TM Trademark of The Empire Life Insurance Company. Policies are issued by The Empire Life Insurance Company.

Rick Forchuk, MBA, CFP, CLU, CH.F.C.

Vice-President, Retail Insurance Distribution

Empire Life

Fool Me Once …

2

Middlemen working in Canada's life insurance industry need more oversight, the country's insurance regulators say.

The Canadian Council of Insurance Regulators, an umbrella group that includes

the major industry watchdogs, is placing the onus for improvement on regulators themselves, as well as on the country's life insurers.

At issue are middlemen known as managing general agencies, or MGAs, which are

essentially wholesalers of insurance policies. A Globe and Mail investigation in 2010 detailed how MGAs have flourished in the past decade, a dramatic shift in the industry that had not yet been dealt with in regulations.

Following a lengthy study, the regulatory umbrella group has now identified holes

in the system's ability to protect consumers, and is making concrete recommendations to provincial regulators to close them.

The study found that regulators do not know enough about this part of the industry,

and need to be better informed about the players in it.

The Way the Globe Sees It: (May 08, 2012) by Tara Parkins and Grant Robertson

3

• In the 1980s, most insurance agents had a contract with the company whose policies they sold. But a massive transformation has since ensued, and today most agents are independent and can sell policies from multiple insurers.

• Companies such as Manulife Financial Corp. are increasingly dealing with a vast array of independent agents who are not their full-time employees. MGAs sprang up to help with the training, paperwork and back-office support involved in the new arrangements, taking on such functions themselves and linking insurers to agents.

• The Globe investigation found that at least 44 per cent of new life insurance policies being sold to individuals across the country go through MGAs, but regulators were still grappling with the fact that the chain of oversight between insurers and agents had been broken.

The Way the Globe Sees It: (May 08, 2012) by Tara Parkins and Grant Robertson (cont’d).

4

The CCIR report, which has just been released, makes recommendations that will now be considered by provincial regulators. CCIR cannot enforce its recommendations,and it will be up to each jurisdiction to decide whether it wants to enact new policies or legislation.

The report cites a number of potential problems with the new system. For example,it says that there might be deficiencies in the way insurers monitor and assess theMGAs with which they work, and that some contracts between insurers and MGAs are too vague.

It also says that regulators must be more involved in the oversight. "Regulators need to be better informed - not only about insurers and the MGAs with whom they contract - but also about who are the insurance agents licensed in a particular jurisdiction, what is their business model, and how many of these licensed agents are performing functions that fit the definition of an MGA," the report says.

The Way the Globe Sees It:(May 08, 2012 (cont’d). by Tara Parkinsand Grant Robertson (cont’d).

5

Middlemen

I disagree with your article Watchdog Urges Greater Oversight Of Insurance Middlemen (Report on Business, May 8), which states that regulators have determined that there are "holes in the system's ability to protect consumers.“

The report found no consumer protection risks that would warrant changes to the present regulatory regime - where insurers are responsible to policyholders through binding contracts and for oversight of their agents; further, all agents, including middlemen known as managing general agencies, are licensed through provincial regulatory authorities.

The report did recommend refinements to strengthen and standardize existing practices; as an industry, we are committed to improving systems.

Consumers are well protected.

• Frank Swedlove• President, Canadian Life and Health Insurance Association• • © 2012 The Globe and Mail Inc. All Rights Reserved.

The Way the CLHIA Sees It: Letters to the Editor, Tuesday, May 10, 2012

6

7

Dave Billington 1935 - 1987

… and what the late Dave Billington had to say about it …

“… so you’re worried about what the paper said aboutyou and your company. Let’s do the math:

First off, half the newspaper readers in town don’t even take The Sun. There are 450,000 newspaperhomes, so you’re really worried about half of those, or225,000.

Second, of the half who take this paper, half of themdidn’t read it that day, so you’re really worried about112,500 people.

Third, of the half who read the paper that day, only half of them read anything more than the front pageand the sports section … so you’re really worried about 56,250 people..”

8

Dave Billington 1935 - 1987

“Fourth, out of the half who read something more than thefront page and the sports, only half of them even saw the page your story was on. So you’re worried about 28,125people.

Fifth, out of the half who saw your page, only half of themeven looked at the article. So you’re really worried about 14,062 people.

Sixth, out of the half who looked at the article, only half ofthem decided to read it. So you’re really worried about7,031 people.

Statistically, half the people who look at an article don’t go beyond the headline, so you’re really worried about just 3,515people.

9

Dave Billington 1935 - 1987

“Seventh, out of the half who read beyond the headline, half of them had no understanding of what they were reading … so you’re really worried about 1,758 people.

Eighth, out of the half who read and understood, only halfof them cared about what they read. So you’re really worried about 879 people.

Ninth, out of the half who cared, half of them didn’t agreewith what they read. So you’re really worried about just 439 people.

Tenth, out of the half who agreed, only half of them reallycared. So you’re really worried about 219 people. And outof that group, half won’t remember what they read an hour from now. So you’re really worried about just 109 people.”

10

Dave Billington 1935 - 1987

“Out of the half who remember more than an hour, half ofthem won’t recall anything 24 hours later, which means youare really worried about 54 people … half of whom have noretention beyond 48 hours, so you’re really worried about 27 people.

We are now 72 hours into the piece, and half of those leftdon’t remember what they read. So you’re really worried about 13 people, half of whom stopped caring about it at hour 36. So you’re really worried about 6 people.

Out of the six, half will change their opinions about whatthey read, so you’re really worried about three people. Frankly, I don’t care … so that leaves you and they guy who started all of this. So what the hell are you worryingabout?”

TM Trademark of The Empire Life Insurance Company. Policies are issued by The Empire Life Insurance Company.

Rick Forchuk, MBA, CFP, CLU, CH.F.C.

Vice-President, Retail Insurance Distribution

Empire Life

Fool Me Once …