Who’s Pulling the Strings?

The independent insurance broker network in the province of Ontario forms a crucial part of our landscape and has been reaching out and serving the Ontario consumer for decades. The value proposition is simple; it revolves around a term that we refer to as “priority of interest” and that priority is first and foremost to the client that we represent.

The contract of insurance involves two parties: the insurance company and the consumer. The consumer has options when it comes to purchasing the insurance they require to fill their individual needs. Consumers could go direct and deal with an agent who offers products and services from a single company and fully understands the business model with which they are dealing. In Ontario, close to 30% of the buying public purchase their insurance in this fashion; so what is different about the other 70% of consumers?

The balance of Ontarians relies on what is described above as the “independent insurance broker network,” and they rely on that network for a variety of reasons. Unlike the agent model, brokers are first and foremost independent. They act on behalf of the consumer as a buyer of insurance. They have the ability to make choices with the priority of the consumer in mind; this is a key component of the proposition that brokers bring to the table and on which the majority of Ontario consumers depend.

Consumers understand that an agent represents one company, and that brokers represent choice and are buyers of insurance on behalf of the consumer. Consumers understand that brokers are not sellers of insurance on behalf of the company. Simple? Not now. Unfortunately, the insurance industry in this province went through a change in 2004 that opened a door for brokerages in the province to be owed and operated by individuals other than licensed brokers.

The impact of that change is now rearing its ugly head and causing a great amount of concern both within and outside of our industry. The change has resulted in aggressive growth strategies on the part of at least two insurance companies in the province of Ontario. These companies are on a mission to buy insurance brokerages for the sole purpose of gaining ownership and control. From behind the scenes, they direct what their brokerages can and will do with respect to placing current and new business. What better way than ownership and control to ensure that concentration of business favours the owner? What better way to gain market share in an increasingly competitive market?

So what does this really mean? How does this affect the consumer? After all, we have transparency and disclosure so that the consumer is informed.

Yes, consumers are informed. Transparency and disclosure make sure consumers understand the relationship between the brokerage and its owner. But disclosure does exactly that: it discloses — nothing more, nothing less. It does nothing to protect the consumer from an agency model masquerading as a brokerage. It does not fix the conflict of interest and it never will: it wasn’t designed to.

The conflict of interest lies in the corporate strategy, growth plans and all of the undue influence that the “owner” has on the day-to-day operations of the brokerage. Insurance companies that own brokerages conveniently refer to these issues as the “brokerages business,” but clearly now it is the business of the principal shareholder, which is the insurance company.

Today, two insurance companies control some of the distributors of their products — all the while posing as brokers, and thereby misleading the consumer. Let’s call a spade a spade: this is as “direct” as it gets, and an agent is an agent. It is appalling for the industry to remain idle and watch millions of consumers’ dollars, thousands of policies and, most importantly, the consumer’s priority of interest be overlooked for the sake of internal gains. Are we expected to believe that the best interest of the consumer was taken into consideration for each and every one of these transactions? How can we sit back and continue to watch this happen? The answer is simple: we can’t.

The brokerage community in this province is proud of the core value it has upheld as an industry for many years — the interest of the consumer. Since independent brokers see the world through this lens, they do not take the consumer’s priority interest lightly; the consumer’s priority interest is not something brokers can allow to be abused. Consumers who decide to use the independent broker distribution model to purchase their insurance need to be assured that the model works the way they believe and think it does. That needs to be clear and cannot be clouded. Disclosure has served us well, but this is a core value conflict that disclosure guidelines do not adequately address.

So where do we go from here? The choice is simple: we have to do whatever it takes to influence the regulators in Ontario to embrace change; that is exactly what we intend to do. At its October 2007 convention, the IBAO will unveil its case for “Control in Fact” and ask for change.

Our case is straightforward: brokerages in the province of Ontario should be owned and controlled by brokers — and only by brokers. Those who are not brokers should become agents. Consumers should no longer be misled by insurers that have ownership and/or control over brokerages. Consumers need to truly understand their buying decision and how their interest is being served. To do this, they need to know if they are dealing with a seller of insurance or a buyer of insurance. A change is the only course of action that will allow this to happen.

This is not likely an easy process, but it is a process that must become a reality. Over the course of the next few months we will continue to meet with industry stakeholders on this issue and we will be asking our brokers, insurer partners and all industry stakeholders for their support. Challenge Your Destiny – it’s not just another catchy tag line.