Upcoming On-Site Reviews of Life Insurance Agents

May 22, 2015

 
This newsletter highlights both recent and upcoming regulatory activities that are being undertaken by FSCO's Licensing and Market Conduct Division. It also includes information on recent Insurance Act amendments that impact insurance agents and that went into effect on January 1, 2015.
 
FSCO will be conducting on-site reviews of life insurance agents to ensure that they are complying with the Insurance Act (the Act), its regulations (i.e., Ontario Regulation 347/04 [Agents]) and with industry best practices, such as completing a 'needs assessment', as a result of the findings from FSCO's product suitability review [PDF Document] Size: ## kb. Insurance agents will be selected from a random and targeted sample, with each agent receiving advance notice of the on-site review.
 
The primary focus of the on-site reviews will be:
 
  • to verify licensing requirements, including the completion of continuing education credits;
  • to ensure agents have valid errors and omissions insurance; and
  • to ensure that point-of-sale statutory disclosure requirements and best practice recommendations are being followed. 
Once a life insurance agent is selected, the agent will be contacted by FSCO staff to arrange a date and time for the on-site review. FSCO expects that the on-site reviews will generally take one full day in duration. A letter will be issued to the agent summarizing the purpose of the on-site review, and will include a list of information that the agent should have available at the time of the review.
 
Upon conclusion of the on-site review, FSCO will discuss the findings and recommendations with the insurance agent. A closing letter summarizing the findings will also be issued to the insurance agent, with the possibility of a response to the recommendations being required within a specified period of time.
 

Recent Examples of Regulatory and Enforcement Actions

 
To protect consumers and plan members and enhance public confidence in the regulated sectors, FSCO monitors, investigates and takes appropriate enforcement action against persons who are not complying with the law or who are illegally carrying on business in the regulated sectors.
 
The following three cases highlight the nature of FSCO’s ongoing regulatory and enforcement actions towards insurance agents.
 
Case 1:
 
On December 12, 2014, the Superintendent of Financial Services issued an Order to Impose an Administrative Monetary Penalty [HTML Document] Size: ## kb in the amount of $1,500 to an insurance agent. The Superintendent determined that the agent failed to have errors and omissions insurance from June 1, 2013 to November 13, 2013, and therefore had contravened section 13 of Regulation 347/04 made under the Act.  The agent requested a Financial Services Tribunal (FST) hearing to plead her case. Based on the FST hearing that took place, the FST ordered the agent to pay the proposed penalty.
 
The FST's decision [New Window] in this case can be found on CanLII's website.
 
Case 2:
 
An insurance agent forgot to renew his insurance agent licence prior to its expiry date.  He sold 17 policies during the five months that he was unlicensed. There was an Agreed Statement of Facts regarding the contravention and the agent requested an FST hearing. The only issues before the FST were whether an AMP should be imposed, and if so how much.
 
At the FST hearing, the agent introduced a copy of the "Joint Sales Agreement" which governed his employment and relationship with Manulife. However, the agent did not dispute that the work he performed for the 17 policies were "… services performed as an 'insurance agent' as defined in the Act."
 
The FST agreed with the Superintendent’s proposed penalty and imposed an AMP of $8,910 on the agent. This amount is equal to the benefit he earned (i.e., $7,910 in commissions) during the unlicensed period, plus $1,000 imposed as a penalty for non-compliance.
 
The FST's decision [New Window] in this case can be found on CanLII's website.
 
Case 3:
 
An individual who was granted an insurance agent licence from FSCO failed to disclose a sanction that was imposed upon him by another financial services regulator, the Mutual Fund Dealers Association. Following an advisory board hearing, the Superintendent ordered that the insurance agent's licence be suspended for one month.
 
The order further stipulated that the agent must be supervised for 24 months by another insurance agent who is acceptable to the Superintendent. This supervising agent would be responsible for:
 
  • co-signing all insurance applications;
  • confirming whether any insurance transaction involved leveraged strategies;
  • confirming that errors and omissions insurance is being maintained on an ongoing basis; and
  • submitting a report to the Superintendent every six months.
The report would need to include information on the agent's insurance business, any leveraged insurance sales transactions and compliance with errors and omissions.
 
The FST's decision [HTML Document] Size: ## kb in this case can be found on FSCO's website.
 
To learn more about FSCO's enforcement activities regarding the insurance sector, visit Monitoring and Enforcement Online.
 

Errors and Omissions Insurance and Continuing Education Requirements

 
By law, all life insurance agents are required to have errors and omissions (E&O) insurance in a form approved by the Superintendent with extended coverage for loss resulting from fraudulent acts, as specified in section 13 of Regulation 347/04 [New Window]. Extended coverage may be included directly in an E&O insurance policy contract, or in an endorsement to a contract. This E&O insurance coverage must have a limit of at least $1 million to cover a single occurrence, and at least $2 million in regards to all occurrences in a given year.
 
E&O insurance is a licensing requirement. The law requires all life insurance agents to have E&O insurance at all times, whether or not they are conducting insurance business, without exception.
 
So long as an insurance agent is licensed, he or she must also complete at least 30 hours of continuing education every two years, as required by section 14 of Regulation 347/04 [New Window].
 

Recent Communications

 
The following articles summarize recent communications that apply to insurance agents.

How to Surrender an Insurance Agent Licence

 
If you are a licensed insurance agent in Ontario, and no longer wish to conduct insurance business, please complete the Application for the Surrender of an Insurance Agent Licence which is available on FSCO's website.
 
It is important to complete this form, as it:
 
  • Notifies the Superintendent of Financial Services of your intention to surrender your insurance agent licence;
  • Will end your obligation to maintain certain insurance agent licence requirements (e.g., errors and omissions insurance); and
  • Ensures that you have properly exited the insurance business.
Once your application is submitted, it will be reviewed and approved, or FSCO will contact you for further information. Your insurance agent licence will remain valid until the Superintendent approves your application.  Sponsored agents should notify their sponsoring insurer of their application to surrender the licence.
 
For more information on surrendering your agent licence, refer to our FAQs.

Bill 15 ― Fighting Fraud and Reducing Automobile Insurance Rates Act

 
FSCO recently sent an email blast to all insurance agents and issued Bulletin G-06/14, which outlines the recent changes that were made to the Insurance Act (Part XIV) under Bill 15. This bulletin summarizes the changes to the agent disciplinary hearing process that will now be the responsibility of the FST.
 
For more information on surrendering an insurance agent licence, please refer to FSCO's frequently asked questions.

Borrowing to Purchase Life Insurance Products ― Risks and Suitability Bulletin (G-05/14)

 
In December 2014, FSCO published Bulletin G-05/14, which advises life insurance agents about their responsibilities when they recommend life and insurance-related investment products and strategies to their clients.
 
In this bulletin, FSCO's highlighted an insurance agent’s responsibilities that relate to risk identification, ensuring product suitability, and how FSCO will deal with complaints from consumers that relate to product suitability.
 
FSCO encourages all insurance agents to be familiar with the recommendations and responsibilities that are outlined in this bulletin.
 

Upcoming Licensing Link Enhancements

 
FSCO is planning to add some new functionality to the Licensing Link system that will allow life insurance agents to update their errors and omissions insurance information online. Licensing Link will also be updated to include a courtesy reminder system, which will advise life insurance agents of their expiring errors and omissions insurance policy. These enhancements are expected to be in place by summer 2015.