March 31, 2020 by Jason Contant
Brokers will likely see their incomes “relatively stable” during the COVID-19 crisis, at least for the time being, said the head of Ontario’s brokers association.
“Generally, I think brokerages – if they have a spread of clients, which most of them do – should see their income relatively stable,” Colin Simpson, CEO of the Insurance Brokers Association of Ontario (IBAO), told Canadian Underwriter Tuesday. “I think the challenge is going to be that there could potentially be a trough coming up [if] new business does not come through because everything is kind of stagnating.”
And if, as expected, the economy plunges into a recession, that’s when you may find “more of a future impact than an immediate impact on brokerages,” Simpson said. He said the biggest financial challenges for brokerages right now is managing people working offsite. “Some have invested a fair amount of money to be able to put this capability in place in short notice, because not everybody was geared up to be able to do that.”
Simpson offered his comments one day after Prime Minister Justin Trudeau announced that businesses of all sizes who can show their revenues have decreased by at least 30% because of COVID-19 will be eligible for a subsidy of up to 75% of their wages.
“The number of employees you have will not determine whether or not you get this support,” Trudeau said during his daily COVID-19 briefing Monday. “It will apply to non-profit organizations and charities, as well as companies both big and small. This is about making sure people are still getting paid whether they work for a business that employs 10 people or 1,000 people.”
Simpson said that challenge will be how to measure the 30% drop in revenue, which will obviously help the most needy businesses. “Hopefully, there’s not too many who fall in the gray area of missing the 30% and not qualifying, but we’ll see as time goes on,” Simpson said. “We need to figure out what the detailed application process is and go from there.”
Trudeau said Finance Minister Bill Morneau and Mary Ng, minister of small business, export promotion and international trade, “are working hard to give companies the background documents explaining the technical details of this measure.” More details of the Canada Emergency Wage Subsidy program are expected in the coming days.
Simpson said the wage subsidy program will likely be accessed more by brokers’ clients than by brokers themselves. “There could be exceptions. We’ll see where, and how long this is going to continue.”
Trudeau said the government will cover up to 75% of a worker’s salary on the first $58,700 they earn. That means up to $874 a week, backdated to Mar. 15.
The Prime Minister did offer a word of caution to businesses. “If you have the means to pay the remaining 25% that’s not covered by the subsidy, please do so. And if you think this is a system you can take advantage of or game, don’t. There will be serious consequences for those who do,” he said, without elaborating.
On Friday, Trudeau also announced the launch of the Canada Emergency Business Account to help small businesses dealing with cash flow problems. “With this new measure, banks will soon offer $40,000 loans which will be guaranteed by the government to qualifying businesses,” Trudeau said. “The loan will be interest-free for the first year, and if you meet certain conditions, $10,000 of it will be forgivable.”
Simpson said the loan “is another great asset for our businesses to be able to access. But again, we have to wait and see what the process is.”
The federal government will also be deferring GST and HST payments, as well as duties and taxes owed on imports until June. “This is the equivalent of giving $30 billion in interest-free loans to businesses,” the Prime Minister said. “So if you’re struggling to get by right now and you have a payment due at the end of the quarter, we’re going to give you more time.”
These delayed tax payments are “very favourable from a cash-flow perspective to help businesses through,” Simpson said.
Overall, the wage subsidy announcement is a very solid move from the government, Simpson said. “It’s obviously showing significant investment in keeping the economy moving and helping people keep their jobs. I particularly like the suggestion that if any business has already let staff go, to re-employ them to get the subsidy. I thought that was a great move.”