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