Ontario introduces new L&H MGA licensing framework

The Ontario Ministry of Finance (MOF) is proposing to amend the Insurance Act to introduce a new licensing framework to regulate life and health (L&H) managing general agents (MGAs) in the province. The MOF has initiated a consultation to seek feedback on a proposal that would introduce a new L&H MGAs licensing regime, give the Financial Services Regulatory Authority of Ontario (FSRA) rule-making authority over such MGAs, and clarify the duties of insurers, MGAs and agents. While the initial proposal is subject to an ongoing consultation process and, hence, may change, it nevertheless represents a major development in the insurance industry in Ontario. The proposal is not unexpected, but it does represent a further departure by Ontario from harmonization of the insurance licensing requirements with those of the other provinces.

What you need to know

• New licensing class. The proposal defines the activities for which licensing as an L&H MGA will be required. If an entity that undertakes L&H MGA activities also conducts agent activities, it must be dually licensed as an L&H MGA and as an agent.
• Who must be licensed. The scope of L&H MGAs licensing requirements captures all entities that perform L&H MGA delegated activities on behalf of L&H insurer(s), including sub-MGAs, associate general agents, national accounts and third-party administrators. It excludes, however, Property and Casualty MGAs and Accident and Sickness-only MGAs.
• Licensing requirements. In order to be licensed, L&H MGAs will be required to meet professional standards, establish and maintain a compliance system with appropriate reporting and record-keeping requirements; and have a designated compliance representative. FSRA will be given new rule-making authority to prescribe more specific licensing requirements.
• Compliance system. L&H MGAs will be required to monitor the compliance system(s) of all sub-MGAs within the originating MGA’s distribution chain and L&H insurers will be required to continue to monitor the compliance system(s) of all MGAs in their distribution chain.
• New disclosure requirements. Insurers and L&H MGAs will be both required to notify FSRA within 30 days of entering into, amending or terminating MGA agreements, in the case of insurers and sub-MGA agreements. In the case of L&H MGAs, the MGA and sub-MGA agreements and any amendment(s) thereto must be filed with FSRA.
• Transition and effective date. The amendments are expected to come into force in 2026 and a transition period will apply. Corporate agencies licensed by FSRA that perform MGA functions will have to either transition to an FSRA L&H MGA licence or obtain an L&H MGA licence on top of an existing agent licence, as applicable.

Background

On July 26, 2024, the MOF initiated a public consultation on the proposed legislative amendments (the MOF Proposal) to the Insurance Act¹ (the Act) to create a regulatory framework under the Act that would:

• introduce a new L&H MGAs licensing regime;
• provide FSRA with rule-making authority to license and regulate L&H MGAs; and
• clarify the roles and responsibilities of licensed L&H insurers (insurers), L&H MGAs and agents.

Under the existing regulatory framework, the Act does not refer to L&H MGAs and their activities are not explicitly defined or regulated. The underlying rationale for the MOF Proposal is to modernize the existing legislative framework and to provide more regulatory certainty and enhance consumer protection and confidence in the L&H insurance sector in Ontario.

The consultation closes on September 9, 2024. Following the close of the consultation, MOF may recommend amendments to the Act, with such changes potentially coming into force in 2026. This is a short consultation period relative to those conducted in the insurance sector in other provinces, which are at times extended when the summer months intervene. 

L&H MGAs definition and licensing matters

What is an L&H MGA?

The MOF Proposal defines an MGA as a person or entity who, under an agreement with an insurer, performs one or more of the following activities on behalf of the insurer:

• recruiting agents or prospective agents for an insurer;
• screening agents or prospective agents to confirm the agent is suitable to carry on business as an agent;
• providing training to agents;
• supervising or monitoring the activities of agents;
• entering into written agreements with agents who sell or solicit L&H insurance offered by the insurer(s);
• reviewing insurance applications received from agents; or
• transmitting an application or a policy of insurance between an insurer and agent.

Licensing class and scope

If any person, including corporations and partnerships, falls within the definition of an MGA, the person would be required to obtain a L&H MGA licence. However, it is not clear from the proposed amendments to the Act whether individuals would be eligible to apply for a L&H MGA licence. We expect this will be clarified during the consultation process. The scope of the definition of L&H MGAs captures all MGA entities, including sub-MGA², national accounts and third-party administrators who perform the L&H MGA activities described above. However, the proposed L&H MGA licence would exclude Property and Casualty MGAs and Accident and Sickness-only MGAs.

Furthermore, if a corporation or partnership licensed as an L&H MGA conducts activities requiring an agent licence (e.g., soliciting or selling insurance), the corporation or partnership must also be licensed as an agent.

FSRA new rule-making authority

The MOF Proposal contemplates providing FSRA with new rule-making authority to set out requirements for L&H MGAs with respect to:

• minimum professional standards to obtain an L&H MGA licence;
• establishment and maintenance of a compliance system with reporting and record-keeping requirements; and
• appointment of a designated compliance representative who is responsible for the above requirements.

Professional standards

L&H MGAs will be required to act in a professional manner similar to the requirements under the Licences and Duties of Life Insurance Agents sections of the Agents Regulation³. In addition, L&H MGAs would be required to have appropriate errors and omissions insurance and liability insurance.

Compliance system

Under the Agents Regulation, insurers already have an obligation to establish and maintain a compliance system to ensure agents’ suitability. Under the proposed compliance system, L&H MGAs would be responsible for monitoring the compliance system(s) of all sub-MGAs within the originating MGA’s distribution chain and insurers would continue to be responsible for monitoring the compliance system(s) of all MGAs in their distribution chain.

The MOF Proposal introduces annual reporting requirements for L&H MGAs to submit certain information to insurers with respect to their compliance system. L&H MGAs will be required to maintain records for a reasonable period, yet to be determined, that demonstrates compliance with the applicable requirements.

Of note, the MOF Proposal also introduces a requirement for L&H MGAs to report the following information to FSRA within 30 days of entering into, amending or terminating a contract/agreement under which an L&H MGA subcontracts to a sub-MGA:

• written notice of such agreement, amendment or termination, and
• a copy of the agreement and any amendment to it.

Designated compliance representative

MOF is proposing that L&H MGAs have a designated compliance representative responsible for overseeing the L&H MGA’s compliance system. A compliance representative is expected to meet certain eligibility criteria that include, among others, being an officer or partner of the L&H MGA, avoiding conflicts of interest and maintaining operational independence from any sales function of the L&H MGA. The compliance representative is not required to be licensed.

Roles and responsibilities of insurers, L&H MGAs and agents

The MOF Proposal also sets out certain duties and responsibilities for insurers, L&H MGAs and agents. We set out some of the notable responsibilities for insurers and L&H MGAs below. For the full description of those responsibilities, please refer to the MOF Proposal.

Insurers

• Insurers must ensure continuation of service to the policyholders if the insurer’s relationship with or status of an L&H MGA changes.
• Insurers are prohibited from delegating the screening of new applicants for an agent’s licence unless the insurer independently assesses the relevant information compiled by an MGA or third party and makes the final determination about the applicant’s suitability to hold a licence.

L&H MGAs

• L&H MGAs must inform the insurer of any material change in agreements with insurers or sub-MGAs and non-compliance of sub-MGAs and/or agents.
• L&H MGAs must inform FSRA of any new agreement, amendment or termination of agreement with a sub-MGA.

Harmonization

Many of the proposed requirements described above, if adopted, will be a significant departure from the requirements applicable in other provinces. An outcome of less, rather than more, harmonization is expected.