Spring Broker Conventions: Legislative Affairs

Brokers, insurance company CEOs and even the Alberta insurance regulator could not escape the juggernaut of auto reform at the annual Independent Insurance Brokers Association of Alberta (IIBAA) conference held this spring in Calgary. On the eve of the release of the final draft of auto reforms, brokers faced the prospect of several months of education and training to learn what promised to be a completely unique system.

IIBAA president Jim Harris says his association will be hard at work helping brokers prepare to deliver the new product. “We are committed to making sure auto reform is rolled out in a smooth manner, to make this a product we can be proud of.” The process of devising the system was far more complex than government had originally planned, delegates to the annual general meeting heard from Dennis Gartner, assistant deputy minister of finance. “It was a lot tougher than many of us expected it to be,” he says of the “large and political process” leading up to the reforms. In the end, the reforms are an attempt to balance insurer and consumer desires. “Some things are happening the insurance industry would rather not happen, some things they have been lobbying for some time.”

Unfortunately, there are already rumblings of availability issues in the commercial lines segment of the Alberta marketplace, something Gartner hopes insurers can deal with before the government has to intervene. “The last thing I want, the last thing anyone wants, is for the government to have to deal with this.” While he sees a growing “culture of entitlement”, evidenced by the aggressive advertising of the plaintiffs’ bar, Gartner believes there are many insurance consumers who “don’t feel they’re getting a fair deal from the insurance industry. It’s time to think about the concepts of utmost good faith and fair dealing again,” he stresses.

SEEKING STABILITY

Gartner’s point that insurers would greet Alberta’s auto reforms with mixed feelings was born out by a CEO panel discussion hosted by the IIBAA. While acknowledging that the system would most certainly be flawed, Peace Hills CEO Diane Strashok notes that insurers “need to take control of the industry” and make the reforms work. This means brokers and insurers will have to work together to put a positive ‘face’ on reforms for the benefit of consumers. “We can’t continue to blame each other. We blame the broker, the broker blames us, we both blame the government.”

“Whatever the details, whatever the framework, we can deliver,” agrees Rowan Saunders, CEO of Royal & SunAlliance Canada. But, he and other speakers caution, the industry needs to continue to price with claims in mind to encourage the current level of pricing stability – an expectation that consumers have not had the benefit of over the last few years.

Referring to the insurance industry’s “crisis of confidence” in terms of poor public perception, the Dominion of Canada’s vice president Alan Hanks notes, “nobody believes we’re losing money, nobody believes it’s a tough go out there”. With the public furor over insurers’ 2003 net profit, there is a misconception that the industry is performing well. In a good year like 2003, an insurance company might make six cents on every dollar of premium collected, explains Bob Fitzgerald, chief operating officer of Aviva Canada. Of that premium dollar, 65% goes to claims, 16% to commissions, 8% to staff and 5% to taxes, he adds.

But such explanations have fallen on deaf ears for auto insurance consumers facing rate hikes. “When people get double-digit rate increases, people are not very open to rationalizations. They want stability,” observes Claude Dussault, CEO of ING Canada. Dussault was part of the insurer group who worked with the Alberta government on its current reform package, a process he says is never easy when done under the pressure of a consumer price revolt. “From a public relations perspective we really took a beating as an industry…The fact that we had to do it [auto reform] in crisis mode is not the way we’d prefer to do it.”

On the other hand, governments tend to resist change unless faced with such consumer outrage, notes Wawanesa CEO Gregg Hanson, who points out many insurers were raising the issue of auto rate instability for the last decade and being met with little interest on the part of legislators.

The one issue speakers agree on is the need to maintain underwriting discipline and resist falling into their old habit of chasing marketshare. “We will have a hell of a time building credibility if we chase price down as an industry,” notes Fitzgerald. In this respect, brokers have a role to play as “gatekeepers” of the industry, points out Roger Randall, CEO of Allianz Canada. Brokers must resist chasing the lowest price at the expense of stability for their clients, he adds. “The ones [insurers] you are supporting, are they living in a stable world?”

Consumers were justified to be angry when prices rose steeply in such a short period of time during the latest hard market period, says Saunders. “Insurers do tend to over-react, to over-compensate. What continues to exceed our grasp is stability. We need to ensure premiums keep pace with claims inflation or we feed into the next cycle.” Dussault agrees with this view, “when we look at what we’ve been through in the last two to three years, the issue is stability. Let’s not plant the seed today of our problems tomorrow.”

B.C. FIRES

In B.C., forest fires were already making headlines as brokers at the annual convention in Kelowna were gearing up for a summer that could potentially top 2003’s forest fire devastation. “We have had a really dry spring and they are predicting a dry, hot summer,” notes Insurance Brokers Association of B.C. (IBABC) president Bryan Fitzpatrick. An average year sees about 1,800 fires, but before this summer had even begun, almost 800 fires had already struck the province.

Brokers in B.C. are also monitoring the impact of recent changes to their province’s Financial Services Act. A lobby effort curbed many of the new powers which were originally going to be given to credit unions in the new act, Fitzpatrick notes. “We think we’ve maintained a level playing-field.” However, concerns remain over the authority given to Insurance Council to define the limits of rebating, with the broker association making a submission that nothing with a value over $25 should be allowed.

Speaking at the Alberta conference, Fitzpatrick voiced his displeasure with the departure of the Insurance Corp. of B.C. (ICBC) CEO Nick Geer. Many sources in the province have suggested the departure is a politically motivated move because Geer had effected a financial turnaround in the government insurer, making it that much more competitive against private insurers. Fitzpatrick is pleased at least that brokers and other stakeholders are being asked to give input on what they would like to see in a potential candidate to fill Geer’s shoes. Brokers will also be watching with interest ICBC’s July filing to the provincial Utilities Commission, including cost allocations for basic and optional coverage, and the 2005 rate filing.

MANITOBA MATTERS

In Manitoba, brokers continue to work with government as a stakeholder in the rewriting of the province’s Insurance Act. The process which began about three years ago sees the Insurance Brokers Association of Manitoba (IBAM) meeting on a monthly basis with the insurance superintendent and other parties, explains new IBAM president George Miller, who took office at the association’s annual convention in Portage la Prairie. “We think it will take another two and a half years,” he says, pointing out that Alberta took nine years to complete the same process.

The underlying problem with the legislative rewrite is that the act has not been updated since the 1930s, Miller observes. “We want to get it right because it probably won’t be rewritten for another 50 years”, he adds. The association has also been lobbying to take over Manitoba Public Insurance (MPI) products which thus far have only been available through the province’s “Division of Driver
& Vehicle Licensing” (DDVL). As of April this year, the DDVL merged with MPI.

Miller wants to position the broker association to play a role in the formation of the business plan for the merged entity. “We already sell three-quarters of the [MPI] products, now we want to sell all of them.” At the same time, IBAM is working on its website, specifically in offering online education to brokers outside the Winnipeg area.