Industry responds to FSRA’s plan for insurer MGA supervision

Potential risks stemming from P&C insurers’ managing general agent (MGA) outsourcing practices have caught the eye of Ontario’s insurance regulator, and it’s looking for feedback from stakeholders on a supervision plan.  

Insurers and MGAs alike have begun to weigh in on the matter and advise Ontario’s Financial Services Regulatory Authority (FSRA) on how best to deliver its regulatory expectations.  

Why FSRA’s stepping in 

The regulator announced its plan to better understand the role MGAs play in the P&C Insurance industry in a release last week. 

Huston Loke, executive vice president of market conduct at FSRA explained the regulators’ concerns arise form sources who have indicated ways that insurer outsourcing could negatively impact consumers. 

“In our consultation and our discussions with certain commercial brokers with those representing customers, they’ve indicated to us that there are some aspects of functions that traditionally might have been the domain of the insurer and appear to be performed by others,” Loke told the 2024 FSRA Exchange event in Toronto.  

“The preliminary results [of the consultation] indicate that there are certainly lots of instances where things are handled well, where things are handled capably,” he said, “and there are other cases where I think we can all learn from some of the experiences.” 

For example, Beata Morris, FSRA’s director of P&C conduct, shared examples of potential consumer harm that could stem from insurers’ outsourcing arrangements.

“[There is] potential for non-disclosure of conflict of interest in terms of ownership and who the MGA is owned by,” she said at the event.  

“We had some concerns with respect to non-disclosure of the insurer underwriting the risk; that is predominantly subscription policies where the front-end consumer may not actually know who the insurer on that policy is.” 

MGA outsourcing may also cause confusion for consumers when it’s not made explicit who they should be dealing with when a claim arises. 

“Another one that we heard is insufficient or late notice of cancellation on a policy or non-renewal on a policy,” she added.

Morris also identified potential mismanagement or intermingling of policy funds and insufficient errors and omissions (E&O) coverage by MGAs as other areas of concern.  

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This plan is FSRA’s first foray into non-auto supervision.

“Traditionally, the regulator has usually focused on auto because auto is just such a big piece of the market,” Loke said.  

“In addition, insurer oversight of the activities they outsource to MGA’s varies widely,” FSRA wrote in its plan. 

But MGAs are a fast-growing industry, Morris observed.  

Currently, about 20% of commercial business is placed with an MGA. And that will likely double within the next five years. As underwriters that often cover high-risk or niche industries, MGAs act on behalf of insurers and assist with covering clients. 

“There are often companies that can’t get insurance for the nature of their risk from standard insurers, and MGAs are there to fill that gap. That’s important for those customers,” Ryan Stein, AVP of regulatory & industry affairs at Definity shared at the event. 

Insurer and MGA experts weigh in 

Stein emphasized the need for FSRA to consider how prospective regulatory compliance must be considered proportionally to each MGA.  

“MGAs come in various forms and sizes. They are no different than any other entity or intermediary that you would see in the P&C insurance space,” he said. “If there are gaps [in conduct], then those will need to be filled [through] efficient, proportionate and risk-based regulation that all entities can abide by.” 

Steve Masnyk, executive director of the Canadian Association of Managing General Agents (CAMGA) said its members are already on top of the concerns set forth by FSRA in its plan. 

“CAMGA has already addressed and standardized all the concerns of possible risks brought up by FSRA through the CAMGA Code of Business Operating Standards; which is being applied by our members who represent over 90% of MGAs in Canada,” he said in a statement to CU.  

He added carriers use due diligence when granting underwriting capacity to MGAs.  

“MGAs are now being looked at as the mature commercial and specialty underwriters/markets that carriers trust in their outsourcing,” he said. “In essence, a broker using an MGA is the same as that broker using the carrier behind the MGA.” 

FSRA is not the only regulator to mark its interest in how insurers outsource. 

Last spring, the Office of the Superintendent of Financial Institutions (OSFI) set forth Guideline B-10: Third-Party Risk Management.  

The guideline asks insurers to comply with third-party use in their business operations. Third parties include MGAs, brokers, software cloud providers, and any other external arrangements insurers might make.  

“Whatever comes out of [FSRA’s plan], we would want to make sure it intersects neatly with B-10 — OSFI’s third party arrangements guideline,” Liam McGuinty, vice president of strategy for Insurance Bureau of Canada (IBC) said during the FSRA Exchange event.  

What’s next 

While the supervisory plan is has been published, FSRA is inviting stakeholders to weigh in. From there, the regulator will analyze its findings on how best to implement and monitor mitigation strategies for insurer outsourcing, Loke said.  

“We [will] continue to engage with insurers and those who are in the industry to make sure that we’re prioritizing and identifying the correct matters,” he said.  

“Let’s say someone comes in and mentions that they might have concerns about knowing who’s actually on risk, or they might come in and say, ‘I’m concerned about the way the trust account might be being managed,’” he said.  

“In some cases, we’re going to look at this and say, ‘this is quite idiosyncratic,’” Loke added. But “if it’s a risk to consumers, then that’s something where additional measures need to be contemplated.” 

Feature image by iStock.com/DNY59