Industry takes stock of lessons learned from TruStar receivership

The insurance industry in Canada continues to feel aftershocks from last December’s announcement that TruStar Underwriting Inc., a property and casualty insurance managing general agent (MGA), had gone into receivership, and a court motion was filed by TruStar against its former president and chief executive officer Daniel Alexander Moses, along with two unnamed individuals and corporations. 

Ontario Superior Court of Justice documents dated December 24, 2024, noted that “TruStar uncovered substantial evidence to suggest that Mr. Moses had underwritten policies, failed to place them with insurers, and made representations to clients and other industry professionals that such policies were in place.” 

“There has been a great deal of discussion within the industry that has taken place considering the events surrounding TruStar,” says Mark Abraham, chief executive officer with the Registered Insurance Brokers of Ontario (RIBO) in Toronto. 

Awareness has increased, and from conversations with industry participants including insurers, brokers and MGAs, it has become clear that all are invested in understanding what can be done and in improving practices that can lead to increased protection for all parties, Abraham elaborates.

“To support our learning, RIBO issued a Mandatory Information Return which posed several questions to RIBO-registered corporations to examine existing broker practices with respect to MGAs. We continue to explore this issue in greater detail and are identifying best practices that could form part of our guidance for brokers working for MGAs, and for MGAs themselves,” he adds. 

Abraham says that RIBO’S focus is on: understanding the contributing factors that allowed or could allow insurance fraud to occur; identifying industry implications; and determining how brokers and MGAs can enhance protection for consumers and themselves. 

MGAs under the microscope 

The TruStar affair has brought a renewed focus on MGAs, the perception of whose role has been obscure for many years, says Steve Masnyk, executive director of the Canadian Association of Managing General Agents (CAMGA) in Toronto, which represents property and casualty insurance MGAs.

“The good side of this is that now, more and more, both the broker channel and the carrier channel are looking at how MGAs operate…what standards they meet, what standards they should meet, and what kind of transparency, governance, and accountability needs to be in place at an MGA,” he elaborates. 

Masnyk notes that many CAMGA members are already meeting very high standards of governance, transparency, and accountability, which very few people previously understood. 

Stephen Stewart, the president and chief executive officer of Stewart Specialty Risk Underwriting Ltd. in Toronto, says that “the alleged actions of TruStar have caused reputational damage to both the MGA and broker sector. However, it is clear that the alleged actions are limited to the single entity and are not a systemic problem.”

Stewart notes that there has been a great deal of speculation about whether further regulation might have prevented the TruStar situation from arising, but says that broadly speaking, regulation is not the answer to the prevention of fraud, which is already regulated under the Criminal Code of Canada. 

“This kind of thing might have happened at a legal firm, a brokerage, or any other entity that holds third party funds in trust,” says Stewart. “Carriers have a responsibility under Office of the Superintendent of Financial Institutions (OSFI) guidance B-10 to ensure that entities to which they subrogate their OSFI regulated responsibilities are acting in a manner consistent with the regulation.” 

However, more rigorous governance by the MGA, and insistence upon such governance by the subrogating carrier “likely would have meant that the alleged actions would have been detected earlier, if not completely prevented,” he adds. 

Brokers also have a role to play in the vetting of internal procedure at MGA firms. Generally speaking, enhanced due diligence by all parties involved should have prevented, or mitigated the situation, he reiterates. 

Preventing the next disaster

Much of what has been alleged to have happened at TruStar could have been rectified with some very simple, common sense procedures such as having at least two signatories on a trust account, says Masnyk, who adds that it is very easy for an MGA to quickly show their broker and carrier partners the number of signatories for transactions, and who those people are. A bank can also very easily, quickly, and at no cost, provide a statement to reveal who the signatories on a trust account are. 

Furthermore, “the MGA, both through our Code of Business Operating Standards and just in good business practices, should – even at the quote stage – provide who the carriers are behind the policy that they are underwriting, quoting and binding, explains Masnyk. 

“From my understanding, there was only one person on the trust account in terms of signatories, so that person could have done anything they wanted with the money in that account,” Masnyk adds. “Monies in the trust account are premiums that do not belong to the MGA, and do not belong to the broker. They belong to the carrier. So, the role the MGA plays is basically holding premiums that belong to the carrier in the chain, and passing them on from the broker, and from the insured, to the insurance company.”

The broker and the insured also need to know clearly who the carriers are behind the MGA on that policy. It is very easy to check whether a policy has been bound by a carrier, by either the broker or the insured calling up the carrier to ask, ‘Do I have a valid policy with you?’ he elaborates.

Although CAMGA’s mandate is limited, it can continue promoting the standards it has set for its members, including its’ various code of ethics, and Code of Business Operating Standards, says Masnyk. 

But individual MGAs can, and are, also promoting themselves, illustrating the precise standards they are meeting, he notes. This “goes a long way, because it shows that MGAs want to be transparent and open, and want people to know what standards and governance rules they have in place within their shops.

“So that's the good thing that's come out of a tricky situation,” Masnyk says.

MGAs committing to voluntary licencing 

Abraham from RIBO says that although property and casualty MGAs are not currently required to be licensed under the Registered Insurance Brokers Act, more than 80 MGAs have voluntarily chosen to go through RIBO’s licensing process and be held to the same regulatory requirements as brokers and brokerages.

This covers areas that include: holding consumer premiums in trust; obtaining Fidelity and Error & Omissions (E&O) insurance that meets RIBO’s minimum requirements; complying with the Code of Conduct, Registered Insurance Brokers Act as well as RIBO’s guidance and other legislative obligations; and opening themselves to a formal complaints and investigation process, he elaborates. 

“While a regulatory framework cannot prevent all negative outcomes – just as laws cannot prevent all crimes – it does greatly increase accountability and provides meaningful protections to consumers,” says Abraham. 

“As a regulator, we are well-equipped and well-positioned to work with brokers and the broader property and casualty MGA sector to develop strong, consistent standards. We continue to encourage all MGAs to pursue voluntary licensing and be held to the same high standards as brokers,” he adds.