The CICMA and CIAA 99 Joint Conference – held in Toronto in February – focused on the competitive challenges reshaping the p&c insurance industry. The overall message delivered at the event was clear: the process of industry change, mainly as a result of merger and acquisitional activity, is far from over with the effects being felt across the field from reinsurers to brokers and industry support services.
Brian Maltman, the Ontario chapter president of CICMA, summed up the mood of the discussions in the opening remarks of the conference: “Each word connected with change has the customer written all over it.” He adds, “some things of the change we have seen have been good, others have been outright painful”.
A five member panel group, representing senior management in insurance and risk management, reaffirmed Maltman’s statement in their own remarks. Consumerism, technology advancements coupled with the competitive battles being waged on this front, plus the need of greater cost efficiency, have and will continue to be the market drivers in the year ahead.
Globalization and consolidation formed the central themes of the panel discussion. Each of the panel members believe that the move toward global companies is unlikely to dissipate any time soon. Companies are looking to achieve a global spread of risk and market penetration in a declining price environment. As such, the panel members were sure of further consolidation of the Canadian industry in 1999.
While the long to medium-term outcome of the unprecedented merger and acquisition activity underway could reveal financial and cultural difficulties (supported by the views of CEOs at the recently held U.S. Joint Industry Forum – see our March 1999 issue for details), the overall result will likely be a healthier and more competitive insurance industry, the panel members say.
“Risk managers need to
be kept in the loop”
From a consumer perspective, the mergers and acquisitions occurring in the insurance industry are producing a mixed result, says Lovel Vining, corporate secretary and risk manager of Mayne Nickless Canada Inc. The results of consolidation are particularly concerning at the brokerage end where concentration of marketshare by a handful of players is becoming apparent. In addition, service standards of companies having undertaken a recent merger or acquisition are not always meeting up to match with client expectations, he cautions. Vining referred to a particular brokerage with which he had had dealings before and after an acquisition, the initial result being confusion over who represented the client and a marked slip in service. It seemed that the managers of the brokerage were more concerned with their own requirements than that of the customers, he observes.
There are, however, certain potential advantages to clients through broker and company consolidation, Vining concedes. The concept of a “one-stop shopping facility” becoming available to large corporates in securing their insurance needs could prove highly beneficial in managing complex national and global risk programs. Secondly, Vining says that consolidation in the adjusting field will produce meaningful benefits to the customer. In broad terms, however, he sums up, “the mega mergers are leaving risk managers with a less than warm and fuzzy feeling of relationships being secure. Risk managers need to be kept in the loop, don’t leave us hanging.”
John Chippindale, vice president at J&H Marsh & McLennan Canada, agrees that communication is central to ensuring the continuation of existing relationships. “There has been a lot of reaction to consolidation among brokers, and let’s face it, the market has been staid, now there’s this sudden change.”
“We are trying to establish ourselves as a very disciplined group specializing in risk.”
Chippindale believes, however, that reinsurers and primary companies could be doing more on the communication front to alleviate the concerns of brokers, thereby creating a more stable market. “Communication is an essential component, I think companies are not doing enough in outlining their long-term strategies. The current move to company and broker network relationships is an example.”
There is no question that the brokerage market worldwide is moving away from being transactional to an advisory role, he notes. Once again, consumerism is the motivator of this shift.
There is also a noticeable and growing trend being led by customers to new off-balance sheet type financial risk products. The expansion of less traditional products is requiring brokerages to enhance their skill resources. In achieving this, the large corporate brokerages are having to hire outside expertise to meet growing client expectations. “The market is replacing [skills] as well, the individuals that aren’t dealing with the pace of change – this may sound very cold, but it is necessary.”
In dealing with the evolving marketplace, Chippindale says J&H Marsh & McLennan is repositioning itself as a risk specialist. “We are trying to establish ourselves as a very disciplined group specializing in risk.”
The adjusting field, according to Howard “skip” Sutherland, president of Crawford Adjusters Canada, is following trends set by the primary company market. Larger national companies require similar across-the-country support services, hence the spat of acquisitions and mergers which took place among Canada’s adjusting firms last year.
“We felt it was important to tie in with a North American partner”
Secondly, he says consolidation has been motivated by the need to acquire specialist skills and exposure to specific market segments. Consolidation and globalization are occurring as a result of technology, he asserts, “which is making for exciting times for adjusters”.
That said, Sutherland cautions adjusting firms not to rush into merger or acquisitional deals. “Once you’ve begun acquisitional expansion, beware, it can be a roller-coaster ride. When you’re a national player – of a certain size – client expectations change, and there becomes the need to create an own culture supported with educational and growth programs.”
Adjusters Canada was acquired by U.S.-based Crawford & Co. in June last year, boosting the combined operations in Canada to the top of the ranking based on revenue. The deal sparked a round of merger and acquisitional deals within the Canadian market. Commenting on the Crawford/Adjusters Canada relationship, Sutherland says it became apparent that – to prosper in a national and global marketplace whilst staying abreast of technology advancements – the latter had to establish a strategic alliance. “We felt it was important to tie in with a North American partner and preferably not an outsider to the adjusting field.”
Commenting from a primary company perspective, Igal Mayer, vice president at General Accident Group Canada (GA), concurs that the customer is wielding the stick of change. “Customers are demanding more from us, which is forcing companies to make substantial investments in technology and this demands for cost-efficiencies.”
Size really does matter, according to Mayer. He strongly supports the view that the bigger the company, the more likely it will succeed in the future market. Statistically, he notes, larger companies have better underwriting results and lower combined ratios.
“The discussions have to be very disciplined, there is a lot that can go wrong”
Big also means companies can spread their risk exposure on a global basis and, through achieving a critical operational mass, reduce external expenses by bringing services inhouse. “We’re [GA] are currently internalizing our claims management, the objective is to take 90% of the business inside – we can do this because of the cost-savings achieved by size.” While the partnering of companies through mergers and acquisitions makes sense, Mayer warns companies to be cautious before taking the leap: “The discussions have to be very disciplined, there is a lot that can go wrong.”
John Phelan, president of Munich Reinsurance Co. of Canada, suppo
rts Mayer’s belief of “the big can be better”. Phelan points out, however, that size is not a guarantee of success, but it can provide for cost benefits and the ability of a company to expand its skill pool. And, while future years may reveal some partnership failures as a result of the current round of mergers and acquisitions, the consolidation trend will produce cost savings and a more stable market, he notes. “The acquisition trend will continue – global reach and sector dominance are the objectives of the 1-st tier players.”
Global and national consolidation through mergers and acquisitions will continue to make property and casualty insurance headlines in 1999, a panel of CEOs from across the industry board predicted xat the recently held 32nd Annual Joint Conference of the Canadian Insurance Claims Managers Association (CICMA) and the Canadian Independent Adjusters Association (CIAA). The prime forces driving the process are enhanced technologies and increased consumer expectations, they say.