Alana Scotchmer
Partner
Article
7
On February 22, 2024, the Financial Services Regulatory Authority of Ontario (“FSRA”) published its Supervision Plan: Property & Casualty Insurer – Managing General Agent Outsourcing Relationships (the “Supervision Plan”).
The Supervision Plan gives details of an upcoming review of P&C insurers and their outsourcing arrangements with managing general agents ("MGAs"). The Supervision Plan is intended to ensure that fair treatment of customers ("FTC") principles are being met in Ontario's property and casualty insurance ("P&C Insurance") sector.
FSRA conducted a similar review of MGAs in the life and health insurance sector, and issued a Final Report discussing its findings in 2021.
It remains to be seen whether the MGA review described in the Supervision Plan will lead to increased enforcement or additional regulatory requirements for dealing with MGAs in Ontario.
MGAs may perform a range of outsourced insurance functions including developing products, pricing, transmitting applications, underwriting, collecting premiums, adjusting and administering claims. These functions are traditionally conducted by a licensed insurance company, but may be outsourced by insurers to MGAs through contract.
Many MGAs are effectively wholesalers that do not deal with the public directly: they focus on connecting licensed insurance brokers with insurers. Despite the fact that MGAs perform certain functions of the insurer, there is a significant asymmetry between the regulation and oversight of insurers and that of MGAs.
Although MGA-specific licensing requirements exist in other provinces, Ontario's insurance legislation does not provide for this currently. In Ontario, many MGAs are licensed as insurance brokers with the Registered Insurance Brokers of Ontario ("RIBO"). In some circumstances, such licensing is voluntary. Many MGAs do obtain licences voluntarily, since being licensed offers some important advantages.
Outside of submitting to voluntary licensing, there is no specific regulation or supervision of MGA activities in the province. FSRA has determined that insurer oversight of the activities outsourced to MGAs varies widely and has identified, as a concern, that customers' interests may not be given adequate attention in this environment.
FSRA's review is intended to better understand the MGA marketplace and outsourcing relationships between insurers and MGAs. FSRA's review will focus on four key areas of insurer/MGA relationships:
FSRA has identified multiple areas of potential customer harm where insurers outsource functions to MGAs, including:
FSRA's market intelligence gathering to date has been informed by stakeholder engagement and consultation. As part of the review detailed in the Supervision Plan, FSRA intends to continue to work with industry and other stakeholders in its review of insurers' outsourcing arrangements with MGAs.
FSRA has engaged the new Non-Auto P&C insurance Supervision Technical Advisory Committee ("TAC"), formed in December 2023 to support this effort. FSRA will work with TAC and other stakeholders to seek advice and feedback to inform its approach to ensure the fair treatment of customers.
While FSRA has not published any specific details or timeframes with respect to participation, FSRA welcomes comments from stakeholders on the Supervision Plan. We are pleased to assist industry stakeholders interested in engaging with FSRA regarding its review and Supervision Plan. Our Financial Services Regulation practice group is here to assist.
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