Brokers in Action

Across Canada, insurance brokers are currently facing many issues, challenges and changes. These conditions include new restrictions on sewer back-up coverage in Nova Scotia, the Ontario government’s mandated reduction in auto premiums, auto dealers in Quebec selling replacement insurance and competition – everywhere – from banks and direct writers, as well as from non-traditional players seeking to carve out a piece of the pie by selling insurance directly to consumers.

ISSUES ABOUND

Independent insurance brokers in Canada need to advise customers on a wide range of risks and coverage, such as water damage, earthquake, flood and auto. Beyond these issues are mandatory pension contributions in Ontario, the prospect of newly elected federal politicians who are unfamiliar with the Bank Act, a new contract with Saskatchewan’s government auto insurer and changes to sewer back-up coverage.

On the last point, consider what is unfolding in Nova Scotia. “For the past year, we have been coping with the restrictions of sewer back-up coverage in Nova Scotia,” says Glenna Boudreau, president of the Insurance Brokers Association of Nova Scotia (IBANS).

“For us, there haven’t been a whole lot of restrictions up until this past year,” Boudreau notes. “Depending on where they live and what their postal code is – either the coverage for sewer back-up has been eliminated, or it has been drastically reduced, with, in some cases premiums increasing by 100%.”

Water-related risk to property, especially from overland flood, is an issue for brokers across Canada, says Steve Masnyk, manager of public affairs for the Insurance Brokers Association of Canada (IBAC). “We set up a flood task force to study the issue,” Masnyk says of overland flood, adding the group was scheduled to meet in early April.

“We realized over the last year or two that because this is such a complex issue, probably the smartest thing for us to do is study and find out what the issue is because it’s so complex. This has led to the creation of a study group or task force to really look at all the participants’ and all the stakeholders’ interests,” he reports.

Masnyk suggests that brokers can address water risk by advising their clients on preventive measures.

“A lot of homes don’t have sump pumps in the basement,” he points out. “A lot of people aren’t aware that a sump pump or a sewer back-up valve might actually prevent a flood should there be major water around the home,” he adds.

WATER… AND MORE WATER

Aviva Insurance Company of Canada announced in February that it will offer an overland water endorsement on personal property policies covering “losses that result from the accumulation or run-off of surface waters, including torrential rainfall when water enters the property.” Starting this May in Ontario and Alberta, the insurer plans to offer the endorsement to clients who have sewer back-up protection in place.

The Insurance Brokers Association of Alberta (IBAA) “is looking forward to seeing what Aviva is going to be bringing forward in their flood coverage,” says IBAA past president Gord Enders.

Boudreau is also waiting in anticipation to see just how the Aviva Canada coverage will work. “We are all very excited about the coverage, and we hope it’s going to be affordable,” she says.

Affordability will, no doubt, be a topic of discussion. But the fact that there has been some movement on what has proved to be a challenging issue offers some optimism.”Aviva is exciting for us because it’s showing the initiative of the insurance industry stepping up to find a solution, so I imagine there will be other carriers to follow with offerings shortly,” says Michael Brattman, president of the Insurance Brokers Association of Ontario (IBAO).

NEED FOR QUALIFIED ASSISTANCE

For brokers everywhere, mergers and acquisitions involving brokerages has become a real issue. “The lines of what constitute an independent broker are so blurred now,” Boudreau says. “There are very few brokers out there, truth be told, that do not have some investment by an insurance company. For the most part, the consumer is very unaware of who they are buying insurance from and what the implications are.”

C.J. Nolan, president of the Insurance Brokers Association of Newfoundland (IBAN), suggests that in Newfoundland and Labrador, “consumer choice for personal lines automobile insurance has certainly become more difficult.” Nolan notes that personal lines auto insurance concentration has formed with four major insurance company markets for brokers, in part, the result of some insurance companies leaving the province.

Beyond choice is the need for any advice received to be from an insurance professional. Every consumer should receive advice from a qualified professional when buying insurance, argues Vincent Gaudreau, chair of Regroupement des cabinets de courtage d’assurance du Quebec (RCCAQ). Consider, as one example, selling insurance over the Internet. Gaudreau points out that the Autorité des marchés financiers (AMF) – which regulates financial markets in Quebec – does not have related guidelines.

When a customer is buying insurance, it is important to “have somebody who is responsible, if the coverage is not right, or the person made a mistake,” he comments. “We (should not) just say, ‘It was the website algorithm, there was nobody involved and it’s a robot’s fault.'”

RCCAQ’s view is that Quebec should have a new regulation to address selling insurance on the Internet. “Our position is that we need to have a certified representative involved in the transaction, not necessarily at the buying moment, but… in the few days before or after the transaction, there should be a certified representative involved in the transaction.”

Professional assistance is also an issue in Quebec when it comes to the long-time broker concern around automotive dealerships and the types of insurance they can sell (replacement insurance) or cannot sell. This past February, AMF reported it had launched proceedings for sanctions against the commercial practices of nine automobile dealers and one damage insurance firm.

AMF noted that some customers were offered civil liability insurance from auto dealers, even though such coverage can only be offered by agents and brokers registered in Quebec with AMF.

“Some of the dealers also failed to adequately describe the replacement insurance offered to customers and specify what was covered, or they offered a lower financing rate if the customer took out replacement insurance through the dealer,” notes an AMP press release.

“The way (the auto dealers) were doing it was a problem because the way they were forcing customers to purchase specific insurance in order to give them (auto financing) rates,” Gaudreau says. “They put lots of pressure on the consumer,” he contends.

Though Gaudreau supports steps taken by the AMF, he adds that “the root of the problem is (brokers) have a licence to sell insurance, and we are selling the same product as somebody who doesn’t have any licence, who doesn’t have the s ame disciplinary committee that we do. We are highly regulated and they are not. What we want is a level playing field.”

In Newfoundland and Labrador, “IBAN has discussed the idea of allowing electronic proof of auto insurance” with government and opposition representatives, Nolan notes. “This would allow drivers to display their insurance information via their cellphone, laptop, tablet or other device,” he says, adding that almost 30 states in the United States are reported to have passed similar laws as a convenience to drivers.

PROMISE IN TELEMATICS

Of course, there are other changes unfolding. Gaudreau says RCCAQ is “following what’s happening in Ontario very closely” with regard to the increased use of telematics – whereby insurers base their premiums on vehicle behaviour, such as time of day, speed, acceleration and hard braking.

Telematics is “a bit less attractive” in Quebec, even with a possible 20% discount, because the average premium in the province is less than $500. (KANETIX.ca recently reported the average auto premium in Ontario is $1,538).

In Ontario, telematics is available from several carriers, while IBAO subsidiary Independent Broker Resources Inc. (IBRI) has partnered with technology vendor Quindell plc to offer telematics-based auto coverage through IBAO members.

IBAO officials have previously suggested brokers should have access to telematics data so they can give proper advice to auto policyholders.

Just this March, Quindell subsidiary Ingenie Canada Inc. announced that it is offering usage-based insurance – using telematics – to drivers 24 and younger. Ontario vehicle owners can buy the insurance directly through Ingenie.ca and from brokerages, coverage for which is underwritten by Aviva Canada subsidiary Pilot Insurance Company.

Aviva Canada previously reported that the insurer has plans to write auto using telematics in partnership with IBRI.

For commercial customers, IBRI announced Fleetadvisor this past January. Then in March, Unica Insurance Inc. noted it is endorsing Fleetadvisor, which the insurer suggests will allow brokers to “solidify client/broker relationships by putting brokers in a position of a true fleet risk management advisor.”

Telematics “is not an area of the market where we have had a lot of success competing with the direct writers, so this certainly gives us a new tool for our members to go after that market,” Brattman comments.

Another auto issue on IBAO’s radar screen is Ontario’s mandated reduction in auto premiums, he notes. In August 2013, the Ontario Automobile Insurance Rate Stabilization Act established an “industry-wide target reduction” of 15% over two years of the average private passenger auto premium. Since then, Ontario insurers have had to “propose rates and a risk classification system that contribute adequately” to achieving that target.

“What we want to see is that the government takes their time and is prudent about the way they continue to require the 15% rate rollback,” Brattman says. “We are for lower rates, as long as they could be achieved responsibly. At some point, you can’t force an insurance company to lose money, so that’s why we are worried about availability of coverage.”

Auto is also an issue in Saskatchewan, but for a different reason. The Insurance Brokers Association of Saskatchewan (IBAS) is currently involved in negotiations with Crown corporation Saskatchewan Government Insurance (SGI) over the terms of SGI’s contract with brokers, says IBAS president Dave Nussbaumer.

All vehicle owners buying Saskatchewan plates must purchase basic liability and injury coverage from the Auto Fund, written by SGI. Consumers are free to buy additional coverage – such as extra liability, collision or comprehensive – from SGI or the private sector.

Brokers can choose whatever companies are “best for the customer, and that’s where competition becomes an issue,” Nussbaumer suggests.

In Saskatchewan, brokers have contracts to market SGI products and renew and service existing SGI policies. SGI’s broker contract “has everything to do with our remuneration, our terms, services, how they deal with customers via the Internet, what channels the customers link to SGI, whether (brokers) are involved or not,” he says.

IBAS is in negotiations with SGI over a draft contract update, he points out. Nussbaumer reports SGI recently sent a draft copy of the contract to brokers.

“Some of the bigger issues are the (draft) contract is better suited to an agent business model versus a broker business model and we are brokers,” he says. “Someone who walks through my door, writes me a cheque to find an insurance product for them – I consider to be my customer.”

Saskatchewan’s brokers need SGI, acknowledges Nussbaumer. “We get that. But now we feel we are maybe being forced into a contract situation that is not in the best interest of us as business owners,” he emphasizes.

EARTHQUAKE EXPOSURE

British Columbia also has a government-owned auto insurer, but earthquake risk is more of an issue in that province, says Kevin McIntyre, president of the Insurance Brokers Association of British Columbia (IBABC).

“Earthquake is the biggest issue that we deal with on an ongoing basis, and it’s certainly one that I’m passionate about,” McIntyre says. “We have half of condominium owners not buying any insurance at all and lots of people who don’t carry earthquake coverage.”

Still, he notes some condo complexes “have massive earthquake deductibles” and brokers need to advise those clients on the risk. “If you have a $40 million complex that you are part of that’s got a 10% deductible, that is a $4 million deductible in the event of an earthquake,” McIntyre points out.

“Individuals living in them will be called upon to kick in their share, which might be tens to hundreds of thousands of dollars. We need to get more and more of those people to understand insurance and earthquake insurance better and be better prepared for it,” he emphasizes.

Condominiums are also an issue for brokers in Quebec, Gaudreau explains, noting that water damage claims are increasing. “Loss ratios are really, really bad with condo associations,” he suggests, adding that water damage claims associated with condensation in walls are covered by the association’s policies.

Deductibles are increasing and, in some cases, premiums are increasing by as much as 30%, even for associations without claims, Gaudreau reports.

“We are setting up a task force and a committee to discuss some potential solutions,” he says, reporting that RCCAQ plans to work with condominium associations and insurers in the province “to try to evaluate some potential solutions to this problem.”

EXTERNAL PRESSURES

Beyond specific perils, there are broader issues that can affect insurance brokers regardless of province. For example, one the biggest issues for the Insurance Brokers Association of Manitoba (IBAM) is low interest rates because insurers need to rely more on underwriting income to make money, says Dave Schioler, chief executive officer of IBAM.

“Profits have to come from underwriting performance… so that becomes the key,” he says. “Brokers have to continue to provide the kinds of professional service that people expect,” he adds.

Schioler reports competition from direct writers is also an issue, suggesting that large insurance companies selling through brokers “have to work hard to become household brands.”

Although Manitoba has a compulsory auto insurance coverage product provided by the Crown corporation, Manitoba Public Insurance, Schioler&nb sp;says brokers can compete by providing advice to auto customers on all of the options that are available beyond basic Autopac coverage.

“When a broker’s there and talks to the client about what their needs are and what products are available” – such as loss of use coverage, liability coverage, tinted glass coverage – “the broker who’s doing that and the companies that are providing the right products to fit are going to win at the end of the day.”

Brokers have been, and will continue to be, involved as changes in Ontario auto unfold. The Ontario government is promising to take measures to reduce insurers’ costs so that premiums can come down.

Bill 15, the Fighting Fraud and Reducing Automobile Insurance Rates Act, “was a good first step,” Brattman says of the omnibus legislation passed last November. “But they need to look at some further measures to help lower rates, including implementing a catastrophic loss definition and limiting contingency fees for legal representation,” he argues.

Bill 15 will be one of three issues IBAO officials expect to discuss with Ontario politicians at Queen’s Park Awareness Day in April, reports Brattman. The other two issues will be a five-year review of the Credit Unions and Caisses Populaires Act and the Ontario Retirement Pension Plan (ORPP).

The ORPP – which the province is set to implement in 2017 – will require equal contributions, not exceeding 1.9% each, from employers and employees, on earnings up to a maximum annual earnings threshold of $90,000.

“We are opposed to it,” Brattman says of the ORPP. “We understand the good intentions behind the rationale to enhance retirement incomes, but our members have expressed quite loudly and clearly they cannot support the planned ORPP. The additional cost to the brokerage business in Ontario will be particularly onerous, given the combined 15% auto rate reduction, the full effect of which is just now hitting the market,” he says.

IBAO is also asking the province to prohibit credit unions from promoting home and auto insurance online. IBAO is “looking for harmonization” with the federal Bank Act, Brattman reports.

Currently, Ontario law prohibits the promotion or sale of unauthorized insurance products. Despite the ban being in place, the websites of some Ontario credit unions include sections marketing insurance.

Prohibiting the online promotion of insurance protects consumers “who are vulnerable at the point of lending from an obligation to purchase an important insurance product under duress,” notes a 2014 IBAO press release. In addition, it “protects consumers from cross-selling tactics from persons not properly trained to provide insurance advice.”

The Bank Act is also a priority this year for IBAC in light of the next federal election, widely expected this fall, Masnyk says. “A significant number of MPs will be new, after the election, and most of them will not be aware of the whole bank insurance issue,” he explains.

“Our role every year is to continue educating and reminding MPs of what the issue is,” Masnyk says. “Our role with this new batch of MPs after the election will be to educate them… that credit-granting institutions ought not to be selling insurance at the point of credit and explaining why this makes sense for consumers,” he adds.

FACING THE COMPETITION

While competition from direct writers such as banks is on the rise, brokers are confident in the advantages of their channel. “Direct writers are a concern to a certain point, but there are a large number of consumers that do want to get professional advice, have the choice, understand what they have, and then deal with someone when they have an actual insurance problem,” Nussbaumer says. “In our province in the last number of years, with the amount of water claims and wind and hail – trust me, we field enough calls and I’m not as worried about direct writers as I am about some of the other things going on out there.”

In Alberta, IBAA’s members “are entrepreneurs by nature, whether they are large or whether they are small brokers, and we always view competition as a good thing,” says Enders.

“We always want to make sure that it is a level playing field. Having said that, we do believe that for consumers, the broker choice is the first route to go – for advice, for service, for advocacy and, of course, for competitive premiums,” Enders says. “We really are the only line of business that can provide choice for the consumer, and advocacy, because we are independently owned.”