Owning the Supply Chain

Intact announced in August an agreement to purchase On Side Restoration. The deal, if it goes through in October as planned, will be a first in Canada. No other Canadian insurer has bought into the restoration end of the supply chain, making the deal an instant talking-point and subject of speculation.

Intact Financial Corporation (IFC) is the largest provider of property and casualty insurance in Canada and a provider of specialty insurance in North America, with more than $10 billion in total annual premiums. As one of the top restoration firms in the country, On Side has 35 branches from coast to coast and has been in business for 40 years.

Expectations

According to Intact’s statement when the deal was announced, it is buying On Side to “deepen its claims expertise and strengthen its supply chain network.” Intact Financial Corporation CEO Charles Brindamour elaborated, saying the deal would “reduce claims handling costs and provide diversification to our property exposures with a new and counter-cyclical earnings stream.”

As well, the integration of On Side is expected to improve customer service by “reducing the duplication of processes and controls” with the ultimate result being faster completion of repairs when a customer makes a claim.

On Side founder and president Craig Hogarth tells Canadian Underwriter that initiatives are already underway to reduce cycle times and improve customer satisfaction. This will involve “leveraging new technology to gain efficiencies,” he says. “One of the largest underlying reasons for the purchase is to grow efficiencies and increase trust levels between the vendor and the insurance company. The claims process will be simpler, faster, and deliver quality for the customer while making it more efficient and cost-effective for our business.”

In terms of P&C insurance industry trends, the integration of suppliers has become commonplace. The notion of partnering and collaboration has been high on the agenda for the past several years, especially with the proliferation of insurtech startups that have been easy targets for outright purchase or co-ownership.

In its 2025 forecast, Deloitte says: “Insurance carriers have long offered preferred vendor relationships to their customers, of course. Rather than simply providing core insurance products and policies, insurers will instead deliver value-added services through a highly-collaborative partnership network.”

The deal between Intact and On Side takes the concept one step further. But will it work?

Potential risks

Some on the restoration side are cautious. The strategy raises a red flag for Kris Rzesnoski, vice president of business development for Encircle (which provides real-time documentation and productivity tools for the insurance and restoration industries), and a member of the Canadian Council for the Restoration Industry Association (RIA). These are uncharted waters for carriers in Canada, he says, questioning whether On Side will be able to operate as contractors. Other insurers are rumored to be “pulling their support,” he adds, without naming names, with the fear being that they would be providing support to a competitor’s channel.

“Could Intact really keep [up] the capabilities that On Side had with 10 different insurance [company] customers?” he asks. “The restoration business looks for a diversity of work…from different insurers that can allow a contractor to remain busy and diversified, both geographically and by work type.”

Rzesnoski points out another potential risk: a contractor tied to an insurer may be required to carry overhead costs and personnel during slower periods while at the same time maintaining readiness and effectiveness — which defeats the purpose of owning a restoration business. Most contractors look to shed overhead during the slower periods.

Hogarth downplays the concern. “On Side will operate as a standalone subsidiary of IFC. We will continue to serve a wide range of customers and they continue to be very important to us,” he says. “On Side Restoration wants its [insurance company] clients to be successful and can support each of them due to its size in any one market. The company will continue serving…our other property and casualty insurance customers on a long-term basis.”

Ethics and integrity

Bringing “all phases of a claim management process in-house” is a growing trend, says Jeff Reitsma, vice president and practice lead of multidisciplinary remediation at 30 Forensic Engineering. But, he cautions, there are “inherent risks of conflicts of interest, or perceptions of insurers and their subsidiary agents (within the restoration construction field or beyond) not looking out for the best interests of the insured parties.”

He says it’s possible there could be situations in which “pressure could be implicitly or explicitly exerted on in-house professionals. In such cases, the need for transparency and good communication will be critical, whether you are talking about the claims adjusting, engineering, or restoration contracting phases of a file. I would argue that even independent firms already feel these pressures. But with integrated in-house solutions, the risk of perceived bias will be even higher.”

Ultimately, however, legislation and the remedy of alternative dispute resolution will hold all parties accountable in the end, as they do now, Reitsma believes. “The marketplace ultimately will judge if this integrated approach yields better outcomes, which may then spur even further moves one way or another.”

A role for adjusters?

Will there be a knock-on effect on adjusters?

Coquitlam, B.C.-based insurance industry consultant Kerry Diehl fears that in an effort to keep costs down, adjusters may be cut out of the equation. Hypothetically, at least, “Intact may just bypass the independent adjusters and use On Side people to decide what needs to be done and the valuation, in order to avoid paying the $1,100 to $1,500 fee to the IA,” he says.

But there is an upside for Intact’s customers in this, Diehl adds. If the scoping phase of a claim can be reduced by eliminating some of the back-and-forth, it will allow Intact to better control quality. “If the time is reduced from 60 days from start-to-finish to 45 or 50 days, that’s a big win,” he says.

Sarah Hirst, president of the Canadian Independent Adjusters Association (CIAA) and a branch manager with ClaimsPro, isn’t worried. “Insurers have always tried to reduce expense as a prudent business practice. Most insurers, however, do not view independent adjusters as simply an expense. We offer a vital role in the insurers supply chain and have a different role than a contractor does.”

A one-off?

Notwithstanding questions about whether Intact will make this work, Diehl doesn’t see impediments to the deal receiving regulatory approval. “The Competition Bureau likely would not stop the deal unless there is a strong consumer choice advocacy argument presented,” he says. And Canadian regulators have not historically been bothered by insurance industry acquisitions.

But whether this kind of deal will become a trend is hard to say. Hogarth believes that buying the supply chain will become a more prevalent trend within the industry, but “less so now within the restoration sector, only because On Side is unique within the Canadian property restoration landscape.”

Diehl agrees, observing that the conditions allowing this acquisition work just aren’t there for Intact’s competitors to follow suit. The remaining large players in the Canadian restoration industry are franchise operations or are already corporately-owned, he notes.

“I don’t see any more deals like this one happening,” he predicts.

Rzesnoski concurs. “Honestly, it’s one of the coolest little multi-million-dollar case studies that you’re going to see. If there is a combination of companies and people who can make this work, these two are where you would expect success.”

Emily Atkins is a freelance author based in Ontario and is the past editor of Claims Canada.