2007 Provincial Brokers Survey: Where Do We Go From Here?

Brokers acknowledge the Canadian insurance market is “soft,” with rates decreasing or holding steady across all lines. But for the most part, rates do not appear to be decreasing enough for brokers to worry about it. Overall the market is “civilized,” one broker says.

Some brokers say it’s up for debate whether the word “civilized” applies to what’s happening right now in commercial lines. Commercial rates are obviously dropping throughout the country, but rates are dropping much faster in some parts of the country than others. “You just hope your client doesn’t pick the phone up and call around for a price,” Dan Harrigan, the president of the Insurance Brokers Association of New Brunswick, said of commercial rates in his province. “It’s a consumer paradise right now in New Brunswick.”

Still, brokers appear to be using this time of relative stability in the market to do a little housekeeping in 2007. Consequently there aren’t many overarching themes tying together the work of the various provincial associations this year.

What follows is a sampling of what the provincial associations identified as primary issues going forward in 2007. They are broken down by province, starting west and moving east across the country.

BRITISH COLUMBIA

Insurance Brokers Association of B.C. president Doug Guedes said B.C. brokers are looking forward to the June 1, 2007 implementation of an “optional products contract” with the province’s public auto insurer, the Insurance Commission of BC [ICBC]. The contract is part of Bill 31, the Public Safety and Solicitor General Statutes Amendment Act, which received Royal Assent on May 18, 2006. Essentially the act amends 2003 legislation that ensures “there is no cross-subsidization between ICBC’s basic and optional insurance operations,” as the IBABC notes in a recent newsletter.

The purpose of the optional products contract is “to give insurers more of an opportunity to compete [with ICBC] on a straight, policy-to-policy basis, which is good for consumers,” Guedes said. Once in place, consumers will get their basic policy, which is mandatory and covers up to $200,000 third-party liability and insured motorist protection. But for physical damage or excess liability, consumers will be able to shop around the market for optional contracts. “It’s not one [auto] policy anymore, it’s two policies,” Guedes said. “So it’s going to be more of a lead-in to a competitive [auto market] situation.”

B.C. brokers are also keeping an eye on the finance ministry’s proposed re-writing of the province’s Insurance Act, which is almost 90 years old. “We’re trying to smooth out some of the irregularities that have arisen from some court judgments about fire-falling [and] vandalism,” said Guedes.

For example, when passed in the 1920s, the Insurance Act reflected a time when dwellings were predominantly wood-frame constructions heated using wood or coal. During these times, insurers were restricted to certain types of insurance. But with the advent of multi-peril policies in 1945, it became unclear which part of the act took precedence when a fire involved another covered peril. Also, the definition of a vacancy is up in the air, as is when a vacancy occurs, because of recent B.C. court decisions.

ALBERTA

Alberta brokers are feeling the heat from a red-hot provincial economy right now. “People are moving in here and there is lots of opportunity for new business,” observed Insurance Brokers Association of Alberta president Howard Baker. “One of the issues that our members are facing is staffing. Like every other business in Alberta, trying to find qualified staff to service their customers is a huge issue.”

Taking advantage of the new business opportunities created by the province’s booming economy, longstanding brokers are starting up or moving on to other brokerage firms within the insurance industry – or in some cases they are leaving the industry altogether. Baker said he has had discussions with brokers who have told him they will take between six and eight months to train young brokerage staff, only to find them leave for a place that offers higher wages. “Salaries are escalating over time,” said Baker. “If you go up into Grand Prairie, and they’re offering somewhere around $15/hour to sell Tim Horton’s donuts and coffee, it’s hard to compete. There’s movement among brokerages and insurers, and I think there’s been more movement among staff in the brokerage community into other sectors.”

Constant, habitual turnover can create service problems, Baker said. The association is therefore helping brokers by offering training programs. Specifically, it is offering more licensing courses now than it has in the past. In addition, to make the courses more accessible, it is offering its licensing courses more times during the year.

SASKATCHEWAN

George Wright, the president of the Insurance Brokers Association of Saskatchean, says the province’s brokers are gearing up for both federal and provincial elections this year. The theme of the election preparations is to promote and maintain broker independence.

Saskatchewan brokers are concerned about the acquisition of brokerages by provincial credit unions. “Credit unions are purchasing brokerages here,” Wright said. Credit unions are looking for any kind of competitive advantage over brokers and are “certainly hoping that if the banking rules change at the federal level [i.e. allowing banks to retail insurance within their local branches] that they will be allowed the same privileges,” Wright said.

In response, Wright added, the association has continued to stress in its meetings with local politicians “that insurance brokers are in fact a very important part of the economy in both urban and rural Saskatchewan and we would like to remain that for a long, long time. We are trying to make sure we keep a level playing field for all brokers, no matter what their ownership structure is.”

MANITOBA

Manitoba brokers, in the meantime, have been deputized to assume a novel and integral role within the province’s vehicle licensing system.

The province’s public auto insurer, MPI [Manitoba Public Insurance], has asked the province’s brokers to help the government auto insurer distribute vehicle licenses to drivers throughout the province.

Insurance Brokers Association of Manitoba CEO David Schioler explains: “What’s going to happen is, going forward, when the consumer/public goes to renew their AutoPac [auto insurance coverage], they’ll be renewing their driver’s license on the same time at their birthday. They can do it all at their broker’s office.”

Before, the driver/vehicle licensing was all done in central provincial locations. MPI took it over and now MPI is turning towards the broker distribution channel to distribute the licenses. “So brokers are going to be involved in scheduling driving tests and things like that,” said Schioler. “The only thing they won’t be doing is doing the driver’s tests.”

MPI wants both the auto insurance and license renewals to occur on the driver’s birth date, so the driver doesn’t have to appear in the broker’s office more than once annually.

Schioler said MPI’s move represents a huge vote of confidence in the broker distribution system. He added the move makes long-term sense for MPI, because they will now be able to cut costs by reducing their own staff and overhead costs. Also, should the province ever go the route of deregulation, MPI could turn to its ready-made distribution network offered by the province’s brokers.

MPI’s plan promises to increase consumer traffic into the province’s broker offices, Schioler notes. It means vehicle license owners will be exposed to the benefits provided by insurance brokers at a much earlier age. It also means brokers will have an opportunity to cross-sell insurance and other insurance products at the same time people are renewing and receiving their licenses.

ONTARIO

Preserving the independence of the broker distribution channel is the top issue for Ontario brokers going forward in 2007.

“Our focus is going to be on…understanding the distribution channel, who our competitors are, and how those competitors are competing with us in our marketplace in Ontario,” said Insurance Brokers Association of Ontario [IBAO] chief operating officer Randy Carroll. “I think it’s important for brokers to understand how some of those competitors are competing with us outside our borders.”

Carroll said Ontario right now is the primary battlefield for preserving the independence of the broker channel. Recently, the IBAO passed a bylaw that excludes insurer-owned brokers from having voting rights in the association. The move is calculated to avoid a similar situation that befell brokers in Quebec, in which the broker channel handles only about 48% of the province’s distribution of insurance products.

In Ontario, independent brokers are responsible for distributing about 80% of the province’s insurance business – and IBAO intends to employ a strong marketing strategy to keep it that way. During its April 2007 regional meetings, IBAO plans to raise the threat direct writers and multi-channel insurers present to the broker channel.

“The pressure is here [in Ontario],” Carroll said. “When you look at the multi-channel players, the multi-channel players have focused all of their time and effort in the province of Ontario and not branched out. I don’t think they see Ontario as the be-all and end-all, but I do think they see Ontario as a place they need to conquer.

“And once they conquer Ontario, which they firmly believe they can do, they’re going to branch themselves out beyond our provincial border, as they have in the province of Quebec. So it is something we really have to focus on here. If we don’t, then we have not lived up to the association’s mandate.”

QUEBEC

In the area of technology, there has been an Archimedean-style discovery in Quebec. Sometime shortly in 2007, the Regroupement des Cabinets de Courtage d’Assurance du Quebec (RCCAQ) expects to launch a single-entry, multiple company interface [SEMCI] tech solution that will allow brokers’ data systems to communicate with insurers’ data systems.

The dream of a SEMCI solution appeared a long way off after the Centre for Study of Insurance Operations (CSIO), a national standards organization of property and casualty insurance companies, abandoned its CSIO Portal project in early 2006. The Portal was supposed to be an industry-owned, Web-based interface technology that would allow brokers’ systems to connect with insurers’ systems for the purpose of obtaining insurance policy data and quotes.

RCCAQ president Hubert Brunet said his association sifted through the ashes of the CSIO Portal project in an effort to develop a new solution. RCCAQ and a technology company called BcomC have since developed a new solution to be rolled out in early 2007.

The new technology will be called RRCAQ Central. “It’s a solution that will enable all brokers to be connected to all insurers,” said Brunet. “It’s a very light solution that can be exported [for use by brokers in other provinces]. Basically, it’s a translator. It translates information from the broker to the insurer.”

Brunet said RCCAQ Central has a number of features distinguishing it from the abandoned Portal project. For one thing, it is owned by RCCAQ, not the CSIO (which Brunet described as being owned primarily by insurers). Since brokers own the product, Brunet said, they call the shots on how the technology is developed and used. “We’re not asking insurers to pay one penny in this solution,” Brunet said. “They will not decide how it’s done, when it’s done. We’re just asking them for their co-operation to be able to connect to our solution. That’s all we’re asking for.”

Thus far, RCCAQ has met with several major insurers about the project, including ING Canada, AXA, Aviva Canada, The Economical, The Co-operators, Optimum and Pembridge.

Another virtue of RCCAQ Central is that not all stakeholders have to be 100% compliant with CSIO standards. CSIO oversees the development, implementation and maintenance of industry standards for EDI, forms and XML. “Our solution uses CSIO standards, but we’ll adapt to any particular requirements of any insurer,” Brunet said. “If an insurer uses the standard let’s say 80-85%, that will not stop or slow our development.”

Finally, RCCAQ Central does not require users to go on a separate or distinct platform to use it. “In our solution, the employees in the broker’s office will work on their BMS [business management system],” he said. “They don’t have to learn a new solution, they don’t have to learn a new platform. Their work is done.”

NEW BRUNSWICK

Improved succession planning and workflow efficiency top the list of issues to be tackled by the Insurance Brokers Association of New Brunswick in 2007.

“Over 60% of our provincial members are better than second generation,” Harrigan observed, noting the number of brokers who may soon be contemplating retirement. “I’d ask different principals of a similar age, did they have things in order [for succession planning]? And the answers were pretty similar to mine: ‘No.'”

The association will be helping brokers with succession planning, so that retiring brokers don’t feel compelled to sell the business to the direct or multi-channel writers who offer them the “biggest cheque,” Harrigan said.

Poor workflow efficiency in brokerage firms might also be contributing to the threat represented by direct writers and multi-channel players, Harrigan said. “Right now, if you talk to a direct writer – ING Direct Canada, belairdirect and all of those wings – those sales people finalize a call in 20 minutes from quoting to issuing [a policy],” he said. “That same transaction with the mother [insurance] companies through a broker distribution is a minimum of two hours, depending on the paperwork. It’s horrendous. If we only have 35 hours of good time a week, every Monday morning when I open that door, the direct writers are beating me and I can’t do anything about it.”

Harrigan said brokers must take better advantage of automation. It’s almost reached a point where there should be an industry-wide symposium for brokers to discuss workplace efficiency and automation as a whole, he said.

NOVA SCOTIA

The introduction of step licensing for brokers is a main priority in 2007, according to Insurance Broker Association of Nova Scotia president Gary Sach.

The province has introduced a step licensing program in which brokers who have been licensed fewer than two years receive a Level 1 designation, brokers licensed between two and four years receive a Level 2 designation and brokers who have been licensed more than four years receive a Level 3 designation. Brokers without such designations will eventually be grandfathered under the act.

According to the act, a Level 3 broker must provide supervision of the work done at brokers’ offices throughout the province. “If somebody had an office where they only had a Level 1 or a Level 2 broker, then there’s a requirement under the act that they would have to be supervised,” Sach said. “That doesn’t mean onsite supervision, but there is a log that has to be maintained by at least a Level 3 licensed broker, verifying that the [Level 1 or Level 2 brokers] asked all of the proper questions they should have asked on the auto application and that [the Level 3 broker] is satisfied that the [Level 1 and Level 2 brokers] did the required scrutiny in accepting the application and so there is an element of supervision there.”

Although most brokers in the province were prepared for this new licensing system, the act does present some problems for smaller brokerage firms, Sach said. “Life would be a lot easier if each individual branch office had a Level 3 onsite, because then supervision could be done very easily,” he said. “[But for] a small rural broker, or somebody who has a number of branch offices, it might cause them a little bit more difficulty in making sure they have the required person to supervise.”

P.E.I

Depopulating the facilities association [FA], the risk-sharing pool for higher-risk and inexperienced drivers, continues to be an issue for P.E.I. brokers, reports Karen Doiron, a board director at the Insurance Bureau of Canada (IBAC) who represents insurance brokers in P.E.I.

“The depopulation of facility is still an issue,” she says. “We have gone from [an FA population of] 7.4% in 2004 to 3.6% in January 2007. We’ve been working on that and it’s now in a range with which everyone is fairly comfortable.”

Doiron said her association has been educating brokers on how to place risks in the appropriate place. For example, just because drivers own a car more than 10 years old or a driver may be inexperienced, that’s not enough to place them in FA, Doiron said. Inappropriately-placed risk often leads to government intervention, although that option doesn’t appear to be on the P.E.I. government’s radar at all.

“With a large facility market share, in which the rates are so high, that is where you get people complaining about auto insurance and rates – and that’s when the government is going to step in,” Doiron said. “Either brokers can [depopulate FA] on their own, or the government can do it for them and [brokers] can be forced to place the risk where they really belong. In P.E.I., there has not been a lot of talk about a public auto system, but that is the ultimate risk that is out there…”

NEWFOUNDLAND

Insurance Brokers Association of Newfound land president Bob Dunne says the province has asked its brokers “to come and sit with the government and IBC and discuss voluntary sectors concerns about insurance.” The agenda for the discussions has not been released as of press time. According to Dunne, “from what we’ve seen in then past, some elements of the volunteer community believe that insurance is difficult, if not impossible, to obtain. We’ve talked to them about those concerns and explained that if you provide the right information to your broker, product is certainly available. It might just be a point of affordability with those smaller groups. I’m not quite sure where they are going to go with it this time. But we will listen, and comment and offer opinions.”

Dunne said the brokers also plan to talk to the province about its proposed consumer bill of rights. “As far as the industry is concerned, especially the brokers, we feel it puts an onerous requirement on us as business people,” Dunne said. “We thought it virtually impossible to comply with at least one condition of that particular document. We’re trying to enter into discussions with the government on that.”

In Paragraph 11 of its ‘Principals for the Sale of Insurance,’ the government says at the point of sale on renewal, “an agent, broker or representative must provide” to consumers the full range of deductibles, the various coverages available, and cite premium for all quotations.

“We feel that whole paragraph provides a heavy burden to the brokers, agents and representatives when they’re dealing with the public,” Dunne said, noting the information must be provided in writing at the request of the consumer. “We want them to change ‘must provide’ to terms such as ‘a right to know,’ which is the terminology they used in the previous 10 points.”