“Integration” or… “Assimilation”

With the recent approval of the U.S. Financial Services Modernization Act, a considerable amount of attention in Canada has been turned to watch developments south of the border. Financial services legislative reform in the U.S. has opened the door to financial institutional cross ownership and integrated product selling, essentially providing the way for the one-stop “financial services supermarket” concept that has been bandied about for years without achieving much success.

So, what is the big deal now? Essentially, two critical components have fallen into place over the past year. The first being the “break down of legislative barriers” in the U.S which is expected to ultimately feed into the Canadian market, and lastly the broad acceptance the Internet is garnering as a selling tool. The Citi Group and ING have been particularly aggressive in pursuing the one-stop shop concept in the U.S., while an explosion of Internet-based retailers of insurance have sprung up across the country. In Canada, ING, Zurich, and at least one large life insurer, have looked to expand their product and distribution range. So far, “Internet sellers” have not made their mark in Canada, however, I am willing to stake a small wager that the current lull is merely a “breathing space” until the U.S. Internet sellers have fully digested what they currently have on their plates.

All of the above, however, is but one scenario based on the premise that the convenience and selection of choice in services afforded to the consumer through electronic access and one-stop shopping will actually take hold. In terms of a straight cost analysis, there is no argument that electronic and one-stop shops can outcompete traditional distribution modes. However, as several leaders in the brokerage community have observed, bringing about “change” in consumer thinking and buying patterns is easier said than done.

That said, management consultants, market research firms and financial analysts serving the property and casualty insurance industry remain adamant in their reports that insurers need to embrace multi-distribution approaches in order to compete in the future “new economy”. In turn, brokers are urged by these same parties to broaden their product offerings and cash in on the “customer ownership” factor currently resting in their favor.

But, until concrete evidence filters through of the growing success of electronic selling and “one-stop shopping”, traditional insurers and brokers alike would appear to be left with little choice but to play a “high stakes poker game” to determine whether the dedicated distribution approach will be able to survive and even thrive in this new environment. The risk factor, or course, is that once “evidence” of the success of alternative selling comes about, it will be already too late to respond.

However, a strong argument still lies with “doing what you know best” and thereby benefiting customers through that expertise. The risk of branching into several areas of business could well be what ultimately turned the banks into the “bad guys”: losing touch with your customer. Another barb to integrated product selling, or cross-selling, is the political ramifications. Insurers and brokers have thus far been highly successful in gaining government favor for their economic support to regional communities. This was achieved by painting the banks as heartless corporations bent solely on profit gains. Should brokers, through alliances, etc, begin evolving their businesses along the marketing lines of the banks, then the same political curse that has thwarted the expansion of the banks could very well bounce back.

Already the market has seen significant change with the introduction and direction taken by the large broker network consolidators and broker clusters — both national and regional. All of the major players in this arena have taken steps to retail a host of products and, in some cases, create facilities to underwrite them. Many of the provincial broker associations have also amended their bylaws to accommodate membership of the broker consolidators to ward off depletion of their membership base from consolidation. The danger slowly emerging from these murky depths is once again the issue that brokers stand to lose their identity as independent advocates of the consumer. In essence, the drive toward product integration, though this might well become necessary, could prove to be a force of assimilation toward a broad financial services pool where anything and everything is open to the profit margin — including scruples.