No. GR0018DEC Active
This Guidance (the “Guidance”) outlines the basis for the decision by the Financial Services Regulatory Authority of Ontario’s (“FSRA”) that: (a) a group of insurers who made application to FSRA (the “Applicant”), is an “affiliated group of insurers” pursuant to subsection 392.2(8) of the Insurance Act (Ontario) (“the Act”); and (b) pursuant to subsection 392.2(8) of the Act, that such insurers are carrying on business as a common undertaking, and on that basis, are deemed to be an insurer for the purposes of determining an agent’s authority to act as an agent under the Act.
This Guidance affects the following individuals and entities regulated by or licensed with FSRA:
- insurance agents
- insurance companies
This Guidance affects the following stakeholders and/or products:
- consumers of insurance
- life insurance, accident and sickness insurance and all other classes of insurance
The Applicant is composed of: (a) an Ontario licensed property and casualty insurer (“the Insurer”); (b) its wholly owned subsidiary that is also an Ontario licensed insurer (“the Subsidiary”); (c) two managing general agents (“the MGAs”) that are indirectly wholly-owned by a company that also indirectly wholly-owns the Insurer and the Subsidiary, and (d) a syndicate (“the Syndicate”) licensed as a property and casualty insurer in Ontario but which is not owned by or under common ownership with the Insurer, the Subsidiary or the MGAs. (collectively, “the Group”). The MGAs have contractual arrangements with the Subsidiary and the Syndicate and can underwrite and issue contracts of property and casualty insurance on behalf of both.
Each of the Subsidiary and the Syndicate entered into an exclusive written agreement with the MGAs pursuant to which the MGAs, acting as the appointed underwriter on behalf of the Subsidiary and the Syndicate, agreed to provide access to property and casualty insurance products (the “Products”) provided by the Subsidiary and the Syndicate to licensed agents of the Insurer, if the Insurer’s own product offerings did not satisfy the insurance needs of any client of a licensed agent of the Insurer. This would allow the Insurer’s licensed agents to offer a broader suite of commercial insurance products as compared to those products otherwise available through the Insurer in the absence of this this written agreement.
Under this arrangement, the consumer will interact solely with a licensed agent of the Insurer. If the Insurer is not able to satisfy the insurance needs of the consumer, the consumer, through the licensed agent, can purchase the Products, underwritten by the MGAs, from the Subsidiary and/or the Syndicate. The Products offered by the Insurer’s licensed agents will clearly identify the relevant insurers with whom the consumer is contracting and the MGAs are authorized to issue policies of insurance for the Products on behalf of both the Subsidiary and the Syndicate.
Subsection 392.2(4) of the Act provides that licensed general insurance agents are prohibited from acting for more than one insurer. However, subsection 392.2(8) of the Act provides that an agent may be licensed to act as an agent for an “affiliated group of insurers” that, in the opinion of FSRA, are carrying on business as a common undertaking.
Based on the facts and circumstances described above under the heading “Background”, FSRA has determined that the insurers in the Group are a ”group of insurers” that are affiliated, and that they are, with respect to the Products underwritten by the MGAs, carrying on business as a common undertaking within the meaning of subsection 392.2(8) of the Act. In reaching this decision, FSRA considered:
- The CEO’s discretion under subsection 392.2(8) of the Act
- FSRA’s statutory objects contained in section 3 of the Financial Services Regulatory Authority of Ontario Act, 2016 (the “FSRA Act”)
- The principles contained in FSRA Approach Guidance GR0010APP Test and Learn Environments for Financial Services Innovation (the “TLE Guidance”) and the commitments made by the Insurer in the testing agreement, including the test plan attached thereto, agreed between the Insurer and FSRA and binding upon the Group and the MGAs in their operation of common undertaking for the sale of the Products.
The relevant provisions of the Act are:
“392.2 (1) A person who holds a licence issued under this Part to act as an insurance agent in Ontario is authorized to act as such in accordance with the requirements of this Act, the regulations and the Authority rules and subject to the restrictions applicable to the class of licence issued to the person.
Classes of agent’s licence
(2) The following classes of licence authorizing a person to act as an insurance agent in Ontario may be issued under this Part:
- Licence for life insurance and accident and sickness insurance.
- Licence for accident and sickness insurance.
- Licence for all classes of insurance other than life insurance.
Authority of agent
(4) A class of licence described in paragraph 2 or 3 of subsection (2) authorizes an agent to act for one insurer only, and the insurer itself must be licensed under this Act to undertake the applicable class of insurance.
(5) The agent’s licence for a class of licence described in paragraph 2 or 3 of subsection (2) must specify the name of the insurer that has appointed the agent to act on its behalf.
(7) An agent holding a class of licence described in paragraph 2 or 3 of subsection (2) shall not make any representation to the public, by advertisement or otherwise, that the agent is an agent of any insurer other than the one specified in the licence for the purposes of selling the classes of insurance specified in the licence.
(8) Despite subsection (7), an agent may be licensed to act as an agent for an affiliated group of insurers that, in the opinion of the Chief Executive Officer, are carrying on business as a common undertaking and that affiliated group of insurers is deemed to be an insurer for the purpose of determining the agent’s authority to act as an agent under this Act.”
Discretion under subsection 392.2(8) of the Act
FSRA has interpreted the terms “affiliated group” to mean:
- a group of insurers in which each member is the subsidiary of another member of the group or each member is the subsidiary of the same body corporate or in which each member is controlled by the same person
- a group of insurers that are not affiliated as described in (a) but whose membership or participation in a larger organization or enterprise, and/or whose connection or association with each other, creates a commonality of interests and an obligation to act together in a co-ordinated and predictable manner, including due to binding contractual arrangements between such insurers and/or other members of such organization or enterprise.
Whether a group is an “affiliated group” under subsection 392.2(8) is a question of fact determined by FSRA in its discretion. With the Group and the MGAs, the contractual arrangements described above (e.g. the MGAs have exclusive contracts with the Subsidiary and the Syndicate to underwrite and offer the Products to clients of the Insurer) evidence a commonality of interests and that the Group will act in a coordinated and predictable manner. As such, the Group is an ‘affiliated group of insurers’ for the purpose of s382.2(8).
In exercising discretion based on the circumstances of the application, to ascertain what qualifies as a “common undertaking”, FSRA adopted a contextual interpretation and one that allows for a more expansive distribution of property and casualty insurance products by licensed agents. FSRA determined that:
- The written agreements between the Insurer and MGAs to distribute the Products of the Subsidiary and the Syndicate through the licensed agents of the Insurer
- the written agreements between the MGAs and the Subsidiary as well as the Syndicate,
were sufficient evidence of a “common undertaking” between the members of the Group because these agreements, in FSRA’s determination, represent a common business enterprise or project.
Because the Insurer, the Subsidiary, and the Syndicate are insurers engaged in this common undertaking, and because they are members of an affiliated group under subsection 392.2(8) of the Act, FSRA has the discretion under subsection 392.2(8) of the Act to deem those insurers to be “an insurer” for the purposes of determining the Insurer’s licensed agents’ authority to act as licensed agents under the Act.
FSRA’s statutory objects contained in section 3 of the FSRA Act
In arriving at this decision, FSRA also considered its statutory objects under section 3 of the FSRA Act and determined that allowing the Insurer, the Subsidiary and the Syndicate to act as an affiliated group under subsection 392.2(8) of the Act, when validated through a test and learn environment, would:
- protect the rights and interests of consumers through increased access to property and casualty commercial insurance products in a more timely and convenient manner
- promote or foster innovation and competition within the insurance sector by supporting a new model for the distribution of property and casualty commercial insurance products which recognizes that there is an increasing blurring of the distinctions between licensed agents and brokers where a group of insurers utilizes both methods of distribution for their products,
both in furtherance of FSRA’s objects in subsections 3(2)(b) and 3(2)(c) of the FSRA Act.
TLE Guidance and commitments of the Ontario licensed insurer
FSRA also considered the commitments of the Insurer made to FSRA pursuant to the testing agreement regarding competence and training of its licensed agents, governance and agent oversight, complaint handling and consumer disclosures. Together, these commitments provided FSRA with sufficient comfort that consumers will be treated fairly by the group when accessing the broadened suite of insurance available through the Insurer’s licensed agents.
FSRA also considered the TLE Guidance and determined that considering the Insurer, the Subsidiary and the Syndicate as one insurer pursuant to subsection 392.2(8) of the Act would be consistent with the TLE Guidance’s principles, including:
The testing agreement and the operating plan set parameters that protect consumers from unreasonable risk and avoidable harm.
- Directly beneficial to the public
If the test is validated, the opportunity for commercial customers of the Insurer to access a broader scope of insurance products through one agent will benefit consumers of property and casualty commercial insurance through the innovative use of the existing provisions of the Act.
FSRA’s decision will expand and adjust FSRA’s risk tolerance consciously to encourage innovation and modernization in the insurance sector.
The regulatory solution developed further to this decision will, if FSRA validates it through this test and learn approach, be made available to incumbents and startups alike.
The course of conduct of the Insurer, the Subsidiary and the Syndicate represents a bona fide, ready-to-test solution, that will be examined through the exercise of FSRA’s existing discretion under the Act. This discretion is the most feasible solution in FSRA’s innovation and regulatory toolbox to implement this innovation.
By publishing the Guidance, the innovation described in this Guidance is based on clearly-defined processes that are knowable by market participants and the public.
By publishing the Guidance, FSRA is maintaining accountability to the public and the insurance sector by reporting on how FSRA has used its tools and discretion under the Act to support innovation. FSRA also intends to provide a further report explaining whether the innovation has been successful.
FSRA’s decision is subject to the terms of a testing agreement agreed to by the Insurer, and may be revoked by FSRA for any breach of these terms or upon notice by either FSRA or the Insurer, including if FSRA determines that FSRA’s objects are no longer being met by the Group in offering the Products (e.g. if consumer harm results).
Effective date and future review
This Decision became effective on August 30, 2023 and will be reviewed no later than August 30, 2026.
About this Guidance
This document is consistent with FSRA’s Guidance Framework. As a Decision, it describes FSRA’s rationale for a certain regulatory decision of precedential value for other parties not involved in the specific matter. Regulatory decisions described in Decision guidance are made based on FSRA’s legal authority and are formal responses to specific inquiries.
Effective Date: August 30, 2023
 Subsection 392.2(8) of the Insurance Act (Ontario) grants FSRA’s Chief Executive Officer (“CEO”) authority to determine whether an agent may be licensed to an affiliated group of insurers carrying on business as a common undertaking. However, for the purposes of this Guidance, reference will be made to FSRA as the CEO is acting as the chief executive officer of FSRA when making such determination and as the CEO may delegate authority to FSRA employees, as permitted by s 10(2.3) of the Financial Services Regulatory Authority of Ontario Act.
 “affiliated group” is not specifically defined under s. 392.2(8) but the term ‘affiliate’ and variations of this term are defined elsewhere in the Act without restricting the interpretation of affiliate under s392.2(8). However, if the legislator had meant to limit the definition of “affiliate” to the narrow sense that applies to other parts of the Act, it could have done so but chose not to. Further, s.392.2(9) expressly includes within the s.392.2(8) definition of ”affiliated group of insurers carrying on business as a common undertaking” mutual insurers that are not connected by common ownership but are affiliated by their participation in the Fire Mutual Guarantee Fund. For these reasons, FSRA has adopted, in addition to the narrow definition of affiliate in (a) above, the ordinary meaning definition of “affiliate” in the Canadian Oxford Dictionary and the New Shorter Oxford English Dictionary.