All Hail the Chief

IBAO 86th Annual Convention, Niagara Falls Part 1

Prime Minister Stephen Harper’s minority government has positioned itself publicly as a government that isn’t afraid to take decisive action, so there was some irony in the fact that Harper’s support for inaction garnered him a standing ovation at the Insurance Brokers Association of Ontario (IBAO)’s 86th annual convention in Niagara Falls.

Specifically, Harper made it clear to more than 2,000 IBAO convention delegates (mainly brokers and insurers) that he intends to follow through on his campaign commitment to leave the Bank Act alone. The status quo does not allow banks to retail and provide information about insurance from their local branches.

“In the letter your chief operating officer Randy Carroll wrote to invite me to speak at this convention, he said your association is extremely thankful that our government has upheld the position we took during the election campaign against direct selling of insurance products by the banks,” Harper said in the concluding remarks of his Oct. 19 address. “To which I would say, there’s no need to be thankful. We made a commitment, and we stuck to it. It’s as simple as that.”

Harper’s speech, the centerpiece of this year’s IBAO convention, followed a very public lobby by the banks to change the Bank Act. Specifically, the Canadian Bankers Association asked the federal government to allow local bank branches to provide information about insurance products.

During the 2005-06 election campaign, Harper’s Conservative Party was the only party to commit itself to the status quo on the Bank Act review issue as part of its campaign platform. In June 2006, the finance ministry issued a White Paper with recommendations for changing the Bank Act; they did not include new powers for bank branches to retail or provide insurance products.

IBAO delegates packed the crowded convention ballroom at the Brock Plaza Hotel to hear what the Prime Minister had to say about his campaign commitment to brokers. Harper’s speech was telecast in spillover areas that seated hundreds of delegates; audio and video of the speech was piped into the exhibitor’s area in the neighboring Sheraton on the Falls Hotel.

Delegates had to wait awhile before they heard anything about their issue: Harper’s speech covered a wide variety of topics, including natural resources, economic growth and the Clean Air Act, which was introduced in Parliament on the same day. Finally, during his concluding remarks, Harper struck a chord that was music to the audience’s ears.

“In the letter [IBAO] Chief Operating Officer Randy Carroll wrote to invite me to speak at this convention, he said your association is extremely thankful that our government has upheld the position we took during the election campaign against direct selling of insurance products by the banks,” Harper said. “To which I would say, there’s no need to be thankful. We made a commitment, and we stuck to it. It’s as simple as that.”

Brokers immediately gave the prime minister a standing ovation. Harper, somewhat surprised by the spontaneous applause, broke into a smile and deviated from script in acknowledging the brokers’ sentiment.

“Well, thank you very much,” he said. “I really appreciate that – especially since I have to talk to some bankers later today.”

After the speech, brokers and insurers alike noted that the audience “needed to hear” Harper’s continuing commitment. The Bank Act review may not be resolved until April 2007, when the government’s White Paper recommendations are expected to go before Parliament.

Dominion of Canada General Insurance Company CEO George Cooke, one of six panelists on a CEO panel that immediately following Harper’s address, quipped that his only time to speak first on the panel had been upstaged by the presence of the prime minister. Still, he added, “any day he wants to come and deliver that message, he can speak all afternoon as far as I’m concerned.”

Shortly after the speech, IBAO circulated a press release once again thanking Harper for upholding the government’s position in the Bank Act review.

“The Insurance Brokers Association of Ontario is delighted that Prime Minister Steven Harper could join and address the insurance brokers today in the context of the 86th Annual IBAO Convention in Niagara Falls, and his message to us was well-received,” the IBAO statement said.

“The prime minister is supportive of small businesses – such as most insurance broker offices are – and we are thankful for his understanding of how important a role the insurance brokers play in their local economies. The opportunity to have the prime minister of our country at our Convention is historic and raises the profile of brokers as important economic pillars throughout Canada.”

BROKER OWNERSHIP

Having gained the upper hand in political battles against banks and Ontario credit unions, brokers have now turned their attention towards protecting their independence.

Broker perpetuation is emerging as a key issue in an insurance market rife with speculation about consolidation. Brokers have expressed concern that the “multiples” (measures of value) for selling brokerages are so high that only non-brokers would be able to afford to buy them. But when insurers or direct writers buy out brokers, the independence of the broker distribution channel is threatened, IBAO president Steve Wagler said in his address to the IBAO Convention.

“This past year, we have witnessed a new trend that is changing the landscape of our distribution channel,” said Wagler, whose brokerage in New Hamburg, Ontario has been in the family for many years. “I call it brokerage perpetuation versus brokerage succession. This is a difficult topic to discuss because it starts to become a moral debate versus a business decision.”

The moral dimension is based on the business decisions brokers must make when they choose to sell their businesses, Wagler said. The financial decision is easy: obviously brokers would prefer to sell to the highest bidder. But what happens to the independence of the profession when the high bidders aren’t brokers?

“One of our greatest strengths in the marketplace is that we offer choice to our clients,” Wagler said. “Another strength is that we put the consumer’s interest first, not the interests of our suppliers. I think our greatest strength over our competitors is that because we are independent, we can advocate on behalf of our clients during the claims process.”

“So tell me, if these are the very principals that form the foundation we have all built our businesses upon, how can it be in our clients’ best interest to sell them out to one of our suppliers?”

The IBAO backed up the speeches and discussion on the issue with a bold new direction for its membership. In a lengthy closed debate, the IBAO passed a bylaw that effectively precludes brokerages owned by insurers, direct writers or other “financial institutions” from voting membership in the IBAO.

Shortly after the bylaw was passed, IBAO’s chief operating officer, Randy Carroll, noted other provincial broker associations have passed similar bylaw restrictions. But the Ontario resolution is unique in the sense that it covers off insurer-owned brokerages as well.

According to the IBAO bylaw, insurance brokerages controlled by “financial institutions” have now been excluded from IBAO voting membership.

The bylaw amendment defines “control” by a financial institution as a situation in which “the shares of a voting corporation carrying more than 50% of the votes for the election of directors of the corporation are held, other than by way of security only, by or for the benefit of a financial institution.”

According to the bylaw amendments, financial institutions include:

* Chartered banks

* Trust and loan companies

* Co-operative credit associations

* Insurance companies

* Any trust, loan or insurance companies created through government legislation

* Any co-operative credit society incorporated or regulated by government

* A caisse populaire

If a brokerage is controlled by any of the financial institutions listed above, it may qualify for non-voting membership in the IBAO through what is called an “Affinity membership.”

IBAO chief operating officer Randy Carroll said a total of 12 Ontario brokerages would fall under the above classifications for being controlled by a financial institution. Not all of these 12 brokerages are currently members of the IBAO, he added.