September 30, 2019 by David Gambrill
Insurance companies buying into the claims management supply chain are bound to face some headwinds when it comes to conflicts of interest, but ultimately the P&C industry is big enough to absorb more of these types of acquisitions in the future, panelists at the National Insurance Conference of Canada (NICC) predicted in Quebec last Monday.
At the end of the NICC panel, ‘Finding an Equilibrium: The New World of Claims Management,’ a panel of industry claims executives fielded a question from an audience member, who asked point-blank for their thoughts about the impact of Intact Insurance’s acquisition of On Side Restoration in August.
The Intact-On Side Restoration deal is still subject to regulatory approval. Intact is Canada’s largest property and casualty insurer, with a market share of almost 17% prior to announcing its intention in August to acquire The Guarantee. On Side Restoration is a national restoration firm based in Vancouver B.C., with more than 1,200 employees and 35 branches coast to coast.
Intact Financial Corporation president and CEO Charles Brindamour explained the rationale for the On Side Restoration acquisition in a public statement in August: “On Side Restoration is already an important part of our Rely Network of preferred vendors and they have a track record of providing excellent customer service and helping us deliver on that promise,” he said.
“By taking ownership in the supply chain and combining our strengths we can ensure simpler, faster and consistently higher quality outcomes for property claims customers. This transaction will reduce claims-handling costs and provide diversification to our property exposures with a new and counter cyclical earnings stream.”
But other insurers have a stake in the supply chain, too, which raises the thorny issue of potential conflicts of interest. Will other insurers pull out of using the services of supply chain vendors rather than line the pockets of competitors who own them?
On Side appears to have lost Economical’s business as a result of the Intact deal. “With this [deal], you are going to see companies like ours not use On Side anymore,” said panelist Tim Guernsey, vice president of commercial claims at Economical Mutual. That said, Economical’s business with On Side was proportionally so small that the scale of Intact’s business with On Side would more than make up for the loss, Guernsey suggested.
“Do I think there is a conflict there [with Intact’s acquisition of On Side]?” asked Guernsey. “I don’t really know if there is a huge conflict there. The customer still has a choice to go elsewhere.”
And in fact, the industry is large enough that it could handle more ownership consolidation in the supply chain, said the panel moderator, Patti Kernaghan, president and CEO of Kernaghan Adjusters.
“As Intact has bought a contracting firm, there could be more that go down that same route, but there is a lot of room in the insurance industry,” said Kernaghan. “There are many players, many companies. I don’t think that it’s going to harm the industry. It’s just adding a new dimension to an already-interesting industry.”
Panelist Stephan Roy, national director of disaster restoration for ServiceMaster of Canada Ltd., a competitor to On Side, said he expected the Intact-On Side deal to be approved by the regulator with no issues. He observed that insurer involvement in the supply chain is not a new phenomenon, adding that TD has initiated a program to brand its preferred auto repair centre vendors under the TD name. (TD does not actually own the repair centres, as Roy pointed out.)
While taking a “wait-and-see” approach, Roy said the Intact-On Side deal raised a number of questions for him as a competitor. “Intact is a large customer of ours, and so obviously that [raises] some concern [about] the availability of first notice of loss and fair competition,” he said.
How Intact will triage claims to its various vendors in the supply chain also remains to be seen. Roy said it’s still unknown “what the potential impacts could be around On Side getting what would be considered ‘better losses.’”