FSRA’s first non-auto P&C supervision plan to include review of MGAs

Ontario’s insurance regulator is launching a review of P&C insurers’ managing general agent (MGA) outsourcing practices as part of its first non-auto P&C supervisory plan. 

“Given the risks and oversight concerns involved, insurer outsourcing to P&C MGAs is a priority supervision area for FSRA,” the Financial Services Regulatory Authority of Ontario wrote in a Thursday announcement.  

The review will provide further insights into the: 

• Size and scope of the MGA market in the Ontario P&C Insurance sector;
• Due diligence insurers undertake in the selection of MGAs for outsourcing arrangements; 
• Insurer oversight practices for the functions they outsource to MGAs; and 
• MGA business practices that may create a higher risk for consumer harm. 

“We want to ensure that property and casualty insurance companies and their business partners are performing in a manner that complies with our rules, guidance and all relevant legislation,” the regulator wrote. “FSRA is seeking to understand what functions insurers are outsourcing to P&C managing general agencies and the practices involved in the arrangements.” 

Plus, while insurers are regulated and supervised by FSRA, MGAs are not licensed in their capacity as MGAs (though certain ones are licensed as brokers), and that means they’re not regulated or supervised as other P&C insurers, agents or adjusters. 

“P&C MGAs may act like insurers, but they do not assume capital risk, which remains the responsibility of the insurer,” FSRA wrote. 

So, in its plan, FSRA also shared the potential consumer harms that could stem from P&C MGA activities. These include non-disclosure of conflicts of interest, which could limit consumers’ product options, and non-disclosure of the insurer underwriting the risk which could lead to delays in, or lapses of, coverage.

Other potential consumer harms on FSRA’s radar are poor claims management and delays in payments, mismanagement of policyholder funds, inadequate E&O coverage for MGA activities that could harm consumers, and insufficient notices of cancellation or non-renewals, which could result in brokers having trouble finding coverage for their clients. 

Though insurers may outsource P&C functions to MGAs — such as developing policy wordings, designing insurance programs or providing quotes to brokers — insurers are “ultimately accountable” for ensuring regulatory compliance by intermediaries to which they outsource. 

“FSRA’s review of insurers will focus on the alignment of business functions with fair treatment of customers principles and compliance with obligations under the Insurance Act,” it said. 

The regulator said it welcomes comments from stakeholders on its plan.  

 Feature image by EtiAmmos