Fragmented provincial regulation of Canada’s managing general agents (MGA) means MGAs should opt to undergo regular compliance and auditing practices alongside their regulatory upkeep, says Elaine Collier, senior auditor at Pro Global.
This would prevent MGAs from overstepping their role as intermediaries between brokers and insurers, says Collier, who says these waters often “get muddy.”
MGAs don’t deal with clients directly. They are described as “outsourced underwriters,” in the sense that insurance companies give MGAs the authority to underwrite policies, handle claims, and perform other insurance functions. On behalf of their own business clients, public-facing retail brokers go to MGAs to place coverage in specialized areas of insurance.
“[MGAs] are meant to be liaising purely with the retail brokers, whether they’re in-house or external,” says Collier. “But sometimes people will do a dual role, will take a dual function, or it creeps over sometimes, and it’s hard to keep separate.
“The waters get quite muddy in some instances, when you have an MGA that is also acting as a broker, or…a broker acting as an MGA,” she adds.
Collier says MGAs have gotten better at achieving a church-and-state separation between their underwriting and production functions, but “they aren’t always in sync,” she says.
“There’s supposed to be a clear separation between the marketing of business to the general public on the broker side, and the underwriting and acceptance of that business on the MGA side.”
This separation between underwriting and production is especially difficult in softer markets, says Collier.
Who should regulate MGAs?
Managing MGA operations can become quite complex in markets where regulatory frameworks vary significantly, as oversight is conducted provincially.
In Ontario, MGAs can volunteer to license themselves as retail brokers through the Registered Insurance Brokers of Ontario (RIBO), the province’s self-regulatory body for brokers.
The Financial Services Authority of Ontario (FSRA), which regulates insurers, does not have a specific licensing regime for MGAs.
In British Columbia, MGAs, including their staff, are required to be licensed by the Insurance Council of B.C., just like any other insurance agency
In Alberta, all businesses selling insurance or acting as agents, including MGAs, are required to be licensed with Alberta Insurance Council.
Collier believes regulation of MGAs should be conducted provincially, rather than federally.
The Office of the Superintendent of Financial Institutions (OSFI), which regulates insurers nationally, “oversees things from a macro viewpoint,” she says. “When you get to the provincial level, you’re looking more at the micro level. And that’s, in my opinion, how it should be.”
That said, Collier believes the industry can expect to see more regulatory enforcement of Canada’s MGAs as the dust settles on recent legal action taken by TruStar, a Canadian P&C MGA, against its former CEO, two unnamed defendants and two unnamed corporations. That case has yet to make its way through the courts.
Does auditing lead to better regulatory compliance?
Many MGAs have in-house compliance officers who manage regulation or compliance-related documentation and licensing.
That, combined with external auditors, is the key for MGAs to ensure they’re doing their due regulatory diligence, Collier says.
“You can put all this compliance structure and regulation from the various levels of government in place, but then you have to have the follow-through,” she says. “And the follow-through is on audit.”
Audits can help prevent regulatory impacts before they arise, Collier says. She suggests MGAs should hire third-party firms to conduct the audit.
“When we do audits, they’re preventative as well, to see if you straighten up and fly right in this area. Does something need to be tweaked to make the business better in the eyes of the insurer and produce the results expected?”
But auditing can also be remedial, she says.
“If someone has already gone in and looked at it [and said’ ‘You were going to do this, but you haven’t done it yet. And here we are a year later,’” [then] let’s talk about ways that we could put a plan in place for those improvements to be made,” she says. “I view it as an opportunity for continuous improvement.”
Feature image by iStock.com/scyther5
