with respect to the MGA channel.
Entitled MGA Compliance: A Risk-based Approach for Compliance Programs in the MGA Channel, the reference document was prepared by the CLHIA in collaboration with representatives from MGAs. Available on the CLHIA website, the 28-page document was scheduled to be officially launched on Oct. 16 in Toronto at a high level discussion hosted by the Canadian Association of Independent Life Brokerage Agencies (CAILBA).
The document explains the roles and responsibilities of MGAs and insurers. Stating that the central objective of a compliance program is to manage risk effectively, it points out that this “requires establishing a level of scrutiny that provides a reasonable assurance that the potential for problems can be detected and appropriate steps can be taken to prevent customers being harmed.”
Closer to advisors
The document points out that “MGAs are closer to advisors and see the business an advisor is placing with multiple insurers.” It adds that, “Because the MGA effectively serve as the insurer’s ‘eyes in the field’, insurers rely on the MGA to communicate their concerns about an advisor in a timely manner.”
The document also notes that it is a “two-way street” and that insurers should provide MGAs with the timely information they need to assess risk, which involves sharing concerns they may have about an advisor’s conduct.
Some of the topics covered in the reference document include: initial screening of advisors for suitability; ongoing monitoring, reporting and investigating of advisors; managing conflicts of interest; and compliance expectations related to privacy and anti-money laundering rules.
Arnold Scheerder, compliance officer with MGA R.G. Packman & Associates and compliance chair for the Canadian Association of Independent Life Brokerage Agencies (CAILBA) told The Insurance and Investment Journal that an important benefit of this document will be that it standardizes insurers’ expectations of MGAs in terms of compliance.
Scheerder, who participated on the committee that produced the reference document, explains that it is “the foundation of what insurance companies expect and look at with regards to the role of the MGA, with regards to dealing with advisors, as well as with regards to working and dealing with the insurance companies.”
Application for contract
Another important part of this initiative – provided in a supporting document – is the introduction of a standardized application for contract. This document is for advisors who are seeking a contract with an insurance company.
Scheerder explains that from an administrative perspective, having a standardized application for contract will benefit both advisors and MGAs. Previously, MGAs and advisors would have to deal with different applications from all the various companies with which they do business. Now “it’s become a standardized situation where we could use the same application for two different contracts, one with Company A, one with Company B,” he explains.
Realistically, Scheerder adds, there may still be cases where an insurance company has an additional or different question, “but we’re striving to get it standardized so the advisor completing the paperwork knows he can use that particular application for more than just a single company…”
Peter Goldthorpe, the CLHIA’s director, Marketplace Regulation Issues, explains that the document is part of the insurance industry’s response to the Canadian Council of Insurance Regulators (CCIR) that, in a consultation paper in 2011, outlined areas of interest regarding the MGA channel. In a report in 2012, the CCIR asked the industry to take the lead in introducing standardized practices.
In addition to this new reference document, another initiative that the industry introduced to start the standardization process was the launch of the CLHIA’s Compliance Review Survey in 2011. This survey was intended to assist insurers in assessing the capacity of MGAs to carry out compliance monitoring functions, says Goldthorpe.
Also in 2011, CAILBA introduced its Compliance Toolbox for MGAs – a detailed resource for MGAs to assist them with the development of their compliance programs. Scheerder says this toolbox will be updated to mirror the reference document guidelines.
Scheerder adds that it is hoped that with the introduction of the reference document, regulators will not feel the need to impose new rules or regulations on the industry.
In the end, the main beneficiaries of standardized compliance practices will be consumers, adds Scheerder. “Overall, the bottom line is the industry, more than likely, will raise the bar, which is beneficial for everyone involved and more importantly should give the client – the insured public – a lot more confidence that there are checks and balances in place when they deal with an advisor.”
Not breaking new ground
Goldthorpe notes that there is a concern in the industry that the reference document is introducing new compliance demands on MGAs. “For the most part it is not new. We’re responding to direction from the regulators to introduce more standardization of practices. So we’ve spent quite a bit of time with both MGAs and insurers trying to get a sense of what is being done in the area of compliance monitoring and provide a comprehensive description of that so that everyone’s on the same page.”
“This is a descriptive document. It is not a prescriptive document…We’re not breaking new ground…We’re simply describing the practices that have been used by insurance companies and MGAs for the last years, decades maybe.”
To read the reference document and supporting materials, go to: www.clhia.ca/advisor