Balancing the Equation

The fight for the Canadian property and casualty premium dollar is heating up. The battle lines have been drawn —

Well, sort of. Most of the combatants are deeply entrenched on one side or the other; a few are straddling the line. Independent broker v. direct sell: which is best? Like so many questions regarding insurance, that one is best answered: “That depends.”

Direct writing is on the rise, and independent brokers have now acknowledged that banks and other direct-writers are here; they’re real, they’re staying and they’re proving to be tough competition. In standing up to this competition, brokers may find some value in comparing their situation to that of independent adjusters, who are no strangers to facing down intense competition.

BROKERS

In 2003, I watched from the wings as Igal Mayer, then-president and CEO of Aviva Canada, addressed those assembled at the IBAO conference in Toronto. Aviva, through its Scottish & York entity, had just announced a move into the world of direct writing through brand affiliation with a major supermarket chain. It was like Darryl Sittler had gone to play for the Canadiens and this was his first game back at the Gardens. The crowd was not happy.

In spite of the atmosphere, Mayer boldly stood up and explained what most should have already known, but perhaps did not really want to acknowledge: Aviva is a public stock company with responsibility to its shareholders. Since Aviva was in the business of selling insurance, it had to do all it could to reach out to as many possible premium payers as it could. Some people will only buy insurance from direct writers or over the Internet, and Aviva management had an obligation to its shareholders to pay attention to its bottom line and gain as much market share as possible. Ignoring a large and growing segment of the market was not good business for Aviva. Obviously Mayer was right: direct writing has gained popularity over the past four years, as measured by the increase in the number of participating insurers and in the percentage of consumers who buy direct.

Property and casualty insurance is a very competitive marketplace in this country. Each and every company wants to get as big a piece of the Cdn$35-billion pie that Canadians spend on premiums each year and turn as much of that as possible into profit. Different insurers take different paths to reach their goals. It’s not that one way of selling policies is right and one is wrong, not at all. Both the direct and independent broker distribution channels have been long-established. But things are changing; independent brokers have perhaps felt that shift most profoundly.

ADJUSTERS

As an independent adjuster, I know how brokers feel. Over the last decade, independent adjusters have seen a significant drop in the call for our service. A large portion of the more basic work we do has been moved to other service providers or has been taken inside to be handled direct by insurer staff. This happened because our customers lost faith in us. We had them, but we got complacent and lost focus on what we were selling. Unsatisfied they were getting good value for what they paid us, our customers left and sought alternatives. As those customers filed out the door, we spent a lot of time and effort telling insurers that what they were doing wasn’t right and that they’d be sorry. Then we realized what we needed to do was stop bashing the other service providers and concentrate on what we do that does add value, and to work hard to deliver that value.

INDEPENDENTS: PEAS IN A POD

I see a parallel in the drop of our fortunes as independent adjusters — particularly the loss of assignments on the smaller losses, which allow us to attract and train new adjusters and to keep the lights on between large losses — to the migration of independent broker clients to direct writers.

The average person who has a home, a mortgage, a car and a loan does not really have complicated insurance needs; many of those consumers tend to look at basic insurance as a commodity — something they have to buy to satisfy their creditors. Yet in spite of their very basic needs, those customers are critical to the survival of many of the independent brokers in this country. When they go, so does a lot of revenue. In addition, as they leave, they take with them the opportunity for brokers to build the portfolio of files required to train new staff — staff that would go on to become experienced brokers capable of dealing with more complicated matters. This at a time when, according to Peter McCann, the president of the Toronto Insurance Conference (TIC), knowledgeable brokers are needed more than ever to deal with emerging risks and the complexity of available coverages. Brokers know this is a real issue and many are concerned for their future. So how do independent brokers stem the tide and cause their clients, even the ones with basic needs, to put value on the service they provide?

One response has come from New Brunswick, where, in early October, the Insurance Brokers Association (IBANB) launched a new campaign: New Brunswick Insurance Brokers, keeping you covered. The slogan is smartly supported by a covered bridge logo, a heritage symbol long identified with safety and refuge in eastern Canada. Media coverage concerning this initiative included statements from members of the association’s executive about the benefits of buying insurance through an independent broker rather than through a 1-800 phone service or over the Internet.

It’s too early for an accurate assessment as to the effectiveness of the New Brunswick brokers’ campaign, but at least one body was reading the news in early October — the Canadian Association of Direct Response Insurers (CADRI). An editorial appeared in the Oct. 30 edition of the Moncton Times & Transcript under the byline of CADRI president Richard Evans (better known as the senior vice president of TD Meloche Monnex). In that letter, Evans took exception to some of the comments New Brunswick brokers had made earlier in the month. However, he did agree with the brokers’ observation that the consumers’ use of the direct channel was increasing.

The bulk of Evans’s letter was dedicated to the policy-buying experience for consumers. However, he also offered these words regarding claims service: “When consumers need to make a claim, the process [with direct writers] is similar to [that of] any other insurance company.” This statement implies consumers should expect similar claim service from all insurers. I do not know how every insurer deals with claims, but based on my experience, claim service can vary substantially from one insurer to another. But historically, when insurance is purchased by way of a 1-800 number, claims service is delivered the same way, at least to some extent.

Emphasis has been on how to get the consumers premium dollars in the door.

What is the best way for the insurer to interact with the consumer for the sale? The independent broker route suggests personal contact between consumer and broker. The direct route is less personal and folksy. But if a large number of customers don’t really care for or place value on personal and folksy, then those elements will be judged of no value and the consumer will buy solely on price. From my experience, basic personal lines insurance purchased direct tends to command lower premiums.

If independent brokers are left to their own devices to attract and hang onto those consumers who have only basic insurance needs, they are going to have to add more to the value equation than advice and impartiality. For years, I have heard brokers say customers don’t care about claims service when they buy their insurance. But I can tell you most certainly that claims service definitely matters when the car is smashed or the house is ablaze. Claims service is emerging as an important selling tool for the independent broker.

ADDED VALUE THROUGH CLAIMS

Today’s consumer is better educated than ever before. If the purchase process is viewed as homogeneous, they will look to the other part of the equation and factor claims service into their buying decision. If claims service is also seen to be the same, then price will be all that remains to sway the buyer. Independent brokers cannot allow price alone to be the deciding factor; they must engage their markets to ensure the availability of knowledgeable and experienced local adjusters who are available 24/7 to grab the service ball and run with it. If the price is more, the customer expects more. Not more claim payment, but more service. Brokers need keep the experience for their clients personal throughout; they can’t collect premium in a personal way and then deliver 1-800 claims service.

Peter McCann was quoted in the Nov. 5 Globe and Mail: “A broker is there to help from the initial purchase decision right through the claims process.” Danny Harrigan, IBANB chairman, says: “Getting support through the claims process is also important.” Brokers need to act on these words to support the value proposition.

Our industry will continue to evolve through change within its various sectors. Some will drive the evolution, others will ride it out. Independent broker vs. direct sell? Which is best?

That depends — on you.