The regulator found evidence of poor training and supervision of agents, unsuitable product sales and compensation models that could lead to consumer harm.
A review found that 80% of universal life product sales didn’t clearly align with consumers’ needs — a situation that creates “a significant risk of poor outcomes,” FSRA stated in a report released last fall that detailed its findings.
A separate review of MGAs that use multi-level marketing found widespread compliance failures at those firms, including undisclosed conflicts of interest, training and supervisory failures, and poor sales practices.
FSRA’s proposed guidance aims to clarify the conduct considered when determining licensing suitability. This new guidance also is intended to remind insurers and MGAs about regulatory expectations for screening and overseeing life agents.
The proposed guidance has strong support.
Assessing suitability for licensing is a critical element of consumer protection, investor advocacy group FAIR Canada said in its submission.
“Given the alarming findings of FSRA’s examinations, clarifying expectations about how past and current conduct may impact an agent’s suitability to hold such a licence is not only appropriate but also necessary to protect Ontarians,” FAIR Canada said. “These findings call out for the strongest possible regulatory response by FSRA.”
The group further stated the proposed guidance should clarify and fill any gaps about expectations related to suitability.
FAIR Canada also suggested that policymakers have more to do, particularly given that the province’s insurance legislation predates the current MGA model and “does not specifically define or contemplate MGAs, or the role they play in the insurance business in Ontario today.”
This concern was echoed by the Independent Financial Brokers of Canada (IFB).
“We suggest that modernizing the existing legislation to better reflect the roles and responsibilities of all those in the distribution system is required,” the industry trade group’s submission said.
FAIR Canada also suggested the government allow FSRA to create and set requirements for new licensing categories. It also recommended FSRA be given authority to determine whether new businesses or business models engage in activities that should fall under insurance legislation and regulations.
Without proper authority, the regulator could face a legal challenge to its interpretation of the legislation from insurers and MGAs, FAIR Canada suggested, with potentially damaging consequences for consumers.
“If any such challenge succeeded, it would seriously impede FSRA’s oversight of MGAs and its ability to protect the public,” FAIR Canada warned, especially in light of the regulator’s recent findings.
FSRA’s Consumer Advisory Panel (CAP) supported the proposed guidance, but called for additional action.
For example, the CAP recommended FSRA more clearly define the roles and responsibilities of insurers, MGAs and agents; beef up supervision to improve compliance with regulatory standards; and strengthen enforcement to deter misconduct.
Additionally, the CAP called on the regulator to encourage reporting of unethical and illegal conduct by adopting strong whistleblower protection, and to step up consumer education so clients understand the service they can expect from the industry.
The CAP also pushed FSRA to hold insurers and MGAs accountable for consumer harm “if there is a significant connection between the creation or elevation of risk and the conduct authorized by the insurer or MGA.”
FSRA has signalled its intention to undertake many of these kinds of steps as part of its efforts to enhance consumer protection in the life insurance industry, including a new rule for MGAs that FSRA plans to publish for comment this year.
In anticipation of potential new rules and guidance, the IFB called for FSRA to harmonize its efforts with similar work underway in other provinces — such as in British Columbia, Saskatchewan and New Brunswick — to better define the MGA role within Ontario’s regulatory framework.
“Harmonizing definitions and approaches reduces regulatory confusion, costs and the need to design tailored approaches for a particular jurisdiction,” the IFB said.