The Financial Services Regulatory Authority of Ontario (FSRA) is cracking down on troubling business practices that it has observed in the life insurance space.
The regulator said it is implementing a new action plan to address issues related to agent recruitment, training, and conduct that were highlighted in the two compliance reports it had released this week.
The six-pronged plan includes the following actions:
The two compliance reports cover reviews conducted between May 2022 and April 2023, were focused on three managing general agencies: World Financial Group Insurance Agency of Canada, Greatway Financial Inc., and Experior Financial Inc.
FSRA had selected a sample of 130 advisers from these agencies and found that 65 of them faced enforcement action. Of this total, 55% were issued monetary penalties, 14% received warning letters, and 18% remain under review by a regulatory discipline officer.
The 65 agents were cited with a total of 184 rule violations under the Insurance Act. These infractions included unsuitable sales practices, inadequate adviser training, non-compliance with best practices, and failing to disclose conflicts of interest to clients.
There had been many instances of agents predominantly selling universal life insurance policies without regard to the customers’ needs or circumstances, FSRA noted further. Lower-cost and lower-risk alternatives, such as tax-free savings accounts or registered retirement saving plans, were also commonly overlooked.
In fact, 80% of the client files reviewed by FSRA failed to demonstrate a specific life insurance need, or they indicated a need that was “boilerplate in nature” and did not respond to a customer’s specific situation.
In 2020, 56% of the policies sold by the MGAs included in the review were universal policies. This number shot up to 57% by the following year.
Another major point of concern highlighted by FSRA is prevalence of multi-tiered recruitment business models, which encourages agents to recruit new advisers, sometimes from their own client base.
The three MGAs represent roughly 20% of licensed life agents in Ontario. World Financial Group alone has nearly 11,000 agents, while the other two contracts around 2,000 agents combined.
“When compensation for life agents is heavily influenced by the sales of individuals they recruit, this creates the potential to focus on recruiting to a greater extent than agent suitability and customer needs analysis,” the regulator said in one of its two reports.
“Considering this risk does not exist in other MGA business models, FSRA expects MGAs that utilize a tiered recruitment model, and the insurers that conduct business with such MGAs, to have effective oversight systems in place to manage this risk, as well as any other potential risks to the consumer.”
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