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Walt Sturhahn holds a picture of his late mother, Katie Sturhahn, at his home in Vancouver. (John Lehmann/The Globe and Mail/John Lehmann/The Globe and Mail)
Walt Sturhahn holds a picture of his late mother, Katie Sturhahn, at his home in Vancouver. (John Lehmann/The Globe and Mail/John Lehmann/The Globe and Mail)

Through Canada's insurance loophole Add to ...

"It's these kinds of issues that you're starting to see," Mr. Matier says.

No one is taking responsibility

Despite the major role the agencies are playing in selling billions of dollars of insurance products to consumers, regulators have yet to grasp how unclear the picture is, and what little oversight exists.

The Canadian Council of Insurance Regulators, an umbrella group of provincial watchdogs, became aware of the MGA issue at least two years ago and assigned a group of officials to look into it. However, the group has yet to report or take any action.

The Financial Services Commission of Ontario, the largest provincial regulator, would not comment, other than to say it is now reviewing the matter of MGAs.

Highlighting the degree to which MGAs have eluded scrutiny, even just determining how many have sprung up in Canada is difficult. "Nobody in the country is really sure how many managing general agencies there are," says Mr. Lamarche, the president of the MGA industry group.

Goshka Folda, senior managing director at the consultancy Investor Economics, estimates that there are nearly 400 MGAs operating in Canada, of which about 100 would be sizable agencies, while the remainder have one or two contracts. The largest operations supply more than 1,000 brokers; the smallest have just one contract from an insurer.

In an effort to play catch-up, the life insurance industry's umbrella group, the Canadian Life and Health Insurance Association, has developed a lengthy questionnaire asking MGAs to detail the extent of their activities.

But the association's vice-president of distribution and pensions, Leslie Byrnes, declined to be interviewed on the subject, citing a need to wait for the Canadian Council of Insurance Regulators to publish its long-overdue consultation paper on the issue.

The move by the life insurance association to start gathering information on the agencies points to how little is being done to monitor the sector's activities. Of the nearly 100 life insurance companies active in Canada, only a handful, including Sun Life and Manulife, are actively conducting any sort of auditing work on the MGAs with which they have relationships.

Some MGA players acknowledge the need for better regulation. "There probably should be some oversight. That's probably true in any professional services industry where you're advising the general public," says Ms. Di Florio of Hub Financial.

But many agencies say that they don't want to pay for any more oversight - including ensuring that consumers are not being sold inappropriate products - unless they're compensated for it. The agencies make the case that their profit margins are too thin to support the oversight and paperwork involved.

The Independent Financial Brokers of Canada, which represents about 4,000 independent financial advisers, told regulators in a recent report that significant new rules for MGAs are not necessary - and moreover would prove expensive to implement.

They would much rather just let their own insurance cover any problems.

"In the event of an administrative oversight, most agencies have corporate E&O [errors and omissions insurance] which is the appropriate recourse for consumers," the brokers association argues in documents to the regulator.

That approach means consumers may be subjected to a lengthy claims process.

In the meantime, the problem has become tangible for Mr. Matier and his team in B.C.

"The level of supervision, accountability and training that was inherent in the career insurance company model has diminished and accountability for the actions of new life agents is less clear," the B.C. regulator said in a report on the MGA issue.

"Once licensed, a life agent is not subject to any mandatory industry oversight, which differs significantly from all other sectors of the financial services sector [such as]property and casualty insurance, securities, mutual funds and real estate."

An industry left to police itself

While the state of regulatory limbo persists, MGAs are left to decide for themselves how to appropriately conduct business. Some have taken steps to police themselves and their agents, but they are the exception.

At Qualified Financial Services, Mr. Cott took matters into his own hands. The Toronto-based MGA culled its ranks, cutting its contracts with more than 130 advisers, in part because the company realized it had too many agents to keep proper tabs on.

The move raised eyebrows in the MGA industry because it was so unusual. In an otherwise free-wheeling industry, there have been few clampdowns. Mr. Cott is alone in that regard. "We, like the insurers, don't want to have 10,000 people running around that we don't know who they are, where they are or what they are doing," Mr. Cott says.

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