On January 28, 2025, the Financial Services Regulatory Authority of Ontario (“FSRA”) published Proposed Rule 2025-001 (the “Proposed Rule”), which builds on recent amendments to the Insurance Act (the “Act”). Those amendments established a distinct licensing category for life and health insurance managing general agents (“L&H MGAs”) in Ontario and impact a broader range of entities than those traditionally referred to in the L&H sector as “Managing General Agents”. Other entities commonly known as “Associate General Agents”, “National Accounts” and “Third-Party Administrators” may also need to become licensed, depending on whether they perform a “regulated activity” under s. 407.2 of the Act.
The Proposed Rule outlines requirements for licensing, compliance, and agent oversight for businesses undertaking defined L&H MGA activities. The Proposed Rule also heightens accountability for both L&H MGAs and insurers by clarifying their respective roles and responsibilities in supervising agents. It also introduces new requirements for agents working with L&H MGAs.
The Proposed Rule is accompanied by an explanatory Notice and contains a number of questions on which FSRA is seeking feedback. Comments are due on March 31, 2025. FSRA noted that following the consultation period, it intends to issue companion interpretation guidance to provide additional clarity on the Proposed Rule.
General Principles
The Proposed Rule, which is principles-based and outcomes-focused, aims to reduce risks for consumers by promoting the following outcomes:
- Fairness to Consumers: Ensuring consumers receive fair and consistent advice from well-trained and properly supervised agents.
- Enhanced Compliance: Improving the conduct of L&H MGAs and agents through well-defined roles, responsibilities and regulatory requirements for insurers.
- Consistent Treatment: Allowing consumers to expect the same level of compliance from any agent affiliated with an L&H MGA.
Under the Proposed Rule, insurers retain ultimate responsibility for outcomes. While L&H MGAs may monitor agent compliance, insurers are responsible for having sufficient controls in place before relying on such monitoring.
Key Elements of the Proposed Rule
The following key elements of the Proposed Rule are discussed below:
- Application;
- “Associated with” concept;
- MGA licensing requirements;
- Compliance system requirements (MGAs and insurers);
- Recruitment, screening and training (MGAs and insurers);
- Agents’ obligations;
- Reporting obligations (MGAs, sub-MGAs and insurers); and
- Transitional provisions.
Application
The Proposed Rule will only apply to:
- Insurers that are licensed for the class of life insurance;
- Life and accident and sickness insurance issued by these insurers;
- Entities who perform specified MGA licensed activities regarding such insurance for those insurers (whether properly licensed or unlicensed);
- Individuals who act as the required designated compliance representative for a L&H MGA; and
- Agents associated with those entities.
“Associated with” Concept
The Proposed Rule introduces a new concept of insurers, L&H MGAs, sub-MGAs and agents being “associated” with one another. This concept creates specific duties and responsibilities discussed herein for insurers regarding L&H MGAs and for L&H MGAs regarding agents.
The “associated with” concept entails that everyone under an insurer is associated with the insurer, and everyone under an L&H MGA is associated with the L&H MGA, even without a direct contract. For instance, an L&H MGA is associated with an agent if the L&H MGA, or any sub-MGA directly or indirectly under the L&G MGA, authorizes the agent to sell insurance covered by the Proposed Rule. Similarly, an insurer is associated with an agent if the agent is linked to an L&H MGA (including sub-MGA) associated with the insurer and is authorized to sell or solicit insurance issued by the insurer.
MGA Licensing Requirements
The Proposed Rule sets out the requirements for obtaining an L&H MGA license and the circumstances under which an applicant may be deemed unsuitable for licensing. (See our previous blog post on Insurance Act amendments relating to L&H MGA licensing.) These criteria include:
- Establishing suitability, which is determined by the Chief Executive Officer (“CEO”), having regard to an enumerated list of considerations relating to the applicant’s integrity, honesty, past conduct and financial position (s. 4);
- Appointing a designated compliance representative to oversee the MGA’s compliance system. This person must be an officer or partner of the MGA and must satisfy other requirements relating to education, character and independence and must be independent from sales function (s. 6);
- Creating a compliance system that meets the requirements of the Proposed Rule (s. 3(1)(iii));
- Maintaining general liability insurance and either a surety bond or errors and omissions insurance in a form approved by FSRA (s. 7); and
- Maintaining an address for service in Ontario that is not a post office box (s. 3(1)(v)).
MGA licenses will expire on the date specified on the licence, which may be up to three years. If no date is specified, the licence will expire two years after it is issued, unless the L&H MGA also holds an agent’s licence for life or accident and sickness insurance. In that case, the L&H MGA licence will be valid for at least one year and, after that, the L&H MGA licence will expire when the agent licence ends. Renewal applications will follow the same procedure that applies to the original license.
Compliance systems
The proposed rule establishes standards for the compliance systems of L&H MGAs and insurers and describes how those systems interact with one another.
MGA compliance systems
The compliance system that the MGA is required to maintain under s. 407.4(7) of the Act must be reasonably designed to ensure that:
- The MGA and any person acting on its behalf act with competence and integrity and comply with applicable insurance law;
- Sub-MGAs are subject to ongoing assessment with respect to their suitability, including with respect to their own compliance systems;
- Sub-MGAs and agents associated with the MGA, as well as prospective agents of the MGA, must comply with insurance law and that material non-compliance be reported to the MGA and rectified in a timely manner as specified in s. 9(1)(vi) of the Proposed Rule;
- Sub-MGAs will make the MGA aware of any material changes in their business, including the composition of senior management;
- If the MGA identifies reasonable grounds to believe that a sub-MGA or an agent associated with the MGA does not meet suitability requirements, it will report such grounds to each insurer associated with the sub-MGA or agent, and to the CEO to the extent that the insurer has not reported the information to the CEO (a similar requirement applies with respect to prospective agents that are acting as agents without the required licence) (ss. 9(1)-(2)); and
- If a sub-MGA is no longer able to fill that role, a client service continuity plan will be in place to ensure that client service is not interrupted (s. 9(5)).
In addition, the MGA must assess each sub-MGA with respect to its compliance with applicable insurance law, at least once per year. It must also periodically assess the effectiveness of its compliance system (ss. 9(3), 9(7)).
In assessing an MGA’s compliance system under s. 407.4(7) of the Act and under the Proposed Rule, the CEO may consider the proportionality of its design to the MGA’s complexity and risk profile as well as the compliance practices of sub-MGAs and agents (ss. 10(3)-(4)).
Insurer compliance systems
Insurers’ compliance systems implemented under s. 407.10 of the Act must be reasonably designed to ensure that:
- MGAs and agents associated with the insurer comply with applicable insurance law and that any failure to reply will be reported to the insurer and rectified (s. 8(1));
- Associated MGAs are regularly evaluated for suitability and, if there are grounds for believing an associated MGA not to be suitable, such grounds will be promptly reported to the CEO (an insurer may rely on a report by the MGA to the CEO for this purpose but will be responsible for its accuracy and completeness if it does so) (ss. 8(1)-(2)); and
- If an MGA is no longer able to fill that role, a client service continuity plan will be in place to ensure that client service is not interrupted (s. 8(3)).
In addition, the insurer must periodically assess and update its compliance system. If the insurer has sufficient controls in place, it may reasonably rely on information provided by, or processes under, an MGA’s compliance system that is compliant with s. 9 of the Proposed Rule.
In assessing an insurer’s compliance system under s. 407.10 of the Act and under the Proposed Rule, the CEO may consider the proportionality of its design to the insurer’s complexity and risk profile as well as the compliance of the insurer’s MGAs and agents (ss. 10(1)-(2)).
The Proposed Rule introduces the concept of proportionality, requiring compliance systems to be reasonably designed based on the size and risk profile of industry participants. It further clarifies that while insurers are ultimately responsible for compliance in their distribution channels, the responsibility for achieving appropriate outcomes is shared with L&H MGAs. In considering whether compliance systems are appropriately designed, FSRA will assess both insurers’ and MGAs’ compliance systems, considering similar factors for both.
Recruitment, Screening and Training
The Proposed Rule imposes responsibilities relating to recruitment, screening and training by MGAs and insurers.
MGA and Insurer recruitment and screening
The recruitment and screening requirements for insurers and MGAs are described in general terms in sections 11-13, with a focus on suitability, ensuring that agents and prospective agents are properly licensed and avoiding conflicts of interest.
With respect to screening of agents, an insurer may rely on information received from an MGA, provided that the insurer has processes in place to ensure the accuracy and completeness of that information. Responsibility for the final decision about a prospective agent’s suitability ultimately lies with the insurer, but the MGA is required to make its recommendations only after reviewing “sufficient information” and providing all information that it has obtained, in its entirety, to the insurer (ss. 12-13).
MGA training
Any MGA that provides training of agents and prospective agents must ensure that the training is accurate, not misleading and in accordance with the outcomes described in the Proposed Rule, and, if the MGA has agreed to do so, must achieve the training outcomes that insurers are required to achieve under the Prospective Rule (s. 15(1)(i)).
The outcomes that insurers are required to achieve are discussed separately below. The outcomes that MGAs are specifically required to achieve (exclusive of any agreement to perform all or part of the insurer’s training function) include:
- Agents and prospective agents associated with the MGA understand which activities require an agent’s licence. (s. 15(1)(ii));
- MGA training referring to a particular insurer’s insurance products are reviewed and formally approved by the insurer. (s. 15(1)(iii));
- Agents associated with the MGA understand how to be clear, accurate and not misleading with respect to the solicitation and negotiation of, and the provision of advice with respect to, the insurer’s insurance (s. 15(1)(iv)); and
- Agents associated with the MGA understand what training the MGA will provide before the agents perform activities that require an agent’s licence as well as the training that will be required with respect to each insurance contract that the agent may sell or advise on.
Insurer training
An insurer may rely on training provided by an MGA, provided that it has sufficient controls in place to ensure that the MGA training is compliant with the standards set out in the Proposed Rule. In particular:
- The insurer must review the MGA’s training program with respect to the insurer’s insurance products and confirm in advance that it is “clear, accurate, not misleading and complies with all applicable insurance law” (s. 14(3)(ii));
- The insurer must ensure that its associated agents and prospective agents understand which activities require an agent’s licence (s. 14(3)(iv));
- The insurer must ensure that its associated agents comply with all applicable insurance law and that they understand and are able to explain:
- the insurance market and all applicable insurance law;
- the insurer’s products to clients, including with respect to the suitability of the products for particular clients;
- how to assess a client’s needs and make appropriate product recommendations;
- what training they need to perform the activities of an agent and to advise or sell on various types of insurance contract; and
- how to be clear, accurate and not misleading with respect to the solicitation and negotiation of, and the provision of advice with respect to, insurance (s. 14(3)(iv)); and
- The insurer must ensure that agents receive ongoing training so that they continue to understand the above as long as they are associated with the insurer(s. 14(3)(vi)).
The insurer must also ensure that any training that it provides to associated and prospective agents is clear, accurate and not misleading (s. 14(3)(vii)).
Agents’ Obligations
Agents associated with an Insurer
The Proposed Rule sets out the obligations of agents who are associated with an insurer, including:
- Completing all required training (s. 16(1));
- Avoiding or managing conflicts of interest (s. 16(2)); and
- Keeping records that will enable the agent to demonstrate compliance, including records of insureds and prospective insureds who considered purchasing the insurer’s products (s. 16(3)).
Agents associated with an MGA
The obligations of agents associated with an MGA include promptly providing the MGA with evidence of compliance with all applicable insurance law (s. 16(4)). This information includes:
- Information or documentation the MGA requests with respect to assessing the agent’s suitability;
- Evidence of completion of required training; and
- Keeping records with respect to the insurance the agent is authorized to sell or solicit, including records of insureds and prospective insureds who considered purchasing the insurer’s products (s. 16(5)).
Reporting Obligations
MGAs
Each MGA must, on the request of an insurer with which it is associated, promptly provide the insurer with evidence of compliance by itself, sub-MGAs and associated agents, with respect to that insurer’s insurance products (s. 17(1)). There is a similar requirement with respect to providing sub-MGAs with evidence of compliance relating to associated agents (s. 17(4)).
Sub-MGAs
Each sub-MGA must promptly provide an associated MGA, on request, with evidence that the sub-MGA or agents associated with the MGA through the sub-MGA have complied with all applicable insurance laws, with respect to the insurer’s insurance that is sold or solicited through the MGA (s. 17(3)).
Insurers
Each insurer must promptly provide its associated MGA, on request, with evidence that agents associated with the insurer through the MGA have complied with all applicable insurance law with respect to the insurer’s insurance that is sold or solicited through the MGA (s. 17(2)).
Transitional Matters
The Proposed Rule includes a number of transitional provisions. Entities conducting MGA licensed activities must apply for licences by the Licence Application Deadline (i.e., six months before the end of the transition period). If they do not apply by this deadline, they cannot act as MGAs. Entities that apply by the deadline can continue operating without a licence until the end of the transition period, unless their application is rejected or withdrawn. Individuals can carry on MGA business until the Licence Application Deadline, after which they must be employees or partners of licensed or applying entities to continue.
The Rule will come into force on the later of the date that Part XIV.1 of the Act comes into force and 15 days after the Rule is approved by the Minister.
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