A “Mom & Pop” Perspective

Doug Grahlman, the incoming president of the Insurance Brokers Association of Ontario (IBAO) for the 2003/4 term, describes himself as the typical “mom and pop” broker operating in Ontario. As founder of Chatsworth Insurance Brokers Ltd. in 1972, which over the years has grown to two regional family-run offices mostly handling personal lines “local community” business, Grahlman says he can relate to the frustration felt by small, independent brokerages and consumers alike in response to the “hard market” that has gripped insurance availability and pricing for the second year running. “It has been one hell of a year for us as brokers on the front-line.”

In addition to what has become the “norm” of every-day broker troubles in the form of reduced markets and tough terms of coverage, insurers rejecting policy applications at the slightest oversight in the filing process, and otherwise dealing with increased consumer ire, Grahlman faces a new and formidable challenge in the result of the recently held Ontario provincial election. The Progressive Conservative Party (PC) was voted out of office by a vast majority vote in favor of the Liberal Party. The PC party had held office since 1995 and has been a strong ally of the independent broker movement, which represented by the IBAO is arguably one of the most powerful “political lobby machines” in Canada based on its network of members connected into the so-called “grass-roots” of local communities.

With a new provincial government in place, Grahlman acknowledges that for the IBAO it is to some extent “back to building relationships” in securing a clear political line on issues that could impact the private insurance sector in Ontario. “We’ve had a great relationship [with the past PC] government, and we’ve been fortunate to have been included in the Liberal Party’s discussions on insurance initiatives. We’ve [the IBAO] sent reviews to the Liberal government on insurance reform, and we’ve made some inroads already with direct contact in keeping the doors open,” he adds.

In this context, Grahlman notes that the new provincial government has to be cognizant of the position facing insurers with regard to the cost components driving auto claims. While certain product reforms were initiated under the PC government, it remains to be seen which direction the new authority will move toward. “There has to be an opportunity for profit for it [private insurance] to work,” he observes.

CONSUMER LINE

While building government relations is clearly a top objective for the IBAO, the other side of the coin is “consumer relations”, Grahlman says. The direction of the provincial vote, which clearly related to many other factors in the public eye than the cost of auto insurance, is a sign that consumer tolerance for current conditions of coverage are reaching a threshold. The Liberal’s election promise of a 10% across-the-board reduction in auto insurance pricing means that coverage availability and cost are on the political agenda, Grahlman notes.

“Hopefully the situation [auto insurance availability and pricing] will improve. If something doesn’t happen soon, then they [consumers] are really going to be asking questions,” Grahlman observes. Although association member feedback suggests that markets conditions have thus far not shown any easing of position by companies, he remains optimistic that the situation could change before the end of the year. Notably, some insurers have indicated a “sense” that their own conditions are improving, he adds. This seen in light of the new provincial government’s call for a reduction in auto rates could see premium rates dropping in coming months. “I think there is the potential for a 10% decrease in rates.”

But, Grahlman says that greater effort has to be made by the industry to “communicate” to the insurance buying public the real issues driving the auto market. And, he believes that brokers are best positioned to get this message across. “[Consumers] they don’t understand the lack of availability [of coverage]. I’d rather do it [explain the reasons] than the government.”

Toward this end, the IBAO is currently working on consumer information pamphlets and online communication tools, Grahlman notes. The Insurance Brokers Association of Canada (IBAC) has developed a similar pamphlet, as well as several of the other provincial broker associations, he adds, which the IBAO plans to build on.

MEMBER BLUES

While the IBAO’s membership has risen, Grahlman says market conditions for the province’s brokers remain difficult – primarily due to lack of coverage availability. The association is aware of cases where some brokers have been reduced to working with one or two markets, he adds. As such, Grahlman expects that there will likely be some consolidation in the broker ranks next year as operations are forced to merge. “It’s sad, but the market conditions have forced that. It all gets back to the regulations of the market. We [the association] dearly want to help brokers, and we hear their cry, but we also have to take into consideration the position of the companies – you have to draw the line in the sand somewhere.”

An issue where the line is being drawn by brokers is “operating cost and earnings”. While the hard market motivated some of the smaller insurance operations to reduce commission levels on “sub-standard business” to discourage its placement, there has not been a general move by the larger insurers to reduce broker earnings, Grahlman says. In fact, the IBAO is currently engaged in a commission and operational cost study to reinforce the position that brokers are earning less today after cost despite the rise in premium rates which in theory would boost commission earnings. “We’re [brokers] not making any money on personal lines business at the moment. We simply cannot operate with less commission than what we’re currently getting,” he adds.

The cost burden carried by brokers has been compounded by the “hard market effect”, with a dramatic rise in consumer queries and complaints handled by brokers being on the “frontline”. As a result, brokerages have had to hire additional customer service representatives (CSRs), and absorb the cost of training new staff, Grahlman comments. “Even though rates are up, the cost [of doing business] is also. This has been a ‘belt tightening’ period for brokers, and throughout the industry. There’s a lot of stress and strain out there.”

PORTAL ANTICIPATION

“We need to get the [CSIO Internet] portal going,” Grahlman emphasizes. Despite repeated setbacks to the Ontario launch date for the Centre for Study of Insurance Operations’ (CSIO) much anticipated “real time” Internet/Intranet insurance portal, brokers within the province remain upbeat over the long-term cost benefits presented by this single-entry broker-to-company technology solution, he adds. “As brokers, we are ready. Membership feedback remains very positive in terms of a rollout [of the portal] this fall [in Ontario]. The ‘product’ is there, it just needs to get through some ‘internal issues’,” he observes.

Next to “communication”, Grahlman regards getting the CSIO portal out to brokers as being as critical a priority on the IBAO’s agenda. The association has worked closely with the development of the portal from inception, he notes, and ultimately he is confident it will afford brokers and companies alike with real cost and work efficiencies. Although, in this respect, Grahlman notes that once the portal is running to its full potential, brokers will be absorbing more of the “upfront” expense and workload of processing policies and updating of policyholder information. Clearly, for brokers, the advantage is having greater day-to-day control over the processing of their client information, while insurers will benefit from reduced administrative expenses. But, this has to be taken into context to the already hefty administrative cost burden carried by brokers, he adds.

EDUCATION DRIVE

Once the CSIO portal is up and running in Ontario, the IBAO plans to introduce a host of new professional education courses online, Grahlman sa ys. “For the past year, this has been on every [IBAO] committee agenda, as well as joint projects with IBAC.”

The IBAO currently offers about 50 online educational courses which have been highly received by members, Grahlman notes. As a result, the online course opportunities will be expanded during next year. “It’s an ongoing project, although our CAIB [Canadian Accredited Insurance Broker] enrollments are up considerably this fall, and we’re really excited about the launch next year of the CPIB [Canadian Professional Insurance Broker] commercial lines program which is being worked on in conjunction with IBAC.” The advances made in online technology have really opened up opportunities for ongoing professional education for our members, he adds.