Multi-level Selling Life Insurance

The case of a life insurance 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 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.

No Medical Exam Policy - 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.

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 discovered the insured had been hospitalized several times since 2017 because of congestive heart failure and also had chronic kidney disease.

Agent - The 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 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.”

Training or Lack of It - 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. 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.

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.

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).