Ontario’s Ministry of Finance is proposing a new legislative framework in the province to license life and health (L&H) managing general agencies (MGAs), by making amendments to the province’s Insurance Act which could come into force as early as 2026.  

“Currently, the Insurance Act does not specifically regulate L&H MGAs or third parties and their role in performing delegated activities for insurers,” the ministry states in its proposal to amend the Act.  

New rule-making authority 

Proposed changes include creating minimum standards through a dedicated licensing class for the entities, along with those who perform similarly delegated activities. The changes would also give the Financial Services Regulatory Authority of Ontario (FSRA) new rule-making authority to license L&H MGAs, and outlines the duties of insurers, MGAs and agents.

The rules do not apply to property and casualty (P&C) or accident and sickness-only MGAs, as these are distinct in the industry, providing underwriting and product development, despite the industry using the same terms to describe them.  

“The proposed creation of a licensing regime for L&H MGAs will increase compliance requirements on all L&H MGAs and, by extension, insurers,” the ministry states. “Currently, insurers and MGAs have contractual agreements which may vary from one to another. It is expected that introducing a standard L&H MGA license will streamline compliance requirements and bring about overall savings.” 

An uneven playing field 

At the heart of the proposed changes are the findings from reviews undertaken by FSRA and the Canadian Council of Insurance Regulators (CCIR) which found evidence of unfair consumer treatment resulting from poor conduct on the part of some L&H MGAs and their agents. Insurers’ oversight has come into question and the ministry says all parties have indicated that the current regulatory framework creates inconsistency and an uneven playing field where some agents are trained and supervised more strenuously than others.  

“Over the past decades, the L&H insurance sector has evolved considerably from a direct access agent distribution model,” they write, “to a third-party distribution model where an insurer distributes through independent agents, MGAs, national accounts (NAs) or third-party administrators (TPAs). Today, L&H insurers enter arrangements with third parties to better control costs, achieve economies of scale and stay competitive.”  

They note that MGAs are the main distribution channel for L&H insurers, accounting for 65 per cent of all new individual premiums in the sector. In practice, they note that some insurers rely on their MGAs to oversee agents to meet the insurers’ own compliance obligations, giving rise to a gap, since there is no formal requirement for MGA licensing in legislation.  

Agent oversight 

The proposal also notes the challenges some MGAs have in overseeing their agents, similarly because there is no formal requirement in legislation or related rules obligating them to work with MGAs in matters of supervision and compliance.  

“L&H MGAs may be faced with resistance from agents when trying to access individual client files and reason why letters due to lack of an explicit regulatory requirement,” they note. Later they note that some agents may also resist disclosure to MGAs as they see their obligations as being to insurers only. “Agents are expected to work with and support their MGAs in establishing and maintaining a compliance system that is reasonably designed to ensure agents are in compliance.”  

Applicability  

“Currently, the Act requires agents, brokers, insurers, health service providers and adjusters to be licensed. The Ministry of Finance is proposing to mandate all L&H MGAs and entities performing delegated L&H MGA activities to be licensed,” the proposal states. “The proposed L&H MGA licensing class means that any entity – including sub-MGA, NA or TPA who perform any of the same activities as a L&H MGA – would require a L&H MGA license.” 

Despite the new licensing regime, the ministry goes on to maintain that insurers remain ultimately responsible for delegated activities. “Notwithstanding the proposed licensing of third parties involved in distribution, insurers shall continue to have an obligation to ensure that agents selling their products are suitable and compliant,” the proposal states. The proposal goes on to state that an insurer’s compliance system should be tailored to include oversight of all agents acting on its behalf.  

Other highlights: 

  • Under the existing law, an agent cannot apply for an adjuster’s license. The proposal extends the same prohibition to MGAs.
  • FSRA will be empowered to establish minimum professional standards and establish and maintain a compliance system with appropriate reporting and record-keeping requirements.
  • Professional standards speaking to the good character and reputation of the company will also apply. Entities applying for a license must also not make any material misstatements or omissions in applying.
  • Licensed entities must carry appropriate errors and omissions insurance and liability insurance. 
Compliance 

Under the proposal’s changes, MGA’s will also be required to maintain a compliance system to oversee agents and sub-MGAs alike. “In short,” they state, “the L&H MGA is responsible for monitoring the compliance systems of all sub-MGAs within the originating MGA’s distribution chain and the insurer is responsible for monitoring the compliance systems of all MGAs in its distribution chain.” 

MGAs, meanwhile, must prepare and submit reporting on an annual basis to insurers. This reporting can include any findings of unsuitability, summaries of how the MGA’s compliance system is achieving stated outcomes (suitability, reporting and compliance effectiveness assessments among them), any remedial steps being undertaken to address suitability findings and consolidated reporting about any sub-MGAs that are also part of the distribution chain for that insurers’ products.  

Both insurers and MGAs will also have 30-day reporting obligations to FSRA when entering into, amending or terminating contracts with each other. 

In the event where an MGA ceases to operate, loses its license or where contractual relationships break down, insurers must ensure policy holders receive service from agents who are monitored by an appropriate compliance system – either the insurers’ or that of another MGA.  

“If a L&H MGA or agent loses its license, the insurer who authorized their activities must be responsible for continuing to meet its obligations to affected consumers.” They add: “When an insurer-MGA relationship terminated, the insurer needs to ensure there is continuation of service and be accountable for any obligation to the end policyholder.” 

The Ministry of Finance would also require MGAs to have a designated compliance representative who is a qualified officer or a partner with no conflicts of interest and who is operationally independent from any sales function.  

Contracts  

When outsourcing functions to MGAs, the proposal goes on to say requirements to abide by compliance and monitoring standards should be clearly stated in written contracts. More, they say many insurer-MGA contracts today may be too vague or generic.  

“It is important to note that the objective of the proposed legislative amendments is to ensure the entire distribution network complies with the Act, regulations, rules and licensing conditions,” they conclude. “The proposal does not prescribe how individual parties may choose to meet their responsibilities.” 

Comments in response to the proposal and the related questions published by the Ministry of Finance are due by the end of September 9, 2024.