Life Insurance Distribution Channels in Canada

Insurance broker
Insurance distribution has
changed over the years.

Life Insurance distribution in Canada has muddied in recent years.

In the 1980s and 1990s, virtually all life insurance policies were sold through captive agents. A captive agent is someone who sells life insurance for one company. Examples of insurance companies that still use captive agents are Primerica, State Farm and The Co-operators.

Some captive agents are really quasi-captive: they can sell life insurance for their primary provider, but can also sell life insurance for outside carriers. Regardless, in most cases, they are still bound by quotas.

 In today’s world, independent Brokers are the second distribution channel. This channel has increased in size, but it has also come under the microscope, as regulators are keeping  a closer eye on Managing General Agencies (MGAs) and Associate General Agencies (AGAs), these entities act as the connection between the insurance company and the broker. It should also be noted that some brokers within this channel, while they claim independence, only represent two or three carriers and may also be under certain quotas mandated by their MGA, or by the insurance company itself.

Much discussion has been made recently about what responsibility and role the MGA and AGA should play in the industry and, as a result, legislative changes may be on the way.

The third distribution channel is direct distribution. In a way, this distribution channel has gone full circle to the initial captive agent system because now insurance companies have in-house sales teams to peddle their product by phone. The message is often clouded by murky advertisements that say “No pushy salespeople will call.” But, in reality, these are captive agents who are only selling and promoting one company’s product. The only difference between the direct agent and the captive agent is the former is paid by commission and latter is paid by salary, or salary and bonus.

A few companies offer all three channels, but the direct channel seems to be growing the quickest. Although it’s growth is primarily limited to Term Life Insurance and other Simplified-issue low face amount products.

The complexities of permanent life insurance, disability insurance and long-term care insurance from a needs and product standpoint, make it very difficult for insurers to explain these plans over the phone to sell them direct.  However, the trend may also change, as some carriers may start to unveil stripped-down non-participating, guaranteed whole life plans.

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  • Ed
    October 19, 2015 at 9:08 am

    Hi, very interesting take on Life insurance distribution channels. I have been working in this field for the last 15 years and indeed, sometimes it get murky! but do you think that an independent broker who works in the direct channel can consolidate these sales under his independent status?

    Thank you,

    • LSM Insurance
      October 19, 2015 at 10:36 am

      Thanks for the note. An independent broker can’t work in the direct channel – when we are referring to direct channel sales we are referring to sales via insurance company websites or call centres.

  • Sean Moore
    December 23, 2013 at 9:08 pm

    Hi, thanks for this. I’ve been working in the life insurance business for almost 15 years and I have never understood the MGA thing. Why is it that as an insurance professional I am not able to contract directly with a life company. The MGA is like a mystery to me as a producer. I have been with several MGA’s and not sure what they have provide to me. Any informed insight would be greatly appreciated. Thank You.

    • LSM Insurance
      December 28, 2013 at 8:17 pm

      There are a couple of carriers which offer a direct option Wawanessa and Humania but most want the MGA to help oversee what the broker is doing and assist in helping them grow their business