An Ontario regulator is widening a review of the life and health insurance industry after an initial probe found“concerning practices involving the most common way individual life and health insurance policies are sold” in the province.
The Financial Services Regulatory Authority of Ontario said its initial probe found “four main areas of concern” that potentially exposed consumers to harm. Among them was that three managing general agencies were compensating agents based not only on their own sales but also on the sales made by people they recruit, which “could have motivated the recruitment of individuals who are not yet licensed” as well as many sales by new agents, the regulator said.
Managing general agencies, or MGAs, are companies that are essentially contracted out by insurers to sell their product, and more individual life and health insurance policies are sold through agents associated with these agencies than through any other distribution channels in Ontario, FSRA spokesperson Russ Courtney said in an email.
“These specific MGAs appear to be involved in a kind of multi-level marketing business-model that we feel raises significant consumer protection concerns in life and health insurance,” he said. “Agents are compensated not only based on the work they perform for customers but also — and in some cases primarily — on how many agents they have recruited.”
The regulators also found that agent training “lacked important substance, rigour and reporting mechanisms” and that relatively complex products were being sold by agents without adequate oversight to ensure product suitability and fair treatment of customers. Finally, they found that insurers and MGAs performed “ minimal formal and proactive supervision of their agents to ensure fair treatment of customers.”
As a result of the initial findings, FSRA is conducting a “thematic” review of life insurance agents in the province and of those contracted with the three agencies it has already begun to examine. It also laid out further plans Wednesday including a consideration of “ appropriate regulatory action.”
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FSRA will be consulting with the public next year on a planned overhaul of the regulatory framework for MGAs.
The initial review, which led to what Courtney referred to as “concerning” findings, was done with the Canadian Council of Insurance Regulators and was the first of its kind conducted “to identify potential market conduct and consumer risks,” according to FSRA.
“The observations of the review, combined with the rapid growth of these MGAs and newly sponsored agents in Ontario, point to the potential for consumers to be harmed,” said Huston Loke, executive vice president of market conduct at the regulator.
FSRA, which supervises insurers, intermediaries and agents that sell life and health insurance, said insurers are legally required to have systems reasonably designed to ensure compliance by their agents. This applies to MGAs and individual agents who sell their products. Insurers, MGAs and agents who delegate a duty, such as agent screening, training, or supervision, “retain responsibility for their legal obligations if their delegate does not adequately perform the duty assigned,” the regulator said.