The Canadian Life and Health Insurance Association (CLHIA) and its Quebec arm – ACCAP-Quebec, are striving to defend managing general agencies from aggressive taxation by Revenu Québec and the Canada Revenue Agency (CRA).
ACCAP-Quebec, which represents Quebec-based insurance companies, shared its 2017/2018 strategic plan with The Insurance and Investment Journal. The CLHIA and ACCAP-Quebec will team up with MGA association, the Canadian Association of Independent Life Brokerage Agencies (CAILBA), and an external tax specialist which is unaffiliated with either group.
Stringent interpretation
Their objective is to change how Revenu Québec and the Canada Revenue Agency (CRA) interpret the federal income tax act, which has the power to impose federal provisions modelled after the provincial law. This interpretation, which recently became more stringent, threatens to tax the income of MGAs because in their view, MGAs don't provide services directly to advisors’ clients. Both authorities consider these services as administrative rather than client-oriented.
The initiative is part of a new priority that did not appear in the previous strategic plan: to support the evolution of distribution methods, Lyne Duhaime, president of ACCAP-Quebec, told The Insurance and Investment Journal in an interview. ACCAP-Quebec will support the distribution networks in various ways, says a document to be presented later in June to the CLHIA board of directors. The association’s Quebec division pledges to support MGAs in their efforts to keep their services tax exempt. It is also aware of the tax effects on other distribution networks (travel agents, car dealers etc.).
“We have hired a tax expert jointly with CAILBA. The issue is very important for the independent distribution network, and for us as well. If the CRA and Revenu Québec uphold their current interpretation, we would have to review our distribution contracts regarding amounts we pay MGAs, which would affect the whole distribution chain. In the end, who would pay for these additional amounts? It would become more expensive for clients to buy insurance products in the independent network than in the captive network, which does not hold water,” Duhaime says.
ACCAP-Quebec and its partners are currently in talks with the two government tax authorities. “If it doesn’t work, we will go to other avenues like discussing directly with the provincial and federal finance ministers,” Duhaime adds.
Online distribution
As part of its focus on distribution methods, ACCAP-Quebec is lobbying for a flexible regulatory framework to favour multichannel distribution, as part of Quebec’s current review of its distribution legislation, the Act respecting the distribution of financial products and services. “We urge the government to implement a more supple legislative and regulatory framework to allow the development of current networks and those issuing from technology,” the preliminary document of ACCAP-Quebec’s plan states.
Duhaime says that the new framework does not impede the industry from adapting to online distribution and the rise of fintechs, including robo advisors. “We want legislative and regulatory flexibility to enable our members to adapt to today’s world, increasingly defined by millennials and technology. Insurers have a lot of respect for traditional distribution networks. It is to our advantage to adapt. If our clients stopped coming to us, we will miss the boat,” she points out.
She adds that consumers, even the younger ones, are not categorically averse to talking to a human being when purchasing a financial product. “The debate often becomes emotional in the industry, but it’s not a black or white situation. Consumers, particularly young people, want to do some of the steps, like product research, on a connected device. Some will then buy the product online and have it delivered to them. Others want to search online but then get advice on product selection from an advisor and buy it in person,” Duhaime explains.
