Case illustrates training gaps at multi-level-marketing MGA

The case of a life agent in Alberta who was fined for selling a policy on an insured in intensive care is notable for both its paltry penalty and the gaps it has revealed in training and compliance.

The managing general agency (MGA) involved is World Financial Group Insurance Agency of Canada Inc. (WFG), which in Ontario was part of a 2022–23 review of sales practices at multi-level-marketing firms that found high levels of non-compliance among life agents.

In a decision dated April 24, the Alberta Insurance Council fined a life agent $500 for misrepresentation after she submitted an application for a life insurance policy in 2022, when the insured was in intensive care with a brain injury following cardiac arrest. The insured died about a week and a half later.

Advisor.ca has chosen not to name the life agent given that the case serves to illustrate an industry challenge versus the behaviour of an individual.

The whole life policy was a “simplified issue product,” which doesn’t require medical testing and is an option for people with critical health conditions.

According to the evidence, ahead of submitting the policy application, the agent met with the prospective policyholder — who was also the would-be beneficiary — via Zoom. (A marketing specialist had generated the sales lead through social media.) The policyholder was an in-law of the insured, and the life agent wrongly assumed someone in the background was the insured. The policyholder told the life agent the insured didn’t speak English, but the policyholder would translate questions and answer on the insured’s behalf.

According to the decision, the agent was aware the insured had diabetes but on the application failed to accurately respond to questions about the diabetes, as well as the insured’s heart failure and hospitalization.

In investigating the death claim, policy underwriter Industrial Alliance Insurance and Financial Services Inc. (iA Insurance) discovered the insured had been hospitalized several times since 2017 because of congestive heart failure and also had chronic kidney disease.

IA Insurance also found multiple missing requirements — “notably the financial needs analysis and the reasons why letter,” the decision cites. Signature discrepancies were also identified.

IA Insurance terminated its contract with the life agent on May 12, 2023.

“I feel like [the policyholder] took advantage of me,” the life agent told the regulator during the course of its investigation, as cited in the decision. “I didn’t mean to misrepresent any information.”

The agent also told the regulator that “there’s a large commission that comes along with a large premium,” as was the case with the policy in question. “Maybe I was a little blindsided by that.”

The life agent didn’t ask to speak to the policyholder’s spouse, who was the insured’s child, according to the evidence cited in the decision.

The agent has been life-licensed in Alberta since 2021, and her sponsor is insurer ivari.

“[T]he agent failed, in her role as an insurance agent, to ensure that the insured understood the questions on the insurance application and that the answers being provided by the policyholder were accurate to the responses provided by the insured, as there was a language barrier present between the agent and the insured,” the decision says. Further, “the agent did not take appropriate steps to verify the identity of the individual present with the policyholder during the … Zoom meeting.”

While the penalty for the single offence could have been up to $5,000, the council decided on $500 “[g]iven the evidence that the agent has no previous discipline, fully engaged with the AIC, acknowledged guilt, was genuinely remorseful, took voluntarily active steps including undertaking relevant continuing education courses, and given the exceptional circumstances in this case.”

The life agent has taken a compliance course as well as the MGA’s toolkit bundle that covers know your client, know your product and suitability, she told Advisor.ca.

In the decision, the regulator noted that insurers rely on the “honesty and due diligence” of insurance intermediaries, such as MGAs, to complete insurance applications accurately.

“If there was no responsibility on the insurance intermediary to ensure accuracy of information, then the insurer would presumably be assuming risk on which it had no basis of information, as is the case here,” the decision said. “Therefore, it is not unreasonable to expect a high standard of due diligence to be practised by insurance intermediaries when soliciting and finalizing insurance documents.”

The Financial Services Regulatory Authority of Ontario (FSRA) said last year that it took enforcement action against dozens of life agents contracted with WFG and two other MGAs following a review the regulator conducted from May 2022 to April 2023. The review looked at firms that tie compensation to recruitment, creating the potential to focus on recruitment to a greater extent than agent suitability and customer needs analysis, the regulator said in a report.

Among other things, the report found gaps in agent training and supervision, and a failure to follow best practices. Of 46 WFG life agents examined by FSRA, 39 (85%) were cited for best practices issues.

WFG did not respond to requests for comment about the Alberta case and life agent training.

Last month, FSRA required ivari to retain an independent monitor to review the selling practices of the MGAs that recruit and supervise agents selling its products.

In FSRA’s review of the multi-level-marketing firms, a 2021 questionnaire of the 46 WFG life agents found that 19 (41%) placed business with ivari (56% cited iA Insurance, 46% cited Equitable Life Insurance Company of Canada, and 11% cited Manulife Assurance Company of Canada).

In an interview, Amina Deiab, CEO of the Alberta Insurance Council, said regulators across the country are concerned about sales practices at MGAs, which are unregulated in provinces such as Alberta and Ontario.

MGAs should be “accountable for ensuring there’s a system of compliance and controls in their organizations, that their agents selling their products are licensed, comply with our legislation and regulation, and that the agency has in place appropriate training in selling of products,” Deiab said.

She noted that the regulator conducts compliance audits, which include looking at education and training of licensees. Further, the AIC is “undertaking special audits” regarding licensee education and training within organizations that have had challenges in those areas, she said.

When asked if multi-level-marketing firms were on the regulator’s radar, Deiab said, “Absolutely.” She also noted concern about unsuitable sales of universal life, which was a finding in FSRA’s review.

“Our job as regulators is ensuring that we’re bringing those issues specifically on consumer protection to the government and providing recommendations on any regulatory or legislative amendments,” Deiab said.

In February, Ontario ended a consultation on targeted guidance that outlines its expectations of life agents, MGAs and insurers. Later this year, the province will consult on a new rule for MGAs.