Canadian Underwriter

Direct Competition

December 13, 2010   by Suzanne Sharma

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Each day, consumers are presented with alternatives to the broker channel to purchase insurance, and it’s the banks that are the biggest threat to that business.

This magazine first explored the issue of banks promoting insurance services in their branches and online in an article in October 2009. Bob King, principal at GNK Insurance Services in B.C., had taken the matter to the Office of the Superintendent of Financial Institutions (OSFI).

A year later and the battle is still ongoing. In May of this year, federal finance minister Jim Flaherty stated he would introduce regulations prohibiting banks from linking insurance products to their websites. However, the issue is pending government approval.

Banks selling insurance is top of mind for brokers. At the Insurance Brokers Association of Canada (IBAC) Annual General Meeting in New Brunswick last month, immediate past president Justin MacGregor said, “Banks ought not to be able to promote insurance online. We continue our hard work and are dedicated to dealing with the issue.”

Canadian Insurance Top Broker checked in with King to see if he’d made any progress on his end. “Nothing has changed because bureaucracy moves slowly,” he says. “My position is very clear. Banks shouldn’t be offering insurance at the point of sale when credit is being granted, or promoting it online.”

Bob King GNK Insurance Services

In King’s opinion, of all the banks marketing insurance online, the Royal Bank of Canada (RBC) is the biggest offender.

“RBC still advertises insurance on their website,” says King. “Minister Flaherty has made it very clear what he intends to do, but they’ve ignored the warning and are taking it to the eleventh hour.” (See sidebar, “RBC Responds.”)

In addition to sending letters to OSFI, King has personally moved all of his business from RBC to the Bank of Montreal (BMO).

“I’d suggest other brokers do the same,” says King, who has also approached the Insurance Brokers Association of British Columbia (IBABC) to spread the word. “I think as an industry we should leave Royal Bank.”

Beat the Competition
Banks selling insurance is a threat not only to brokers, but is also unfair to the consumer, according to Steve Masynk, manager of public affairs at IBAC.

“Canadians should not be coerced into buying products as important as their insurance,” says Masynk. “Coercion and placing undue pressure is completely unfair to consumers who are looking for the best advice to protect their interests.”

This is called tied selling, explains King, whereby consumers are persuaded to buy their insurance from the bank when they’re approved for a loan.

These issues are forcing brokers to take action and protect the interest of consumers while providing superior service.

King states that since claims advocacy is what brokers do best, it needs to be publicized. “We can work by getting customers associated with a loyal company.”

Eric Navarro, broker at Pentagon Insurance Brokers Inc. in Ottawa, adds, “Constant contact with the insured is also crucial.” For example, staff at Pentagon personally called each of its clients to explain the changes to their auto insurance policy caused by the Ontario reforms.

Navarro says brokers can offer competitive pricing because of their access to different carriers, and this is a huge advantage. As well, brokers can create a policy specific to the client’s needs.

“My personal challenge as an independent broker is to outperform the banks’ service level, knowledge and product,” he says. “I strive to accomplish this for all my clients in order to separate myself from the banks.”

RBC Responds

RBC Insurance president and CEO Neil Skelding says it’s business as usual for now

Q: How is RBC responding to the fact that pending government legislation, banks may no longer be able to promote insurance online?

A: RBC is working with stakeholders to support regulatory change that benefits consumers and is supportive of any proposal that protects a consumer’s ability to research and shop for insurance products and advice on public websites that respect the regulatory and licensing standards. If new regulations restrict this ability, consumers would be deprived of alternatives that are available in virtually all other developed financial markets.

RBC believes Canadians should have choice when buying insurance (just like any other financial services product)—whether they choose to use the Web, phone, or get personal advice from a third-party broker or at one of our branches. We support all channels.

Q: RBC still advertises insurance products on its website while many other banks have ceased doing so. Why?

A: RBC offers insurance products to consumers in accordance with all existing regulations and is fully compliant with the existing rules. Minister Flaherty’s statements in the spring may result in some amendments to the regulations. In the event that changes are made, RBC will adjust its processes accordingly and will continue to work with the insurance industry, the regulators, and the Minister’s office to ensure the development of regulations that are in the best interest of Canadian insurance consumers.

Q: Many insurance brokers in Canada feel that banks selling insurance is a threat to their business. Any thoughts?

A: The elimination of restraints on competition has, for other financial services, resulted in growth opportunities for all participants–including brokers or other sales channels–and our expectation is that a similar outcome would result from the modernization of the insurance regulations. More importantly, the focus of this debate should not be on either party’s protection of its competitive position but should instead be on providing consumers with the benefits of increased competition, greater choice, product accessibility and service quality without any reduction in the quality of advice or professional responsibility.

Over the last several years, new technology and changes in consumer purchasing behaviour have prompted the financial services industry, and specifically the insurance industry, to re-examine traditional methods of servicing their clients. Today, the Internet, mobile applications, direct mail and the telephone have increased competition and as the insurance industry continues to evolve, existing participants, brokers and banks, need to respond to consumer demand and adapt to the changes.

Quebec Brokers Secure Commercial Business

In addition to the banks, brokers are faced with another threat to their business–the direct writers. And while those in English-speaking Canada are feeling the pressure from the directs, Quebec brokers are having success hanging on to a large share of commercial business.

Louise Mathieu Lussier Insurance Firm & Financial Services Inc.

Direct insurers hold 54% of the market share for private car insurance in the province, but brokers hold 75% for commercial vehicle insurance, according to Le Journal de L’assurance. Brokers hold 84% of the total market share for commercial business, including property and auto.

Louise Mathieu, vice president, assurances des entreprises at Lussier Insurance Firm & Financial Services Inc., says Quebec brokers do feel the heat of the directs in the personal lines market.

“We’ve won a few battles but the war isn’t over,” she says. “Customers realize they need advice for commercial insurance, but brokers must show the role they can play for clients, whether it’s for commercial or personal lines of insurance.”

Mathieu explains Quebec brokers form strong business relationships with their clients and offer them a broad range of products. “In Quebec, consumers might be beginning to realize that the broker is more objective than directs in its product offering. We are not limited to one supplier, we analyze customer needs, and negotiate the best coverage.”

Copyright 2010 Rogers Publishing Ltd. This article first appeared in the October 2010 edition of Canadian Insurance Top Broker magazine.

This story was originally published by Canadian Insurance Top Broker.