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IBAO asks insurers to sign memorandum of understanding on brokerage control


October 24, 2008   by Canadian Underwriter


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The Insurance Brokers Association of Ontario (IBAO) has asked the province’s insurance companies to sign a memorandum of understanding, promising, in effect, that the insurers will not purchase a majority control in brokerages.
In Spring 2008, IBAO leadership suggested it would approach the province’s insurance regulator and ask it to re-establish and enforce a “control-in-fact” test that existed in legislation in early 2000. This test effectively established that insurance companies could not own more than a 50% controlling interest in a brokerage.
IBAO’s plan to consult with regulators was controversial not only among insurers, but brokers. Some worried the appeal to regulators would invite more regulation of the industry, a worrisome proposition for those who citing the Canadian regulators’ intrusion following the Spitzer investigations of contingent commissions in New York think the industry is already over-regulated.
IBAO has since changed tack and has asked the province’s insurers to sign a sort of “gentleman’s agreement” not to control brokerages.
At this point, it is not publicly known which insurers have opted to sign the IBAO’s Memorandum of Understanding, and which have not.
“You will recall that our initial strategy is to get agreement among insurers, via a Memorandum of Understanding, that all insurers dealing with brokers agree ‘not to purchase brokerages, nor be in a position to control the management and operational decisions within a brokerage,'” IBAO president Rod Hancock told delegates attending the Insurance Brokers Association of Ontario’s 88th annual convention in Toronto.
“In addition, the Memorandum of Understanding also provides an option for insurers currently controlling brokerages.
“These insurers can sign the agreement and by doing so agree ‘to cease this practice and to provide a plan that will remedy this situation so they would comply with/pass the control in fact test.'”
The control-in-fact test looks at several factors including, among others, who controls brokerage decisions, equity, financing and volume commitment.


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