Direct writers predicted to erode market share of independent channel in Canada (June 26, 2008)

Canada’s independent broker channel can expect to see continued erosion into their market share by direct writers over the next few years, Joel Baker, president and CEO of MSA Research, told a Standard & Poor’s industry overview panel.
Baker observed direct-linked agencies and companies held 37% of the auto insurance market share in 2002 a figure that now stands at 43% in 2008.
Similarly in personal property lines, Baker noted, the market share of direct writers increased from 35% in 2002 to 46% now.
“If you add in the insurer-controlled brokers, you’re probably looking at over 50% direct agency-type control of the marketplace on the personal lines,” Baker observed. “And I see that trend continuing.”
Baker said if the auto market “turns nasty” in the future, sending thousands of policyholders into the facilities association, many policyholders might well end up at the doors of direct writers. “Those people never come back,” Baker said.
Younger people, too, drift to direct writing channel, Baker noted, in part because of the technological resources of the direct writers. “A Web site for a direct company costs six figures or seven figures, and brokers cannot compete with that,” Baker said.
The Insurance Brokers Association of Ontario earlier this year established a Web site, myinsuranceshopper.ca, intended to drive consumers to the broker channel.
Baker said the independent broker channel is likely to “hold the line” in Western provinces because of the public auto insurance models in B.C., Saskatchewan and Manitoba.
Bruce Thompson, director of the monitoring and analytics support division of the Office of the Superintendent of Financial Institutions (OSFI), said he agreed that once people leave the independent channel, they are not likely going to come back.
At the same time, he said, “I accept the view that the way the broker is able to demonstrate value to his customer, the broker will maintain [his or her share in] the marketplace.”
Thompson noted the broker channel still appeals to the higher-income financial bracket, which uses more insurance products and therefore benefits from the advice brokers can provide.