45 Years – In Retrospect

Today, premiums are higher, salaries are higher, the risks have become more complex and the exposures are greater – so it is perhaps understandable that the insurance industry has become more business-focused and subject to legal limitations and direction, reflects Bob Carter, retiring CEO of the Insurance Brokers Association of Ontario (IBAO). “Today, [industry] people don’t have as much fun as they did back in the 1960s,” he adds.

However, for Carter, the most fundamental change regarding people interaction today and that of past decades is the loss of “utmost good faith”. Agreements were made, based on the honor of the parties in question, and this applied to relations between insurers, brokers and insurers – and even insureds, he notes. “Broker/company contracts would be a general agreement. Today, contracts are drafted by the legal departments of insurers – in my opinion, solely to protect the interests of the insurer.” And, he muses, if there was a contractual change back in the 1960s and 1970s regarding a broker/insurer relationship, the issues would be settled between the company’s marketing rep and the broker. “Today, contracts, or contractual amendments are mailed with a 90 days notice. The business has become a lot less personal.”

With a background primarily on the company side of the business, what motivated Carter to take on the executive functions of running the largest independent brokerage association in the country? “Whenever I worked for an insurance company, I got ‘static’ from management for taking too much of a side with brokers,” Carter says. “This is because I truly believe brokers are the best distribution channel [for property and casualty insurance]…All through my time [in the industry], broker distribution has controlled the majority of the marketplace. Brokers have done a great job of proving their value,” he adds. So, when the position of executive director opened up at the IBAO in mid-1992, Carter saw it as the opportunity to become involved in an area of the insurance industry he felt most passionate about. “I fell into the perfect job in 1992 as executive director of the IBAO.”

POLITICAL FACTORS

The two greatest “forces” having emerged during Carter’s position as executive director of the IBAO is the increasing government influence and regulation of how the insurance industry conducts its business combined with more aggressive position-taking by insurers to secure control of the business, he says. Political involvement in the affairs of the industry has grown exponentially over the last decade, Carter observes, which has made lobbying and government relations a critical function of the IBAO today. “I think I met more politicians in my first year as executive director than the previous director had over his entire tenure.”

The regulative emphasis on how insurance brokers are regulated has also changed over the years, Carter says. The approach of the regulator(s) has changed from what you can, or cannot do, to emphasize “conflict of interest” in business dealings, he notes. “When I started [in insurance], you [a broker] could hold multiple licenses, then brokers became self-regulated in 1981 under RIBO [Registered Insurance Brokers of Ontario], which the IBAO and the TIC [Toronto Insurance Conference] played a direct role in establishing the guidelines for the self-regulating body.” Carter believes that the professionalism and knowledge of the brokerage community in Ontario has improved dramatically since the move toward self regulation.

EDUCATION DRIVE

The complexities of today’s insurance environment have necessitated greater skill knowledge from brokers than in the past, Carter says. “During the 1960s, people were employed in the insurance industry without having the higher levels of education that is expected today,” he notes. This growing need for skill knowledge created another major platform for the IBAO in developing and presenting professional development education courses, he adds. “The IBAO and RIBO continue to work on improving the educational courses that are available to meet the growing skill requirements of brokers. Today, many of the courses available to brokers are university level.”

The one disappointment Carter felt when RIBO introduced its compulsory ongoing educational program was that a “large segment” of the broker community saw this as only a necessity to meet regulatory requirements. As a result, some brokers were only interested in getting “hours in” by attending easy courses or seminars to gain the needed credits rather than focusing on improving their knowledge skills, he notes. Again, the IBAO and RIBO continue to evaluate and influence the quality of educational courses and seminars that qualify under the ongoing education requirements, he adds.

ACCESS DENIED

Due to the business volume requirements of insurers, there are significantly fewer new brokerages opening up today, Carter points out. This was not always the case, once the brokerage profession attracted entrepreneurial talent into the insurance industry. “Today, I don’t see anyone starting up from scratch.” The new brokerages that are formed tend to be spin-offs of existing partners or individuals rising through the firm, he observes.

The “business barrier” against new brokerage entrants is an issue of considerable concern to Carter. “I think the industry needs to address ways to encourage [broker] start-ups to feed new talent, entrepreneurs, into the business,” he notes. The alternative is yet further consolidation in broker ranks which could eventually undermine the effectiveness of the distribution channel, he comments.

INDUSTRY CONSOLIDATION

The most physical change that has occurred on the insurance landscape over the past 45 years is insurer consolidation, Carter says. The vast majority of the U.S.-owned companies have moved out of Canada, he notes, while the European insurers have consolidated through mergers and acquisitions. “There has been a huge amount of consolidation. Looking down the road, I expect there will be even fewer carriers,” he predicts.

Fewer and bigger insurance companies presents two challenges to brokers, Carter observes. Fewer insurers mean less markets and create coverage availability concerns, and secondly, the larger the companies become, the higher the business volumes demanded from brokers become. “The challenge for brokers will be to continue to prove their ‘value added’ contribution in terms of high service standards and integrity,” he notes.

TOUGH CLIMATE

“The hard market of 2002/3 was the most difficult I have ever experienced in my 45 years in the industry,” says Carter. The difference between the most recent hard market and previous upward pricing cycles is that all the business indicators went “south at the same time”, he notes.

Have insurers learnt their lesson from the trauma of the marketplace? Will companies now stick to the fundamentals of sound underwriting and break the “cycle mentality”? According to Carter, the answer is “no”. He says, “No, I don’t think the industry can break from the cycle mentality. Look at what’s already happening [in the marketplace], some commercial accounts are down [in premium] by 20% and more – I really didn’t think it would happen again this quickly.”

The unfortunate reality of the p&c insurance industry is that insurers continue to set aggressive growth targets, Carter notes. “When the marketplace tightens, brokers take the brunt of it [insured frustration]. The last hard market saw a significant number of broker senior CSRs [customer service representatives] retire – they had simply had enough of it, and as a result, brokerages lost key experienced staff.”

PERSONAL ACHIEVEMENT

If he had one regret about the path chosen in his insurance career, Carter says it is that he did not open up his own brokerage 35 years ago. “I wanted to become an engineer, but insurance has provided a good life f
or me. I don’t have any regrets,” he says. However, Carter admits that he has encouraged his children to develop careers outside of the realm of insurance, “because I think the [insurance] industry has changed”.

Carter first entered the insurance industry in 1960 when he joined Norwich Union as, in his own words, “a kind of flunky for the underwriting department”. He then moved into underwriting before leaving the company to join brokerage Marsh McLennan and later Lumsden Insurance. “I found being in the brokerage business was more invigorating in that it offered more room for initiative and responsibility,” he observes. After which, Carter joined the Aetna Casualty and Surety Co. (and its successor, Laurentian Casualty Co. of Canada) for a period spanning more than 24 years.

Carter took on the role of executive director of the IBAO in July 1992. He was then appointed as chief executive officer of the association in 2000. While Carter will officially retire from the IBAO from April of this year, he will continue to work for the association on a consultancy basis for two days a week. “The other three days I’ll be working on my golf handicap,” he says.