December 1, 2003 by Vikki Spencer and Sean van Zyl
Brokers had plenty to say about the hard market conditions that have defined their work environment for the past two years, specifically in personal lines auto insurance. “The impact of recent market conditions has placed considerable pressure on all brokers as we attempt to explain why premiums have increased and why we are unable to secure the coverages that may have been readily available in the past,” says Doug Grahlman, the newly appointed president of the Insurance Brokers Association of Ontario (IBAO).
Grahlman, who delivered his presidential speech at the closing of the IBAO’s 2003 convention, took care not place the blame for the marketplace’s problems at the feet of insurers. “To ‘pass the buck’ or make statements that infer the company [insurer] is to blame is neither appropriate nor professional,” he notes.
As brokers attempt to explain to consumers the reasons behind the spat of sharp rate increases over the past two years, Grahlman says that the dire financial circumstances of auto insurers have to be highlighted – rather than passing the problems off as being related to the terrorist attacks of 9/11. “One thing that really irks me is when I hear a consumer say ‘it was because of 9/11’. Certainly, 9/11 had an impact on the industry, but for most consumers, the influence of that tragedy was minimal,” he adds.
Brokers must therefore be patient with insurers as they try to get their financial houses in order, even when capacity shortage is the result, Grahlman comments. “In a great many instances, the insurer would like to respond to our need, but is unable to. Some of these decisions were, and are, a matter of survival.”
Grahlman says the changes under Ontario’s Bill-198 should allow companies to improve market conditions for brokers, specifically in terms of stabilizing rates and increasing insurers’ appetite for risk. “With the changes recently implemented by the previous [Progressive Conservative] government, I believe it is necessary to monitor the activities of the companies and look for change particularly in the area of what is an acceptable risk. We have seen and experienced restrictions and practices that have tested the integrity and ethics of brokers throughout this province.”
The IBAO’s outgoing president, Jim Hawryluk, believes that brokers have held up well in unity over what has been a testing period. “We have survived and succeeded in a most difficult year. We have met the availability challenge.” But, he notes, a growing concern facing the brokerage community lies in attracting younger people into the profession. “We have to encourage young brokers that times will get better.”
In a “question and answer” session forming part of the insurer CEO panel debate, the broker audience took particular aim at Igal Mayer, president of Aviva Canada Inc. for the company’s recent decision to use President’s Choice Financial (PC Financial) – the “house brand” of financial services marketed through the Loblaws retail chain – as an alternative distribution channel. In response, Mayer says that Aviva’s objective is to be the “best manufacturer” of insurance. And, while the broker channel remains the prime distribution vehicle for the company – with about 75% of future business expected to be generated from this source – past experience has shown that companies not willing to adjust to consumer needs will ultimately lose marketshare, he notes.
In this respect, Mayer refers to Aviva’s experience in the Quebec market which over recent years has seen a significant movement to direct selling. Aviva had stuck solely with brokers as its distributor, and consequently lost marketshare, he adds. “We have to look at other distribution channels. The market is changing. PC Financial has nearly 1.5 million banking customers. Our [Aviva] objective is to double our business [in Canada] to $6 billion over the next five years.” While alternative distribution has to be taken into consideration by insurers, Mayer believes that the independent broker will remain the dominant market force. “Are there customers interested in sacrificing the advocacy of the broker in order to get a lower premium? I personally think that most people still want a broker’s advice.”
Roger Randall, president of Allianz Canada, poses the question to whether there really is a “place” for brokers in personal lines. “Is it [personal lines] just a commodity product?” From his own perspective, he does not believe that auto insurance, which occupies the bulk of personal lines business, is a simple process. “As long as we keep focusing on ‘value’ rather than price,” he adds. Allianz has also explored alternative distribution mechanisms, Randall observes, although this has been done as a joint venture with brokers – such as call center operations. “I don’t think this is abnormal,” he notes.
Different buying patterns are emerging in the marketplace, observes George Cooke, president of The Dominion of Canada General Insurance Co. Dominion established its direct-to-market “Chieftain” operation several years ago in response to changing consumer buying patterns, he notes. “Chieftain hasn’t attracted the amount of volume [business] that we expected. Which is a good thing in that it is confirmation of the [validity] of the broker channel.”
The insurer CEOs also came under attack by brokers for a surly attitude of companies in their interaction with the brokerage community. Several members of the audience even accused insurers of attempting to force brokers to commit acts which would violate their licensing under governance of the Registered Insurance Brokers of Ontario (RIBO). The CEOs denied knowledge of such activities and indicated that they would investigate the various issues with their own staff. However, the CEOs admit that the hard market has placed a strain on company/broker relations. Randall notes that “some tough actions were taken [by insurers], and some of them were stupid decisions, but we need to get over it and move on. The fundamental strength of [the market] in Canada in an otherwise ‘wacky situation’ is the broker channel.” He also points out that, while insurers may need to do more to know their brokers, the flip-side of the coin is “do brokers know their companies? It’s a two-way street.”
“I’m now cautiously optimistic” of the future for the property and casualty insurance industry, comments Claude Dussault, president of ING. This year and 2002 saw the worst of the industry’s problems with the capital crunch and reduced availability of capacity. As companies’ financial results improve going into 2004, there will be an inflow of fresh capital, he adds.
This view was partly supported by Rowan Saunders, president of Royal & SunAlliance Insurance Group. He notes that Royal’s U.K.-based parent has indicated that Canada is one of the markets that it wants to remain in. However, he does not believe that the capacity problems currently experienced by the market will disappear overnight. A significant factor driving ongoing uncertainty among insurers in committing further capital is the poor auto results. The loss numbers recently released by the Facility Association (FA) are extremely troubling, Saunders says.
Indeed, auto insurance remains a “dark cloud” for insurers in an otherwise much improved marketplace, observes Mayer. However, while the losses incurred through auto are alarming, of greater concern is the public distrust caused by the sharp rate increases over recent years. The real issue is that the industry has not been effective in explaining the reasons for the rate increases. “I think the lack of confidence in our industry is for me a bigger crisis than auto…we [insurers] and brokers need to provide customers with tailored explanations for why rates are going up.”
Dussault concurs that the industry has not been effective in getting its message out. He refers to the political intervention in the auto markets of New Brunswick, Nova Scotia and most recently Ontario and Alberta. As such, nearly all of the “private market” provinces have applied rate freezes on auto
insurance. “We’ve lost ground on auto in many jurisdictions. We have to rebuild the image of our industry…insurers won’t win back the hearts of clients without brokers.”
Cooke points out “the public has a legitimate right to be angry with us [insurers]”. The fact that the industry has allowed the public misconception of 9/11 being the reason for rate increases to grow is one of the problems having brought on this lack of trust in insurance companies, he observes. As a result of the public and political attention brought on by auto, the coming year will likely see a tightening of regulations and further political intervention, he predicts. In response, Randall echoes the message that brokers have to be brought onboard in putting forward the real message of the cost problems affecting insurers. “I encourage brokers to lobby government. You’re our only voice left.”