B.C. Brokers Conference: On a Collision Course

Amidst the peaceful Okanagan Valley nestles Kelowna, B.C., a small town balancing environmental preservation and the influx of big business. It was a stark contrast, however, to the scene at the recent B.C. Broker Association (IBABC) conference held at the Grand Okanagan resort on Lake Okanagan. There, the new provincial Liberal’s campaign promise to open the auto insurance market up to competition was hotly contested, with no clear winner in sight at the end of the day.

The broker association has already voiced concerns over the idea of opening up auto insurance to competition from private insurers, partly because of its exclusive relationship with the Insurance Corporation of B.C. (ICBC), which makes brokers the sole distributors of basic auto insurance. Optional auto covers are already open to competition.

A degree of support

“Yes, we have extended a degree of support for a system that has many advantages for our customers and us, though the potential for significant change is very real,” notes IBABC executive director Chuck Byrne in his annual address to member brokers. However, he adds, “whether you support the current system or not, we have never been able to trust ICBC with our well being in the past nor I doubt will we in the future”.

The association feels there are “serious gaps” in the plans of insurers as expressed through the Insurance Bureau of Canada (IBC) and its Coalition for Private Automobile Insurance. Byrne says the plan does not address “transition issues, product changes and availability issues”, and how brokers and their customers will be affected should the system be deregulated.

This lack of support has raised the ire of some in the industry. George Cooke, president and CEO of The Dominion of Canada General Insurance Co., notes in an address given at the conference “that a not insignificant number of brokers, including representatives of your association, are satisfied with the status quo when it comes to auto insurance. If any change is to come, their preference is that the pace be glacial.”

“Burning dissatisfaction”

But the broker association is not the only seat of dissent for the Coalition’s goals. During an industry panel featuring insurers and representatives of ICBC, Canadian Northern Shield COO Jim Caudle expressed his own doubts about the plan.

There really should be “a burning platform of dissatisfaction among the public” to justify such a radical change, he asserts, a situation he personally has not witnessed in B.C. That said, he is skeptical the government will make privatizing insurance a top priority in its agenda.

Caudle is also concerned about the impact the new system could have on smaller, local insurers. With open competition will come the need for more capital and a “David and Goliath” face-off between small companies and the international giants. “Where am I going to get the capital [to compete]?” he asks. “My guess is that for the first five years this business is going to be unprofitable”, and will offer little incentive for investment.

Fears that broker incomes will be cut into with the potential for direct writing of basic auto coverage were also discussed, with little reassurance given that this would not happen. “The consumer is the person paying the bill and will ultimately make the decision about how to purchase insurance,” admits Mike Valiquette, senior vice president, distribution center for ING Western Union, although he supports the move to privatization.

Political risk

As it stands, about 40% of auto insurance premiums are open to competition, asserts Darlene Hyde, senior vice president corporate and government relations for ICBC. She notes also that the corporation was established in 1973 as a response to high rates and the inability of some drivers to even get coverage from private insurers. Rates could again be an issue with the re-introduction of private insurance. “There are headlines almost every day in Ontario and the Maritimes about how rates are increasing.”

In fact, the industry’s poor results in other provinces were a recurring theme among those who oppose privatization. Cooke admits insurer results for 2000 were “simply awful” and show no signs of improvement in 2001. Insurers are not doing well in auto insurance markets across the country, in Ontario, Alberta, the Maritimes and even Quebec, notes Carson Thompson, regional vice president for Western Canada for Federation Insurance. The industry will have to be certain it does not make the same mistakes if given the chance to enter the B.C. market. “The ramification of this is political suicide if we don’t get it right.”

And the industry certainly was not getting it right prior to the creation of ICBC, observes Alan Brunskill, vice president of commercial auto at Axa Pacific. While Brunskill says his company is eager to play in the B.C. auto market, he hopes the mistakes of the past will not be repeated. “It’s a good thing not very many of you were around in 1973, because things weren’t run very well… companies were arrogant and left themselves open to what happened,” he told the conference audience.

Caudle questions why insurers would want to expand their auto business into B.C. given their results elsewhere, and noting that many insurers have been cutting unprofitable lines of business. “Why would you want more?”

ICBC issues

Insurers supporting the move to private auto, including Cooke, Valiquette, Brunskill and Thompson, list a host of deficiencies with the current ICBC system as justification for the change.

Among these is the question of whether ICBC rates are currently adequate. Cooke calls ICBC’s rate setting system “unfair”, because age and gender are not factored into the mix. The result, he says, is that lower risk drivers are subsidizing high-risk drivers.

He accuses ICBC of having “no transparency, no accountability” in terms of its financial reporting. “Educated estimates are that there is a large reserve inadequacy and prices are seriously inadequate.”

Insurers also voice concerns over how ICBC money is spent, including its high-profile advertising campaigns and other expenditures such as road improvements, photo radar (which was recently revoked by the Liberals) and sporting event sponsorship.

Cooke and other insurers are calling for an independent actuarial review of ICBC and rate changes recommended as a result of this review. Cooke also wants to see a change in ICBC board and management structure (recently Nick Geer was appointed new chair of the Corporation). He notes that it is not enough to open the market up to competition, but that insurers expect a level playing field where ICBC would enjoy no advantages as a government run corporation. He has set a 2003 goal for full competition to start in order for the necessary changes to be made.

Other perspectives

The IBABC conference was also a chance for association presidents from other provinces to add their perspectives to the debate, with most showing a preference for private systems.

Newly-elected Alberta Brokers (IIBAA) president John Rigby says that, although rates are certainly on the rise in his province, he sees the private industry there flourishing. “I know it’s hard to go from a system you’re so used to,” he admits, but he also sees fears about the private market – of rate instability and the inability to place high risk drivers – are not the reality in Alberta. With the existence of the Facility Association, he says brokers can count on the availability of coverage for even the highest risk drivers. “We have a great ability to place risks for customers.”

Manitoba Brokers (IBAM) president Gerry Corrigal, who recently took office for a second term at the association’s 50th anniversary conference, says that his province is experiencing many of the same experiences as B.C., dealing with a change in government. In Manitoba, however, the province has not indicated any desire to change government-run insurer, Manitoba Public Insurance (MPI). No plans are in the works to change the public nature of basic auto insurance and Corrigal says brokers have established a goo d working relationship with the new government.

Changes to the Insurance Act in Manitoba have been a win some-lose some story for IBAM, as has its relationship with MPI. Recently brokers lost a battle when MPI forced them to contribute to a dividend for drivers, but won the fight for better commission terms. “We will probably see a 3% increase in our commission pool…that will add to our bread and water.”

Saskatchewan Brokers (IBAS) president Murray Tait is not so content with his province’s public insurer, Saskatchewan Government Insurance. He says brokers have faced a policy of “no questions allowed” in dealing with SGI. As such, IBAS believes that Saskatchewan’s insurance market should be privatized. “We’ve committed ourselves to IBAS being a catalyst for change…this $500 million monopoly should end for the benefit of consumers.”