"When there was a problem, the regulator would know, 'Well, this is a London Life agent,' so they would contact London Life's compliance department … because it was that company's responsibility," says Peter Lamarche, president of the Canadian Association of Independent Life Brokerage Agencies, a growing MGA industry group. "In the new environment, the regulator doesn't know who to call."
Today, most agents are independent, and can sell policies from multiple insurers.
As a result, the new breed of managing general agents has quickly sprung up. And in the span of a decade, these agencies have quietly grown into one of the most powerful forces in Canada's life insurance industry by offering to help insurers deal with a large roster of independent agents, while helping agents obtain access to various policies sold by insurers, in exchange for a cut of the action.
According to Investor Economics, a financial industry consultancy, the MGA channel is now responsible for at least 44 per cent of the new life insurance policies sold to individuals across the country.
That means nearly half of all policies are being sold with serious gaps in regulatory oversight.
The MGA explosion has severed the chain of oversight between insurance companies and agents, but the full effect of that development is hard to quantify. Regulators are, at best, only beginning to grapple with the sector's fast rate of growth.
Those watchdogs are painfully behind the curve.
Mr. Matier tried to find a solution, but could barely find agreement on what the role of an MGA should be inside the industry - a disinterested middleman, or a key link in the supply chain that should be responsible for the agents it supplies with policies. It is an issue in all provinces. But rather than spring into action, regulators have been blindsided.
Meanwhile, there are signs the MGA industry itself is trying to stave off regulation, worried that new rules will be bad for the bottom line.
As for the insurance companies themselves, which have made Canada an exportable brand name in reliable life insurance, they also have yet to reckon with the unintended consequences of a revolution they encouraged in order to save trouble and expense.
And the stakes are getting higher for insurers as products become more complex and therefore more difficult for consumers to understand.
Facing a mature market for life policies, insurers are looking to increase business by developing a dizzying array of new offerings, from critical illness coverage to living benefits products. Insurance agents are increasingly involved in wealth management, and advise people on tax and estate planning - functions that require careful oversight.
Prices on many products are going up, largely because low interest rates have been eating away at insurers' profit margins. Insurers have also been reducing benefits on some products.
The dollar amounts spent in the insurance sector are staggering. Canadians bought $311.6-billion worth of life insurance in 2009, bringing the total value of life insurance they own to $3.47-trillion.
In total, almost 21 million Canadians own life insurance, an average of $169,000 per person. They paid $15.1-billion worth of life insurance premiums in 2009, according to the Canadian Life and Health Insurance Association. Of that, at least $1-billion comprises life insurance policies sold directly to individual consumers.
The evolution of a new model
The life insurance industry is built on trust, and consumers put their faith in the agent they deal with to navigate a series of choices about complex products.
As Ms. Zlotnik said in a promotional video: "What I'm passionate about is to make sure that each person that I advise has a level of financial literacy. I explain all the terms [in]fairly easy digestible ways."
The video featured a number of her clients, including Gabe and Greta Milton, a retired Vancouver couple. "She makes a person feel totally comfortable, and really Lynne's explanations are so clear," Ms. Milton said. She and her husband are listed as creditors in the bankruptcy, having invested $23,000 with Ms. Zlotnik's business.
Though her case exposed a serious weakness in oversight of the MGA channel, Lynne Zlotnik maintains she did nothing wrong. She says she is the victim of an overzealous regulator and intends to appeal its ruling. She also says that a serious illness that had hospitalized her prevented her from dealing with the regulator.