2021 0728 - FSRA - Report - Insurer-MGA Relationship Review Report - 25p
- Contents
- Executive summary ............. 2
- Introduction ............ 5
- Detailed observations .................... 6
- 1. Understanding distribution channels ........... 7
- 2. Screening and Onboarding of MGAs ........... 8
- 3. Insurer-MGA agreements & 4. Supervision monitoring of delegated functions ................10
- 4.1 Screening ............12
- 4.2 Training ...............13
- 4.3 Monitoring ...................15
- Conclusion and next steps .....18
- Appendix 1 ..........20
- Appendix 2 ............23
- (p2) - Executive summary
- Life insurers are increasingly reliant on Managing General Agencies (MGAs) for product distribution. In their agreements with MGAs, insurers can delegate a variety of oversight functions to MGAs. These can include the screening, training, and monitoring of agents.
- The MGA channel can benefit both insurers and consumers, as long as insurers effectively oversee MGAs to ensure they and their agents sell products that consumers need and can afford. Insurers must screen and monitor their agents to ensure they are suitable to sell insurance and comply with Ontario insurance law.
- Therefore, it is essential for insurers to ensure MGAs fulfil the duties they accept with respect to agent screening, training, and monitoring. When systems reasonably designed to achieve these goals are in place, consumers can be more confident that they have the right coverage to protect them in the face of unforeseen, lifechanging events.
- (p2) - This report is specific to observations in the Life & Health (L&H) insurance sector in Ontario, where a regulatory framework specific to MGAs does not exist.
- (p2) - This evidence-based review identified gaps and a lack of clarity relating to the roles and responsibilities shared among insurers, MGAs, and independent agents. Key observations include:
- Independent agents placing business through MGAs is the most prevalent distribution channel adopted by the reviewed insurers
- Insurer-MGA agreements lack detailed expectations and requirements related to delegated screening, training, and monitoring functions
- Insurers’ oversight programs do not appear to provide reasonable assurance that MGAs understand and fulfill their delegated agent-related responsibilities, especially when functions are entirely delegated to the MGAs
- Insurers lack in-depth MGA risk assessment processes
- Insurers check for the existence of MGAs’ policies and procedures, rather than evaluating their implementation and operational effectiveness
- Insurers do not proactively risk assess their agents contracted through MGAs, nor do they conduct a meaningful volume of agent reviews
- (p3) - Other pitfalls consumers could be exposed to when agents are not supervised properly include issues with product suitability, churning, misrepresentation, tied selling, undue influence, and/or conflicts of interest.