Insurance Crime Part I: Victimless Crimes
On May 6 of 2024, the Financial Services Regulatory Authority of Ontario (FSRA) released the Final Order (https://teao.fsrao.ca/en/enforcement/2742) in case where an insurance agent sold policies generating hundreds of thousands of dollars in commission despite lacking a life insurance license.
This case presents a great deal of opportunity to learn the inner workings of insurance licensing and regulation in Canada. Mostly, it demonstrates how little compliance and regulation there is in the insurance industry.
To briefly outline the facts:
- Gurpreet Singh Ghuman was an insurance agent licensed with World Financial Group (WFG) since 2013.
- In Oct 2021, Ghuman's license lapsed.
- Nobody noticed.
- By July 2022, when the lack of a license was noticed, Ghuman had sold 59 life insurance policies.
- 58 of those policies were placed with Industrial Alliance. Those life insurance policies resulted in total payments of approximately $813,973.17 from IA to WFG and/or Ghuman
I have a lot to say about this whole debacle, but let's start with a look at IA's consequences and the limitations of insurance regulation. IA was assessed a total of $115,000 in administrative penalties.
What's the actual adverse outcome for IA?
All the policies stay in force. A 'review' was conducted, but let's look at that review:
The 'Review' (if it was done at all, which isn't even clear) was conducted by another WFG agent (somebody who had the same training, firm, compliance structure, etc., as Ghuman). There is no indication that the impacted clients were contacted, and no suggestion that they were given any additional opportunity to rescind their policies.
IA has a fine here of $115,000, but given that total compensation of about $815,000 was paid for these policies, it's reasonable to assume somewhere between $600,000 and $700,000 of commissions. IA will continue to collect that amount annually for as long as these policies stay in force.
This is a classic case where the punishment does not meet the infraction. The clients who were sold these policies have apparently not been contacted and have not been given any additional opportunity to cancel their policies. The insurer that has contravened the Insurance Act and Regulations will very quickly recover financially.
I'm going to keep writing about this. Future posts will include:
· The ins and outs of insurance licensing
· The limits of insurance regulators when assessing penalties and fines
· An insurance agent’s obligations when placing insurance
· How commissions are structured
· Insurance chargebacks
· How insurers use distribution intermediaries
· Why you should think twice before buying insurance from an MLM
· Why you should think twice before signing up with an MLM
Discussion