Regulator urges insurers to uphold strong controls over managing general agencies

Following a review of Ontario’s property and casualty (P&C) managing general agencies (MGAs) conducted by the Financial Services Regulatory Authority of Ontario (FSRA), the regulator has published its observations, repeating its call for insurers to maintain strong controls and oversight of the companies it engages with when delivering policies and coverage to consumers.

“The senior management and board of directors of insurers are responsible for the design, implementation and monitoring of mitigation strategies to ensure customers are treated fairly,” the regulator stated when it first launched the review back in June 2023. “FSRA expects insurers to review this supervision plan and other relevant publications, to ensure they are complying with the law and regulatory expectations.” 

The resulting report from FSRA’s review, entitled The Role of Managing General Agencies in Ontario’s Property & Casualty Insurance Market: FSRA’s 2023 Review, was written to summarize the findings on the size and scope of the MGA market in Ontario and to discuss the activities generally outsourced to P&C MGAs in the province.

Focusing on areas of greatest potential harm 

FSRA has said repeatedly that it will focus its efforts on areas of greatest potential harm to consumers. “FSRA’s preliminary intelligence gathering suggested that insurers may delegate functions to MGAs beyond what is typically delegated to other insurance intermediaries such as brokers, agents, or independent adjusters. With the significant role that MGAs appeared to play in the product life cycle, FSRA identified the potential for increased impact on consumers if market conduct risks were not well managed and mitigated,” the report states.

“While MGAs perform certain insurer functions, in Ontario, they are not necessarily licensed or supervised in the same manner as other P&C insurance participants,” they continue. “The activities performed by MGAs on behalf of insurers may lead to outcomes that are contrary to the regulatory requirements supervised by FSRA where customers are not treated fairly unless appropriately overseen.” 

Among the regulator’s observations: 

• The report says 58 of the 218 insurers reviewed outsourced functions to MGAs in 2023.

• Six per cent of Ontario’s direct written premium (DWP) was generated through MGAs that year.

• Nine insurers wrote more than 50 per cent of their DWP with MGAs. Total DWP written through MGAs for these nine insurers was over $600-million.

• Commonly outsourced functions include underwriting, policy issuance and servicing, applications and quotes, collecting premiums and binding risks.

• The top 12 MGAs in Ontario represent 50 per cent of the market with the remaining MGAs accounting for the other half of the market – an imbalance that the regulator says is “striking.” 

“Some MGAs may face operational challenges because of resource constraints related to investing in advanced technology, hiring adequate staff and governance practices,” they write.

• All told, 139 MGAs in Ontario were contracted with at least one insurer.

• More than two million policies were issued through MGAs in 2023.

• Overall P&C DWP outsourced through MGAs totaled just under $2.332-billion. (Comparatively speaking, total DWPs generated through all P&C industry participants totaled more than $38.6-billion.) Broken down, $417-million were personal lines DWP while $1.9-billion went to commercial lines business.

They add that on average, insurers had delegated authority arrangements in place with 5.7 MGAs (330 insurer-MGA relationships in place in Ontario at the end of the review period) and MGAs, on average, had delegated authority relationships with 2.4 insurers each.

The report also examines subscription policy arrangements where two or more insurers share the risks associated with providing coverage. It also looks at MGAs which design products independently of insurers (59 per cent of the MGAs contracted with insurers were said to design products independently). “It is important that insurers understand the characteristics and potential consumer harms of products designed by MGAs as insurers bear the ultimate responsibility for these products under applicable regulatory requirements,” they write. 

The paper concludes, saying the review’s outcomes will be incorporated into FSRA’s forthcoming supervision framework for the sector.