'Concerning' findings prompt deeper probe of life and health insurance sector

Ontario regulator finds 'four main areas of concern' as review reveals apparent 'multi-level marketing' practices at certain MGAs

'Concerning' findings prompt deeper probe of life and health insurance sector

After discovering "concerning practices involving the most common way individual life and health insurance policies are sold" in the province, Ontario’s financial regulator has chosen to widen an already-ongoing review of the sector.

In its initial investigation, the Financial Services Regulatory Authority of Ontario said it discovered "four main areas of concern" that might have put consumers at risk, reported the Financial Post.

According to the regulator, three managing general agencies paid agents based not only on their own sales but also on the sales of people they hired, which "could have motivated the recruitment of individuals who are not yet licensed" as well as many sales by new agents.

Read more: 12 life-insurance agents, exposed as exam cheats, have licenses revoked

More individual life and health insurance policies are sold through agents affiliated with managing general agencies, or MGAs, than through any other distribution channels in Ontario, according to an emailed statement by FSRA spokesperson Russ Courtney to the Post.

“These specific MGAs appear to be involved in a kind of multi-level marketing business-model that we feel raises significant consumer protection concerns in life and health insurance,” Courtney said. “Agents are compensated not only based on the work they perform for customers but also — and in some cases primarily — on how many agents they have recruited.”

Additionally, the regulators discovered that agent training "lacked important substance, rigor, and reporting mechanisms" and that relatively complex products were being sold by agents without enough supervision to ensure product suitability and fair treatment of customers.

MGAs and insurers only exercised "minimal formal and proactive supervision of their agents to ensure fair treatment of customers," the regulator found.

FSRA is conducting a "thematic" review of life insurance agents in the province and of those employed by the three agencies it has already started to investigate as a result of the preliminary findings.

Read more: FSRA unveils inaugural report on life agent complaints

The regulator also outlined additional plans as well as a discussion of "appropriate regulatory action."

In preparation for a planned revision of the MGA regulatory framework, FSRA said it will conduct public consultations. Intermediaries, and agents that sell life and health insurance all fall under the purview of FSRA, which emphasized that insurance companies are legally required to have systems that are reasonably designed to ensure compliance by their agents.

This holds true for MGAs as well as specific agents who market their product.

When insurers, MGAs, or agents delegate a task, such as agent supervision, training, or screening, they "retain responsibility for their legal obligations if their delegate does not adequately perform the task assigned," according to the regulator.

The Canadian Life and Health Insurance Association stated in an email that the sector has been collaborating with regulators, such as the FSRA, "to ensure consumers are treated fairly" and that it will "carefully review" the most recent findings.