Maintaining Distinctions

The ebb and flow of the insurance industry over the past five years has held the attention of consumers, sales intermediaries, insurers and regulators. The pace of change has been fast and furious, with numerous regulatory and legislative reforms, rate decreases and new products and coverage being introduced into the market.

The one constant throughout has been the professional expertise and service that has been provided to consumers by independent brokers who have been rising to the challenge of servicing their customers for over a century. However, the future of the independent broker and the insurance companies who support them has reached a fork in the road. The ground has shifted significantly recently and the question is: which path will traditional broker companies and the independent broker choose?

Will it be the path that continues to weaken the independent broker through broker acquisition and increasing support of the direct channel? Or will it be the path that strengthens independence through investment, innovation and partnership?

CHARTING A COURSE

The past 18 months have provided a safe harbour for independent brokers to step back and take a long hard look at the insurers with which they conduct business and assess what path they are choosing.

Some, including Pembridge, have steadfastly stood by the independent broker; others have muddied the waters.

Pembridge has charted a path that does not and will not compromise the integrity of the independent broker distribution channel. We believe the way to grow over the long-term lies in a commitment to independence and consumer choice. Pembridge is committed to providing every opportunity for our current and future broker partners to grow, prosper and, most importantly, remain independent.

VICTIMS OF SUCCESS

Recently though, I believe independent brokers have become the victims of their own success. The soft market has allowed books of business to grow exponentially; coupled with an ageing broker force, market conditions are ripe for companies to exploit the very distribution network that made them successful, by creating a bigger ‘captive’ agent channel.

Instead of opening doors for independent brokers and fostering growth, competition has been saturated by volume consolidation and majority ownership stakes. It is troubling to see companies buying up brokerages because the consumer’s stable of companies from which to choose shrinks. If this trend continues, at what point does it become appropriate to question whether the consumers’ interests are being met and properly served?

Some might suggest these consolidations merely capitalize on an opportunity to gain market share; others might argue they are arranged out of necessity. Still others suggest the market dynamic is experiencing a fundamental shift in favour of the captive agent. I believe these arguments demonstrate a very pessimistic view of the marketplace. Pembridge doesn’t share these views and we will continue to support and promote the independent broker because we believe the future holds unlimited potential for growth and prosperity.

Pembridge has stuck with a very specific and strategic growth strategy. We are not in every single broker office or community because we know that we can’t be all things to all brokers, and we don’t want to be. Pembridge is committed to developing an intimate relationship with our broker partners by:

* making sure they have the tools to grow their business;

* making it easy to do business with us; and

* having our broker sales managers reside in those communities where we do business.

More importantly, Pembridge has become a sound insurance alternative because we have listened to our broker partners and we value their input. It’s not good enough to simply pay lip service to their advice and recommendations. Given that brokers write nearly 70% of the property and casualty business in private markets, it would be foolish and quite frankly poor business to ignore their suggestions.

One ironic aspect of the current market environment is this: at the same time traditional broker companies are weakening the independent broker, our parent company, which has one of the largest and most successful direct agent forces in the world, isn’t swallowing up brokers to pad the bottom line. Rather, it is investing in the independent broker channel because it has recognized the potential for growth in Canada and the United States.

SUPPORTING INDEPENDENT BROKERS

Thanks to its investments to improve technology and enhance product development, in addition to its strengthened marketing campaign, Pembridge is an even more attractive market with which independent brokers can do business. Conversely, traditional broker companies are actively expanding and investing in their direct agent channel, often disguising their direct agents as “brokers” at the expense of the truly independent broker.

The most significant step our parent company has taken is to enable Pembridge to provide financial support to brokers in the form of capital loans. Pembridge recognizes the challenges that independent brokers face in a highly competitive market. These loans will support growth, succession planning or equity consolidation for the independent broker. The loans are based on sound business rationale. Most importantly, they do not require the broker to make any volume commitments: we know that is the best way for brokers to retain their independence.

It is acknowledged the independent broker continues to face pressures from its traditional broker partners, but other challenges in the broader market should not be overlooked.

Past experience suggests the industry is halfway – if not further – through the current soft market cycle. There is reason for optimism in 2007, but it is going to take a strong underwriting discipline commitment from insurers in order to sustain the stability of the past couple of years.

CHALLENGES FOR BROKERS

I anticipate the market will begin to firm up in 2008. If, however, the industry ignores the leading indicators and broadens its underwriting appetite even further in the months ahead, we run the risk of falling back into the same traps that caused turmoil in the marketplace not long ago.

Another challenge independent brokers face is an increase in self-service in the marketplace. Consumers are becoming more and more product savvy, taking it upon themselves to research and determine the best coverage for protecting their assets. Consumers are increasingly feeling that they do not need an insurance advisor. This could prove to be a costly mistake, since some consumers might not get the best coverage that is available to them or the product that best suits their needs.

In these circumstances, independent brokers can – and must – step in to fill the void. They must recommend the coverage or product that best suits the needs of the consumer and provide the sound professional advice that only an independent broker can. Rest assured, Pembridge will provide the necessary tools, products and support that independent brokers need to fulfill the commitment of being a reliable insurance advisor.

The future of the independent broker is at a crossroads. A very tough choice will have to be made between preserving the independent broker, or becoming a casualty of insurer control through acquisition and consolidation.

For Pembridge, the decision is clear: we are standing firmly behind the independent broker. Pembridge will not compete with our broker partners and we will continue to act in a manner that safeguards the independence of brokers. Pembridge will also continue to advocate for clarity in the distinction between the distribution channels, calling on the industry not to blur the lines between the independent broker, “hybridbrokers,” or a so-called “third way.” Companies and their representatives can and s
hould find ways to bring greater clarity to the nature of the insurance buying process, promoting the value of each channel.

Supporting the independence of the broker and promoting greater clarity between distribution channels will provide consumers the information they need to understand the nature of their relationship with their intermediary and their transaction for purchase of insurance. More importantly, it will cement the role and importance of the independent broker in the constantly changing landscape that is the insurance industry.