Manitoba’s 1,700 independent property and casualty insurance brokers and Manitoba Public Insurance entered into a historic accord for a new compensation model on Aug. 8, 2008. The new model is intended to support a more convenient renewal process and new product offerings for customers in the future.
MPI will introduce its Streamlined Renewal Process (SRP) in the fall of 2009.Technically, the SRP will require customers to visit a broker only once every five years. This is a marked departure from the traditional, annual visit to a broker. While some brokers felt it would be dangerous to lose the forced, annual contact with customers, others understood that performing 80% less in transactions could mean saving in the neighbourhood of 25- 30% in annual labour costs related to MPI work.
MPI president and CEO Marilyn McLaren contends that “the new compensation plan accommodates future business changes, while ensuring a strong and viable future for the 300-plus insurance brokers distributing products and services on MPI’s behalf.” So then, just what then was negotiated between MPI and the Insurance Brokers Association of Manitoba (IBAM)? And how and why was it done?
THE DEAL IN SUBSTANCE
The structure of the new arrangement essentially looks like this:
The Designated Broker
A “designated broker” will be established for each Manitoba registered vehicle at the first renewal upon implementation of the new SRP. A broker will be assigned as the designated broker as of the last renewal prior to Nov. 1, 2009 — i. e. a staggered introduction –carrying specific rules ensuring predictability, stability, broker competition and consumer choice. The designated broker in each case will receive annual compensation with respect to the policy’s basic, mandatory coverage over the five-year period.
The Compensation
• Implementation of a sliding scale to facilitate a transition to reduced commissions compensation received by brokers on basic, mandatory Autopac coverage — moving from the current 5% to 2.5% by 2012.
• Basic compensation of 4% commissions on fleet coverage from 2010.
• Under a new Drivers Safety Rating Program, driver licence transaction compensation will be tied to a percentage of written premium instead of flat fees.
• An additional flat fee on drivers licence new applications until 2013.
• Commission increases on the sale of extension products from 12.5% to 18.5%.
• A 96% increase in aggregate monies annually for fee-based transactions
• A fee escalation clause linked to CPI (i. e. inflation- proof)
• Brokers will receive a cash infusion of Cdn$44 million to help them prepare for the changes over four to five years (this translates to a Cdn$41- million Net Present Value (NPV) benefit over the five-year period between 2008 and 2013.
WHY WAS THE NEW DEAL DEEMED NECESSARY?
Not long ago, in addition to providing Manitoba consumers with auto insurance, MPI took over the Government of Manitoba’s responsibilities in the area of driver and vehicle licencing (DVL). As a result, the government through MPI became increasingly intent on fusing the two areas of functionality. Furthermore, the province wanted to institute the fusion on behalf of its “border-crossing” citizens, who wanted enhanced identification cards and enhanced driver’s licences. So MPI recommended the move to the five-year Streamlined Renewal Process in terms of the delivery of both auto insurance and DVL.
THE PROCESS FOR CHANGE
This past summer, IBAM representatives worked successfully with executives and management at the monopoly public insurer in order to bring about the aforementioned structural change to the brokers’ role as the paramount service delivery vehicle for MPI.
There were good reasons for the win-win results that were achieved in both process and substance. First, MPI consciously invited IBAM to the table to negotiate a new arrangement for brokers. This was significant. As IBAM president Wade Garriock stated just after the deal was done: “Never before have we as independent brokers had such direct involvement in shaping the way we work with MPI. As a result, we’ve arrived at a system that works better for everyone, including our customers.”
Although MPI’s inclusion of the brokers’ association in the process seemed simple and obvious, it was nevertheless brilliant. After all, how could the corporation effectively negotiate with the principals of approximately 300 brokerages otherwise? IBAM has of course acted and continues to act generally with a mandate to advance the interests of its members; notwithstanding this, the association was never properly set up to be the collective voice or official bargaining agent of its membership in terms of actually negotiating anything that would bind its membership in any legal or actual sense.
So the IBAM board decided in early 2008 that it would invite all of the province’s approximately 300 property and casualty brokerages to join the association and its membership in a “participation process.” In this process, each participating brokerage authorized IBAM to appoint a committee comprised of the CEO of IBAM, elected IBAM executives and directors and non-director volunteers to negotiate the terms and conditions of a Brokerage Representation Agreement with MPI on all of the participants’ behalves. Like MPI, the IBAM board was also smart: it understood the importance of brokers determining their own destinies. Each participating brokerage agreed it would be bound by the terms and conditions of the Brokerage Representation Agreement upon approval by a two-thirds majority of those participating brokerages that cast a ballot in a ratification vote. Effectively then, the IBAM Committee would freely negotiate the arrangements with MPI; the participants would then determine the outcome, by voting on whether they would be bound by the terms of the agreement. The results of the vote were overwhelmingly in favour of the new deal.
KEYS TO SUCCESS
One of the advantages the IBAM committee had in negotiating the deal was the diversity of the group itself. Essentially the committee consisted of rural-and urban-based brokers of varying ages and experiences, large and small brokerages and multi-location operations. And so the wider brokerage community was well represented across many sectors. This naturally resulted in strong positions that IBAM took and defended. Most of the contentious issues were properly vetted by the committee membership, with all of its inherent diversity and character, well before the next meeting would take place with MPI. Also, the IBAM committee was also committed to the principle that no brokerage would be left behind. In the end, this also proved to be the case with MPI. Communication with MPI became unambiguous.
Another reason for success was a cognitive focus by the parties on the interests of the province’s auto insurance consumers. This consumer focus was also beneficial once again inside the IBAM committee itself — particularly at times when committee members had, let’s say, divergent opinions on matters.
MPI and IBAM also recognized early on that integrity, fairness and trust in the process were paramount if negotiations were to succeed. Not that any problems were expected along these lines, but the negotiators understood all too well that if the parties did not operate with these principles in mind, the process would fail. In order to ensure this was the case, the parties early on held a series of one-on-one meetings in order to address any potential concerns; in the end, none existed.
So at the end of the day, an arrangement was reached that was acceptable to all. One of the unexpected highlights in consequence of the excellent process that took place — as well as the substantive results that were achieved — is that the parties agreed new and higher levels of cooperation and negotiation would be just the start of an improved rela tionship that could continue to produce positive results for Manitoba consumers. After all, once you’ve negotiated your way to mutual success, there’s no turning back. There’s only more to come.
———
MPI’s new model for auto insurance will require customers to visit a broker only once every five years. This is a marked departure from the traditional, annual visit to a broker.