Saskatchewan’s government is moving forward with a variety of substantial changes to its Insurance Act, which may create a set of regulations for the independent distribution channel in that province that are different from those in the rest of the country.
The result could be a “compliance nightmare,” with confusion regarding who is responsible for the oversight of insurance agents.
Among the changes in Bill 177: The Insurance Act are a variety of enhanced consumer-protection measures and a revised regulatory regime related to insurance intermediaries, including a new licensing category for managing general agencies (MGAs) and new obligations for MGAs to perform ongoing monitoring of their agents.
The goal of the bill, which received royal assent in May, is to modernize the rules, which have not been revised in any substantial way in several decades. Legislators also want to harmonize some of Saskatchewan’s rules with those in certain other provinces.
But the bill appears to fragment the regulatory landscape further rather than increase harmonization.
“[Bill 177] introduces some concepts and some definitions that don’t exist in other jurisdictions,” says Susan Allemang, head of regulatory and policy affairs with Independent Financial Brokers of Canada in Mississauga, Ont. “From a harmonization point of view, that makes it difficult for people who operate in multiple jurisdictions, whether that’s brokers or companies.”
One of the most significant changes mandated by Bill 177 is the creation of a new licensing category for MGAs. Under existing practices across the country, MGAs operate with the same type of licences as life insurance agents, on the basis that the principals of MGAs typically write business themselves and because MGAs receive commissions from insurance companies in a manner similar to the way individual agents are paid.
“MGAs are licensed as agents and, therefore, they’re regulated as agents. But [MGAs] do a lot of things that an agent wouldn’t do,” Allemang says. “So, [the Saskatchewan government] thought [MGAs] should be a separate entity under the act.”
The proposal for this new licensing category has come as a surprise, especially because it contradicts the findings of the Canadian Council of Insurance Regulators‘ (CCIR) investigation into the same issue. As part of a review of the regulation of the MGA channel in 2011-12, the CCIR review concluded that although there is a need for regulators to be able to identify the business model of people licensed as insurance agents, including MGAs, there are no specific consumer-protection goals that would be advanced by an MGA-specific licensing regime.
“There’s no doubt we were perplexed by [Saskatchewan’s] new licensing regime for MGAs,” says Greg Pollock, president and CEO of Toronto-based Financial Advisors Association of Canada (a.k.a. Advocis). He notes that the Saskatchewan government didn’t provide any specific reasoning behind that element of Bill 177.
“They weren’t able to identify even a single problem that the change was intended to cure,” Pollock says. “Governments shouldn’t be making legislative changes unless they have first identified a problem that needs to be addressed.”
However, having MGAs hold different licences than advisors may make sense, particularly as some MGAs have grown into large national entities with thousands of advisors. “MGAs are not insurance agents – they’re more than that,” says Pierre Sasseville, national compliance officer with Kitchener, Ont.-based Financial Horizons Inc. “Creating a new licence for MGAs makes a distinction between what is an advisor and what is an MGA.”
Sasseville says MGAs such as Financial Horizons could benefit from being licensed separately and having its roles and responsibilities spelled out in a more formal way rather than trying to develop a compliance regime in the absence of specific rules.
“Now, MGAs will be a recognized entity in the industry,” says Sasseville. “I applaud that. Now, we will have regulations that say what we have to do. That actually makes it easier for me, as a compliance officer, to make sure that everyone complies.”
There also are fears that the changes will create burdensome new compliance obligations.
“All we’re doing is getting more bureaucracy,” says Richard Gilbert, president of Mississauga, Ont.-based MGA Megacorp Insurance Agencies Inc. He notes that MGAs already have comprehensive compliance regimes in place to meet their obligations under contracts with insurance carriers, as well as rules imposed by bodies such as the Financial Transactions and Reports Analysis Centre of Canada. “I don’t think we need new licences.”
Bill 177 also assigns more direct responsibility to MGAs for the screening and ongoing supervision of insurance agents, and grants MGAs the authority to sponsor new agents’ licences – an authority that traditionally rests with insurance carriers in provinces that require sponsorship as part of the licensing criteria. Under Bill 177, MGAs would be subject to regulatory audits by the Superintendent of Insurance.
Although MGAs already perform certain advisor-monitoring functions on an outsourced basis due to MGAs’ contracts with insurance carriers, the carriers are ultimately responsible for the conduct and supervision of contracted agents in the other provinces. Saskatchewan’s new Insurance Act challenges that notion, Pollock says.
“It muddies the waters,” he says. “It opens the door to more regulatory oversight of MGAs and perhaps more downloading of responsibilities from the insurance carriers to the MGAs. That, in our minds, could create some confusion as to who the agent ultimately is responsible to.”
MGAs may have trouble meeting some of their obligations as they are described in Bill 177, according to Arnold Scheerder, chairman of regulatory affairs with the Canadian Association of Independent Life Brokerage Agencies. He says many of the definitions and responsibilities in the bill are vague and, in some cases, fail to reflect the capabilities of MGAs accurately.
“There’s a lot of work to be done,” Scheerder says, “in order to try and ensure that as an MGA on the life insurance side, we can indeed fulfil what [Bill 177] envisions to be our role. There needs to be a lot of clarity, which, in the current legislation, is not there.”
For example, Scheerder says, supervising advisors, as described in the bill, may not be feasible for MGAs. Since advisors typically work with more than one MGA, he says, an individual MGA firm can oversee only the portion of an advisor’s business that that MGA processes.
“We can monitor the business that the advisor puts through us, but we can’t supervise, because we’re not necessarily seeing all of the [advisor’s ] business,” Scheerder says.
Industry associations wish policy-makers had conducted consultations to get industry feedback before embarking on these changes. Many associations did not learn of the bill until it had already begun making its way through the legislative process.
Most stakeholders are supportive of the elements of the bill dealing with enhanced consumer protection. These include new rules prohibiting certain practices by insurers and agents that are deemed “unfair” to consumers, such as making false or misleading statements, representations or advertisements, and certain tied-selling practices, among other consumer protection measures.
Many of those measures are in place in other provinces. Scheerder says he would like to see this kind of harmonization across all industry regulations. “The call for standardization is absolutely imperative,” he says. “It’s critical that we can apply one standard, and that one standard adheres to whatever province you’re looking at with respect to its rules and regulations.”
The components of Bill 177 that divert from the framework commonly accepted across the rest of the country threaten to make compliance considerably more challenging for industry firms, Scheerder adds.
“My biggest concern is that we’ll end up with Saskatchewan having a certain set of rules for MGAs, and then in other provinces, it’s a different scenario,” he says. “It becomes a compliance nightmare.”
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