Canadian Underwriter

NICC speakers discuss role, regulation of managing general agents

October 6, 2015   by Greg Meckbach, Associate Editor

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NICC MONTREAL – The size and extent of the Canadian managing general agent (MGA) market is not clear, and while many are licensed insurance brokers in the provinces in which they operate, the federal Office of the Superintendent of Financial Institutions (OSFI) does not really have a mandate to regulate that market, speakers suggested at the recent National Insurance Conference of Canada.

The role of insurance managing general agents was discussed at the National Insurance Conference of Canada

“I think the MGA market is very difficult to get your arms around in this country,” said Lynn Oldfield, president and chief executive officer of AIG Canada. “It’s hard to find data and I think part of that has to do with the regulatory realm or the unregulated realm that we find this space in.”

She made her comments Oct. 1 during a panel discussion – titled Evolving Canadian MGA Model: Is There Ink in the Pen? – at NICC.

“Based on some discussions I have had, there are between 75 and 90 true MGAs operating in Canada,” said Jean Laurin, president of Ottawa-based Encon Group Inc., who also spoke on the panel at NICC, produced by MSA Research Inc. and held at the Sheraton Centre in Montreal.

The MGA market is “probably” a $1.3-billion to $1.4-billion market in Canada, said panelist Gerry Wolfe, a former chief agent for Canada for General Re and independent chairman of the board of directors of Arch Insurance Canada Ltd.

The moderator was Bob Demspey, former president and chief operating officer of The Guarantee Company of North America. Dempsey asked panelists about the regulatory environment in Canada for MGAs.

“We fall between the cracks. There is no doubt,” Laurin said, suggesting that he believes most MGAs in Canada decided to be licensed as brokers.

Wolfe suggested he met with OSFI officials two months ago “to find out to what extent that MGAs dealing across Canada are on their radar screens” and whether those MGAs are subject to any regulatory oversight.

“It’s not within their mandate, quite frankly, to regulate MGAs in any way,” Wolfe suggested, based on his discussions with OSFI. “However, if an insurer’s results are impacted by unfavourable results and those unfavourable results are weighted heavily by MGA results, then it’s possible that OSFI would get involved and they could even ask permission of the MGA and the insurer to actually audit that particular segment of the book — remembering that OSFI’s role is solvency and not market conduct.”

Laurin contended there is enough oversight in Canada on MGAs.

“If you really dig into OSFI rules, when they delegate underwriting authority to a third party it has to be disclosed, and also they have to show that there is oversight.”

Wolfe noted he uses the terms MGA and managing general underwriter interchangeably.

Laurin said he sees the role of an MGA as a wholesaling role, providing “access for a lot of brokers in Canada to be able to get products that normally they don’t have contracts with certain of the big carriers.”

Wolfe echoed Laurin’s comments.

“To me a wholesaler is a retail broker who has access to many markets and deals with other brokers who may not have access to many markets, but MGAs are not retail brokers, they are not specialty insurers, they are in between a retail broker and in insurer,” Wolfe said.

“The carrier is responsible at the end of the day for the conduct, the behaviour of the MGA,” Laurin said. “So the carrier under OSFI regulations is really where the duty lies. The MGA has a contractual obligation with its carrier, but the carrier has to oversee. It’s no different than overseeing an employee. You have delegated a task – that normally would be done by your employee – to a third party.”

The fourth panelist was Tony Fredericks, chief executive officer of A.M. Fredericks Underwriting Management Ltd.

“There has to be a clear definition,” Fredericks said. “If you are a broker you represent the insured. If you have binding authority, you represent the insurer.”

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