INDEPENDENCE ALIVE

If anyone harbored doubts of the political clout capable of the independent broker movement in protecting its business turf, such a notion would have been soundly thrashed by the highly effective campaign wielded against the banks in the latest round of federal regulatory reform of financial services.

The federal government’s white paper on financial services reform not only delivered the message brokers wanted to hear: an indefinite legislative block against branch-style insurance, but also turned up the scrutiny heat on tied-selling. As a result, commentators believe it will take the banks at least another five years to regroup their efforts in the ongoing insurance retailing war.

However, the future unfolding for independent brokers is far from a lazy reign of “victory and prosperity”, with the community’s greatest threat now not being an external battle with the banks and direct writers, but rather from within. The increased attentions of insurers in the independent brokerage market presents what many within the community now believe to be a weakening of the core function of the broker: independent advocacy.

It would therefore appear that the future of the independent broker is not at threat, but rather the ability of the “broker” in serving consumers as a first consideration. As noted in our cover article of this issue, insurers have for years provided financial assistance to independent brokers as a means of enhancing relationships. However, the nature of these relationships is changing, with insurers openly adopting controlling equity positions and “preferred underwriter” type arrangements with their broker partners. And, the extent of such activities would appear to be widespread, which has motivated many of the provincial broker associations and some legislators such as the Financial Services Commission of Ontario (FSCO) to review membership rules and even consider changing professional conduct laws — brokers in Ontario are currently expected to maintain at least two standard markets, this may soon be reduced to one.

Can representation of only one insurer’s products provide a sound basis for a broker to claim independent representation of the consumer? If a broker places the bulk of his/her book of business with one insurer, are consumer interests really being served? Can a broker claim to be “independent” if an insurer holds a sizeable if not controlling interest in the brokerage? These are typical questions which some brokers think may be pushed to the fore of consumer protection regulations if the current “coziness” in company/broker partnerships is not brought under check by the community — presumably self-regulation by the associations. The brokers operating in a traditionally independent manner in their dealings with insurers are concerned that this “blurring of interests”, which could evoke doubt to who-is-representing-who, might ultimately sabotage the public image of the broker, and therefore their own vested interest in independence. In a nutshell, the concern here is that if the independent broker community does lose its perceived independence, then there is a fear that consumers will make little difference between buying insurance from a direct writer or a broker, they argue.

Jim Ball, president of the Insurance Brokers Association of Canada (IBAC) concedes that, five to ten years from now, brokers may no longer be able to call themselves independent. Ball, however, does not see this as a threat to the consumer advocacy role of the broker. He distinguishes between “independence” and “advocacy”, believing insurers will continue to allow brokers to operate in good faith on behalf of consumers, regardless of whatever “financial relationship” may have been structured between the parties. In essence, he sees further financial ties between companies and brokers as a natural and possibly necessary development to ensure the future of the broker channel.

Ball is not the only one supporting stronger broker/insurer relationships — several company spokespeople and market consultants agree with his view. However, as both regulators and market consultants note, brokers will eventually be forced to make a crucial decision: either enjoy the financial support of an insurer as a partner but disclose the nature of this relationship, or alternatively brave the market as a “true independent”. Required consumer disclosure of any insurer/broker relationships that may exist will most likely become a way of life, the consultants agree. Whatever course or reaction the federal and provincial governments take to insurer ownership/partnering with brokers in terms of financial services reform, one thing is for certain: consumer protection will be top priority.

As a journalist and “observer” of the insurance industry, and not directly influenced by the relationship structuring currently occurring between insurers and brokers, I believe all of the parties in this debate have legitimate reasons or concerns. I do not believe there is anything wrong with closer insurer/broker relationships assuming that the nature of these arrangements is openly disclosed. At the same time, those brokers concerned with what impact this may have on the public picture of the independent broker have a justifiable argument. There is no doubt that insurer involvement in brokerages will further complicate regulation of the already complex and highly competitive environment of distribution in financial services. The delicate balance act facing independent brokers is to ensure that the community’s unity — the foundation of its impressionable political clout — is not splintered by the formation of opposing pro and non-pro groups on the independence issue.