Taking Centre Stage

The Canadian Bankers Association lobby to reform the Bank Act – which would allow banks to offer insurance products and services directly from their branches – dominated a CEO panel held at the IBAO’s 85th Annual Convention in Toronto in October.

Underlying the whole discussion, insurance company CEOs curried the favour of the brokers in the crowd by promoting the independence of the broker distribution channel.

Attempting to quell the furor over banks offering insurance products and services through their branches, Gore Mutual Insurance Company CEO Kevin McNeil, who is also a past vice president of CIBC Insurance, told his audience of 1,000 brokers that direct insurance sales from bank branches may not be as likely as brokers anticipate.

“When I was at CIBC, the p&c insurance grew very rapidly at first and we acquired the Insurance Company of Canada,” McNeil said. “However, the issue for the bank – and I think the issue for all banks – is this isn’t a strategic fit. What they’re really interested in, in my opinion, is life insurance because there is a strategic fit; it works well with wealth management products.”

McNeil made his remarks as the Royal Bank of Canada (RBC) announced its intention to open an insurance office directly beside one of its bank branches in Hamilton. The RBC opened an insurance office next to one of its Toronto bank locations last year, marking the first time that had happened in Canada.

But McNeil predicted banks will not persist as players in the p&c insurance market. He said the RBC will not likely realize an annual return in excess of 15% from the p&c business and, because it is a bank and not an insurer, the RBC would be penalized in the stock market for that kind of return. Realistically, from a bank perspective, McNeil said, “p&c insurance is unattractive because it has no strategic fit within their business model.”

Nevertheless, Aviva Canada CEO Igal Mayer said that in light of the damaged credibility and reduced consumer confidence insurers and brokers face as a result of scandals over the past three or four years, the insurance industry at large may find itself unable to function competitively in a marketplace that includes bank-based insurance sales.

George Cooke, the CEO of Dominion of Canada General Insurance Company, agreed banks are a threat to p&c insurers. But he urged brokers to be specific about what they fear – the banks’ opportunity to segment markets, for example.

“The banks have the ability to section out a customer list on the basis of information that competitors against those banks will not be privy to, such as credit information or health related information,” Cooke warned. “The threat we face with banks is not in the realm of service, or the ability to advise or respond to a claim better than they can – it’s the fact that banks will be able to select risks in a way that will make it an unlevel playing field.”

Reiterating the views of his peers, Rowan Saunders, the CEO of Royal & SunAlliance Insurance Company of Canada, said banks should not be underestimated as competition in the p&c insurance market. They represent a real threat, which means brokers should be over-prepared rather than under-prepared, he said. “The challenge isn’t coming from the banks branding, technology or marketing ability,” Saunders explained. “It’s their ability to access consumer data that’s dangerous.”

Saunders suggested brokers continue to prepare themselves for competition with banks by working on what they do better – namely technology, branding and marketing insurance to consumers.

McNeil warned some banks will likely be successful with p&c products. He recommended that, as an industry, brokers and insurers alike must work further towards improving their consumer image in order to remain successful and competitive. Part of this effort will require the industry explain to consumers how insurers and brokers provide a positive contribution to the overall economy.

After tackling the Bank Act review, the insurance company CEOs tackled another touchy issue in the broker community – the independence of the broker distribution channel. The issue came to a head recently, when Canada BrokerLink recently decided to shift almost all of its personal insurance book to ING Insurance.

Cooke conceded ING Canada is free to do what they please with their assets, including Canada BrokerLink. But from the Dominion’s point of view, he said the consequence of Canada BrokerLink’s August 2005 decision to channel its personal insurance book to ING resulted in Dominion losing $47 million in volume revenue. As a result, Dominion severed its ties to ING’s broker link.

Faced with a barrage of questions from brokers and jesting remarks from CEOs on the topic, Derek Iles, the executive vice president of ING Insurance Company of Canada, noted the decision was the brokerage’s idea and not ING Canada’s. He reiterated that ING has a “belief in the strength of the broker distribution channel” and will continue to work hard at providing support to Ontario’s brokers.

IBAO Continuing Education Seminar

BILL 124 GOOD FOR BUSINESS

Thanks to new regulations amending Ontario’s Building Code Act, Ontario brokers may be able to sign up E&O contracts for new classes of quasi-professional designers, a continuing education seminar heard at the 2005 IBAO conference in Toronto.

“This is a whole new area,” Jim Pearson, CEO of Hamilton’s Pearson-Dunn Insurance & Financial Services Inc., told an IBAO continuing education seminar on Bill 124. “Thinking of it from a marketing perspective, Bill 124 has the potential of offering us somewhere between 1,000 and 5,000 new customers or new lines of business between now and January 1, 2006. So isn’t that a good piece of news to take back to the office?

“These new lines are going to be focused on your contracting clients – contracting clients that renovate homes, renovate buildings, plumbing, heating supplies, heating contractors, electrical contractors, sewage system contractors, alarm system contractors, fire detection system contractors. All of these new sorts of clients may need some new insurance coverages before the first of the year.”

Bill 124 received Royal Assent in 2002, and the regulations enacting the bill are due to take effect Jan. 1, 2006. The regulations require all building officials, designers, registered code agencies (firms contracted by municipalities to provide Building Code inspections and advice) and on-site sewage installers to register with the Ontario Ministry of Municipal Affairs and Housing and certify they are carrying insurance.

Designers provide services that are in accord with the act and the building code, noted Pearson, who led the seminar along with Jim Bonnay, chair of RIBO’s discipline hearing committee. The act defines “design activities” or services as those “restricted to the categories in which the designer registers with the ministry.” The act identifies 12 categories of activities or services, including detection, lighting, power, house, plumbing, building services, and fire protection, to name a few.

Individuals and firms must register with the ministry and carry a certificate that shows they are carrying minimum levels of insurance, Pearson said. For example, if a firm’s annual fees exceed $100,000, then the firm will be required to carry E&O insurance with minimum limits of $1 million per claim/$2 million aggregate. If the firm’s fees are between $50,000 and $100,000, then it must carry coverage for $500,000 per claim/$1 million aggregate. For annual fees up to $50,000, the E&O minimum policy limits are $250,000 per claim and $500,000 aggregate.

These requirements now apply to an entirely new independent, quasi-professional class of designers, Pearson noted. He said engineers and architects – which already carry their own professional liability insurance – are still responsible for drawing up plans. But the regulations also ap ply to quasi-professionals who have the authority to sign off on any modifications or changes to architectural or engineering plans.

“That is where there is an opportunity for insurance brokers to come in,” Pearson told brokers attending the seminar. “Architects and professionals already carry E&O. What Bill 124 does is open up the market for errors and omissions insurance to quasi-professionals who modify engineers’ drawings.

“It’s the carpenters you insure. It’s the electrician. It’s the heating engineer, the air conditioning contractor. It’s those kind of people who may be providing design services for building permit applications. And that’s where the opportunity of between 1,000 and 5,000 new lines of business comes about.”