B.C. Brokers to Insurers: ‘Stay East, Direct Writers’

With the “battle for market share” beginning in earnest in Canada, Canada’s independent broker associations had an opportunity in April to ask insurers about whether direct underwriting would begin to compete with the independent broker channel in B.C.

The question came up at the Insurance Brokers Association of B.C. (IBABC)’s ‘Oceans of Opportunity Conference’ in Vancouver. Insurance company CEOs on the panel made no bones about the importance of defending market share. Should direct underwriters make an appearance in B.C.’s insurance market, they suggested, Canada’s insurers would not likely be able to compete by adhering strictly to the independent broker distribution channel, which has thus far been dominant in the B.C. market.

Having said that, Canada’s insurers said they have no plans to introduce direct writing in B.C. anytime soon. And they suggested B.C.’s hot economy put independent brokers in perhaps the best position in the country when it comes to defending their turf against the encroachment of direct underwriting.

BATTLE FOR MARKET SHARE

Certainly, given a softening market in Canada, companies are preparing to defend and/or expand their market share throughout the country, panelist Kevin McNeil, the CEO for Gore Mutual Insurance Company, said. “The battle for market share is underway, and you really see it in Ontario at this time,” he told his audience of more than 200 brokers and insurers. “The question I would be asking myself is: How will – when will – that battle for market share arrive in British Columbia? What form will it take? Will there be new competitors arriving on the scene? Will they be competitors from existing insurers? I haven’t got the answers to these questions, but I think that’s one that as a broker principle, you need to be thinking about.”

McNeil said right now, across the country, 35% of property and casualty insurance in Canada is delivered using a direct writing approach. Independent brokers account for delivering 65% or 70% of the insurance business, he said. But independent brokers in B.C. expressed concerns about trends they have been hearing about in Qubec. Hubert Brunet, president of the Regroupement des cabinets de courtage d’assurance du Qubec, told a broker panel at the B.C. conference that in Qubec 52% of property and casualty business is done through direct writing, whereas only 48% is done through the independent broker channel.

Aviva president and CEO Igal Mayer noted traditional insurers weren’t the ones who started the battle for market share in Qubec. “Royal Bank and TD Meloche were very aggressive,” he said, adding that, unlike Aviva, both banks built a multi-channel distribution system based on both independent brokers and direct underwriting.

Mayer said Aviva’s market share slipped down to fourth-highest in Qubec. Part of the reason, Mayer said, was because in the face of stiff competition, Aviva adhered strictly to its independent broker distribution channel. As a result, Mayer said, although Aviva still has a strong presence in the province, “our organization in the province of Qubec is a shadow of its former self.”

In the end, Mayer said, there were lessons to be learned in Qubec. “I think my competitors [in Qubec] did a better job. They did that better job because they learned how to compete by establishing a multi-distribution platform [including direct writing]. I think that helped them become stronger competitors and, when I look at how much market share we lost, it’s significant relative to the amount of our competitors.

“I don’t mean for this to be fear-mongering, but you can also look at a few other companies that support only the independent broker channel in the province of Qubec and today they’re gone. I think there is something to learn from having a multi-distribution platform. That’s the approach we’re taking in Ontario…”

NO CHANGES IN B.C.

Mayer said the Ontario and Qubec contexts didn’t immediately translate into the B.C. context. “Right now, we don’t see any need to change our approach in Alberta or B.C.,” he said. “Because today, the broker distribution channel dominates.”

Mayer added, if that situation were to change in B.C., “as it clearly has changed in Ontario,” Aviva would consider pursuing a multi-channel path. “If we saw that happening here [i.e. the penetration of direct underwriting in B.C.], we would defend our market share,” Mayer said. “I am not going to see the same thing happen to our organization as has happened in Qubec over the last 15 years.”

Jetse de Vries, the chief operating officer for ING Canada’s western region, agreed. “If the market changes, of course, then business model would change,” he said. Nonetheless, de Vries added, “I don’t see any big changes in the market in B.C. If the brokers support you, and you’ll give them [support] in terms of formal investments, why would you destroy that? You would have a decrease in profit to make up for that loss in channel.”

Jean-Francois Blais, president and CEO of AXA Canada, let it be known that AXA Canada intended to be a player in the upcoming battle for market share. “AXA will be looking at future acquisitions, because in this cycle it will obviously be difficult for everybody, and probably not everybody will succeed, and there will be opportunities [for mergers and acquisitions] out there in the next five years, and we will be a player in this.” But would a growth strategy predicated on mergers and acquisitions imply the introduction of direct underwriting into the B.C. insurance market? Blais suggested a hot B.C. economy might shield the brokers from M&A growth strategies – and by extension, competition from direct writers.

“I look at the best province in which to do business,” Blais said. “I look at the best loss ratio of any province in Canada, and B.C. had the best loss ratio of any province in Canada, with a 41% loss ratio. If you look at this on a five-year basis, guess whose province is Number one again, with a 53% loss ratio? It’s B.C. again.

“The B.C. market is a wonderful market for insurance to be made and it’s also the second-fastest-growing economy in Canada. So if you want to be a broker, I guess to be a broker in B.C. is the best place now,” Blais said. In other words, if B.C.’s independent broker distribution channel ‘ain’tbroke,’ don’t compete with it.

ING Canada thrived in B.C. because of the independent broker channel, de Vries said. He said 95% of the company’s $4 billion premium volume runs through the independent broker channel; 100% of the company’s business is channeled through brokers in B.C.

“I don’t think it’s true that direct business is more profitable than business through brokers,” de Vries said. “In fact, throughout the years, direct business is likely less profitable. That’s thanks to the underwriting skills of the brokers. As for the question, ‘When does ING want to expand its [direct writing] business outside Ontario and Qubec?’ I can only answer that, for the West and B.C. specifically, we don’t have any plans to do that at this point in time. For the immediate future, certainly no BelAir here…”

McNeil said there is a real question of whether direct writers would come to B.C. to battle for market share. He believed B.C.’s public auto system represented a real barrier preventing direct writers from coming to B.C. “Ask yourself the question, would direct writers stay out if auto [in B.C.] opened up?” he asked.

Broker Sessions:

Disclosure regulations blasted

Brokers heartily applauded Insurance Council of B.C. executive director Gerald Matier for his candid, take-no-prisoners public remarks about the Canadian Council of Insurance Regulators (CCIR)’s latest disclosure recommendations.

Speaking shortly after it was announced the trade press was at the Vancouver meeting, Matier brought up the subject of the CCIR’s newest regulations on disclosure.

“The press is here, so I am going to have to be careful ab out what I say,” Matier started. and then paused. “Hmmm. How to put this? I’ve been regulating for 20 years, and this is the biggest piece of crap I’ve ever seen.”

Matier was referring to recommendations outlined in a February 2006 paper entitled Managing Conflicts of Interest: A Consultation Paper on Enhancing and Harmonizing Best Practices. CCIR adopted the recommendations at its April 2006 meeting.

The recommendations are:

* An intermediary must place the interests of policyholders and prospective purchasers of insurance ahead of his or her own interests.

* Consumers must receive disclosure of any actual or potential conflict of interest that is associated with a transaction or recommendation.

* The recommended product must be suitable for the needs of the consumer.

Later joking his remarks may have been a career-limiting move, Matier blasted the CCIR document for its lack of specificity. B.C. legislation is already clear about what and how B.C. brokers should disclose information, Matier observed, adding that the CCIR document contributed nothing new to the pre-existing B.C. legislation.

“The Insurance Council of B.C. won’t adopt it,” he concluded to applause from his primarily broker audience.