On December 10, 2024, Ontario’s Financial Services Regulatory Authority (“FSRA”) released its review of the role of Managing General Agents (“MGAs”) in Ontario’s property and casualty (“P&C”) insurance market (the “Review”). A significant part of the Review focuses on a statistical analysis of the functions currently performed by P&C MGAs in Ontario. As discussed below, the document also contains some specific expectations and outlines additional steps that FSRA may take in this area.
Background
P&C MGAs are intermediaries that carry out certain activities on behalf of one or more insurers, including underwriting, issuance, servicing and termination of policies, claims management and insurance product distribution. The Review found that approximately one-quarter (58 of 218) of Ontario insurers outsourced functions to P&C MGAs in 2023 and that P&C MGAs generated six percent of Ontario’s total P&C Direct Written Premium (“DWP”) during that year, or approximately $2.3 billion. (Note that licenced brokers and agents that deal directly with the public were not considered MGAs for the purposes of the Review.)
While FSRA acknowledges the important role P&C MGAs play in driving innovation and ensuring market access, it undertook this review process because of the potential impact on the public if P&C MGA-related market conduct risks are not well managed and mitigated. Those risks derive from the fact that P&C MGAs may not be licenced or supervised to the same degree as insurers, traditional brokers, agents and adjusters. It is therefore important that insurers work with P&C MGAs that are appropriately vetted and supervised with respect to delegated duties.
The Review includes an extensive statistical analysis of the P&C MGA landscape in Ontario, which includes 12 larger players that collectively control 50% of the market. While most P&C MGAs are Ontario-based, a significant minority are based in other provinces or internationally. FSRA notes that there are nine insurers in Ontario that distribute over half their total DWP through P&C MGAs, including some that distribute over 90% through P&C MGAs.
Conclusions
The Review underscores FSRA’s expectation that, in accordance with FSRA’s Fair Treatment of Customers in Insurance guidance (“FTC Guidance”), Ontario insurers outsourcing insurance functions to P&C MGAs must do so consistently with service quality and fair treatment of customers expectations. With respect to the latter, insurers must have controls in place to ensure compliance with the FTC Guidance, the FSRA Unfair or Deceptive Acts or Practices Rule, and other applicable standards, including the Conduct of Insurance Business and Fair Treatment of Customers guidance issued jointly by the Canadian Council of Insurance Regulators and Canadian Insurance Services Regulatory Organizations in 2018.
Going Forward
As noted above, while P&C MGAs play an important role in Ontario’s insurance marketplace, they account for only a small percentage of overall DWP at present. FSRA accordingly intends to “incorporate the appropriate focus areas outlined in the Supervision Plan into its ongoing insurer oversight work, as necessary”. This will include continued engagement with industry participants and organizations as well as additional risk-based studies as required. The results of the Review will be reflected in FSRA’s forthcoming P&C Insurance Supervision Framework.
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