Taking Partnership out of Affilation

I am somewhat surprised by the direction some insurers have taken here in Ontario related to the new auto reform changes. Over the past few weeks, I have heard from member brokers and insurers alike and, for the most part, the conversation revolves around the Unfair Deceptive Acts and Practices (UDAP), specifically the affiliated company guidelines contained within the regulation. The section causing the greatest concern requires notice to be given to the consumer if a better rate is available with an affiliated company for which they would qualify in accordance to filed rates and rules.

The best example of this would be an insurer family that offers a standard and substandard rate — i.e. Economical and Perth, or Pembridge and Pafco. In years gone by, this model was the “gem” of the industry. It operated in such a way that the workflow was made easy for the broker. More importantly, the policy renewal was handled with the best interests of the consumer in mind.

So how did it work? If I was a policy holder who had a not-so-stellar driving record, I would qualify in accordance to filed rates and rules for the sub-standard affiliated company and not the standard company. My policy would be written accordingly. The beauty of this is that, in the past, if my driving habits improved, and if I found myself now qualifying for the standard company’s rates according to their filed rates and rules, I would be automatically offered the better of the two rates and given an option to change companies. Brilliant, and my understanding is that the UDAP has now mandated this arrangement to be the norm.

Unfortunately, in recent years, the “automatic transfer” feature disappeared. Insurers reverted back to onerous workflows that did nothing for the consumer and resulted in increased cost for the brokers representing them. Just after the UDAP guidelines were released, I can recall having a discussion with a number of brokers. Some believed the lost efficiencies might be re-introduced. To me it made sense: the previous model was proven, it worked and it would allow insurers to be compliant with the new regula- tions without having to invent something new.

But what we see happening today is nowhere near what I described above. Instead of providing efficiencies that would drive cost down and prioritize the consumers’ interests, insurers are non-renewing consumers that would qualify for the standard affiliated company. This forces brokers to re-write the business manually with that same affiliated company.

As a business owner and broker, I am forced once again to question my brokerage’s relationship with the insurer and ponder the definition of “partner.”

As a consumer, I can rest easy knowing my broker is there for me regardless of the insurer’s actions. I will be taken care of and afforded the rates I deserve.

As a regulator, I would be asking myself, ‘Why?’ Was the intent of the regulation not clear? Does it need to be re-written? If so, what does it need to look like to accomplish what it was intended to do?

Now let’s look at companies that operate an affiliated company model, whereby both of the affiliated companies write what would be considered standard business. Our members are telling us insurers are deciding to withdraw one of the affiliated companies’ contracts, or entirely removing binding authority, instead of working with the regulator (through the filing process) and their brokers (through the renewal process) to be compliant.

One insurer has decided simply to withdraw one of its affiliated companies from the market in order to maintain a consistent approach with all of its brokers. Another has decided to change its multi-company model to a single-company offering, reflecting their previous model.

In order to best understand these actions, I went back to look at the section of UDAP that applies to affiliated companies. Did I miss something?

• Does it say that as an insurer you had to decide to dissolve an affiliated company model? No.

• Does it say an insurer has to move a policyholder from one affiliated company to another if they now qualified? No.

• Does it say the consumer has to be offered a quote for an affiliated company if the consumer did not qualify for that company in accordance to the company’s filed rates and rules? No.

• Does it say insurers have to manage this process on their own, and the broker is not expected to participate? No.

• Does it say the consumer has to accept the lower-priced offer and change insurers? No.

The UDAP says that if an insurer operates an affiliated company model, and the insurer’s broker has access to both of the affiliated companies, the consumer must be advised if a lower rate was available through the other affiliated company in accordance to their filed rates and rules.

So why as a result of this change are we seeing insurers withdrawing from the marketplace, resulting in thousands of consumers facing non-renewals?

For one thing, think of the strain it puts on the frontline broker and the brokerage staff. As a broker, once again, I am now forced to go to market on behalf of my consumer. I must now add a layer of conversation in an effort to explain the insurer’s action, as well as why I initially recommended the specified insurer as the insurer of choice. Did anyone think of what this does for my credibility as a broker? This conversation will not be an easy one. Hopefully I will get a chance to have it, since my customer has now been given a reason to look elsewhere. Again, I question the definition of partner.

So what should have happened? Simply, insurers should have offered to work with the brokers and give the brokers an opportunity to assist the insurers with their system issues, if they existed, in order for them to be compliant. Each broker to whom I have spoken is willing to assist the insurer with the “offer” requirement until system issues were resolved.

When you think about it, what broker does not do this now? Brokers shop renewals and make alternative offers on a regular basis. It is a pivotal part of their business operations. When I look at what has happened, it makes no sense why this has happened the way it has.

So what’s missing? Why are insurers deciding to abandon their multi-company brands instead of filing their way out of the mess they are in? Yes, for a company, it may be as simple as that — filing. If I am insured with company A, and company B has a lower price but I do not qualify, then there is no requirement for an offer to be made.

Would I agree that some insurers might consider themselves as victims of a ruling that was not intended for them and way they do business? At first, my answer was yes. But when I started to hear of at least one insurer blaming either FSCO or IBAO for their affiliated company demise, it really made me think: Why did insurers abandon years of work and not continue to work towards maintaining their affiliated offering? What was happening behind the scenes of which we were not aware and that caused them to walk away? Why were some not willing to work with their brokers to make sure that the consumer was made aware of the choices that were available to them? Next time your company representative is in your office, ask them why they choose not to file their way out, in order to maintain a viable affiliated company model. If you get an answer that makes sense, please share it with me.

———

The UDAP says if an insurer operates an affiliated company model, and the insurer’s broker has access to both of the affiliated companies, the consumer must be advised if a lower rate was available through the other affiliated company in accordance to their filed rules and rates.