May 2, 2019 by Sarah Cunningham-Scharf
After talking to Canadian brokers nationwide, and in the spirit of car racing board games, Canadian Underwriter presents the obstacles and opportunities facing brokers as they steer their way to success
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Kelly Hickman, the president of South Coast Insurance and president of the Insurance Brokers’ Association of Newfoundland, says brokers in her province face a unique barrier to growth: they have access to only four personal lines insurance markets.
Even worse, she adds, “one of them is exclusive to one brokerage, so that leaves three for the remaining brokers. There’s not a lot of competition to go around. In comparison, Nova Scotia, P.E.I., or New Brunswick have seven or more markets for personal lines. That gives them more opportunity to shop.”
Although there may be more access to personal lines insurers in other Maritime provinces, that doesn’t help the region’s commercial lines brokerages, which are facing a squeeze in certain specialty lines.
One niche commercial industry in particular is feeling the pain of tightening markets in P.E.I. “Seafood processing plants,” sighs Dave Cooke, a broker at Cooke Insurance Group and head of the P.E.I. brokers’ association. “Maybe four [insurers] cover it and the rates they’re charging are ridiculous—but it makes sense. [The plants are] having fires left, right and centre. The insurance companies are getting hammered.”
Rising cost of technology
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Across Canada, technology is creating various headaches for brokers who handle auto coverage for clients.
“The number of claims is going up, and there is a lot of [new] technology inside [the vehicles], so the cost of repairs is higher now,” says Éric Manseau, executive director of Regroupement des cabinets de courtage d’assurance du Québec (RCCAQ), an association representing Quebec brokers. Consumers who don’t understand these cost factors wonder why their premiums are increasing. So they are “shopping around,” Hickman reports. “We’re seeing [insurance carriers] reducing coverages. We have a risk of one or more markets leaving the province if changes are not made, and we would end up with capacity issues.”
Brokers feel the impact of the cost of technology in other ways, not just in how it affects their auto clients or the broader market. Closer to home, it’s a financial burden for brokerages because it “isn’t cheap,” says Joseph Carnevale, president-elect of the Insurance Brokers’ Association of Ontario. “That’s an understatement. The way everything is structured nowadays, it’s an ongoing investment. But you need to keep up. You can’t allow yourself to fall behind.”
The digital age is also creating work for brokers at no additional value, further affecting their margins, because each insurer’s online portal is different. Brokerages need to provide “constant training for every portal,” says Carnevale. “Every time they make a change, we need to learn how to use their system better than them, because we’re [using it] more. IT is an ongoing battle [that] calls for heavy investment in resources and dollars.”
Use tech to enhance service delivery
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Although investing in IT can be a burden on a brokerage’s operations, innovative tech also present an opportunity to introduce new products – such as cyber, for example.
“Increasing cyber risks will continue to present both opportunities and challenges to the industry as a whole, including brokers,” says Grant Wainnikka, CEO of the Insurance Brokers’ Association of Manitoba. “There’ll be substantial growth in cyber protection over the next decade.”
A second tech-related opportunity has presented itself to Quebec brokerages. Manseau says the provincial government recently passed a law that will allow brokers to sell insurance online to compete head-to-head with direct writers as of June 2019.
Selling coverage online is not the only way to grow through digital channels, says Chuck Byrne, executive director and chief operating officer of the Insurance Brokers’ Association of British Columbia. Brokers in the province are embracing technology to better serve consumers, he said, using tech to provide a nuanced, proactive and top-level response to consumer needs. “Consumers wish to be dealt with in different ways technologically,” Byrne says.
Even in comparatively rural provinces, digitally-driven consumers present an opportunity for brokers to expand their books of business. “The pie is only so big, so it can be difficult to grow organically,” says Andrew McNair, CEO of the Insurance Brokers’ Association of New Brunswick. “Those who are able to adapt can reach a broader audience through technology. As consumer habits change, brokers that change with them will do well and can grow.”
Lack of new broker talent
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George Hodgson, CEO of the Insurance Brokers’ Association of Alberta, says one major impediment to growth in his province is the limited number of new brokers. “If you can’t get people licensed, it’s very tough to grow. The pass rate for entry level licensing has never risen above 40% in the last seven or eight years.”
Brokers across the country are concerned about the trickling flow of talent through the pipeline. Darren Lipsett, president of the Insurance Brokers’ Association of Nova Scotia, says: “Lots of broker principals are close to retirement age, and a lot of people don’t even know what we do unless they’ve been exposed to it.”
Exposure to the industry is particularly challenging in P.E.I., where, according to Cooke, “people only get into insurance for two reasons — family, or they somehow fell upon it — so it’s difficult [to recruit].” Cooke calls for brokers to take a more collaborative, proactive and disciplined approach to recruitment.
In B.C., says Byrne, brokers are actively recruiting young people at post-secondary institutions to raise the profile of the industry. “It’s remarkable how our industry is not well understood or even considered among many of the other career opportunities.”
Expand through M&A
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Consolidation is one way to grow quickly without hiring more people. In B.C., “mergers have driven a lot of brokerage growth, with the combination of brokers expanding their own operations through acquisition,” said Byrne.
M&A opportunities can also be an enticing option for brokerages that don’t have the resources to grow organically, says Ontario’s Carnevale. “The number of mergers [and] acquisitions is quite staggering. There’s no doubt brokerages may be making a conscious decision not to continue with another generation or to invest in the dollars that may
be needed to go forward. So they look for other avenues to get ahead.”
In some provinces, this opportunity may be finite. McNair says in New Brunswick, “we’re seeing a few acquisitions, [but] there’s only so many brokers in the region and the pie’s only so big. So, there’s going to be a limit at some point.”
Cooke believes consolidation can be especially rewarding in smaller markets. “If I’m a small brokerage, and I want to get access to a new insurance company, I have to promise them so much premium. With [M&A], premiums don’t have to be a [barrier to growth]. You’re automatically getting access to new insurance companies.”
Insurers reduce auto capacity; cancel your contract
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To control escalating claims costs in personal lines, insurers are reducing or all-out cancelling policies in many jurisdictions across Canada. The most recent example is AIG Insurance Company of Canada announcing that it is pulling out of personal lines business in Canada.
In Alberta, New Brunswick and Ontario, “a lot of insurance companies are having a hard time in auto, so [they’re] trying to restrict how much volume they’re bringing onto their balance sheets to protect their capital,” says Colin Simpson, CEO of the Insurance Brokers’ Association of Ontario.
In Alberta, auto policy cancellation is “having a significant impact on some brokers,” Hodgson reports. “I’ve heard of one broker that can’t fill auto anymore because they lost contracts. I hear of brokers having to put their brokerage up for sale because they can’t find an auto market. And some are just having a difficult time placing auto, period.”
P.E.I.’s Cooke says the reduction of auto policy volumes is particularly acute for small brokerages. “A little guy with a small number of markets [can’t] compete with big guys. They’re either going to be acquired by somebody else or dissolved. There’s no other way. The consumers are eventually going to leave anyway.”
Emphasize the broker advantage
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Despite the cost of technology, a lack of new talent, and widespread reduction or cancellation of auto policies, Lipsett believes a hardening market is the best time for brokers in Nova Scotia and across Canada to prove their value and grow.
“We’re having more in-depth conversations with clients, trying to ‘explain the why’ and help them understand what’s happening around them when we’re seeing this fluctuation in pricing.”
Through these conversations, brokers can simplify a very convoluted industry. Derek Lothian, CEO of the Insurance Brokers’ Association of Saskatchewan, says: “It’s a communications battle. Insurance is a complex product and doing the proper ‘translation job’ to make sure folks understand what they’re covered for is really our role. That’s our value proposition as brokers.”
Hickman says emphasizing the advantage of choice and advocacy is a winning combination, especially “if a client has a claim — that’s when we have our opportunity to shine. Unfortunately, most people don’t see the value until they have a claim, but once they do, we’ve certainly seen clients who left the broker channel to get a better rate come back.”
Lipsett is optimistic that focusing on broker value-adds can spur growth. “Will it be easy? No. But it’s a [chance to] take the focus away from the pricing element, because price is relative. This is a tremendous opportunity in a hard market.”