Eating Another Channel’s Lunch?

Direct writers in Canada are holding up the banner of technology in their ongoing battle with the broker channel for market share.

“Technology does favour the direct model,” says Sylvie Paquette, president and CEO of the direct writer Desjardins General Insurance Group. “Technology makes it possible to provide a more consistent and better customer experience. And technology is empowering the customer.”

Paquette spoke to a packed house of more than 100 people attending the Insurance Institute of Ontario’s At the Forefront breakfast series in Toronto on May 12. The topic of her speech was ‘Direct Insurance: An Idea Whose Time Has Come.’

Paquette noted the results of a survey by PricewaterhouseCoopers, released in December 2010, suggesting that Canada’s independent broker channel is losing market share to the direct channel at a rate of roughly 0.43% per year. According to PwC’s Insurance Review: A Canadian Perspective, the independent channel’s market share of 64% in 2009 will drop to about 60% by 2019. This is based on data obtained by applying linear regression to net premiums written in Canada over the last
11 years, PwC reports.

The study is insensitive to the effects of market cycles, it should be noted. Brokers have always maintained that direct writers tend to flourish in soft markets, but lose market share during hard markets, which typically feature higher premium pricing and reduced coverage.

Still, even brokers in Western Canadian provinces with public auto regimes – which have historically distributed auto insurance products and services almost exclusively through the broker channel – have seen directs make inroads into their markets. And technology has had a hand in this. Internet use, 1-800 telephone services and expanded access to vehicle licensing services in two Western provinces have created opportunities for banks and direct writers to compete in provinces with public auto systems, brokers noted at the annual general meeting of the Insurance Brokers Association of Alberta (IBAA), held in Jasper, Alberta on May 16.

Directs and Technology

Paquette believes technology favours the direct channel for three main reasons:
• Using technology such as predictive analytics allows direct writers to segment their data better. This in turn allows for more accurate underwriting and pricing, leading to lower loss ratios. It also allows direct writers to keep their expense ratios lower than that of brokers. By keeping loss and expense ratios low, direct writers will have more money to invest in technology and marketing.
•The direct model, in tandem with the benefits of technology, allows direct writers to manage the customer experience better, Paquette says. Since directs sell only their own product, when customers interact through the insurer via 1-800 numbers and the Internet, they receive faster quotes. Also, since direct agents are all trained and coached on the same product, the consumer receives a more consistent experience, including information and service.
•Finally, a direct insurer’s use of technology, including phone, mobile and Internet services, more naturally fits the way consumers are buying service products. Paquette notes, for example, that consumers are much more frequently using electronic methods to make travel arrangements, do their banking and even read (i.e. using
e-readers in place of printed books). “Internet sales and services are a much more natural fit for direct insurers, as we see from offerings on the Net,” she says. “I think it’s clear that technology – and in particular, the Internet –
favour the direct model.”

Technology Aiding Directs in Public Auto

Certainly in the current market environment, brokers are working hard to capitalize on the benefits of technology. Broker associations in Ontario, New Brunswick and Nova Scotia, for example, have each launched online services that allow consumers to find a broker easily and/or obtain a quote online. But it’s not always easy. Alberta’s broker association spent roughly two years trying to find a ‘made-in-Alberta’ online quoting solution, and ultimately abandoned the project at their annual general meeting in May 2011.

Also at the IBAA meeting, broker associations in Saskatchewan and Manitoba – provinces with public auto regimes – noted governments there have started to open vehicle licensing to directs and/or offer online services for consumers.

Barry Seabourn, vice president of the Insurance Brokers Association of Saskatchewan (IBAS), noted brokers currently handle 92% of Saskatchewan’s underwritten insurance business. But in September 2010, Saskatchewan Government Insurance (SGI) opened up vehicle license and issue appointments to insurance companies and bank-owned and direct writers. One month later, SGI launched online customer service for auto renewals.

“The extensive new changes will no doubt create renewed interest in our province from direct writers and more competition for our member brokers,” Seabourn said in his address to the IBAA.

In Manitoba, the public insurer, Manitoba Public Auto Insurance (MPI), announced a five-year license and policy renewal process effective in March 2010. Manitoba drivers are now able to renew their licenses and vehicle insurance online each year.

Consumers now have to visit an Autopac [insurance] agent once every five years, instead of once each year.

This kind of access to online vehicle licensing services in Manitoba has created an opportunity for directs, said Curtis Wyatt, vice president of the Insurance Brokers Association of Manitoba (IBAM).

“As a government-run auto province, we [brokers] often felt in some ways that we were protected by government auto versus the direct writers,” he said. “Barry’s comments [about the situation in Saskatchewan] are very true, and that change is coming in quickly.

“The use of the Internet and 800-numbers has brought direct writers into Manitoba.”

The effect is somewhat different in Manitoba, Wyatt added, because home and auto insurance policies in the province are not as frequently linked together as they are in other provinces. Consequently, if consumers can buy their driver’s licenses and renew their auto insurance policies online, without needing to see a broker as frequently, the consumer will have an increased opportunity to go outside the broker channel to buy their home insurance policy as well.

Brokers can compensate for this by proactively maintaining contact with those consumers, so as not to lose market share to direct writers in the home insurance line.

Regardless, it is clear that technology is now viewed as a marketing weapon to be wielded in a competition for market share.