On March 29, 2022, the Financial Services Regulatory Authority of Ontario (FSRA) announced the launch of its first Life and Health Agent (Life Agents) Supervisory Framework (the Framework). According to FSRA, "the [F]ramework will ensure that Life [A]gents in Ontario are subject to proactive supervision for the first time since 2018, promoting transparency and disclosure of information, while deterring deceptive or fraudulent conduct, practices, and activities."

For context, a new dedicated Life and Health Insurance Agent Unit (the LAU) was created within FSRA's market conduct group in late 2020 to develop and implement the Framework. The Framework was developed in four phases over the course of 2021, with the goal of allowing FSRA to actively supervise Life Agents in conjunction with developing the risk profiling and examination tools under the Framework. In addition, the Framework is tied to existing regulatory requirements for Life Agents and comprises the following four key elements: (i) life agent risk profiling; (ii) life agent examinations; (iii) communications and enforcement actions; and (iv) reporting.

The following insight will provide (i) a brief summary of the four phases of the Framework's implementation; and (ii) the key elements of the Framework and its implications for those conducting life and health insurance business in Ontario.

I. Phases of the Framework's development and implementation

(a) Phase 1 – Life Agent supervision (December 2020 to June 2021)

Until the establishment of the LAU, there had not been proactive Life Agent supervision in Ontario since 2018. Prior to the formation of FSRA, Life Agent supervision in Ontario was generally done on a reactive basis. In January 2021, FSRA began pilot examination programs (the Pilot Examinations) to investigate certain Life Agents that had been the subject of a Life Agent Reporting Form (LARF) or consumer complaint (since FSRA's establishment in 2019).

(b) Phase 2 – Framework development (July to October 2021)

In Phase 2, FSRA began developing the Framework based on results of the Pilot Examinations, its review of LARFs, and additional ad hoc examinations conducted in Phase 1 (noted directly above). Additionally, FSRA conducted certain "roadshows" to introduce the LAU to industry stakeholders and obtain feedback in connection with the development of the Framework.

(c) Phase 3 – Framework implementation (November 2021 to March 2022)

FSRA implemented the Framework and began proactive examinations of Life Agents using available risk profiling. This included the examination of certain Life Agents dual licensed as mortgage brokers who had been subject to disciplinary action by another regulator since 2019, and certain Life Agents that were the subject of consumer complaints.

(d) Phase 4 – March 2022 and onwards

Going forward, FSRA acknowledges that efficiencies and technology will allow the LAU to conduct a greater number of Examinations (as defined below). However, FSRA plans to consult with industry stakeholders on the following: (i) what volume of examination is considered "reasonable and proportionate"; (ii) how Life Agent reporting may be improved; and (iii) how industry best practices may be incorporated into the Framework going forward.

II. Key elements of the Framework

The Framework has four key elements that will each be described in greater detail below.

(a) Life Agent Risk Profiling

The Framework's Life Agent risk profiling (Risk Profiling)aims to take an "efficient and risk-based approach to supervision" through its focus on Life Agents that present the highest risks to the public from a regulatory respective. The Risk Profiling was developed using FSRA data collected through licensing applications, renewals, consumer complaints, LARFs, and enforcement activity reported by other Canadian regulatory bodies.

(b) Life Agent Examinations

During Phase 2 of the Framework's development and implementation, the LAU began ad hoc examinations of Life Agents identified by FSRA's Licensing Compliance Unit and its Complaints and Risk Assessment Unit (the Examinations). FSRA noted that the Framework has been used to evaluate and verify Life Agents' compliance with the Insurance Act  (Ontario) (the Act), its regulations, and FSRA's Guidance: Conduct of Insurance Business and Fair Treatment of Customers  (the FTC Guidance) (released in January 2021).

(c) Communication and enforcement action

Upon completion of the Examinations, the LAU communicates any contraventions of the Act or its regulations to FSRA's Regulatory Discipline Officer for further review. Additionally, once the Examination is complete, FSRA will communicate one of the following six outcomes to the applicable Life Agent:

  1. No contraventions of the Act, its regulations, or the FTC Guidance;
  2. No contraventions of the Act, or its regulations, but contraventions of business practices not enforceable by FSRA;
  3. Contraventions of the Act, or its regulations, resulting in a formal letter of warning;
  4. Contraventions of the Act, or its regulations, resulting in a formal letter of warning and identifying contraventions of business practices not enforceable by FSRA;
  5. Contraventions of the Act, or its regulations, resulting in escalation to FSRA's Legal and Enforcement Unit or a Regulatory Discipline Officer for potential enforcement action; or
  6. Contraventions of the Act, or its regulations, resulting in escalation to the Legal and Enforcement Unit or a Regulatory Discipline Officer for potential enforcement action and identifying contraventions of business practices not enforceable by FSRA.

(d) Publication and reporting

FSRA notes that the Framework helps achieve FSRA's statutory objectives by contributing to public confidence through promoting transparency, disclosure of information, and deterring deceptive or fraudulent conduct, practices, and activities. In connection with the foregoing objectives, FSRA has published various reports and industry notices highlighting findings from its supervisory activities.

III. Key takeaways for life and health insurers

FSRA stated that it expects the number of Examinations to increase over time, as the process becomes more efficient and incorporates certain technologies. In releasing the Framework, FRSA published certain findings from the Pilot Examinations conducted during Phase 1 of the Framework's development. The Pilot Examinations included 70 agents examined by FSRA, from which FSRA identified 105 contraventions of the Act. This resulted in formal regulatory findings against 29% of Life Agents examined. Further, out of 240 Life Agent client files examined during the Pilot Examinations, 56% of Life Agents were found to not be following industry best practices.

In its findings from the Pilot Examinations, FSRA noted that "these outcomes suggest that life agents need to improve their overall business practices, and that the insurers who are obligated to monitor the intermediaries authorized to sell their products need to review their life agent compliance programs."

It is clear that the life and health space has been an area of focus for FSRA and that FSRA intends to be proactive in its investigation and enforcement activity as its relates to Life Agents. Insurers and intermediaries conducting life and health insurance business in Ontario should carefully review their processes and practices to ensure compliance with the Act, its regulations, the Framework, and other applicable FSRA regulatory guidance. 

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