Ontario Brokers: Standing on Guard for Thee

I am amazed at what transpires in the field of insurance when it comes to distribution and gaining market share. For all parties involved in the distribution channel, it is important to realize what is happening and understand the business strategies of our suppliers.

When looking outside our provincial border, but staying within Canada, we find that most of the suppliers brokers deal with operate under the same business principles elsewhere as they do in Ontario. For the most part, suppliers who write business exclusively through the broker distribution channel in Ontario also write business exclusively through brokers in other provinces. With the exception of Wawanesa Mutual Insurance Company operating a direct arm in Quebec, where direct writers deliver 52% of property and casualty, a uniform business model across the country seems to be the norm.

It is surprising, however, the way multi-channel insurers do business in other provinces within Canada. For the most part, they do not operate multiple channels in other provinces.

Over the past year, I have been following insurance company CEOs as they travel throughout Canada speaking to the brokerage community at provincial conferences. It is noteworthy to recap some of the comments that have been made.

At the CEO panel hosted by the Insurance Brokers Association of British Columbia (IBABC), “stay east” seemed to be the message delivered by the brokerage community. Interestingly enough, insurance company CEOs agreed.

WHAT CEOS ARE SAYING

Direct writers have not yet penetrated the B.C. market. As a result, we have heard comments from Aviva president and CEO Igal Mayer stating there was no need to change Aviva’s approach in B.C. and Alberta, “because today, the broker distribution channel dominates.” Jetse de Vries, chief operating officer for ING Canada’s western region, said that from the perspective of an insurer, “if brokers support you, and you’ll give them [support] in terms of formal investments, why would you destroy that?” There is no need to introduce direct writing in B.C., he said. “For the immediate future, certainly no BelAir here…”

In the August 2006 edition of this publication, Mayer noted it was not the traditional suppliers who started the battle for market share. Rather, he said, it was “Royal Bank and TD Meloche that were very aggressive.” What does that mean? Are we to interpret the creation of Aviva’s direct market as a necessity to compete head on with this aggressive behaviour, or was it simply a market condition that presented an opportunity to introduce a model that works well for them in other parts of the world to gain market share?

In September 1998, Coopers & Lybrand published a research paper for the Task Force on the Future of the Financial Services Sector entitled “The Property Casualty Insurance Industry.” After reading this research paper, I found it interesting that what is happening within the industry today was predicted back in 1998. The research suggested that we were going to witness what was referred to as the “distribution revolution,” and that suppliers were focused as never before in the Canadian market. The research goes on to show there are three reasons driving this trend.

First, other countries’ banks and insurers have found that non-traditional means of distributing insurance is very successful. Second, the financial sector is changing its focus to direct-response marketing. Third, technology is advancing.

The only thing holding back the international suppliers from changing their focus in Canada was the fear of losing substantial market share. With over 80% of the market being distributed and serviced by brokers, an additional channel of distribution could result in suppliers losing a large part of their market share. Despite this risk, some suppliers decided it was worth taking a chance.

UNDERSTANDING STRATEGY

It is important for brokers to understand the business strategies of the suppliers that they represent and understand the direction these suppliers are taking elsewhere. Brokers who understand what business models work for suppliers elsewhere can better understand what suppliers might be considering in terms of implementation here.

Belair Direct, part of the ING Group and part of one of the first multi-channel models, is currently operating in both Ontario and Quebec. It offers automobile and personal lines property insurance through a call centre. In other parts of the world, the ING Direct model offers personal lines property insurance in certain jurisdictions. Launched in the United Kingdom in May 2003, ING Direct currently has a total of more than 1 million customers. As a direct savings bank, ING Direct operates worldwide, including countries such as Australia, Canada, the United States, France, Germany, Austria, Italy, Spain and, of course, the U.K.

The introduction of PC Financial – which offers automobile and personal lines property insurance underwritten by Scottish & York Insurance Co. Limited, a member of the Aviva family – made Aviva Canada the second multi-channel distribution insurer. This model has worked well for Aviva in the U.K. Just look at ASDA Insurance, a trademark of ASDA Stores Limited: ASDA Insurance offers home, travel and comprehensive car insurance, underwritten by Norwich Union Insurance Limited, part of the Aviva Group of Companies. Ford Insure is another venture of interest, also underwritten by Norwich Union.

These two are not alone in their efforts to gain market share. MORE TH>N is the direct arm of Royal SunAlliance Insurance, catering to both personal and small business needs. The company was launched in June 2001, and they claim to bring a “fresh new approach to the consumer financial services market.” They have devoted thousands of “dedicated and talented employees” around the U.K. to deliver the “excellence of service and products our customers demand and expect.”

Although this is not an exhaustive list, it provides examples of what is happening in other parts of the world.

What’s next? Are the consolidation efforts we have seen lately, including attempts to buy up the distribution channel, our ‘Strike 3’ and ‘Strike 4′? These initiatives bring the level of competition into the brokers’ backyards; insurers who now own (either directly or indirectly) brokerages are willing to compete in local communities through the quasi-direct model.

There are clear advantages to using a broker who is independent from insurers and direct writers. For example, clients can benefit from a broker’s clear and unbiased advice – the broker’s impartial approach may be harder to come by elsewhere. A broker can provide access to the whole market, rather than just one part of it (such as the product offered by one or a few insurers, for example, or a limited range of products). Clients also benefit from the peace of mind that comes with knowing a broker’s recommendations are advice- based and in the best interests of the client. Consumers who engage the services of a broker will remain with that broker for many years, building a relationship of trust; that is the main reason insurers want to play in this arena. Insurers who are buying brokerages in an attempt to gain market share are taking advantage of the brokers’ value proposition for their own corporate gain.

When you then add technology to the mix, the one-system, one-market efficiency of the direct writers and agents becomes a reality in the quasi-direct world. The multi-layered approach to technology that brokers are facing today is not of concern to those suppliers who support the “controlled” model. Direct writers have one system and one approach; for them, the Portal is already a reality.

CHANGING MINDSET

What needs to change? Is it the broker/client relationship? Is it the insurer/client relationship? Is it the broker/insurer relationship? Or should it just be the mindset of the insurer that changes?

I believe the mindset of the insurer must change. Given everything we have seen thus far, there has not been a drastic shift in distribution. The true broker distribution channel has been able to maintain the majority of the market share. We still control distribution. I can only speak for Ontario, but we are seeing a slight shift of allegiance to other insurers; as I have stated before, I believe that will continue.

The broker distribution channel is willing and able to compete. Technology will assist brokers in embracing the challenges they are facing today. As spirited entrepreneurs, they will respond.

Just think where those same suppliers who were working against us would be today if they had embraced the distribution channel with the same zest and vigor with which they embraced their own business agendas. Imagine what would have happened had all of the direct mail advertising been directed to brokers, investments in technology had been directed to brokers, Internet quoting efficiencies had been directed to brokers and brokers were allowed to remain independent and not controlled. Just think where Royal Bank and TD Meloche would be today: growth targets would be a thing of the past, and suppliers would once again become insurer partners.

Some still are true partners. Those who aren’t, know they aren’t.