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Revised proposals for new regulations under consideration for life and health managing general agents (L&H MGAs) address some shortcomings of previous proposals, but leave gaps in consumer protection, insurance industry experts say.
Ontario’s Ministry of Finance opened a consultation period on July 3 for proposed amendments to the province’s Insurance Act, Section 407.2, focused on the licensing framework for L&H MGAs. The deadline for comments to be submitted through the Ministry’s Regulatory Registry is Aug. 17.
These revised amendments tighten the definition of L&H MGAs in response to concerns raised following Insurance Act changes in the fall of 2024 that created a new licensing framework for these distribution-focused intermediaries between insurance companies and agents.
In early 2025, the Financial Services Regulatory Authority (FSRA) proposed Rule 2025-001 to build on these changes, with consultation pointing out that the L&H MGA licensing requirements cast too wide a net. As a result, implementation was paused.
According to the Ministry’s new consultation paper, “The proposed amendments are primarily intended to narrow the scope capture for L&H MGA licensing purposes, in order to improve regulatory clarity, reduce unnecessary duplication in licensing requirements and mitigate the risk of potential unintended consequences.”
In addition, the document proposes identifying activities that will be subject to FSRA standards, “including roles and responsibilities of insurers, L&H MGAs and agents, without tying the performance of these activities to a requirement to obtain an L&H MGA licence.”
Prescribed activities may include recruiting, training and supervising or monitoring agents.
Byren Innes, chief executive officer, managing director and executive consultant at Jennings Consulting in Toronto, says it’s beyond time to introduce a licensing regime for L&H MGAs, which have been without one since they emerged some 35 years ago, and, in principle, authorizing FSRA to set standards is a good thing. However, without further details, “We may be raising a bar, [but] we may not be.”
One gap acknowledged in the consultation paper is that an exclusive focus on the retail channel means the group insurance business isn’t subject to the same rules.
“At this time, [the Ministry] believes there is less evidence that L&H MGAs solely facilitating the distribution of group insurance contracts while performing the prescribed agent-related activities pose the same risks to consumer protection,” the consultation paper states.
The consultation paper goes on to ask if L&H MGAs that exclusively sell group insurance should be included, and Mr. Innes says this is an area of the industry that needs more attention.
After all, he says, members of group insurance plans need better protection as they don’t generally get the benefit of the needs analysis, fact-finding form and reason-why letter generally required for retail insurance sales.
A group insurance member may be able to log into the group website and arrange for substantial amounts of voluntary life insurance coverage without anyone asking if they really need it.
Taking a broader perspective, he asks, “Why are we focusing on MGAs when we have [many] other ways you can buy policies, which are much less guided, much less regulated? Shouldn’t there be standards across the board?”
Conflict of interest unaddressed
For Harold Geller, partner in the investor protection group at Sotos LLP in Toronto, the amendments are a step forward.
However, they fail to address the fact that L&H MGAs earn their money by taking a percentage of an agent’s commissions, which introduces a significant conflict of interest. L&H MGAs cannot be expected to oversee agents’ actions if they earn more profits when agents sell unsuitable products to clients.
He would also like to see L&H MGAs required to hold errors and omissions insurance to provide funds to compensate policy owners if there are oversight mistakes.
Furthermore, Mr. Geller is concerned that the amendments don’t provide enough clarity on the specific responsibilities of insurance companies and L&H MGAs. For example, there’s a requirement for agent training, but no direction about what type of training qualifies for continuing education (CE) credits.
“Principles-based policies do not work unless they also have prescriptive elements, because no one knows what to do. We need a regulator that will adhere to its mandate of consumer protection … and, in this proposal, they have failed. They fixed an element, but did not address the [bigger] problem,” Mr. Geller says.
“Agents want to do what’s right for their clients – almost all of them. And they need to have somebody watching for their mistakes, [because] we all make mistakes,” he adds. “… If you have good compliance, that helps the agents and it helps the consumers.”
Overall, Jim Ruta, an independent global life insurance sales authority in Burlington, Ont., sees the proposed regulations as “a common-sense chain of supervisory responsibility from [insurance] company to the client.” But, he says, “The devil is in the details.”
He hopes for a very precise definition of an L&H MGA that doesn’t inadvertently sweep up organizations such as his, which could be described as providing training and supervision (through coaching) to agents. He also thinks there needs to be an emphasis on relevant training and responsible selling.