In a significant move to modernize Ontario's insurance sector, the Ministry of Finance has proposed certain legislative amendments to the Insurance Act (Ontario) (the "Act") and has issued an accompanying consultation paper focusing on establishing a robust regulatory framework for Life and Health Managing General Agents ("L&H MGAs") in Ontario. The insurance industry's shift towards third-party distribution models, with MGAs now playing a central role and accounting for approximately 65% of all new individual life and health insurance premiums in Canada has highlighted the need for updated regulations to address consumer protection and ensure a fair, competitive market.
Ontario's move to regulate L&H MGAs as managing general agents makes it the latest province to take this step, following Saskatchewan and New Brunswick, with other provinces looking at this regulation as well. This follows the proposed guidance on Life Insurance Agent & MGA Licensing Suitability issued in late-2023 by the Financial Services Regulatory Authority of Ontario ("FSRA").
The following are key proposals provided to amend the Act and consultation paper. It is important to note that the proposed amendments do not address managing general agents that operate outside of the L&H insurance sector (i.e. in the property and casualty space).
Dedicated Licensing Class for L&H MGAs
Currently, the Act does not specifically refer to L&H MGAs or set out a licensing class for L&H MGAs. The proposed amendments to the Act introduce a specific licensing class for L&H MGAs and would require any person or entity under an agreement with a licensed L&H insurer and performing one or more of the below activities on behalf of an insurer to obtain an L&H MGA license:
- Recruiting agents or prospective agents for an insurer,
- Screening agents or prospective agents to confirm the agent is suitable to carry on business as an agent,
- Providing training to agents,
- Supervising or monitoring the activities of agents,
- Entering into written agreements with agents who sell or solicit L&H insurance offered by the insurer(s),
- Reviewing insurance applications received from agents, or,
- Transmitting an application or a policy of insurance between an insurer and agent.
Furthermore, a licensed L&H MGA conducting insurance agent activities as defined under the Act would also be required to obtain a license as an agent, in addition to an L&H MGA license. L&H MGAs who are currently licensed by FSRA as corporate agencies would have to either transition to a FSRA L&H MGA licence or obtain an L&H MGA licence on top of their existing agent licence to meet all licensing requirements.
The same licensing framework would apply to other independent agents such as national accounts, third-party administrators or sub-MGAs, meaning that if any of these entities are conducting any of the above-mentioned activities, then they will be required to obtain an L&H MGA license.
Similar to how an agent cannot apply for an adjuster license, an L&H MGA licensee will also not be able to apply for an adjuster license.
Requirements of an L&H MGA Licensee
The proposed amendments provide FSRA with new rule-making authority to license and regulate L&H MGAs, and in particular require L&H MGAs to:
- Establish minimum professional standards to obtain an
L&H MGA licence:
- L&H MGAs will be required to comply with professional standards similar to those applicable to insurance agents under the Agents Regulation under the Act, including having appropriate errors and omissions insurance and liability insurance.
- Establish and maintain a compliance system with
appropriate reporting and record-keeping requirements:
- L&H MGAs will be required to establish and maintain a compliance system to oversee their agents and to report findings to the relevant insurers. Furthermore, to the extent an L&H MGA further delegates or outsources activities of an insurer to a sub-MGA, the L&H MGA will be required to ensure that the sub-MGA has its own compliance system.
- Accordingly, L&H MGAs will be responsible for monitoring the compliance system(s) of all sub-MGAs within the originating MGA's distribution chain, and the insurer is responsible for monitoring the compliance system(s) of all MGAs in its distribution chain.
- L&H MGAs will be required to submit an annual report to insurers which shall include certain prescribed information, to be determined.
- Have a designated compliance representative who is
responsible for the above:
- The proposed amendments introduce certain factors that may be considered when determining the eligibility of a compliance representative, including being an officer of the L&H MGA, having the requisite experience and qualifications, avoiding conflicts of interest and maintaining operational independence from any sales function.
- Importantly, a compliance representative of an L&H MGA will not be required to be a licensed agent.
Insurers' Obligations in relation to L&H MGA compliance
A key policy challenge noted in the consultation paper is how the various amendments should be designed to enable insurers who are outsourcing functions and sharing responsibilities with third party distribution partners to maintain oversight and accountability of risks to ensure they ultimately remain responsible to policyholders. Some of the key obligations of insurers in the proposed amendments include:
- Maintaining oversight of L&H MGAs and monitoring the effectiveness of their compliance systems.
- Informing FSRA of agreements with L&H MGAs, including any material changes and instances of non-compliance.
- Ensuring continuation of service to policyholders if an L&H MGA in a distribution chain ceases to operate.
- Independently assessing the suitability of an agent to hold a licence by reviewing the relevant information compiled by an L&H MGA or third party.
- Ensuring that any contracts with L&H MGAs set out the compliance and monitoring requirements.
- Providing appropriate material, training and guidance to L&H MGAs and agents acting on the insurer's behalf.
Engagement and Feedback Process
The proposed amendments to the Act represent a forward-thinking approach to regulating Ontario's life and health insurance sector. By addressing the challenges posed by the evolving distribution model, the Ministry of Finance aims to enhance consumer protection, regulatory certainty, and public confidence. The Ministry of Finance has been actively seeking input from stakeholders to refine these proposals to ensure the final legislative changes reflect the needs and expectations of both the industry and consumers. We will closely follow how industry feedback may be reflected in the final legislation.
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