Canadian Underwriter

Aviva and ING examining premium price discrepancy between direct and broker channels

October 18, 2007   by Canadian Underwriter

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ING and Aviva assured Ontario brokers on Oct. 18 that they are looking into why premium prices on personal lines risks offered by their direct writing channels are between 15-24% lower than those offered by subsidiary companies distributing through the independent broker channel.
The question was asked directly of ING Insurance Company of Canada president Derek Iles and Aviva Canada Inc. president and CEO Robin Spencer during the Insurance Brokers Association of Ontarios CEO panel. ING and Aviva are multi-channel insurers whose subsidiaries distribute products using both direct writer and broker channels.
Does the discrepancy in rate [reflect] an overall corporate strategy to secure business in favour of direct writers over brokers? IBAO CEO Randy Carroll asked, reading aloud a prepared question for the CEO panelists.
Elsewhere in the panel discussion, CEO panelists noted that prices offered by direct writers will typically be 3-12% lower than brokers (and may sometimes be higher), depending on the business models of the different channels and the stage of the business model they are following.
Even so, Iles and Spencer acknowledged, price discrepancies between channels of between 24% and 30% were unacceptable. Both stated categorically that their companies were not cross-subsidizing the business of one channel with the other.
Iles said he questioned the price difference himself and raised it internally at ING. He noted that actuaries for the direct channel, belairdirect, were different than the actuarial team used by ING Canada, which does business through independent brokers.
Iles noted ING Canada and belairdirect analyze risk using different territories, and the numbers may also change based on the difference in the number of territories each company uses. Different underwriting rules may also be at play, he observed.
Iles noted Ontarios insurance regulator, the Financial Services Commission of Ontario (FSCO) approved the rates for each of INGs subsidiary companies. He said ING has undertaken an internal investigation of the matter to determine what the best course of action might be.
Spencer, likewise, said Avivas subsidiary companies including direct writer PC Financial and Pilot Insurance, which works through independent brokers needed to act as a more unified group than as separate groups. He said, it is not acceptable that our actuaries look at things differently, or weve got different territories, or weve got different ways of looking at things. Weve got to look at things in one way.
George Cooke, president and CEO of the Dominion of Canada General Insurance Company, said these types of price discrepancies do not happen when insurance companies go with either one distribution system or another. Guys in the middle [of the two distribution systems] should give their heads a shake, he said.