May 12, 2011 by Canadian Underwriter
Direct writers have not made the same inroads in Ontario as in Quebec partly because the auto product in Ontario is not profitable, and also because the regulatory environment in Ontario is detrimental to direct writers, according to Sylvie Paquette, president and chief operating officer of Desjardins General Insurance Group.
Paquette was the keynote speaker at the Insurance Institute of Ontario’s At the Forefront breakfast series in Toronto on May 12. The topic of her speech was ‘Direct Insurance: An Idea Whose Time Has Come.’
Paquette noted direct writers currently hold about 61% market share in Quebec, whereas in Ontario direct writers have about a 24% market share, with the broker channel in Ontario holding onto a 57% market share.
Although the development of the direct channel in Ontario has been slow, Paquette believes the direct model offers what Ontario and Canadian insurance consumers look for in insurance, including saving money, convenience and empowerment to make their own decisions.
Paquette said the direct model serves customers well because direct writers keep low expense ratios, have good loss ratios and use data and segmentation that translate into better deals for consumers.
So why has direct writing in the Ontario market been slow to catch on? One reason is that the Ontario auto product is unprofitable, Paquette said.
“In Ontario, you have the largest [automobile insurance] market, and yet you cannot make money,” she said. “We [direct writers] stay where we can make money.”
Also, the regulatory environment works against direct writers in Ontario, Paquette noted.
“Two different types of regulations are creating barriers for direct companies,” she said. “First, the banks are a good place to sell direct insurance, but they are not allowed to sell through their branches or their Web sites in Canada. It does not make any sense, but that’s just how it is right now. That has nothing to do with protecting customers.
“The second element of regulation that is detrimental to direct writers, and it’s mainly in Ontario, is all of the regulations that put limitations on underwriting and price segmentation.”
Ontario, for example, prohibits agents/brokers from using credit information when they respond to requests for quotes, or process applications for automobile insurance or renewals of policies.
Paquette said these regulations inhibit the ease and accessibility with which consumers do business with direct writers. They also make it more difficult for direct writers to use data to better manage and underwrite risks, thus restricting their ability to compete with the broker channel in Ontario.
“I’m convinced it would be a very different situation if the Ontario market allowed a little more return on capital and the market would be more open to competition,” Paquette said. “Open competition is always good for consumers.”
Ultimately, the Ontario market will change, Paquette predicted. She said advances in technology would eventually help directs gain market share, because improved technology would allow directs to offer better service and provide more accurate methods to price a product, thereby helping directs to reduce their consumers’ rates.