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Watchdog group urges greater oversight of insurance middlemen

There is likely a tax implication to surrendering your policy, but only your insurance broker can confirm exactly what those implications will be.


Middlemen working in Canada's life insurance industry need more oversight, the country's insurance regulators say.

The Canadian Council of Insurance Regulators, an umbrella group that includes the major industry watchdogs, is placing the onus for improvement on regulators themselves, as well as on the country's life insurers.

At issue are middlemen known as managing general agencies, or MGAs, which are essentially wholesalers of insurance policies. A Globe and Mail investigation in 2010 detailed how MGAs have flourished in the past decade, a dramatic shift in the industry that had not yet been dealt with in regulations.

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Following a lengthy study, the regulatory umbrella group has now identified holes in the system's ability to protect consumers, and is making concrete recommendations to provincial regulators to close them.

The study found that regulators do not know enough about this part of the industry, and need to be better informed about the players in it.

In the 1980s, most insurance agents had a contract with the company whose policies they sold. But a massive transformation has since ensued, and today most agents are independent and can sell policies from multiple insurers.

Companies such as Manulife Financial Corp. are increasingly dealing with a vast array of independent agents who are not their full-time employees. MGAs sprang up to help with the training, paperwork and back-office support involved in the new arrangements, taking on such functions themselves and linking insurers to agents.

The Globe investigation found that at least 44 per cent of new life insurance policies being sold to individuals across the country go through MGAs, but regulators were still grappling with the fact that the chain of oversight between insurers and agents had been broken.

The CCIR report, which has just been released, makes recommendations that will now be considered by provincial regulators. CCIR cannot enforce its recommendations, and it will be up to each jurisdiction to decide whether it wants to enact new policies or legislation.

The report cites a number of potential problems with the new system. For example, it says that there might be deficiencies in the way insurers monitor and assess the MGAs with which they work, and that some contracts between insurers and MGAs are too vague.

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It also says that regulators must be more involved in the oversight. "Regulators need to be better informed – not only about insurers and the MGAs with whom they contract – but also about who are the insurance agents licensed in a particular jurisdiction, what is their business model, and how many of these licensed agents are performing functions that fit the definition of an MGA," the report says.

Doug McLean, deputy superintendent of financial institutions at B.C.'s Financial Institutions Commission, and a spokesperson for the CCIR, said the recommendations are meant "to strengthen consumer protection in the life insurance industry."

He said the recommendations seek to ensure that insurers have effective systems and controls in place when they use the services of an MGA; that regulators frequently review market conduct; and that regulators improve their ability to identify who the MGAs are and keep adequate information on them.

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