June 30, 2015 by Terri Goveia
Explorers know a thing or two about risk and timing—you win some, you lose some. So do their insurers. SGI Canada’s expansion strategy has yielded more success in western parts of the country than in the East.
With its latest foray, the company will follow in the footsteps of many an explorer—and natural resources sector client— as it sets up shop in British Columbia later this summer. The move is the capstone of its western expansion, according to president and CEO Andrew Cartmell. “It is in many ways a natural extension or a natural fit for us as a market.”
Cartmell says the costly storms that plague Saskatchewan initially pushed the company to write business elsewhere in Canada. Last year alone, the bulk of the company’s storm claims—$49.5 million— came from its home province. “It’s important that we spread risk across the country,” he says. With operations in Ontario, Manitoba and Alberta already established in the past two decades, “B.C. made sense for us.”
So does western concentration. After divesting its majority stake in the Insurance Company of Prince Edward Island, the company’s reported a $40.7 million profit in 2014. And results in Alberta have been positive to date; it’s built a sizable book of business there since 2006, which helped SGI Canada post $94 million in net premiums in Manitoba and Alberta last year, according to its 2014 Annual Report.
The natural resources industries, such as mining, oil and gas that span all three western provinces made B.C. an obvious destination. But the company’s strategy is a cautious one that started in the northeastern corner of B.C. and initially focused on small to mid-sized commercial property risks. “We had success in Alberta with contractors who go out and service oil and those who support oil, mining and forestry,” says Cartmell.
He’s also eyeing personal property insurance sales in early 2016 and eventual expansion throughout the province and the Lower Mainland. And he says the province’s strong broker channel there helped solidify the decision. “We put all those pieces together, and it’s [an] attractive [market] for us.”
Attractive, and yet still a relative leap. While British Columbia’s economy remains healthy (the Conference Board of Canada has predicted 3 percent growth for the province in 2015), activity in the oil and gas sector isn’t as solid as it once was, notes Joe Stark, chief underwriting officer at HUB International Barton Insurance in Chilliwack. He points out the landscape was quite different even three years ago when oil and gas startups and offshoots from existing companies created a lot of insurance opportunities.
“That’s certainly slowed down since the price of oil has gone down. That’s one thing that [SGI] needs to be aware of. Which companies are still going to be viable? Who will have good track records?”
Then there’s the obvious hurdle: earthquake risk. Cartmell admits that’s part of the reason for a cautious entry. “To date, we don’t have any experience with earthquake risk and exposure.” That’s already prompted consultation with SGI’s reinsurance partners. “That will be a learning curve for us, but I don’t think it will be a significant challenge.”
Other insurers have taken the same route into British Columbia through the interior, avoiding earthquake-prone zones until they’re more familiar with the market, says Kevin McIntyre, president of Underwriters Insurance Brokers and current president of the Insurance Brokers Association of British Columbia. He points to Peace Hills Insurance’s entrance in 2000 as an example. “They had no brokers in the Lower Mainland at all, initially. They built up some volume and a book of business, and then they entered the Lower Mainland market.”
Perhaps the greater challenge will come in carving out a notable niche in an already competitive market. “In B.C., competition is tight in all spaces,” argues McIntyre. “There are some big operators and they drive a huge amount of business.”
Although the small to mid-sized commercial space—SGI’s initial focus—is not as competitive as larger targets, their preferred industry spaces are, says Stark. “It’s not that there’s a lack of market. They’ll be a competitive player and provide another option for brokers and customers, [but] I don’t think they have the capital available to come in and try to upset the marketplace.”
To really make inroads, he says, “they’re going to have to come in and do something a little different.”
Adding to the competition: the Insurance Corporation of British Columbia’s stronghold on auto insurance in the province means a smaller pool of business to share.
“We have operated in provinces where auto isn’t a significant part of the business,” says Cartmell, but he acknowledges there may be some implications for both the company and brokers that are not immediately obvious. “Do they run their businesses differently as a result of the government approach to auto?” he asks. “The dynamic of that in the market is something we have to understand.”
Cartmell is confident the approach SGI Canada took in Alberta will pay off in B.C., too. That strategy helped spur the company’s current pace there. Business grew by 40 percent between 2013 and 2014, he says. “We were competitive in the marketplace and relied on our relationships and service to get that growth.”
The company first honed in on familiar markets and has done well with small to mid-sized contractors who support larger oil, gas and mining operations. The necessary product line, which includes bundles for trades, energy-specific businesses and those as small as one or two employees, is already in place.
“We know how to underwrite it, we understand the pricing, know what the competition is offering,” says Cartmell. “As we get more comfort in that province, we’ll expand beyond the interior into the Lower Mainland and come up with a strategy around personal lines as well.”
Brokers are central to the company’s plans. In Alberta, it created a foundation with brokers who already had business there and relied on new sales recruits with ties to the province to leverage their relationships with other brokers.
Who are they looking for? “It doesn’t matter how big or small they are. We’re looking for that alignment of strategy,” he says.
The company is careful to invest in broker support. In Alberta, they hired more claims and underwriting people to service brokers and plan to do the same in B.C. “Brokers need to be the hub. We need to provide them with online tools and services, so that… customers have that convenience and access to 24-hour service.”
That approach has had a twofold payoff, he says. “Since we are a broker company, the way we can differentiate ourselves is in the service we provide to brokers. The big success for us [in Alberta] was getting local people on the ground who had relationships with brokers and working very hard to be their market of choice.”
Many of Stark’s clients in the oil sector have offices in the north of B.C. and Alberta, with “equipment on both sides of the border. They’d need to have an insurer that can do both.” HUB itself has operations in both provinces, and having SGI’s footprint match their own, and those of other marker players, is a boon. “We [now] have the opportunity to write some accounts that cross the Alberta-B.C. border that we couldn’t write before with SGI Canada. It’s more than just a B.C. play for us. It’s a play right across our whole footprint.”
The added capacity SGI will bring to market in sectors like forestry is another advantage. “When a company buys three or four other companies, they don’t necessarily take on three or four times more risk,” says Stark. “They take a higher percentage, but it isn’t the same multiple. So when you need carriers to fill subscription lines, we have less players. Their opportunity will be to do some of that.”
Market capacity can be especially difficult for smaller brokers, adds McIntyre. “So any added capacity in the marketplace really does allow brokers themselves to be more competitive and give more product offering to their clients. To me, that’s a positive step.” He welcomes SGI into the marketplace. “If they’re responsible insurers in the marketplace, it can be nothing but good for brokers.”
But existing relationships will be difficult to break into. “Unless you’re coming in and focused on a whole new class that no one else has heard of, you’ve got to prove your worth,” says Stark.
Cartmell is mindful of SGI’s status as “the new kid on the street.” He’s also aware of larger issues the company will shoulder in British Columbia, such as climate change and other natural perils. “B.C. has had experience with forest fires. We have experience with it [in Alberta], but another market has a different risk potential with respect to how climate change is impacting what we insure.”
And once the company eventually moves into the Lower Mainland, the risks compound. Partnering with brokers in urban areas usually comes with a significant uptick in condo coverage and all that entails, notes McIntyre. “You have a schedule of 20 buildings and suddenly you have $20 million in earthquake exposure.”
At the moment, Cartmell is focused on the first steps, but is keeping the big picture in mind. Its experience in Alberta has set a significant benchmark. “I’d be ecstatic if we can get to [the $100-million mark] in B.C. in nine years without auto.” He’s not just banking on B.C., but on SGI Canada’s whole strategy. “We did it the old-fashioned way,” he says of the company’s growth to date. “Broker contract by broker contract and policy by policy.”
Copyright 2015 Rogers Publishing Ltd. This article first appeared in the June / July 2015 edition of Canadian Insurance Top Broker magazine
This story was originally published by Canadian Insurance Top Broker.