The Financial Services Regulatory Authority of Ontario (FSRA) has published additional rules related to recent Insurance Act amendments which create a separate licensing class for life and health managing general agencies (L&H MGAs).
While Bill 216 received royal assent on November 6, 2024, the regulator is building on that amendment with the proposed rule, Rule 2025-001 Life and Health Insurance Managing General Agents.
The rule in part clarifies roles and responsibilities in agent supervision and also prescribes the circumstances in which an applicant is not suitable to be licensed. It discusses compliance systems that are reasonably designed to ensure compliance with the Act, regulations, rules and conditions of licensure, the eligibility criteria for designated compliance representatives, insurer requirements and more.
Troubling practices
“Our supervision uncovered troubling practices in the MGA distribution channel and this new proposed rule will help ensure that consumers are treated fairly and consistently,” Huston Loke, FSRA’s executive vice president of market conduct said in a statement about the proposed rule’s publication.
According to the regulator, L&H MGAs are now the predominant distribution channel for individual life and health insurance products in Ontario – close to two-thirds of total new premium in the segment is distributed through intermediaries.
“FSRA’s supervisory reports concluded that there exists real potential for consumer harm due to L&H MGAs inadequately screening, training, and monitoring agents,” the rule’s notice documents state. In response to draft guidance on licensing suitability, they add that many stakeholders called for legislative and regulatory updates to recognize the role of L&H MGAs. “FSRA agrees this approach will be more effective than relying on guidance,” they add.
Insurers ultimately responsible
According to the proposed rule, insurers remain ultimately responsible for consumer outcomes. All entities in the insurance service and sales chain must have adequate compliance systems. Insurers and MGAs alike will be expected to carry out effective risk-based monitoring and oversight of the entities they are associated with.
“FSRA has included a section in the proposed rule which details how factors, such as an agent not complying with insurance law, may be a shared responsibility,” the notice states. New standards of practice also include the requirement that insurers and L&H MGAs have a client continuity plan in place in the event any servicing entity becomes unlicensed. Designated compliance representatives, meanwhile, must be an officer or a partner who is qualified for the role and also not paid in any way based on sales made.
FSRA says it is also considering the development of a companion interpretation guidance piece to provide additional clarity on the proposed rule, saying it will do this based on the feedback it receives during this consultation.
Among the questions asked in the consultation, the regulator would like to hear from stakeholders about the proposed rule’s clarity, whether it balances insurer and MGA compliance system requirements, what practical challenges could limit compliance and discusses reasonable transition periods. Stakeholders are encouraged to comment until March 31, 2025.
