Direct Direct Challenge

The radio advertising jingles may have faded and the television commercials of rain-soaked car accident victims receded, but direct response insurers in Canada are alive and kicking. In fact, they contend they are uniquely positioned to capitalize on tough market conditions in the auto and home insurance industry.

Rate increases in key markets, especially Ontario auto insurance, have prompted aggressive price shopping, according to direct insurer sources. And, across-the-board, they say they have experienced significant surges in call volumes, with monthly consumer inquiries for the first six months of this year tracking on average 50%-100% over last year’s levels.

In addition to the hard market, some sources, such as Jeff Contant, president of HB Group, point to the fallout from Markham General and the transition of personal lines business from CGU to Pilot as factors. The consensus is that there is a lot of premium looking for a home. “We haven’t had to spend much money to get the phones to ring,” says Contant, who heads up DirectProtect. “Our call volumes have nearly doubled on a monthly tracking basis form last year. The result is lower new business acquisition costs.”

The “little phone guy” has been conspicuous in his advertising absence over the past three years, but Contant says the DirectProtect name is firmly established with consumers. “It doesn’t make as much sense to advertise heavily in the current market. When we started in 1996, surveys at the time showed that only 10%-15% of people shopped around for insurance. Those numbers have clearly changed.”

BROAD DEMAND

Other direct response insurers say their numbers reflect similar trends. Grant Hardy, executive vice president of Canadian insurance businesses for RBC Insurance, says his company’s call volumes for the past two months are up well over 100% from last year’s comparable numbers and the conversion/new business rate has increased more than 60%.

RBC Insurance has also decreased its advertising budget in the last year, but Hardy says the company is continuing to emphasize brand identity in its current campaign.

Colin Brown, chief operating officer of HSBC Canadian Direct Insurance, says when the Insurance Corp. of British Columbia (ICBC) raised its rates last November for the first time in five years, “our phones went through the roof. Our average call volumes went up 100%, and our conversion rate [number of sales versus quotes] increased as well, up to 50% better than plan.”

Canadian Direct has also experienced increased call volumes in Alberta, “but not as dramatically, more in the range of 20%,” Brown notes. He says the company recently completed consumer focus groups in Edmonton and Calgary. “Right across the board, people were talking about price. Cost was the main issue and people were showing restlessness. Even if they had been with a broker for many years, they are now asking, ‘is that the best rate I can get?'”

David Lincoln, senior vice president and regional manager for Belair Insurance, says call volumes “are up dramatically. What we have noticed is that there used to be a core group of consumers who were interested in dealing directly with insurance companies. With today’s rate increases, we now see more and more people interested in comparison shopping, particularly clients from broker companies.”

ADVERTISING STRATEGIES

Lincoln confirms that Belair Direct’s prominent radio advertising has decreased in the past two to three years. “Those who have established a brand are not advertising as much, for two reasons,” he says. “One, in the soft market of the late 1990s you had to advertise to entice people to switch their insurance. That is not the case anymore. And two – many direct response insurers have reached critical mass, in terms of their customer base.”

Certas Direct Insurance, part of the Groupe Desjardins (which bought CIBC Insurance), is experiencing a 50% increase in call volumes compared to last year, according to senior vice president of insurance, Jean-Francois Chalifoux. “There is a natural demand for our product, the calls are being generated,” says Chalifoux, whose operation writes business in Ontario and Alberta. Like other direct insurers, Certas recently pulled most of its media advertising.

Of course, brokers and other sellers of insurance are also experiencing increased calls for quotes in the current market. The telephone and Internet-based Consumers Guide to Insurance, which offers a one-stop comparison shopping platform, has experienced a huge increase in inquires, with an average 3,000 calls or website “hits” a day, according to president Lee Romanov. The service refers 1,000 leads on average each day to its group of 70 brokers. “Typically, 400 of those leads fall off the plate, brokers say they can’t handle the volumes.”

It is here that direct response insurers say they can adapt more quickly to changing call volumes. “I think direct response insurers in general have reached a level of sophistication in their call centers, where they can balance training, technology, selection criteria and underwriting audits to process calls quickly,” says Contant.

RISK SELECTION

Selection of risk, claims experience and building a solid book of business are issues for direct response insurers as they are for traditional insurers. “We are aware of the issue of poorer risks tending to be the first price shoppers,” says Colin Brown. “And we don’t issue a quote for everyone. You have to put in place the right criteria to handle risks.”

“The idea of running a call center merely as a quoting machine is an expensive proposition,” says David Lincoln. “You have to find out quite quickly where the profitable customer segments are and focus on conversion rates.”

Chalifoux says certain regulatory realities, such as rate structures, risk classifications and the number of territories, hinder direct writers, especially in Ontario. “Right now I would say there are more challenges than opportunities,” he notes. “It is important for direct writers to segment the new business so we can rate the risk and price it accordingly. The reality today is that it is difficult to do that.”

Training of call center service representatives is a big issue for Contant, who challenges the prevailing view that brokers are the beneficiaries in a hard market. “I think the argument that brokers add more value, particularly in a hard market, is wearing thin. Most brokerages are mini call centers anyway, they are just not run as efficiently. Most brokers realize that customers shop around by phone. The CSR who answers the phone may or may not be knowledgeable about insurance.”

Rate increases in insurance markets across Canada represent a critical challenge for direct insurers. “The niche of direct insurance is price and making it easy for the average consumer to comparison shop,” says Belair Direct’s Lincoln. “Yet our rates are rising just like other insurers. You have to ensure you are as competitive as possible with your targeted customer segments.” As such, direct response insurers emphasize that the need to address rising claims costs, and subsequently higher premiums, is an industry-wide issue.

CUSTOMER LOYALTY

Several direct response insurers say that maintaining customer loyalty and service levels will be one of the big “differentiators” in the months ahead. “When you are experiencing the pressure of higher call volumes, it really is a fine balance,” says Brown. “You want the new business but you have to keep the level of service to existing customers. That’s an issue for all of us, I think.”

“I think we have to improve our operational efficiency,” says Chalifoux. “Direct response insurers in general have not yet achieved the desired economies of scale to truly differentiate themselves from broker companies in terms of expenses. We’ll get there, but we’re not there yet.”

And, what about those radio jingles and assuring television ads? Although they are not as prevalent today, RBC Insurance’s Hardy says the need “to establish brand is a continuous investment. There may be times when you target down a bit in ter ms of advertising, but it is not a one-off promotion. You have to work at establishing and reinforcing the brand.”

The recent “targeting down” in advertising has more to do with hard market conditions than anything else, according to many sources. But how long will this last? Predictions of the hard market from direct insurer sources range from at least two to three years, unless there is significant product reform in key areas, such as Ontario, Alberta and Atlantic Canada auto insurance.

The question is: will aggressive price shopping become a fixed part of the insurance landscape, or will consumers settle into a comfort zone with their brokers and wait for prices to come down in a soft market? You will likely know if, or when, you hear those marketing jingles again.