The Canadian Council of Insurance Regulators' review found trouble spots among independent channels.Nuthawut Somsuk/iStockPhoto / Getty Images
A review of Canada’s insurance distribution channels found gaps in oversight and training, but some industry observers are hopeful that much-needed changes are on the way.
The Canadian Council of Insurance Regulators (CCIR) released a review in January of distribution channels that manage and employ Canada’s licensed agents (advisors) for life and health insurance, as well as for property and casualty insurance.
The regulators surveyed 19 insurers about oversight, standards and training for agents working directly for insurers and those working in independent distribution channels.
In particular, CCIR’s investigation revealed trouble spots among independent channels or managing general agencies (MGAs).
The review comes as Ontario’s Financial Services Regulatory Organization says it’s pausing work on a proposed rule to boost oversight of life and health insurance MGAs.
While all insurers have protocols for training and fair treatment of customers, the CCIR report found that some don’t adequately document processes for monitoring MGAs and the agents they supervise.
Byren Innes, managing director and executive consultant at Jennings Consulting in Toronto, says the review sought to quantify oversight and training gaps in distribution channels that have led to complaints about agent behaviour.
“As [insurers] have outsourced most sales over several years, they have largely disbanded internal training and supervisory roles, assuming MGAs would take those on,” Mr. Innes says.
The CCIR report notes that, generally, MGAs carry out these roles adequately, but both insurers and MGAs can fall short, including in these areas:
- Some insurers haven’t identified or communicated expectations to independent distribution channels clearly regarding conflicts of interest. And when those guidelines are present, it’s not always clear if they’re followed.
- Training is offered, but not all insurers have mechanisms to monitor how it’s being conducted among MGAs and whether that training addresses fair treatment of customers.
- Most insurers conduct MGA oversight, but monitoring often focuses on sales volumes and underwriting standards, and less on customer treatment.
By identifying these issues, the report says it’s providing guidance for insurers and MGAs to meet regulatory obligations.
Mr. Innes says the report should clarify regulatory expectations and encourage the development of more rigorous compliance frameworks similar to those in the investment industry.
For insurance broker Herman Chan, the report’s findings are unsurprising. Also an independent financial planner and advisor, Mr. Chan previously worked as a field leader for two leading insurers and an MGA.
“There were definitely more checks and balances once upon a time,” says Mr. Chan, president and certified financial planner with Crimson Financial in Toronto.
He points to insurers reducing their role in oversight and training in recent years, leaving it, in principle, to MGAs.
That’s led to gaps in monitoring and compliance that, when paired with models compensating agents for higher-cost products, have resulted in instances of consumers purchasing insurance not in their best interests, he says.
“Essentially, a lot of costly universal life plans have been sold to people who shouldn’t have these,” Mr. Chan says.
These complex permanent life products are typically designed as tools for tax-efficient wealth preservation for high-net-worth Canadians, but Mr. Chan points to seeing instances in which policies were sold to consumers with lower incomes.
A 2023 report from Ontario’s Financial Services Regulatory Authority (FSRA) found universal life policies sold as retirement savings vehicles to younger consumers with annual incomes of $60,000 or less who had no other retirement savings.
Those findings factored into Ontario proposing new rules for MGAs last year, with a plan to have them in effect June 1. However, FSRA stated last month that it was “pausing” its work to finalize the new rules aimed at strengthening training, conflict of interest protections and oversight of MGAs and their agents.
Although the industry welcomed the initiative for the most part, some worried that a revised version of the proposed rule released in October is too broad and could lead to advisors and small corporate agencies being treated as MGAs.
Mr. Innes says the life and health insurance industry has already been consolidating. Four MGAs now make up most independent distribution channel activity in Canada, and “they have significant compliance and legal resources, likely with good controls already,” he says.
Smaller firms, which may still have businesses worth tens of millions of dollars, are more likely to be affected, he says. “But if I’m a good agent, doing all the right things … this report should have little impact."
Mr. Chan says clearer regulation resulting in more robust training and monitoring, especially regarding fair consumer treatment, will likely improve public trust.
“More standardization and a better balance of responsibility between the insurers, MGAs and agents would be a big positive,” he says.
“As it stands, [insurance advisors] may be slightly above a used car salesman when it comes to trust,” he adds.
Yet, the “jury is still out” on whether the CCIR report will lead to better practices, Mr. Chan says, noting he has heard no changes among MGAs he works with in his practice.