A Brave New World

The term “globalization” has become yet another buzzword expression littering the field of industry jargon. Similar to other grand but ambiguous phrases like “business reengineering” and “corporate repositioning” (among a broad host too numerous to mention), the term globalization jumps out in polished conversations on a regular basis, yet when looking about there appears to be no physical sign of it. Business goes on as usual as we keep a keen ear open for the next colorful expression to add to our conversational vocabulary.

However, when the impact of globalization on distribution is candidly addressed by senior insurer representatives at a broker convention, and the parties in question speak in a tone of serious urgency, then realization dawns that globalization really is about to come knocking at Canada’s door. Such was the case at the recent Insurance Brokers Association of Ontario (IBAO) Convention, which hosted a panel debate on international trends in distribution (see article on IBAO Convention in this issue).

More specifically, the panelists drew focus to global expansion of multi-distribution channels and the impact new technology delivery is having on the traditional company-to-broker-to-consumer relationship. While the issue of direct writing versus traditional broker distribution has been a raging debate for some time, both locally and abroad, what was particularly interesting to note from the panel discussion was that the speakers (representing companies supporting the broker channel in Canada) did not bother to commit the usual verbal pandering to brokers of saying, “don’t worry, your big brothers will be here to protect you”. Rather, the message was “both companies and brokers had better get their houses in order sooner rather than later”.

The crux of this debate was that the traditional approach of the company to broker relationship is simply not competitive cost wise when measured against the emerging technology-based distribution channels. Similarly, the industry’s traditional distribution approach is facing serious threat from direct distribution arrangements occurring between international financial service providers and manufacturer/retailer organizations. The panelists left little doubt that they expect direct writing through e-commerce and retail groups will catch on with the same degree of success in Canada as they appear to be doing in Europe and the U.S. The bottom-line presented by the panelists is that brokers and their supporting companies will have to employ similar technology tactics and look at integrating services through “partnerships” if they plan to hold their territorial ground.

In my last editorial I raised several concerns expressed from within the independent brokerage community concerning the type of “partnerships” or “relationships” which are taking place between insurers and brokers. Specifically, concerns over insurer control of “independent brokerages” through equity holdings and/or preferred underwriter relationships. The panelists in the IBAO debate did not qualify what they meant by “developing closer partnerships” with brokers. However, it is a fair assumption that they were referring to closer ownership and control of premium flows. As discussed in last month’s CU cover article, such “partnerships” may become inevitable for many brokers if the panelists are correct in their view of where the market is going. Of course, the whole “watch out, direct writers are coming” warning could have been overly dramatized by the insurer speakers to rally up broker support behind the need for “closer relationships”.

I am one of the believers that independent brokers providing true advocacy in their client dealings will maintain a strong position in the market, without having to lose their independence to carrier ownership or influence. The reason being, as more products come onto the market through direct writing and multi-distribution approaches, consumers will be looking for independent advice in wadding through the myriad of marketing junk that results (as seen with the mutual fund industry where, due to the complexities and wide choice of products, intermediaries provide primarily an advisory role to clients rather than acting as conduit for one or two product developers).

From my point of view, the concept of “closer partnerships” between brokers and insurers would be best served by joint initiatives in areas like technology interface development. Unfortunately, as the recent past has shown, insurers are not overly enthusiastic to commit to such ventures, which leaves the “observer” wondering to what they mean by “closer partnerships”, and of course what benefits independent brokers would gain.

As one of the IBAO panel speakers accurately observed, the property and casualty insurance industry is facing a new environment of technology-driven financial services. However, whether the broker profession would be best served entering this “brave new world” based on its own development initiatives — or following insurers down the “partnership” road — remains to be seen.