Accenting the Advisor

The IBAO in early 2007 conducted a survey of consumers, examining their preferences when it comes to buying insurance products. The observations made here are based in part on what the IBAO’s survey found.

As we approach the end of 2007 and work to complete growth plans for 2008, it is fitting to reflect on the state of our current marketplace. Before we take a closer look at the different intermediaries available, let us first review what consumers in Ontario are looking for when they purchase property and casualty insurance products.

At a minimum, the consumers’ expectations are that their insurance provider:

* is well-established;

* cares about them;

* is socially responsible;

* has their best interest at heart; and

* gives them peace of mind and

values their business.

Obviously price and/or competitiveness is important; however, if a consumer’s current provider fails to deliver on one or more of these expectations, they are likely to lose that customer to another provider.

Today’s consumers have a number of options available to them when it comes to purchasing insurance. Let’s review the three core groups: traditional direct writers or agents, new directs and the independent broker channel.

Historically, the “traditional direct writers” we recognize in our industry are the exclusive agent markets represented by companies such as Allstate, The Co-operators and State Farm Insurance. Over the past 60 years, brokers have learned to share the competitive field with these traditional direct writers. Throughout the ’50s and ’60s, agents were considered a significant, competitive threat. Now, almost 60 years later, these exclusive agent markets share much more in common with the broker distribution channel and share similar concerns.

Over the past 10 years, we have seen a new direct writer emerge. This group consists of group writers, financial institutions, corporate brands and online call centre providers. This movement is revolutionizing the intermediary channel in a number of ways. These “new directs” have leveraged technology, through the use of consumer Web interfaces and through call-centre technologies, to drive their expenses below other traditional methods. The question is: have they succeeded?

It appears there may be a trade-off: the new directs’ acquisition costs for new business are significantly higher than the traditional methods; also, their consumer retention is well below that of agent and broker writers.

We know consumers observe many common features of agents and brokers, but they also identify some key broker benefits. For example, consumers identify brokers as offering choice through a range of insurance companies and options that best suit their needs.

At least one of the new directs is attempting to blur this line for consumers by offering up to five quotes from the competition. We need to let consumers know how they are being taken advantage of. Brokers not only offer choice, but also deliver on the choices they offer. This new direct insurer further manipulates the process by choosing what competitive quotes they will or will not show to the consumer.

Others are openly acquiring brokerages and turning them into direct agents thereby taking advantage of an unsuspecting consumer that still values choice. We have also observed at least one of the traditional direct writers forming a brokerage in an effort to offer choice to their agents for commercial products and non-standard automobile.

Competitors to the independent brokerage channel fully understand the value the Ontario consumer places on choice and are doing whatever they can to minimize this key advantage.

However, none of the other intermediaries can emulate the independent channel’s consumer-value proposition of advocacy. The Ontario consumer values the fact that brokers are independent of the insurance company. They understand a broker will provide “on-your-side” advocacy should a claim occur.

After reviewing the current marketplace and looking at it from a historical perspective, the independent broker channel has always defended attacks against its core values. Perhaps the tide is about to turn. What if independent brokers became more aggressive in their marketing campaigns? What if independent brokers were able to offer Web interface options to the consumer? I believe independent brokers will win in the marketplace because they can offer everything the competition can — local, personalized service, tailored products, efficiencies through technology and, most importantly, “real” choice and advocacy to the consumers they serve.