March 1, 2001 by Vikki Spencer
A time of sweeping change. This is no understatement of the current regulatory, market and distribution conditions in the insurance industry. For the country’s brokers, this time of change means refocusing lobby efforts, translating the hardening of rates to their customers and forming alliances to take advantage of the Internet in their business. Bridging the gap with legislators, regulators, insurers and the consumer will be top priority in the year ahead as brokers seek to maintain their position as the number one insurance distribution force.
With the re-introduction of Bill C-38 (now Bill-8) into parliament, Canada’s brokers could be breathing a huge sigh a relief. The fight to keep banks from retailing insurance through their branches seems to have been won, at least for the time being. But there is little time to celebrate the victory as brokers across the country face vast changes to the way they do business. From the Atlantic harmonization act to the potential for privatization in B.C.’s auto insurance market, brokers have their hands full taking their cause to legislators. Add to this the turning of the market, a move brokers will have to explain to their customers, and the introduction of a new Internet portal with the potential to bring broker/insurer transactions into the 21st century, and it is clear that brokers are going to have to work on many fronts to maintain strong relationships.
One strength brokers have in weathering change is their cohesiveness as a distribution force, says Ontario broker association (IBAO) president Dan Danyluk. Canada’s broker movement is “one of the most effectively organized in the world”, he asserts, and has established good communication with legislators and insurers. This, he says, “is probably why we maintain marketshare”.
Brokers will have to put their strengths to work with consumers, with insurance rates already beginning to harden. “It’s not an issue we haven’t dealt with in the past,” says Rob Clarke, president of the Alberta broker association (IIBAA). He predicts the swing will not be as traumatic as in past corrective actions taken by the industry. “The brokers I’ve talked to say that as long as the whole market goes at the same time it will be alright,” adds New Brunswick broker association (IBANB) president Brian Kimball. Indications are the increases will be across the board, he says, which will make the situation easier to explain to consumers.
A bright light on the horizon is the development of an Internet portal through the Centre for the Study of Insurance Operations (CSIO) to link brokers and insurers online. The project could, in later phases, develop into the single-entry, multi-company interface brokers have long sought. The portal is “potentially incredibly important”, says Danyluk. “We all suspect brokers, one way or another, are going to want to use that device.”
Danyluk feels that brokers are in a good position to deal with the vast changes brought on by the introduction of technology, as well as rate hardening and legislative issues. “Our most powerful advantage and greatest disadvantage is that we are small business people. While you get tossed around like a cork on the ocean, you can also go with the flow.”
Privatization has been the hot topic in B.C. recently, as election strategies from both the Liberal and Reform parties call for changes to the public insurance system. The Insurance Corporation of B.C. (ICBC) has even made public references to the potential for privatization of the market, while defending its existence. For the province’s brokers, it is a situation of “wait and see”, says Renate Mueller, president of the Insurance Brokers Association of B.C. (IBABC). The main issue brokers will face is attempting to guide consumers through a change to private insurance purchasing, should privatization happen, she adds.
Presently, ICBC is mid-way through its five-year broker accord, and Mueller says discussions are already underway on the possibility of extending or renewing that agreement. It would be a “very positive” move for brokers, who are the public insurer’s sole distribution force under the accord.
ICBC scored another hit with brokers late last year when it announced plans to develop an Internet link with its distributors. Mueller confirms that ICBC is piloting the system, with plans to roll it out by the end of this year. “ICBC expects to deal with this fairly quickly,” she notes.
Credit unions may prove a real threat in Alberta soon. IIBAA president Clarke says credit unions there have been “lobbying hard on the government” to gain the right to sell insurance through their branches. If that lobby effort pays off, it could have a “tremendous impact”, particularly on the province’s smaller brokers, he predicts. The association has been visiting local chapters, drumming up support to challenge the credit union play.
Alberta brokers have been taking their cause to the province often in the past few years, as the Tory government has been in the process of rewriting its insurance act. The new legislation was passed in October, although it still awaits proclamation, and the process of establishing regulations to support the act has begun. It was a win-lose situation for brokers, who supported some but not all of the changes made.
Mandatory continuing education was one facet that the IIBAA fully supported, but it was recently thrown for a loop when the government changed those requirements from 12 to 15 hours. “It came right out of the blue,” says Clarke. “We had no indication of it.” While Clarke has always maintained the education requirement was a positive for brokers as a profession, he thinks adding 20% more time may be a burden. It “does erode the bottom line”, particularly for big brokers, he says.
The IIBAA did lose its fight to continue the ban on rebating, and still wonder why Alberta will be the only province to allow the practice. By “completely taking out any reference to rebating in the act”, legislators have effectively opened the door for companies and brokers to offer customers almost any incentive to buy. With no precedent to work from, he says it is difficult to know what effect allowing rebating will have, but predicts that it will harm smaller brokers “as they try to compete with large brokers and direct writers and others” who have the money to launch bigger, better rebating schemes.
Changes to the rate classification structure at Saskatchewan Government Insurance (SGI) have topped the list of broker concerns in that province recently. Last year, SGI announced it would remove the $15,000 damage cap on light commercial vehicles (LCVs), thereby removing the distinction between private and commercial vehicles and eliminating the need for extension coverage on LCVs. Brokers feared the change would force insurers selling this kind of coverage out of the province, and result in lost commissions.
In meetings earlier this year, SGI discussed these concerns and brought up the possibility of moving some basic commercial vehicle coverages into the private sector to compensate. According to Independent Brokers Association of Saskatchewan (IBAS) president Murray Tait, “there are some changes coming”, and “some products will be opened up to the private sector”. He expects that a firm announcement could be made at SGI’s conference this month, and then any changes would likely require government approval.
Also taking center stage this year is the broker association’s decision to investigate self-regulation. It is currently regulated by Saskatchewan’s Insurance Council. “We have some control over what we [as brokers] do now, but we’re looking at whether we need to expand that,” he says. A report could be issued at the association’s annual meeting this fall.
IBAS also recently conducted a review of the province’s Insurance Act, and will be releasing the results of that process in its company meetings this spring, he reports.
The year ahead promises to be a time of both reflection and action in Manitoba, as the Insurance Brokers Associatio
n of Manitoba (IBAM) celebrates its 50th anniversary and deals with the outcome of a Cabinet shuffle which sees a new Corporate Affairs Minister in place, as well as a new minister overseeing Manitoba Public Insurance (MPI).
The government is in the process of drafting up two new packages to change its Insurance Act, both of which have garnered support from the province’s brokers. The first will see mandatory errors & omissions insurance required for brokers, and brokerage owners become sponsors of their own staff. Formerly insurance companies sponsored all brokers, but now they will only do so for brokerage owners. “Owners know their own staff,” observes IBAM president Gerry Corrigal. “Now the responsibility of licensing [brokers] will fall back on the owner.”
IBAM had expressed concern over the mandatory e&o coverage issue previously because it excluded hail insurers. Essentially, Corrigal says, “for $35 you used to be able to go out and sell hail insurance”. Now coverage will be mandatory “across the board” for all brokers, which he says is “a real plus”. And, he adds, “the next step will be to have those [hail insurance] brokers involved in mandatory education”, as other brokers are required to be.
The second piece of reform involves allowing brokers to charge fees as well as commissions, as is done in other provinces. In the past there were “a lot of products brokers would avoid handling” because they required a high level of administration for little return. “As the act reads, we would have to strip the commission [in order to charge a fee].” Corrigal predicts that “brokers will be more receptive to handling those [low-end] lines business because they’ll be properly remunerated.”
While brokers are optimistic about these changes being instituted soon, they are troubled by a recent MPI announcement that Manitoba’s drivers will see a one-time 16.6% discount on their basic auto rates beginning March 1 of this year. The discount amounts to about $75.4 million total and, while it is “positive for the public”, says Corrigal, it will be a real blow to brokers. “The government has said they would be prepared to spread that [discount] over two years to reduce the hardship on brokers.”
Ontario’s financial services sector will be watching its regulatory structure change this year with the merger of the Financial Services Commission of Ontario (FSCO) and the Ontario Securities Commission (OSC). It is a case of good news/bad news for the insurance industry with FSCO superintendent Dina Palozzi’s suggestion that the Registered Insurance Brokers of Ontario (RIBO) could be expanded to encompass other financial services intermediaries, most likely beginning with life agents.
IBAO president Danyluk thinks the plan could be dangerous for brokers in some respects. While RIBO has worked well, and does serve as a model for effective regulation, he says, “we’re concerned we are going to get lost in a much larger organization.” RIBO’s success is perhaps one reason to worry about tampering with its operations. “Few groups have the regulatory record of RIBO,” says Danyluk, but it will be important to ensure RIBO’s effectiveness is not “watered down” by stretching it to cover too many groups. On the positive side, he adds, the current RIBO board is made up of brokers who will work to maintain its integrity.
FSCO is also expected to be active this year in its review of the province’s auto insurance system. The Insurance Bureau of Canada (IBC), which lobbies on behalf of insurance companies, has recommended several changes to the legislation, specifically calling for an easier, faster rate filing system. The IBC’s plan suggests instituting a range within which rates can be changed, with FSCO, rather than the Ministry of Finance reviewing these limits on a yearly basis.
Danyluk says he understands the need for a simpler system to allow insurers to address rate inadequacy but limit the actuarial costs involved in the current complex, time-consuming rate filing system. “What we want is reasonable rate increases,” he explains. The IBAO has been lobbying as well for some changes to the system, specifically to see collateral benefits put in place so that people in group plans are not unfairly advantaged over other consumers. “There should be a platform of fairness,” Danyluk contends. “Everyone should have the benefits.”
Perhaps no other region of the country faces the potential for greater changes to the way insurance is transacted than the Atlantic provinces. For the past several years, regulators in Newfoundland, Nova Scotia, New Brunswick and PEI have been working towards a harmonized insurance act that would theoretically bring the same set of rules to bear on each province. It has been a lengthy process and brokers in each of the four provinces still await the model act, expected to be released at any time.
Controversy has surrounded the process for brokers who found themselves represented by only one delegate, New Brunswick broker Gilles LeBlanc, throughout the process. In response, the four broker associations formed their own committee, with LeBlanc as chair, in order to focus their response to the draft acts that have been released for discussion.
At the moment, the primary comment is that there is little to comment on. LeBlanc reports that there have been no discussions since last summer. Nova Scotia broker association (IBANS) executive director Stephen Greene is unhappy with the length of time it has taken regulators to come up with a model act. “There is a sense that the whole process is slowing down and we’re alarmed at that…it’s ridiculous that it’s taken so long.” He notes that even after a model act is drafted, that act will still have to be passed by each provincial legislature separately, adding perhaps several more years to the process.
Newfoundland broker association president Brian Flemming says his superintendent, Winston Morris, who is also chair of the harmonization committee, has stated that the process is progressing “naturally”. “In terms of government processes, it probably is progressing naturally,” Flemming agrees, even if this is not the speed at which private business would like progress to be made.
IBANB president Kimball says the delay may be a plus for the industry in preparing for the coming changes. The harmonized act has some “real problems” to tackle, he adds, because of existing provincial differences. Among these is New Brunswick’s bilingualism, which could require the entire act to be written in both official languages. The other issue is PEI’s residency requirement for brokers and agents. PEI broker association president Cyril MacKinnon defends the requirement, saying that, with so few brokers “on the island”, “we don’t like to see the suits from Toronto coming in and taking our business”. Nonetheless, he would not be surprised to see a push to remove the requirement in the name of harmonization.
LeBlanc’s biggest concern, however, is over the amount of power being given to superintendents under the act, and the lack of detail being given about offences and penalties. “What could be very minor offences could be subject to a major penalty.”
In Newfoundland, brokers have had more on their minds than harmonization. The ongoing review of that province’s Facility Association (FA) has caused a public rift between superintendent Morris and brokers. In questioning why the FA, a non-profit association of insurers offering coverage to high-risk drivers who might not otherwise qualify, is turning a profit, Morris has suggested that brokers are writing too much business with the FA in order to make higher commissions. The brokers association applied for intervenor status in hearings held by the province’s Public Utilities Board (PUB) in order to voice its concerns to talk of capping their commissions on FA business. One figure bandied about was a cap of $100, says Flemming. Not only would a cap reduce commissions on some FA business, but brokers fear it “might be the first step in regulating commissions overall.”
Flemming suggests that one reason brokers place business with
the FA is that its rates are actually sometimes better than those of the regular market. “We agreed certain people may be in Facility who would not normally meet the guidelines,” he says. “If people are in Facility, they’re there for price.” The PUB hearings have been delayed by winter storms affecting the province, but are set to end this month.
In New Brunswick, brokers are organizing a lobby effort to counteract a push by the credit unions to sell insurance at their branches. “The credit unions have been lobbying heavily over the last year,” notes Kimball, but “we’ve not seen anything as far as a white paper or something like that.” For now, the association is planning to meet with the Justice Ministry and the superintendent of insurance to see “what the government’s thoughts are” on the issue.
Nova Scotia’s brokers will face their biggest change at the beginning of 2002, if the broker association is successful in its bid to introduce step licensing in the province. IBANS members voted overwhelming to adopt the program, which is similar to that in other Atlantic provinces. “We didn’t want to be out of line with New Brunswick and Newfoundland,” explains Greene. “To the extent that we can act as one region rather than four separate provinces is for the better.”
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