Banks’ increasing market share and M&A activity driving change in distribution of Canadian P&C insurance

The brokers’ share in the distribution of personal P&C insurance in the Canadian marketplace will likely drop from 69% of the policies distributed in 2009 to a 50-50 split with their direct counterparts in the near future, said Lubo Li, senior director and practice leader at JD Power and Associates.
Li discussed the major drivers of the shifting Canadian personal P&C insurance marketplace during KPMG’s Annual Insurance Issues Conference in Toronto on Nov. 24.
The accelerated pace of insurer consolidation and the banks’ entry into the market are among the primary drivers of the shifting landscape, Li said.
“If you look at the data from 30 years ago, just about one-third of personal policies sold in Canada were by the Top 10 insurers. By 2009, the market share of the Top 10 insurers jumped to nearly 60%,” he told delegates, adding that the latter figure is likely even higher given some of the major acquisitions that have taken place over the past year.
“So this change has shifted the bargaining power to the mega-insurers that are emerging at the expense of the independent agent or brokers, and [has] allowed insurers to either build or grow their direct-to-consumer channels.”
The second most important driver of change is the entrance into the personal P&C space by the major banks in Canada, Li said. Banks distribute their policies through the direct channel.
“If you look at the numbers, in 2000 the banks’ share in the P&C space represented just about 5%,” he said. “In less than 10 years, that more than doubled to nearly 11%.
“And when you look at the pace of the growth using MSA Research data, TD grew its premium by 13%, RBC by 27% and Desjardins General Insurance by 10%. This is all higher than the 10% year-over-year premium growth that the overall insurance industry had.
“Currently the banks represent about 17% of households in Canada. It is not unreasonable to expect them to take anywhere from 25% to 30% of their current existing primary financial institution clients in any new line of business in which they compete.
“That will take some time and the recent federal government regulations will stretch the time a little bit, but it won’t stop it.”