Vanishing Options

During a recent visit to a broker’s office, I enjoyed a brief trip down memory lane. Displayed on the walls of the broker’s boardroom were plaques of companies that have ceased to exist during my 30-plus-year career. I recalled how each of these companies brought distinct features to the marketplace. This is particularly important to independent brokers and the customers who count on them for choice and options. Given several markets from which to choose, brokers can meet the individual and specific needs of their customers through a wide array of products at competitive rates.

The primary relationship in the broker channel is between the customer and the broker. While it is true the company underwriting the risk and paying claims stands behind the promise, customers are loyal first and foremost to their brokers. The broker channel and the way brokers do business have necessarily changed over the years, but choice remains steadfast as the fundamental differentiator and key advantage. Independent brokers purchase insurance from a selection of markets on behalf of their clients. It is this unwavering commitment to putting the needs of their customers first that makes independent brokers a critical component of the insurance landscape in Canada.

Over the past decade, this simple, but fundamental premise has been challenged by the complexity that market forces demand of strategic planners in large companies. Such planners are challenged to find new ways to deliver on growth and profitability goals for their businesses. But in our industry, we run the risk of losing sight of what our customers have always relied upon brokers for – namely, choice. In short, we cannibalize our own value proposition as a provider to the broker channel.

Consolidation and Choice

How could this happen? Over the past few years, we have witnessed significant market consolidation in our industry. In some instances, the merger of two small- to mid-size companies can benefit both consumers and the industry: it may, for example, provide enhanced risk management or an improved claims experience. Conversely, consolidation involving larger entities can also make it much more difficult for brokers to provide the wide range of choice their customers have come to expect. In addition, some insurers have entered the broker channel by purchasing independent brokerages. In effect, this turns the acquired brokerages into direct markets, meaning there are fewer viable broker options for those clients who count on variety and choice as their fundamental value proposition for their insurance purchase.

Today Canadian consumers have many choices when it comes to making an insurance purchase. We often make the case in our industry that removing barriers to competition encourages companies to invest and innovate, which ultimately benefits consumers. Most people generally agree that an industry dominated by a few players is much less beneficial for consumers.

Some believe further market consolidation in our industry is inevitable and perhaps a good thing. But this emerging trend towards consolidation and corresponding loss of market access is a cautionary tale. It should be troubling to consumers, independent brokers and companies. Further consolidation means a smaller number of ever-expanding companies will control a disproportionate share of the market in an industry that thrives on choice and options as a founding premise.

If you think of a broker’s office as a retail mini-market, it becomes easier to see how consolidation can quickly lead to one or two markets dominating the brokers’ office. Dominant markets dictate the products to which a broker has access, effectively eroding the broker’s ability to offer choice. With one large acquisition, a broker can go from having three or four primary but balanced markets to being overly reliant on one. Brokers using one or two insurers will quickly realize they have lost a degree of control over their business and their future as they find themselves responding to the dominant company or companies. The loss of a market for whatever reason – be it a change in risk appetite, adverse experience, new strategy, sale or withdrawal – jeopardizes each broker’s ability to operate independently. This is an undesirable position for both independent brokers and Canadian consumers.  

Devising Defensive Strategies

The good news is that brokers have considerable autonomy, allowing them to make decisions to ensure that market choice remains fundamental in their office. In order to succeed, brokers need to devise defensive strategies to ensure that they do not become overly reliant on a few markets. We live and work in a globally competitive world that demands innovation and creativity. In addition to partnering with insurers that provide a wide range of mainstream products, brokers can also offer some niche products from other markets in order to meet the diverse needs of their customers.

I know first-hand from meeting brokers across Canada that they value independence and their ability to meet customer needs. They value their broker associations and ability to network with other like-minded entrepreneurial professionals. Many do not want to work for or represent one insurance company. They prefer to be in control of their own destiny.  Brokers are proud of the unique value they bring to their customers through their ability to represent multiple companies. A majority of consumers still choose to buy insurance from brokers despite increasing competition from other distribution channels. Consumers should ask their broker about the different markets they represent to determine the level of choice that is actually available to them.

My trip down memory lane reminded me how much this industry has changed and about the companies that have disappeared over the years. Further consolidation seems all but certain. Based on recent history, consolidation may prove to be even more disruptive to brokers’ ability to operate independently. For this reason, it is critical for brokers to decrease their reliance on a few markets and to look for additional partners that will help them provide real choice.

The strategic planning departments of our industry should continue to consider the cost to long-term viability of undertaking aggressive growth through acquisition. Accessibility, fairness, capacity and competitiveness lead to the best experience for customers of insurance. It is what Canadian consumers expect of us as an industry. It is what our regulators expect of us. And most importantly, it is what Canadians look for when they choose to buy from a broker. It is our privilege to be a partner in that promise.