Canadian MGAs propose ‘fit-for-purpose’ regulations

Modifying the current Fair Treatment of Consumer (FTC) regulations for the insurance sector in Canada may be the quickest and most efficient way to achieve national regulatory standards for managing general agents, according to a new White Paper released by the Canadian Association of Managing General Agents (CAMGA) last Wednesday.

The White Paper was written by Patrick Ballantyne, who retired as CEO of the Registered Insurance Brokers of Ontario (RIBO) last June. CAMGA asked Ballantyne to prepare the White Paper as a consultant and Ballantyne spoke to the paper’s 14 recommendations at CAMGA’s annual general meeting in Toronto yesterday.

“Assuming alignment amongst the regulators to achieve a ‘fit-for-purpose’ approach to P&C [MGA] licensing and standards, the challenges of amending numerous statutes and regulations and bylaws is daunting and could frankly take years,” Ballantyne said. “What could be more achievable relates back to fair treatment of customers.

“It is perhaps as close as we have in Canada to a national policy for the insurance sector. FTC guidelines already exist for insurers and for intermediaries, and they have become touchstones for much of the regulatory action in recent years.

“I don’t believe that an MGA-specific role in ensuring FTC is articulated in those current guidelines, so I’m recommending the development of a tailored, FTC MGA guidance that includes the specific expectations of the MGA in supporting both their insurer partners and their broker partners for the ultimate benefit of the public.”

The White Paper calls for MGAs to adopt and publish annual statements of compliance with any future FTC MGA guidance, as well as to adopt policies and procedures in alignment with any future FTC guidance.

Insurers and brokers would then be able to integrate a request for these statements of compliance into their due diligence when deciding whether to work with the MGAs.

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The statements of compliance would be signed by a Designated Individual at the MGA, who would be the point person between the regulator and the MGA. It’s akin to the ‘Designated Representative’ (DR) at a brokerage responsible for compliance matters, and the primary contact between the brokerage and the regulator.

However, Ballantyne noted, existing licensing regulations tend to focus on the DR’s role in the retail brokerage — which deals directly with consumers — and not on the proposed role of the DI in the MGA, which the paper defines as “delegated extensions of an insurer’s underwriting, distribution and administration functions.”

Essentially, MGAs sit between retail brokers and insurers who delegate their underwriting authority to the MGA. MGAs provide specialized insurance to retail brokers’ clients, backed by carriers’ capacity.

Given this unique role, licensing requirements for MGA DIs should be tailored accordingly, Ballantyne noted of the White Paper’s recommendations.

“Part and parcel of any FTC guidance for MGAs should be an articulation of the expected qualifications and responsibilities of the designated individual,” said Ballantyne. “That alone could be of tremendous value in supporting more effective oversight and governance of the sector….

“While some regulators have issued guidelines for designated individuals, they again are more reflective of the retail broker realm. Refining these expectations, either as part of an MGA FTC guidance, or as a standalone initiative, would be, in my opinion, evaluable, and importantly, again, achievable. And that’s important.”

As MGA regulation in Ontario is voluntary and not mandatory (those who volunteer to be regulated come under the broker licensing guidelines under RIBO), the White Paper recommends that Ontario brokers only work with MGAs that are licensed under RIBO.

Also, the paper proposes setting up “an audit program specifically for MGAs that reflects standards set out in legislation and/or a prospective FTC Guidance for MGAs. These audits could be conducted by a single regulator or an approved independent party. Results would be shared with regulators in jurisdictions where the MGA is licensed.”

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“The goal here is so that you’re not subjected to multiple jurisdictional audits, but that they are shared amongst the jurisdictions where you’re licensed,” said Ballantyne.

Seventy percent of MGAs surveyed in the White Paper believed it was appropriate to audit MGAs.

CAMGA’s website lists 82 members, and the White Paper notes 80% of the membership responded to the survey.

David Gambrill

David has twice served as Canadian Underwriter’s senior editor, both from 2005 to 2012, and again from 2017 to the present.