Intact’s take on regulating commercial ‘middle players’

Government and the industry should take a close look at the structure and regulation of “middle players” in the commercial property and casualty insurance market, Ontario brokers heard last week at their annual convention.

“We know there are some things happening in the market where some rules…do not apply to everyone in our market, and maybe those rules will have to change or be adapted to a new environment or a new reality,” Louis Gagnon, president of Intact Financial Corp.’s Canadian operations, said during the CEO Panel hosted by the Insurance Brokers Association of Ontario (IBAO).

IBAO CEO Colin Simpson, who moderated the CEO panel, asked Gagnon about the role of domestic insurers in trying to stabilize the commercial marketplace.

“I think the government will probably have to see how they can better control exit and entry in our environment,” Gagnon said during the online panel held Oct. 22 during IBAO’s annual convention. “There are probably also some structures in the industry right now that are not completely well-managed. Insurance companies are really well structured and regulated. There could be some middle players somewhere in that chain that are less structured, and can do things more freely, so I think we have to look at those things coming out of [the COVID-19] crisis.”

Gagnon and Simpson were alluding to both the COVID-19 pandemic and recent media reports indicating some commercial clients are having a hard time finding coverage.

When discussing the stability of the commercial P&C market, Gagnon did not identify any particular “middle players” that are not regulated as strictly as the carriers.

But the question of whether managing general agents should be more regulated has come up in the past.

At the 2015 National Insurance Conference of Canada, former Guarantee Company of North America president Bob Dempsey moderated a panel titled Evolving Canadian MGA Model: Is There Ink in the Pen? At that time, Dempsey asked panellists about the regulatory environment in Canada for MGAs.

“We fall between the cracks, there is no doubt,” said Jean Laurin, then president of Ottawa-based Encon Group Inc., at the 2015 NICC. At that time, Laurin suggested most Canadian MGAs had opted to become licenced brokers. When an MGA has underwriting authority for a carrier, that carrier is responsible to the federal Office of the Superintendent of Financial Institutions (OSFI), said Laurin.

“The carrier under OSFI regulations is really where the duty lies. The MGA has a contractual obligation with its carrier, but the carrier has to oversee,” Laurin said at the 2015 NICC, hosted in Montreal by MSA Research Inc. “It’s no different than overseeing an employee. You have delegated a task that normally would be done by your employee to a third party.”

More recently, an Alberta MGA told Canadian Underwriter why MGAs are necessary in today’s commercial insurance marketplace.

MGAs play a critical role in helping retail brokers, Nona McCreedy, owner of Alberta-based Aurora Underwriting Services Inc., said in an interview this past August with Canadian Underwriter.

McCreedy was interviewed in the context of classes of insurance that are placed through MGAs. She was not interviewed about either the IBAO convention or MGA regulation.

Right now, MGAs are trying to help retail brokers deal with the hard market, McCreedy told Canadian Underwriter. She noted several categories of business – including condo corporations, restaurants, event venues and snow removal contractors – are either seeing significant rate increases or finding it more difficult to find insurance.

MGAs are another means by which retail brokers can find coverage for their clients, noted McCreedy. “I talk to probably four or five MGAs a day. We all stay in touch with each other and we know who’s writing what so we can refer brokers to them.”

In 2018, The Corporation of Lloyd’s asked its syndicates to conduct in-depth reviews of the worst-performing 10% of their portfolios and of all lines that are losing money, and to submit remediation plans. The following year, Lloyd’s announced that eight syndicates stopped trading at the end of 2018.

After making an underwriting profit in each of 2014, 2015 and 2016, Lloyd’s reported combined ratios of 114% in 2017, 104.5% in 2018 and 102.1% in 2019.

“They went after every syndicate and made them clean up their books and tidy up,” McCreedy said this past August of the Lloyd’s market. “It’s one thing when your domestic market hardens, but when Lloyds does the same thing, at almost the same time…it makes it extremely difficult for retail brokers.”

Feature image via iStock.com/Bet_Noire