IBAO 99 Convention: Competing in a New World

The IBAO 99 Convention, recently held in Toronto, hosted a senior executive discussion panel, titled “Symposium 2000”, representing speakers with international experience in the insurance markets. The objective of the panel debate was to identify global trends in p&c insurance distribution likely to impact on the Canadian market. While the panel participants offered varying alternatives of the industry’s post-2000 future, they all agree that the “traditional and accepted business approach of the past” will soon become just that: the past.

The advancements made over recent years in consumer and business communication technology were cited as the primer for change. Coupled with increasing consumer sophistication, the broad availability and design of technology communication is leveling the once established business walls of geographic borders and opening access to markets to non-traditional players. Signs of this are apparent across the developed world, the panelists confirm. And, from a Canadian market perspective, Barry Gilway, president of Zurich Canada, aptly notes, “this is something that is coming at us like a speeding freight train”.

Lowering the cost of distribution headed the priority list of the panelists. And, they observe, it is not a question whether traditional brokers/insurers can afford not to embrace the technology environment, but rather how they will develop and apply the use thereof to ensure a competitive and “value added” role.

Strengthening relationships

Global disintermediation of both personal lines and commercial insurance is happening, confirms Mark Webb, chief operating officer of CGU Group Canada.

Two trends are emerging as a result, he adds, that being greater emphasis on product branding and, in conjunction, direct relationships occurring between financial service providers and non-financial retail entities such as automobile manufacturers and shopping chains. The move of going “straight to the customer” is already widely evident in the U.S., U.K. and European markets, he observes. The driver prompting insurers to pursue these non-traditional approaches being that, globally, growth of p&c insurance has flattened while consumerism is advancing.

For traditional insurers and brokers to remain competitive in this environment, they will have to develop closer working relationships, Webb predicts. This means increased attention to cost-efficiencies and development/use of new technologies. “There is a belief out there that customer relationships can be built in new ways that we currently haven’t even heard of…We have to reduce the cost of traditional insurance, and bring [insurers] providers closer to the customer.”

Ernst Notz, president of Citadel Assurance, concurs with Webb’s predictions, pointing out that direct writing in the U.S. has been highly successful, with more than half of the top 20 insurers currently employing multi-distribution. “As a newcomer to Canada, I recognize trends now occurring that have already happened in the U.S.”

Distribution agreements such as that recently announced by Hartford and Ford Motor Company in the U.S. will become more prevalent in insurance across all borders, he believes. This will increase the pressure on traditional insurance companies and brokers to reevaluate their working relationships. “To compete successfully, companies will have to match their distribution channels to meet customer expectations.”

Gilway adds voice to the need for closer relationships between insurers and brokers. “To make the brokerage system strong, brokers have to be receptive to change, and companies need to work with them on integrating direct initiatives. Whether direct writing in Canada continues to expand dramatically or will be checked, will depend on companies and brokers coming together to make the [broker] channel more efficient.”

Technology and cross-selling

Integrating services and product cross-selling is the most viable alternative open to insurers and brokers, says Gilway. However, he notes, “in Canada we tend to build walls which limits the ability of our brokers to serve customers”.

The fact that so much interest worldwide is being invested in financial/retailer partnerships clearly indicates the potential of cross-selling, Gilway notes. And, in pointing to the success of the retail banks in cross-selling, Gilway believes by adopting a similar strategy the p&c insurance industry will boost its customer loyalty and retention. “Research shows that once a customer has seven products with a bank, it’s unlikely he/she will leave because it becomes too much trouble. Cross-selling is the ‘super glue’ of retention.”

In that respect, Webb expects technology will play a key role in retention and new product development. The danger the insurance industry faces, however, is not staying abreast of new technology opportunities — whereas others outside of the industry might. He refers to the explosion of Internet-based financial services which has already almost become “yesterday’s opportunity”. The next wave of technology will likely come with advanced wireless services, Webb adds. “The Internet has become a real business issue, which wasn’t the case the same time as this last year. Today, things like advanced wireless services are developing as quickly.”

And, Webb observes, brokers and insurers should not view technology solely as being a threat of new distribution channels, but rather as a significant business tool affecting operating costs. The cost of e-commerce transacting is significantly lower than that of traditional transactions, “this is a trend brokers and insurers have to understand and become a part of,” he adds.