Broker, Consumer Relations: Battered & Bruised?

Pretty appalling" is how Julian James, director of worldwide markets at Lloyd's of London recently referred to the current reputation of the property and casualty insurance industry in the eyes of the public. Not only have insurers lost consumer faith, but have managed to irk investors and regulators due to poor financial performance and shoddy service.

Notably, James points out that, two-thirds of consumers in the U.K. now believe that insurers try to avoid paying claims, with the result that loyalty toward companies and brokers has diminished rapidly – only 14% of consumers currently feel any loyalty toward their brokers. “If a brand is what people say about you when you’re not there, then the insurance industry is currently in trouble. You might ask, what does it matter if we are all tarred with the same brush anyway? Well, I would argue it matters a whole lot to the bottom-line, the way we are allowed to do business, and the health of this sector.”

Are consumers in Canada less disenchanted than those in the U.K. with the service of brokers and insurers in the aftermath of the hard market? Feedback from brokers and insurers – supported by market research polls conducted by both parties – suggest that the negativity currently expressed against the insurance industry is probably more extreme than that seen in the U.K. and the U.S. This largely is due to the dominant role of auto insurance in Canada, and the high-level of bad publicity invoked by the extreme rate increases and limited coverage availability of the past 18 to 24 months. The fact that auto insurance became “politicized” also played a significant role in undermining the industry’s public credibility.

With some regulators now showing an interest in interfering with lines of business which are presently non-regulated, insurers agree that immediate action has to be taken to repair the credibility damage left in the wake of the hard market. Brokers, who incurred the brunt of escalating consumer ire, say that restoring public trust in the independent brokerage community has for them become top priority. Unfortunately, as brokers note, the negative consumer impression of insurers has tarred the brokerage community as well, as most insurance buyers do not distinguish the difference between distributors and the companies themselves.

Add to which, brokers point out gingerly that brittle relations between themselves and insurers are only now on the mend. Regaining consumer confidence has to start with strong broker/company relationships, which have to be built on open communication lines, they add.

Insurers admit that better broker relations is needed. Many companies have placed direct underwriter to broker communication forefront in their end of year meetings with broker representatives. Insurers through the Insurance Bureau of Canada (IBC) have also established a dedicated steering committee to look at improved communication with all relevant parties from government, brokers, claims adjusters through to the public. Similarly, the Insurance Brokers Association of Canada (IBAC) has created a focused group to deal with the same objectives, including direct interaction with insurers at the national level through the IBC. However, both brokers and insurers concur that whatever initiatives that are ultimately acted on, winning back consumer trust will not be an overnight event.

BROKER ACTION

Restoring consumer faith in the independent brokerage community, as well as the insurance industry as a whole, is now a critical issue across nearly all of the provinces, says Dan Danyluk, chief executive officer of IBAC. Avoiding any further government involvement in regulating the industry’s products is another important factor motivating brokers and insurers to collaborate efforts to improve public image, he notes.

As such, Danyluk says the IBAC executive team has met with their IBC counterparts with the objectives of improving communication between insurers and brokers as well as to identify areas where the organizations can work together to achieve a more open and understood industry. This is the first time such a meeting between senior executive members of both the national insurance and broker associations has occurred, comments Danyluk. “The plan is to meet three or four times a year to make sure the communication lines stay open.”

While repairing the insurance industry’s public image is front and center, IBAC’s immediate goal is to look at ways of undoing the damage inflicted on the independent brokerage community, Danyluk says. In this respect, a considerable amount of thought and time went into repositioning the advertising campaign of the broker identity program (BIP), which will see a new ad aired on radio and television in the beginning of the year, he notes. “What gave us cause for thought was how to position the advertising campaign in such a way to not only promote the value of brokers, but also get the message across to the public that brokers can be trusted.” As part of this initiative, IBAC has also put together “information communication kits” which will be distributed to brokers across the country. These kits will hopefully provide brokers with the means to better communicate to their clients the workings of the insurance industry and the role the brokerage community plays.

The need to repair consumer confidence in brokers is a critical issue, agrees Bob Carter, executive director of the Insurance Brokers Association of Ontario (IBAO). The insurance industry’s public image not only suffered from tight market conditions, but insurers’ service levels also dropped off in terms of slow renewal approvals and the handling of claims, he observes. “[Regaining] consumer confidence is now the number-one issue. For 18 to 24 months, underwriting has been so stringent that there has been no room for negotiation. We’ve got to get renewal notices out sooner, and quoting on new business.”

Carter says that repair of broker/company relations is beginning to take place, but insurers cannot expect a sudden change in view after the extreme circumstances that are still fresh in the mind of brokers. With most insurers now keen to take on new business, he points out that certain companies are lagging their growth targets – the reason being that brokers are not willing to simply “forgive and forget” the adversarial approach adopted by some insurers during the hard market. “You [insurers] can’t mistreat your brokers, we [brokers] are no different than other consumers. And, customers have to be treated as customers and not as adversaries.”

However, Carter believes that, to effectively regain consumer confidence, brokers have to work with insurers to address the industry’s shortfalls. As such, the IBAO has held several meetings with insurers on an individual basis to strengthen open communication and to make sure that both companies and brokers are working off the same page. “Once you’ve done serious damage to your image, it takes a long time to repair. Whatever we do as an industry [to set about correcting the negative public perception] has to be a long-term strategy,” he adds.

Jim Harris, president of the Independent Insurance Brokers Association of Alberta (IIBAA), points out that the poor public image of the industry revolves almost solely around the regulated auto line. “Auto reform has been the focus, this is where we [brokers] are striving to get consumer confidence back.”

While the hard market caused some dissatisfaction among commercial clients, most were sophisticated enough to understand the need for coverage rate increases as well as the fact that brokers are independent of the actions of insurers, Harris notes. With Alberta’s “auto crisis” hopefully resolved with the product reform just introduced by the provincial government, he is hopeful that market stability in terms of pricing and coverage availability will dissipate the negative media attention that has been drawn to the insurance industry, and therefore public mistrust. “I think we’re [brokers] back to being good people again [in the public eye], but it will take time to fully re gain the trust of consumers.”

In fact, Harris believes that the “auto crisis” helped bring brokers and insurers together in finding a workable solution. The result has been strengthened relations between brokers and companies, he adds. “During my term in office [as president of the IIBAA], I want to make sure that we have a close relationship with the IBC.”

From a broker network perspective (presumably larger broker organizations were able to able to maintain greater influence during the hard market), Scott Tannas, CEO of Western Financial Group says consumer relations is a front-line issue, regardless of whether a broker is big or small.

The hardest obstacle to overcome in repairing public perception following a hard market is that so much attention has turned to price that companies and brokers find it difficult to distinguish themselves. Essentially, the insurance product becomes even more of a commodity, which unfortunately benefits direct writers, Tannas notes. Shifting public attention to the “value added” aspects of insurance, as well as the individual standards of service of companies and brokers, is the only effective way to bring about a positive shift in public attitude, he suggests. In this regard, Western Financial has put together what Tannas calls the “guarantee of value” package which has been mailed to all clients. The “guarantee” sets out a range of service promises to each customer. Notably, the broker network has also become actively involved in claims settlement, particularly disputes, to highlight the full service value offered to clients, he adds.

John Morin, president of Quebec-based Morin, Elliott Associates Ltee, says that, while rate increases over recent years have partly eroded consumer confidence, the province has witnessed a period of 12 to 15 months of relative market stability. “So, there’s no real angst out there. But, if you’d asked me the same question a year and a half ago, I’d have a different answer.”

Morin notes that, when insurers first began taking corrective pricing and underwriting term action, his greatest fear was that companies would attempt to implement such measures in quick succession. “Which is not helpful to our situation [as brokers in responding to customer concerns]. It’s about how the insurance industry goes about correcting its faults which gets people [consumers] upset.”

Morin supports the view that a tough market creates a mental bias by the public toward price, which in turn weakens the ability of brokers and insurers to compete on a service level. “If brokers cant’ negotiate with insurers, then where is the ‘value added’, this allows for a ‘commodity mindset’ to move in.” However, he believes brokers also need to adopt a different mental attitude in order to win over consumer confidence. “Brokers need to get their heads around the fact that they don’t sell insurance, but buy it for the customer. We need to get the message across to consumers that we [brokers] are professional insurance buyers, thus adding value to the transaction. This way, consumers can’t blame brokers [for actions taken by insurers].”

Brokers in British Columbia were quick to respond to the onset of the hard market and deal with the potential “publicity fallout”, says Bryan Fitzpatrick, president of the Insurance Brokers Association of B.C. (IBABC). “We were extremely pro-active right from the beginning to communicate honestly with our clients. I think if anything, we [brokers] now have stronger relationships with our clients.”

However, Fitzpatrick concedes that brokers were sheltered by the province’s crown insurer, the Insurance Corp. of B.C. (ICBC), from the auto political storm that ravaged consumer confidence in most other provinces. And, with the negative sentiment brought on by private-sector auto insurance, he expects events outside of the province will put an indefinite dampener on the B.C. government’s earlier plans to privatize the auto insurance system.

INSURER ACTIONS

“I believe it [the insurance industry’s public image] is unfortunately linked to pricing, which means winning back consumer confidence means getting price stability,” says Igal Mayer, president of Aviva Canada Inc. “We [at Aviva] measure the market, and pricing on auto is coming down, and so too is the [public] temperature. We have to get the emotion out, then we can start rebuilding [industry] credibility,” he adds.

In addition to price, the other driving force which sways consumer sentiment is the availability of coverage, Mayer observes. Increased market capacity relates to broker satisfaction, he notes, which ultimately leads to consumer satisfaction. At this stage, he believes the Canadian marketplace holds sufficient capacity in all lines of business. “So, much needed [market] stability should set in,” he adds.

Insurers need to tackle the industry’s public credibility problem from two fronts, Mayer says. The first is directly by educating the employee workforce across the country in terms of how they respond or interact with non-industry people, as well as empower them with adequate information to deal with such situations.

The other front lies with the IBC, Mayer notes, which the bureau is investing significant resources to bolster the industry’s public profile. “This is going to be a multi-year, multi-dollar program that goes beyond public relations – it has to be about the ‘steak’ and not just the ‘sizzle’. ” As part of this program, the IBC will look at the role the industry can play in areas such as enhancing road safety and disaster mitigation through research. “There has to be a balance between research and public relations.” Mayer expects this public enhancement program will take five years to fully implement.

“Most people in the industry would agree that there is a consumer crisis [regarding public attitude to insurance companies] based on media and political reactions,” observes Rowan Saunders, president of Royal & SunAlliance Insurance Group. He too believes that increased coverage availability, and hence market stability, will do much to reduce public resentment against the insurance industry. “There are positive developments in this area, particularly on the auto front where consumers will have product choice – this offers both affordability and the opportunity for product innovation.”

But, Saunders says his biggest fear is that the industry will slip back into an undisciplined pricing mode based on the current financial recovery. “If this happens, then we’ll fall into the trap of under-pricing which could irreparably damage the industry’s [public] credibility.” Another danger facing insurers is the prospect of government interference in non-regulated business lines, Saunders says. This is being driven by consumer complaints in certain areas, he notes, “and we [the industry] have to react or face an even less attractive marketplace”. Saunders says insurers need to address the industry’s poor public credibility on five fronts:

The industry needs to engage its critics directly, to make sure that its voice is heard by government. The industry has to maintain a communications policy with the governments even when “times are good”;

The industry needs to explain its workings at the front-end through the brokerage community, which means brokers have to be provided with the right information;

The industry has to ensure coverage availability;

Insurers have to provide staff, brokers and claims handlers with the adequate tools and data to effectively communicate; and

The industry has to highlight its value in the public eye in terms of how it responds to claims and natural disaster situations.

In the end, effective communication and interaction between the various parties involved in the insurance industry is key in the drive to uplift the positive role the insurance industry plays in society, Saunders notes. “Much of it has to do with the interaction between the underwriter and the broker.” As such, Royal and SunAlliance has facilitated opportunities for its underwriters to meet with brokers so each knows what the other is doing. “It’s all about interaction,” Saunders says.]] >