What FSRA's newest life insurance regulatory framework is focusing on

The organization opens up about how to reach better compliance standards in the sector

What FSRA's newest life insurance regulatory framework is focusing on

Insurance News

By David Saric

When FSRA began to conduct research on its latest life insurance agent and MGA regulatory framework, the organization was looking to streamline operations across this wide distribution channel.

“We conducted different studies and thematic reviews on the end-to-end distribution phase, starting from the insurance companies and their relationship with MGAs, the certain business models of MGAs, as well as assessing how agents that are contracted with those MGAs function,” said Swati Agrawal (pictured), FSRA’s director, life and health companies & national supervision – market conduct.

“We found that there were a lot of gaps that existed within the end-to-end distribution that could have a detrimental impact, ultimately on the consumer.”

Some of these areas of concern included:

  • Examples of a lack of agent training supervision
  • Product sales that were unsuitable to customers and their individual needs
  • Agent recruitment and compensation models that may lead to their unfair treatment of customers

In order to develop a framework that could positively impact the life insurance industry, Agrawal and her team at FSRA were cautious to create guidelines and standards that did not exist within a vacuum.

“A framework cannot be developed in isolation or because, in theory, it sounds good,” she said.

“It has to be very much intertwined with what practical reality we are witnessing in the market, and when people can relate to the changes because it is something they experience in their professions every day - new guidelines can be more impactful.”

In an interview with Insurance Business, Agrawal discussed why creating this guideline was not a linear process, why the development of the distribution channel has created some gaps in the life insurance market and what is next for FSRA in 2024.

Developing FSRA’s life insurance regulatory framework is not a straight path

Having started to develop this regulatory framework in 2019, Agrawal revealed that, since then, the organization has conducted five-to-10 types of systematic reviews annually.

“Every year, we did a different thematic review based on the field and trying to understand how the different layers and players function,” she said.

And while the framework has not been revealed in its totality just yet, Agrawal noted that this is a parallel process that is constantly in flux.

“Because we had so many different reviews across the layers and players, every time we’ve come up with new observations and findings, our policy team has been very agile to take those new data efficiencies and recalibrate the regulatory framework accordingly,” she said.

“We’ve gone to insurance companies, the MGAs and the agents within them, taking these findings and results back to them. We’ve collected a lot of conduct indicators and data, and are reporting that at a national platform.”

This has resulted in a six-pronged action plan to address the aforementioned concerns:

  1. Sponsoring insurer screening and certification.
  2. Application and eligibility assessment.
  3. Suitability assessment
  4. Disclosure and attestation
  5. Actions resulting from suitability assessments
  6. Suitability assessment during licensing term

Why the carrier/MGA/agent distribution channel has caused life insurance misconduct

While recognizing that misconduct within the life insurance can reduce the credibility of the industry, Agrawal noted how the evolution of the distribution channel, especially with MGAs becoming a key player in the market, has allowed misconduct to occur.

“There used to be this regulatory vacuum. A lot of attention wasn’t paid in terms of how the distribution system has evolved and what kind of checks and balances need to be put into the system for that,” she said.

“Our agent reviews show that if the delineation of roles and responsibilities between insurance companies and MGAs is unchecked, it can have quite an impact on the consumer and the intent to protect the consumer.”

Regardless of the mode of distribution, whether is digital or powered through AI, the ultimate objective of making sure that consumer needs are considered thoughtfully remains paramount.

“The right advice and suitable products that are being sold should not change depending on how you distribute the product,” Agrawal said.

“I do have a very strong belief that, for the most part, the industry is here to protect consumers. We’ve seen some very good practices being followed to ensure that the consumer gets the suitable product and that consumers needs are taken into account by a multitude of industry players.”

The regulations that FSRA is chasing next

Recognizing that creating and implementing this framework is a never-ending journey, Agrawal and her team at FSRA are looking forward to how this research on MGA, carrier and agent suitability can be taken forward.

“Now, we are trying to understand the MGA landscape as a whole in Ontario,” she said.

“We are developing an intelligence questionnaire to better understand who are these MGAs? What kind of business models do they have? What kind of relationships do they have with their insurance company partners? This will help us identify additional pockets of risk.”

Furthermore, with FSRA CEO Mark White being a chair member of the International Association of Insurance Supervisors, the organization is helping to develop an international paper that outlines certain risks and vulnerabilities consumers can face in the life insurance market.

“We have collected various examples of how consumers are affected by malpractice in the industry,” Agrawal said.

“This paper will help guide supervisor expectations in treating consumers fairly both in Canada and abroad. These deficiencies are not unique to our nation alone.”a

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