On July 26, 2024, the Ontario Ministry of Finance (the MOF) released proposed legislative amendments (collectively, the Amendments) to the Insurance Act, 1990 (Ontario) (Act) that will impact insurers and intermediaries (including managing general agents (collectively, MGAs)) conducting life and health insurance business in Ontario. The legislative changes proposed by the MOF include (i) creating minimum standards through a new licensing regime for life and health MGAs (collectively, L&H MGAs, and each a L&H MGA) and entities that perform insurer-delegated L&H MGA activities; (ii) providing the Financial Services Regulatory Authority of Ontario (FSRA) with new rule-making authority to license L&H MGAs and entities that perform the same activities; and (iii) clarifying the duties of insurers, L&H MGAs, and agents conducting business in the life and health insurance sector.
In releasing the Amendments, the MOF acknowledges that, despite L&H MGAs acting as the main distribution channel for life and health insurers, there is no specific governance regime for L&H MGAs (including third parties to whom certain responsibilities are delegated) under the Act. In addition, prior reviews of L&H MGAs by FSRA found evidence of misconduct, including the unfair treatment of consumers and deficiencies in insurers’ oversight over L&H MGAs. In addition, the MOF notes that both insurers and L&H MGAs have indicated that the current Ontario regulatory framework creates inconsistency and an uneven playing field as among L&H MGAs. Accordingly, the MOF takes the position that the Amendments are aimed at improving consumer protection, providing greater regulatory certainty and enhancing consumer confidence in the life and health insurance sector.
This article provides a summary of the material Amendments proposed by the MOF and applicable next steps for insurers, L&H MGAs, and agents operating in the life and health insurance sector in Ontario.
To whom does the new L&H MGA licensing regime apply?
The proposed new licensing class for L&H MGAs applies to both L&H MGAs and any entity performing any of the same activities performed by a L&H MGA (including sub-MGAs, national accounts, or third-party administrators). The MOF provided a listing of helpful examples when releasing the Amendments to illustrate the scenarios where the new licensing requirements are triggered. Please see below for a summary of the same.
| Activities Performed | L&H MGA Licensing Required? |
| Performing L&H MGA activities | Yes – L&H MGA class of license is required. |
| Performing life and health insurance agency activities without undertaking L&H MGA activities | No – Only the applicable Ontario life and health corporate insurance agency license is required. |
| Performing both life and health insurance agency activities and L&H MGA activities. | Yes – The business qualifies as both a (i) life and health insurance agency, and (ii) a L&H MGA (and accordingly both corporate insurance agency and L&H MGA licensing are required). |
| Acting as a life and health insurance agent contracting with L&H MGAs | No – Only the applicable life and health insurance agent license is required. |
Proposed definition of “L&H MGA” under the Amendments
The MOF proposes that, subject to government decision-making, any individual or entity that, under an agreement with a licensed life and health insurer, performs one or more of the following activities on behalf of an insurer would be considered a L&H MGA and be required to obtain a L&H MGA license:
- Recruiting agents or prospective agents for an insurer;
- Screening agents or prospective agents to confirm their suitability to act as an agent;
- Providing training to agents and supervising or monitoring the activities of agents;
- Entering into written agreements with agents who sell or solicit L&H insurance offered by the insurer(s);
- Reviewing insurance applications received from agents; or
- Transmitting an application or a policy of insurance between an insurer and agent.
It is important to note that the proposed L&H MGA licensing requirements introduced by the Amendments exclude property and casualty (P&C) MGAs and MGAs conducting only accident and sickness (A&S) business.
Proposed FSRA rule-making authority
The MOF proposes granting FSRA rule-making authority to set licensing requirements for entities performing L&H MGA activities to:
- Set minimum professional standards for obtaining an L&H MGA licence;
- Establish a compliance system with reporting and record-keeping requirements; and
- Have a designated compliance representative who is responsible for the above-noted two requirements.
a) Proposed Professional Standards
Under the Amendments, the MOF expects the L&H MGAs to carry out their respective businesses in a similar manner to that set out in the “Licences”and “Duties of Life Insurance Agents” sections under the Act’s Agents regulation which may include that the L&H MGA:
- Is of good character and reputation;
- Is not engaged in any business or occupation that would jeopardize the L&H MGAs integrity, independence or competence as an MGA;
- Has not demonstrated incompetence or untrustworthiness to conduct business as an MGA;
- Has not been guilty of a fraudulent act or practice; and
- Has not made a material misstatement or omission in the application for a licence.
L&H MGAs will also be required to maintain certain errors and omissions and “liability” insurances. L&H MGAs are also prohibited from applying for insurance adjuster licenses, if they hold a L&H MGA license.
b) Compliance system and record/reporting requirements
The Amendments include the requirement that L&H MGAs establish and maintain a compliance system to oversee their respective agents and to report findings from such oversight to the insurer(s) for whom the agents are distributing life and health insurance products. This compliance system must also include oversight by L&H MGAs of any third parties to whom the L&H MGA further delegates any of the activities originally delegated by the life and health insurer to the L&H MGA.
Life and health insurers are responsible for monitoring the compliance system(s) of the L&H MGAs in their respective distribution chain. The Amendment includes a broad and non-exhaustive listing of outcomes that L&H MGAs’ compliance systems shall be designed to achieve including, ensuring the compliance systems of L&H MGAs (including sub-MGAs) are “reasonably designed,” identifying any non-compliance with the Act and other regulatory requirements, and ensuring all agents are suitable and maintain the requisite licensing. L&H MGAs will also be required to prepare and submit a report dealing with their compliance system once per year to their respective carriers. The Amendments also include record-keeping obligations for L&H MGAs with respect the required compliance systems.
The Amendment also introduces an obligation for L&H MGAs to report to FSRA within 30 days of entering into, amending or terminating an agreement with a third party whereby the L&H MGA subdelegates certain responsibilities originally delegated by an insurer to the L&H MGA. This includes providing a copy of the written agreement (including any amendments) to FSRA.
c) Requirement for a designated Compliance Representative
L&H MGAs will need to appoint an individual to act as its “designated compliance representative” (Compliance Representative). This individual will be responsible for overseeing the L&H MGA’s compliance system. Although many of the requirements for the Compliance Representative mirror those of a “designated representative” required by other insurance intermediary regulators in Canada, the Compliance Representative is required to have the requisite insurance regulatory compliance expertise and knowledge, but the MOF is not requiring such individual to hold a FSRA license.
Roles and responsibilities of insurers, L&H MGAs and agents under the Amendments
In releasing the Amendments, the MOF notes that the proposed L&H MGA compliance system should contribute to and improve insurers’ and regulators’ line of sight in the interest of promoting the protection of life and health insurance consumers. The MOF has also set out a listing of proposed roles and responsibilities for insurers, L&H MGAs, and insurance agents in the life and health insurance distribution chain. These matters are summarized in further detail below.
a) Insurers
When contracting with a L&H MGA/sub-MGA, life and health insurers will be required to:
- Maintain a compliance system to monitor L&H MGAs who perform insurer-delegated activities;
- Notify FSRA of agreements with L&H MGAs, including material changes and non-compliance;
- Ensure continuity of service to the policyholders if their relationship with or the status of an L&H MGA changes;
- Avoid delegating the screening of new agent applicants unless the insurer also independently assesses the relevant information compiled by an MGA and makes the final determination about the applicant’s suitability to hold a license; and
- When outsourcing functions to L&H MGAs, include compliance requirements in the MGA contract and provide guidance to MGAs for the training of agent activities, where training is outsourced.
b) L&H MGAs
The MOF proposes that L&H MGAs must:
- Comply with licensing requirements by maintaining a compliance system regarding sub-MGAs and agents, ensuring sub-MGAs do the same, and have a designated compliance representative;
- Notify insurers of any material change in agreements with insurers or sub-MGAs and non-compliance of sub-MGAs and/or agents;
- Inform FSRA of new, amended, or terminated agreements with sub-MGAs; and
- Where contracting with agents, include compliance requirements in such contracts.
L&H MGAs must also adhere to certain professional standards and, as indicated earlier, carry appropriate errors and omissions insurance and liability insurance.
c) Life and health insurance agents
Under the Amendments, life and health insurance agents are expected to work with and support the MGAs with whom they have contracted in establishing and maintaining a compliance system that is reasonably designed to ensure the compliance of such agents. In addition, such agents will need to continue complying with the current regulatory requirements for insurance agents in Ontario, and where such person is a corporate agent performing certain L&H MGA activities, they will also need to hold the requisite L&H MGA license.
Implications and next steps for L&H Insurers, MGAs and agents conducting business in Ontario
The objective of the Amendments is to ensure the entire life and health insurance distribution chain complies with applicable laws and regulatory guidance. The MOF intends for the Amendments to provide industry participants with flexibility for how they may achieve such compliance, allegedly allowing industry participants flexibility to achieve “industry best practices and seek out potential collaboration and data sharing to optimize resources in meeting” their compliance obligations.
The MOF is seeking industry feedback on the proposed legislative changes, with responses due by September 9, 2024, via Microsoft Form: (https://forms.office.com/r/m5aHxXkubK). Recommendations will follow, with the proposed legislative changes (if any) expected to take effect in 2026.
If you have any questions or for more information on this topic, please contact the authors, Laurie LaPalme, Derek Levinsky, Marisa Coggin, Jesse Collins-Swartz or Jaspal Nagra.
