Preserving the Broker Value Proposition

Independent brokers command the principal share of the property and casualty insurance market in Canada. There is a distinct reason for this: the broker value proposition – independence, choice, professional advice and local presence – is just as compelling now as it has ever been. What brokers need today is reinforced confidence in this model and far-sighted strategies from company partners to help them perpetuate their businesses.

THE THREAT

Can brokers put a price on their independence? What happens to the concept of client choice if more and more intermediaries exit a distribution channel that has flourished for generations in Canada? These are particularly pressing questions in our increasingly competitive insurance landscape and in the war to win customers.

Today, a very real threat exists that the independent broker channel could lose significant market share in key regions across Canada. Many have predicted and continue to speculate on the demise of the broker. As direct and captive agency models of insurance distribution become more prevalent, it is anyone’s guess how much market share they will capture. I don’t have a crystal ball, but one thing is for sure – unless there is a coordinated response from the broker channel and its traditional partners, the loss will be much bigger. We have seen it happen in other markets around the world and even here in Canada, in Quebec. Aviva Canada is committed to working with its independent broker partners to make sure this doesn’t happen and that the broker channel is preserved and flourishes.

One additional challenge to the competitive landscape is that a growing percentage of brokerage principals are getting older; this is in line with the general “graying” of the population. This is neither new nor revolutionary. When I started in this industry in 1984, I often heard the remark “all our brokers seem to be 55 years old.” There is a natural age segment at which brokerage owners become industry leaders and look to succession plans. Traditionally, there has been a more orderly process of in-channel transition and succession. But an important difference exists today: ever-expanding options are available to brokers nearing retirement. Consequently, the perceived threat of the demise of the broker channel in personal lines has a very real risk of spiraling out of control. In fact, it is no secret that some in the brokerage community have made the decision to sell parts or all of their independent business to insurance companies.

At Aviva Canada, we have examined this strategy and concluded we do not want to be owners of retail brokers. Although it may represent a short-term gain for market share, we feel it is not in our best long-term interest to buy blocks of our brokers’ hard-earned business.

BROKER OPTIONS

You may naturally ask how we can support both brokers and direct distribution such as President’s Choice. The answer is simple: customers will choose between self-service (direct) and advice-based distribution. The strongest customer proposition for advice-based insurance sales is when a professional who is unbiased and can provide real choice delivers the advice. So, when it comes to the provision of local advice-based insurance, we want our brokers to sell the business, not us.

As a long-standing partner and supporter of the broker channel, Aviva Canada respects the right of individual brokers to make decisions that are in the best interests of their businesses. Brokers are business people; they have intimate knowledge of what is best for their business. Recognizing this, we hope brokers make these decisions with the full knowledge of all of the options available to them in this increasingly competitive environment. We also want brokers to think about the legacy they will leave behind for a way of business (and life) that has allowed them to become successful. The fact of the matter is that once an independent broker’s client list is gone, it is much more difficult to win back.

Perhaps it’s time for perspective. The broker model has been in existence in Canada for roughly 100 years. It has carved out an enviable market share in important areas across the country, especially Ontario. The four pillars of the broker value proposition – independence, choice, professional advice and local presence – are just as compelling to today’s time-strained consumers as ever. Other players in the distribution game may be able to offer elements of this value proposition, such as professional advice and even local presence. But no other provider can offer independence (unbiased representation on behalf of the client) and choice across a wide range of products and carriers.

This is the very essence of the broker value proposition.

When brokers lose their independence, they become tied agents and do not provide clients with choice. This issue will increasingly be on the radar screens of broker associations and their memberships across Canada.

Many brokers are entering a transition period, in which retirement and succession planning are becoming pressing issues. For principals, their pension is often their client list and we fully understand the lure of “cash on the table.” However, there is no need to panic or over-react. Instead we encourage brokers to ponder some questions: Is it really in your long-term interest to sell your livelihood? Can brokers access other options from company partners? What compelling strategies exist to reinforce the traditional strengths of the independent broker channel?

AIDING TRANSITION

At Aviva Canada, we believe we have to be far more supportive of the succession planning process. Instead of slogging it out with the status quo or selling to a company consolidator, we want to work with brokers to create an orderly process of in-channel succession. We like to think of it as the “third way.”

Towards this goal, Aviva Canada has stepped up our efforts in several areas. We offer our brokers extensive consulting services and resources around succession planning. Through Scottish & York, Aviva also offers a “turnkey” option for serving personal home and auto insurance customers. Here we can provide call centre support for brokers, taking the time-intensive aspects of “running the shop” away from brokers and allowing them to focus on sales. It gives brokers an opportunity to preserve their profit stream, retain their client base and keep their options open for the future. We are also putting our money where our mouth is, by stepping up with financing alternatives that can help independent brokers compete with multiples and valuations being offered by insurance company consolidators. If time is of the essence, we are prepared to “warehouse” a broker’s operation for a short period of time in order to provide for an orderly transition to new entrepreneurs.

These are practical, progressive alternatives with proven track records for brokers in today’s high-pressure marketplace. Brokers know how to run their own businesses. They have the grassroots knowledge and street savvy to identify good clients and build profitable books of business. Sometimes they might confront obstacles when addressing the processing and service demands of personal lines business, but here we believe insurance company partners can best help brokers succeed – and stay true to the legacy of independence and choice.

If solid alternatives for financing and succession planning are combined with a renewed confidence in the broker value proposition, there is every reason to believe the legacy of the independent broker channel will not only be preserved but flourish and thrive. As a key partner of the broker distribution network, we are committed to making this happen.