Transcript CONTRACT REVISIONS

MGA Compliance:
An Overview
March 2015
Lisa Lawlor, BA, ACS, AIAA
Manager, Distribution Practices
®
Registered trademark of The Empire Life Insurance Company. Policies are issued by The Empire Life Insurance
Company.
What is happening out there?
There is a lot of “buzz” in the insurance industry these days regarding
the MGA channel.
Regulators have an increased focus on MGAs:
• the role of the MGA
• the insurer- MGA relationship
• how well MGAs know the advisors contracted with them
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The Way the Globe Sees It:
(May 08, 2012) by Tara Parkins
and Grant Robertson
•
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.
•
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.
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The Way the CLHIA Sees It:
Letters to the Editor, Tuesday,
May 10, 2012
Middlemen
•
I disagree with your article Watchdog Urges Greater Oversight Of Insurance Middlemen (Report
on Business, May 8), which states that regulators have determined that there are "holes in the
system's ability to protect consumers.“
•
The report found no consumer protection risks that would warrant changes to the present
regulatory regime - where insurers are responsible to policyholders through binding contracts
and for oversight of their agents; further, all agents, including middlemen known as managing
general agencies, are licensed through provincial regulatory authorities.
•
The report did recommend refinements to strengthen and standardize existing practices; as an
industry, we are committed to improving systems.
•
Consumers are well protected.
Frank Swedlove
President, Canadian Life and Health Insurance Association
© 2012 The Globe and Mail Inc. All Rights Reserved.
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The Regulatory Environment
•
In 2012, the Canadian Council of Insurance Regulators (CCIR)
released a Position Paper on the MGA - “Strengthening the Life
MGA Distribution Channel”. This paper made recommendations on
best practices for insurer-MGA relationships with a focus on roles
and responsibilities.
•
In December 2013, the Canadian Life & Health Insurance
Association (CLHIA) released Guideline G18 to address the CCIR
paper recommendations.
• effective January 1st, 2015
• includes reference documents created to assist both insurers
and MGAs in handling their compliance responsibilities.
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CCIR Position Paper
This is NOT legislation, but recommendations made by
Insurance regulators regarding the Insurer – MGA relationship.
4 areas of recommendation:
1.
2.
3.
4.
Insurers must have effective systems and controls in place when using
the services of an MGA.
Insurers should incorporate the principles of CLHIA Guideline G8
(Screening Agents for Suitability and Reporting Unsuitable Agents) into
their business, including any contracts involving outsourcing of these
functions to an MGA.
Regular market conduct reviews should be undertaken by regulators to
determine if insurers and their agents are providing consumers with
adequate information to make informed decisions, and suitable product
recommendations.
Regulators will develop options and an action plan to make sure adequate
information on life agents and MGAs is obtained in a timely manner.
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CCIR Position Paper
The paper outlined best practices for Insurer-MGA relationships,
giving guidance on effective systems and controls for insurers
(recommendation #1).
These best practices are what insurers and CLHIA have been
referencing when determining whether MGAs are compliant.
These best practices have been incorporated into CLHIA Guideline
G18.
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CCIR Position Paper
The best practices have 4 core principles:
1.
2.
3.
4.
A Clear Strategy: insurer has a clear strategy for selecting,
appointing and managing MGA arrangements as part of its overall
distribution plan.
Thorough Due Diligence: insurer carries out thorough due
diligence of each MGA prior to entering into the arrangement to
provide services.
Well Defined Roles and Responsibilities: insurer has a written
agreement in place with each MGA that clearly defines the
conditions, scope and limits of contracted services.
Active Oversight: insurer proactively manages MGA contracts
once in place to ensure compliance with contract conditions.
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CLHIA Guideline G18
This guideline focuses on the MGA and Insurer relationship in the areas
of due diligence, roles and responsibilities, treating customers fairly, and
monitoring.
The CLHIA worked closely with the Canadian Association of
Independent Life Brokerage Agencies (CAILBA) on the guideline and
more specifically the MGA Compliance reference document which gives
guidance to MGAs on how to manage complying with G18.
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CLHIA Guideline G18
CLHIA recommends member companies reference Guideline G18
in their MGA contracts.
Insurers expect MGAs to follow the Guideline and the reference
document.
Insurers use the CLHIA Compliance Review Survey to review MGA
compliance regimes. This survey has been used for about 4 years
and asks about various areas of compliance, including advisor
screening and monitoring, privacy and AML programs.
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CLHIA Guideline G18 – MGA Compliance
Advisor Screening
• Step by step screening process
• Determine suitability: CLHIA Guideline G8 provides the
guidance for this.
• Advisor Screening Questionnaire: replaces previous methods
for screening. All carriers will expect the standard questionnaire
to be used by MGAs for screening.
On-Going Monitoring
• Know Your Advisor
• Financial strength
• Unsuitable activities and industry practices
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CLHIA Guideline G8
Screening Agents for Suitability and Reporting Unsuitable Agents
This Guideline was issued in 1998 (amended in
2003).
• provides guidance on suitability and screening and monitoring
of advisors for both MGAs and Insurers.
• recently revised and the revisions take effect April 1st, 2015.
CCIR recommends that this guideline be referenced in the MGA
contract. Insurers will expect MGAs to follow the guideline in their
practices.
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