Mississauga-based RBC Insurance Co. is streamlining its distribution channel to be more in line with its current product line-up, and a tighter regulatory environment.
The bank-owned insurer has pared down the number of managing general agencies (MGAs) it contracts to 14 partners from 80. The move follows the insurer’s June decision to discontinue two life insurance products, along with five living benefit products, that included long-term care, disability and critical illness insurance.
“Our MGA strategy [is] to focus on…MGA partners who have access to our key markets and have clients whose needs align with our revised product suite,” said John McMeans, vice president sales, brokerage, RBC Insurance.
Trimming down the number of MGAs it works with will also help RBC Insurance cope with the demands of a new regulatory environment, added McMeans.
In May, the Canadian Council of Insurance Regulators (CCIR) released its final recommendations for the independent channel. Of the four recommendations it made, insurers are now formally required to set contractual standards and supervise the business conduct of their MGAs.
The minimum standard for screening and supervising MGAs is set out in the Canadian Life and Health Insurance Association’s G-8 guideline, which requires MGAs to conduct full scale background checks on the brokers they work with, as well as screen the suitability of their transactions.
“This strategy will help us prepare for upcoming heightened regulatory and compliance requirements,” said McMeans. With less MGAs on its roaster, it will be able to keep a closer watch on the MGAs it supervises to ensure they will be meeting these standards.
As for the MGAs that have been cut, the decision shouldn’t affect their access to products, John Hamilton, founder and CEO of Financial Horizons Inc., a mid-sized managing general agency that will maintain its MGA agreement with RBC Insurance. “They can still team up with larger MGAs like myself through an associate general agency agreement and give their brokers access to RBCs products.”
In this economic environment of low interest rates and high market volatility, many insurers are likely to follow in RBC Insurance’s footsteps, added Hamilton. “Many insurers are trying to streamline their distribution, especially since some smaller MGAs don’t generate the business volume the insurers need to justify the cost of contracting with them.”
With a new regulatory environment afoot, insurers are more likely to retain their contracts with larger more established MGAs, which already have a structured compliance regime in place. In turn, that will force smaller players that don’t have extensive compliance systems in place to consolidate with each other or become part of larger MGAs.
“RBC cutting MGAs contracts is just the tip of the iceberg for insurers streamlining operations,” Hamilton added. “More will likely follow.”