Of the list of things keeping independent brokers up at night, none is more daunting than finding ways to compete with an “overwhelming amount of consolidators swallowing the industry,” say members of Canada’s largest network of independent brokers.
“It’s a question we ask ourselves every day: how independent brokers can compete with the big boys,” says Bruce Rabik, chief operating officer of Rogers Insurance and founder of the Canadian Broker Network (CBN).
A hot M&A market in Canada has seen many brokerages consolidated under either major conglomerates based south of the border or a couple major domestic insurers/brokerages, Rabik explains.
“It has the potential to overwhelm the marketplace,” Rabik says. “The problem with most of these mergers and acquisitions that are fuelled by American private equity is they mostly lack long-term organic growth. Which begs the question: is that a customer-first strategy?
“The obvious answer is, ‘No.’ These investments are short-term and mostly about satisfying pools of investors. On the contrary, independent firms, owned by their principals or employees, tend to focus their business model on longer-term organic growth, which essentially means you’re trying to satisfy your customers’ needs and reinvesting back into your business.”
That’s why more brokers who want to remain independent are exploring business models such as CBN’s, Rabik adds. By being part of a broader network of independents, brokerages “don’t have to sell to big consolidators to gain the scale needed to level the playing field.”
Over the last 20 years, CBN has managed to grow to over $2 billion in property casualty premiums, Rabik says. “Strength in numbers. It’s the only viable way we can see independent brokers in Canada keep their independence and gain the scale necessary to survive and thrive in today’s marketplace.”
SPECIALIZATION VS. DIVERSIFICATION
Amidst the M&A frenzy, rapidly evolving technology, automation, directs and other trends, many independent brokers have started to focus on specialization as a value proposition, with some divesting themselves of personal lines.
“From a client perspective, it’s great to have a broker that specializes in their line of business,” says Lorie Phair, CBN president. “But can the whole firm really afford to specialize? What if something happens? It’s a slippery slope.”
Phair refers to the COVID-19 pandemic, which has seen several specific industries severely impacted, leading many niche brokers wondering whether placing all their eggs in one basket is the right strategy.
“Maybe the best approach is to offer some specialization, or partner with a firm that does,” Phair says. “You can also gain access to specialists within a network like ours. What is critical, however, is to focus on how best a broker can bring value to their client.”
In addition to the pandemic, Canada’s crushing talent crunch is making it tougher than ever for brokers to specialize, says Jeff LeGrow, chairman & CEO of Atlantic Canada-based Cal LeGrow Insurance and Financial Group.
“Unless you have talent and people with the right expertise, the massive talent gap in the industry puts a huge damper on specialization efforts,” says LeGrow, who is also CBN’s vice chairman.
“Independent brokers today, when thinking about gaining scale and staying relevant, really don’t have many options,” LeGrow says. “Through CBN, we’ve gained indirect scale to influence and compete, and we can rely on peer specialists we wouldn’t necessarily have had and access talent by collaborating within the network.”
But independent brokers aren’t just the better solution simply because they’re independent, says Phair.
“The game has changed, it’s a lot harder. You can’t just write our own ticket as an independent broker. You need to be fully committed to your own success, in the face of all these challenges,” Phair advises.
This entails several key factors in a broker’s growth strategies, like using risk data as a means to discover new opportunities and potential markets; technology and digitization to address changing processes between brokers and insurers as well as brokers and their clients and investing in employee training and education to keep abreast of constant industry changes – all with the customer top of mind.