If the insurance distribution sector is worried it will end up resembling the MFDA channel, the industry has the word of at least one regulator that it will not.
“That’s not our intention. That’s not where we are going to go,” says Doug McLean, executive director, insurance department, Financial Institution Commission, a regulatory agency of British Columbia’s Ministry of Finance.
McLean was speaking at the annual general meeting of Canadian Association of Independent Brokerage Agencies (CAILBA), a precursor to the Advisor Group’s 2010 Distributors’ Summit at Niagara-On-The-Lake, Ontario.
In his keynote address, titled Who’s Watching Over the Middleman?, McLean said the Canadian Council of Insurance Regulators (CCIR) will not impose stifling regulations.
“That’s not where we are going,” he assured CAILBA members while saying he was speaking on behalf of CCIR. “The goal of the CCIR is to try to harmonize the legislation and regulation and look at ways of reducing the burden upon the insurance industry without decreasing consumer protection.”
He said one of the functions of the CCIR is to ensure “the regulations are effective, efficient and don’t place lots of burden on the industry” while they are doing “what is necessary for the protection of consumers.”
He did, however, stress the necessity of some additional regulation of managing general agencies (MGAs) to reduce the impact of market conduct.
“There obviously needs to be some more rigorous regulations from the examples we’ve seen from enforcement actions that require additional licensing or regular onsite reviews by the licensing authority.”
Such measures could protect not only the reputation of MGAs and third party administrators (TPAs), but also the insurance company, he said.
“The [regulation] committee is continuing its work of pulling together information about the market price, and about how MGAs and TPAs and wholesale brokers operate,” he said. “We hope that the work of the regulations committee will result in a healthy debate amongst regulators and within the industry about how best to regulate this area, if necessary.”
Insurance manufacturers have definite responsibilities that are entrenched in regulations, he said, adding they can’t just delegate these responsibilities to the MGA level without ensuring they are being adequately carried out relative to market conduct.
Outsourcing of these responsibilities is not necessarily a bad thing, he said, pointing out that it allows the carriers to cut costs. But while regulations must allow for such outsourcing, they must ensure it is done right.
“We are not trying to stop the outsourcing of the delegation,” he said. “What we are looking for from insurers is that in that arrangement with the MGA, or the wholesale broker or the third party administrator, that they put into place appropriate contractual relationships, or put in appropriate controls and oversight to ensure that responsibilities that are delegated have been carried out.”
(04/28/10)