The Real Story about MGAs
Once again, hysteria reigns supreme. Government reports and media mayhem are combining to help take advisor eyes off the ball. That just means consumers are going to get less effective service leading to even more trouble. What we need is some perspective. We need some clarity. Here’s a dose of reality …
Despite the screeching headlines written by editors who aren’t familiar with the reality of the industry, (“Insurance regulator aims to close loophole”, Globe and Mail February 14, 2011 – Happy St. Valentine’s day!) the life insurance business and MGAs are not a secret cult out to hurt the public. That’s just drama. (Made you look!)
First of all, the Canadian Council of Insurance Regulators (CCIR) report issued recently is an “issues paper”, not a conclusions paper. It isn’t aiming to do anything until the CCIR’s Agencies Regulation Committee figures out what needs to be done. It’s a starting place, it isn’t a finishing place.
As it states clearly on page 4, “Its purpose is to stimulate debate about the issues noted in the paper and launch a process of consultation on those issues as well as to educate and to build a common understanding of the topic and issues for both regulators and stakeholders.” OK, it isn’t the shortest and clearest sentence, but believe me, it’s just a start. Every process has to start somewhere.
The CCIR isn’t even sure if the information in the document is accurate and says so. They also don’t know if these are even significant issues and whether anything even needs to be done. They are just asking.
So, relax – but not so much that you don’t reply to the report as they request. Let’s not make this another “Do Not Call List” fiasco where almost no one reacted to the legislation until it was law.
Now is the time to do something. Congratulations to Lawrence Geller at www.ForAdvisorsOnly.com for posting the link to the report for Canadian advisors to review. Here it is again in case you missed it:
http://www.ccir-ccrra.org/en/init/Agencies_Reg/CCIR_ARC_Life_MGA_Issues_Paper_Feb_2011.pdf
Although the paper is some 64 pages long, the actual report is less than 24 pages of it. It’s a relatively easy read.
The balance is made up of CAILBA, CLHIA, Advocis and IFB reports that were made to the committee. Now those reports are interesting reading as they give you some insight into what the official industry thinks about the issue. They are reasonably accurate but you’ll notice how each group has their own spin on reality.
In fact, the CCIR report is pretty much a summary of the salient topics from the reports. This is not groundbreaking stuff. It’s interesting, but basic. It’s the respective perspectives that I found intriguing. Each association is protecting their interests and reporting “motherhood and apple pie”.
But, I do have some questions about the reports as you might imagine. For instance:
- How come I was told recently (by people who should know) that there were nearly 400 small MGAs in Quebec alone, the reports say that there are just 300 to 400 in Canada?
- Where is the MGA-supported “sales” training the CAILBA report refers to?
- Why isn’t there more about the pivotal commission and compliance firewall role that MGAs play in the business – commission chargeback and compliance functions have been downloaded to MGAs to insulate insurers?
- Why does CLHIA refer to PPGAs as “Personal Producing Groups of Agents”? Whatever happened to the original definition of “Personal Producing General Agencies? Would these two even be the same thing?
- How many times have today’s Canadian agents been asked by MGAs or insurers to substantiate their “holding out to the public as a life and/or A&S agent” as a report suggests?
- Why is the CLHIA view of an MGA’s responsibilities so much more comprehensive than the CAILBA view?
- How come the CAILBA report never mentions “service fees” as MGA compensation? Have you ever heard about “permanent commissions”?
- How come no one ever explains why an insurance agent’s business is much more valuable to an MGA than it is to an agent? For instance, an agent with a $1 million block of life insurance premium, will derive limited value for it on a sale because renewal commissions routinely disappear before 5 years – so, most of that block is un-commissioned. An agent might get 2 times the current renewal commissions for his insurance business but the numbers are small. O the other hand, an MGA receives between 2.5 and 5% “permanent fees” on that same block. Then, on a sale, it is worth at least five times the annual fees (I have seen as much as 8 times) -- in this case, between $125,000 and $250,000.
- Is it really true that “most MGAs never deal with retail customers”? If so, how come so many agents carry MGA branded business cards?
- How come the part that Continuing Education credits play in MGA and insurer support never comes up?
- Why does the CLHIA report sound suspiciously like they wish the system were and not so much like it actually is?
- Why does the Advocis report say that “Our almost eleven thousand members across Canada provide comprehensive financial planning and investment advice, retirement and estate planning, risk management, employee benefit plans and disability coverage, to millions of Canadian households and businesses” but they don’t apparently sell life, critical illness and long term care insurance?
- With all the heat on advisor responsibility, how come the Industry Practices Review Committee three principles for managing conflicts of interest of 2006 isn’t sufficient -- 1. Priority of client’s interest, 2. Disclosure of conflicts or potential conflicts of interest and 3. Product suitability?
- How come no one talked about the interesting reasons some agents have “up to 5” MGAs?
You’ll have your own questions and your own opinions. And, it’s important to the final outcome. You need to do something. Or, you need to sit back and let the regulators, companies and MGAs map out your future for you. (I’m with the government. I’m here to help you.”)
What can you do?
- Read the report and get a grip on the issue regulators are talking about. It’s your business they are playing with. Forewarned is forearmed.
- Check out the 26 questions in the boxes throughout the 24 pages to see which you can respond to.
- Respond to the questions by email well before April 8, 2011 to
ccir-ccrra@fsco.gov.on.ca or at the very least communicate with your MGA, Advocis or IFB.
Everyone wants to have input to matters that affect their livelihood. Mostly, we hear whining after the fact when no one actually took the time. Now is the time to give input.
It’s not time to whine. Just complaining that bureaucrats, politicians and “ink-stained wretches” don’t know what they’re talking about isn’t going to help.
In fact, it can only make things worse. Remember, much of the whining is done in public forums of one kind or the other and bureaucrats, politicians and the media lap it all up. When we are unreasonable or protectionist, we lose our power and actually make the case we are trying to defeat.
When you argue emotionally, you lose your power and often accomplish the opposite of your intentions. I appreciate the passion in these discussions, but stay cool. And, respond. Today.
If you don’t, you’ll just have to be satisfied with the world created for you.
I’m Jim Ruta and that’s just the way it is.
February 15, 2011
Here is what I responded to these regulators, hope I didn't offend anyone...but I really need people that will help me increase my income and reduce the red tape!
"While everyone in regulatory and MGA offices are so busy playing management and requiring so much compliance red tape for agents...they have forgotten that the agents job is to provide the proper insurance and investment needs of the client. It appears that agents are looked upon as information providers to the consumer who must make a decision without the education and knowledge of what they are reading.
First and foremost all regulations and compliance should involved the ability for the agent to do more of his work and less red tape. It is by sheer volume of the proper life insurance or investments that protects the client, not whether I have the right check mark and whether the client has read all 75 pages of the change or application form. First and foremost the client is concerned about when the rubber hits the road...WILL HIS FAMILY OR HIS RETIREMENT GOALS BE REACHED....
Let's all get out of management and get back to doing what we are supposed to be doing. When my Grandfather was selling insurance door to door in the 1920's, the concern was to provide cash for those families in the event of the bread winners demise.
Sadly this Financial industry has forgotten what the business is all about and the people at the top are more focused on red tape than to do the right job. Granted the people at the top get paid for creating road blocks for the agents rather than helping the agent produce a higher income and in turn make the wheels of economy go round again. Why do I say that, it is because I have always been a solo operator for most of my Life Insurance business career and my income is now half of what it used to be because I am busy filling out paper rather than talking belly to belly with a client. So if regulators believe that 50% of my usual income helps the economy then you should go back and study the Basics of Economics.
MGA income, Association Fee's, REgulators income are all another form of tax, that takes away from the economy because agents are creating all that income to pay these fee's, but agents production is now half, so in the end the total return that turns the wheels of economy are turning at a much slower pace.
That's my bit on all this management to manage, rather than management to help increase production."