1. ® Registered trademark of The Empire Life Insurance Company. Policies are issued by The Empire Life Insurance Company. MGA Compliance: An Overview March 2015 Lisa Lawlor, BA, ACS, AIAA Manager, Distribution Practices

2. 2 2 22 What is happening out there? There is a lot of “buzz” in the insurance industry these days regarding the MGA channel. Regulators have an increased focus on MGAs: the role of the MGA the insurer- MGA relationship how well MGAs know the advisors contracted with them

3. 3 3 3 Middlemen working in Canada's life insurance industry need more oversight, the country's insurance regulators say. The Canadian Council of Insurance Regulators, an umbrella group that includes the major industry watchdogs, is placing the onus for improvement on regulators themselves, as well as on the country's life insurers. At issue are middlemen known as managing general agencies, or MGAs, which are essentially wholesalers of insurance policies. A Globe and Mail investigation in 2010 detailed how MGAs have flourished in the past decade, a dramatic shift in the industry that had not yet been dealt with in regulations. Following a lengthy study, the regulatory umbrella group has now identified holes in the system's ability to protect consumers, and is making concrete recommendations to provincial regulators to close them. The study found that regulators do not know enough about this part of the industry, and need to be better informed about the players in it. The Way the Globe Sees It: (May 08, 2012) by Tara Parkins and Grant Robertson

4. 4 4 4 Middlemen I disagree with your article Watchdog Urges Greater Oversight Of Insurance Middlemen (Report on Business, May 8), which states that regulators have determined that there are "holes in the system's ability to protect consumers.“ The report found no consumer protection risks that would warrant changes to the present regulatory regime - where insurers are responsible to policyholders through binding contracts and for oversight of their agents; further, all agents, including middlemen known as managing general agencies, are licensed through provincial regulatory authorities. The report did recommend refinements to strengthen and standardize existing practices; as an industry, we are committed to improving systems. Consumers are well protected. Frank Swedlove President, Canadian Life and Health Insurance Association © 2012 The Globe and Mail Inc. All Rights Reserved. The Way the CLHIA Sees It: Letters to the Editor, Tuesday, May 10, 2012

5. 5 5 5 The Regulatory Environment In 2012, the Canadian Council of Insurance Regulators (CCIR) released a Position Paper on the MGA - “Strengthening the Life MGA Distribution Channel”. This paper made recommendations on best practices for insurer-MGA relationships with a focus on roles and responsibilities. In December 2013, the Canadian Life & Health Insurance Association (CLHIA) released Guideline G18 to address the CCIR paper recommendations. effective January 1st, 2015 includes reference documents created to assist both insurers and MGAs in handling their compliance responsibilities.

6. 6 6 6 CCIR Position Paper This is NOT legislation, but recommendations made by Insurance regulators regarding the Insurer – MGA relationship. 4 areas of recommendation: 1. Insurers must have effective systems and controls in place when using the services of an MGA. 2. Insurers should incorporate the principles of CLHIA Guideline G8 (Screening Agents for Suitability and Reporting Unsuitable Agents) into their business, including any contracts involving outsourcing of these functions to an MGA. 3. Regular market conduct reviews should be undertaken by regulators to determine if insurers and their agents are providing consumers with adequate information to make informed decisions, and suitable product recommendations. 4. Regulators will develop options and an action plan to make sure adequate information on life agents and MGAs is obtained in a timely manner.

7. 7 7 7 CCIR Position Paper The paper outlined best practices for Insurer-MGA relationships, giving guidance on effective systems and controls for insurers (recommendation #1). These best practices are what insurers and CLHIA have been referencing when determining whether MGAs are compliant. These best practices have been incorporated into CLHIA Guideline G18.

8. 8 8 8 CCIR Position Paper The best practices have 4 core principles: 1. A Clear Strategy: insurer has a clear strategy for selecting, appointing and managing MGA arrangements as part of its overall distribution plan. 2. Thorough Due Diligence: insurer carries out thorough due diligence of each MGA prior to entering into the arrangement to provide services. 3. Well Defined Roles and Responsibilities: insurer has a written agreement in place with each MGA that clearly defines the conditions, scope and limits of contracted services. 4. Active Oversight: insurer proactively manages MGA contracts once in place to ensure compliance with contract conditions.

9. 9 9 9 CLHIA Guideline G18 This guideline focuses on the MGA and Insurer relationship in the areas of due diligence, roles and responsibilities, treating customers fairly, and monitoring. The CLHIA worked closely with the Canadian Association of Independent Life Brokerage Agencies (CAILBA) on the guideline and more specifically the MGA Compliance reference document which gives guidance to MGAs on how to manage complying with G18.

10. 10 CLHIA Guideline G18 CLHIA recommends member companies reference Guideline G18 in their MGA contracts. Insurers expect MGAs to follow the Guideline and the reference document. Insurers use the CLHIA Compliance Review Survey to review MGA compliance regimes. This survey has been used for about 4 years and asks about various areas of compliance, including advisor screening and monitoring, privacy and AML programs.

11. 11 CLHIA Guideline G18 – MGA Compliance Advisor Screening Step by step screening process Determine suitability: CLHIA Guideline G8 provides the guidance for this. Advisor Screening Questionnaire: replaces previous methods for screening. All carriers will expect the standard questionnaire to be used by MGAs for screening. On-Going Monitoring Know Your Advisor Financial strength Unsuitable activities and industry practices

12. 12 CLHIA Guideline G8 Screening Agents for Suitability and Reporting Unsuitable Agents This Guideline was issued in 1998 (amended in 2003). provides guidance on suitability and screening and monitoring of advisors for both MGAs and Insurers. recently revised and the revisions take effect April 1 st, 2015. CCIR recommends that this guideline be referenced in the MGA contract. Insurers will expect MGAs to follow the guideline in their practices.

13. 13 What is happening at Bridgeforce? Chris Nicoll