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.
Effects of the P&C Insurance MGA review on insurers and MGAs in Ontario
- For insurers regulated in Ontario: FRSA may request information on your MGA relationships. Be prepared to provide to FSRA information on your MGA relationships, including on the following:
- Your distribution channels.
- Screening and onboarding of MGAs.
- Contractual agreements with MGAs.
- Supervision and monitoring of delegated functions.
- For MGAs dealing with Ontario-regulated insurers: Be prepared to provide information to carriers that may be subject to this review, including on the following:
- The operational effectiveness of delegated functions.
- How relevant carrier policies and procedures are implemented by the MGA.
- The MGA's risk and control environment.
- How the MGA addresses the areas of potential customer harm discussed below.
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 and their role in Ontario's insurance market
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.
Focus areas for FSRA's MGA review
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:
- Insurer distribution through MGAs, including the size and scope of the MGA market in Ontario's P&C insurance sector.
- Due diligence undertaken by insurers in the selection of MGAs for outsourcing arrangements.
- Insurer oversight practices for the functions they outsource to MGAs.
- MGA business practices that may create a higher risk for consumer harm.
Concerns for customer harm
FSRA has identified multiple areas of potential customer harm where insurers outsource functions to MGAs, including:
- Non-disclosure of conflicts of interest that may reduce the likelihood that the customer can access the best available service or product.
- Non-disclosure of the insurer underwriting the risk which can lead to delays in accessing coverage, potential lapses in coverage, and confusion in directing complaints.
- Poor claims management and delays in claim payments.
- Mismanagement of policyholder funds (e.g., not following formal trust arrangements with insurer(s)) which may lead to gaps in coverage and insufficient funds to pay claims.
- Inadequate or insufficient E&O and/or fidelity insurance to cover the MGA's activities which could result in consumer harm.
- Insufficient notice of cancellation or non-renewal of policies which may create challenges for brokers in finding alternate coverage and for consumers in accessing coverage.
FSRA invites feedback
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.