2013 P&C Crystal Ball
Delegates at the 2013 P&C Crystal Ball heard industry leaders discuss the big issues of 2013 that will impact the broker channel
George Cooke, recently retired CEO of The Dominion and current executive vice-president of E-L Financial Corporation, kicked off the day by discussing the top three issues he believes should be of concern to brokers: insurance fraud, the Ontario auto product and telematics. Though fraud and the Ontario auto product are the industry’s top concerns of the moment, Cooke’s strongest words were reserved for telematics. “I do think that telematics are going to revolutionize the way we sell personal insurance,” he said. Cooke said that Quebec is leading the charge when it comes to implementing telematics, where insurers are using the devices to measure drivers’ performances and adjust premiums on a monthly basis according to that behaviour. “The fundamental premise is that this device and the resulting behaviour that it measures will actually change the way you drive. There is some very early research in Quebec from Industrial Alliance that suggests that in fact is the case,” he said. While he says more widespread use of telematics in Ontario will take time, change is coming, and it will transform the way insurance is distributed. “[Telematics] has serious implications for people on the distribution side,” he stressed. “If you ignore it, I think brokers could lose very badly. If you pay attention to it, I think brokers could likely win very quickly and do very well.”
The Guarantee Company of North America CEO Alister Campbell discussed the “deglobalization” of the Canadian property and casualty (P&C) industry. Over the course of his more than 25-year career, Campbell has seen Canadian-owned insurance companies’ share of the market increase drastically, while the Canadian operations of European and American insurers’ shares have decreased. Campbell noted that from 1990 to 2011, the market share of Canadian-owned insurers increased from 37% to 63% while the US share was “bouncy” and the European share “materially” reduced. “It’s not just who is in the top of the industry, it would appear that, across the board,…Canada is almost two thirds of the [private sector property/casualty] market. When I started in the industry it was barely one third. That is a big shift.” To explain this virtual doubling of market share, Campbell offered four hypotheses: 1) Foreign companies don’t fully understand Canadian risks (such as moose crashing through cars); 2) Due to the onerous Canadian regulatory environment, over time, it’s become less attractive for foreign companies to invest in Canada; 3) Domestic carriers can make local decisions more quickly and do not have to manage the complexities of a global organization; 4) The independent broker channel in Canada is more robust than anywhere else in the world, something domestic insurers have been able to leverage more successfully.
Next, Maurice Tulloch, president and CEO of Aviva Canada, said that climate change is creating “tremendous challenges for consumers around things like availability, affordability and certainly in some of the more high-risk markets, even sustainability of insurance.” He stressed that, rather than simply raising rates, insurers need to work with consumers to find innovative solutions. He gave the example of hail claims. If the siding of a consumer’s home is damaged by hail, he said, consumers should have the choice to invest in hail-resistant siding as a replacement and be compensated by the insurer with a reduction in their premium. “That’s about a partnership. That’s about working with our distributors. That’s about working with consumers, because we all have a responsibility,” he said.
After a quick networking break, Fabian Richenberger, president of Northbridge Insurance, got the audience involved in his presentation by having them participate in a series of polls using voting devices. On the topic of competing with directs, Richenberger agreed with Campbell that the Canadian broker community has been very resilient, but he said, “What we can no longer underestimate is the shift that we’ve seen over the last 10 years.” In that time, he said, “we’ve seen a growth of about 8% compounded, year-over-year, of the market share overall of direct writers.” He told brokers and insurers that they need to recognize their vulnerability and develop a value proposition that allows the independent channel to compete with the directs.
Looking at the niche markets, Ross Totten, chairman and chief sales officer at Totten Insurance Group, predicted a soft market for years to come. “We had a hard market from ’75 to ’78, well before most of you were in the business. Then nine years of a soft market, a hard market from ’84 to ’87 and 16 years of a soft market. A hard market from 2001 to 2004 – if you’ve noticed we’ve got the hard market down to a pretty good trend: it’s three years then we decide to give it all away. We’ve been eight years in this soft market now, so if history has anything to tell us, it says that we have a ways to go before we see the market harden,” he said. “I think the reality of it is, this is the marketplace, learn to live with it, learn to deal with it because it’s not going to change in niche markets all that much in the foreseeable future.”
While offering advice on contract language for agreements with producers, lawyer Steve Borlak told delegates that he’s seeing an increasing amount of transactions involving insurers as either investors or lenders. “It’s fair to say that this has contributed to a spike in pricing of brokerages,” he said. “My crystal ball prediction is that this will continue unabated.”
After a buffet lunch and a presentation by brand expert Paul Copcutt, delegates heard from Adam Green, president of MapleNorth.com. Green discussed how brokers can optimize their internet marketing to better attract and engage customers. Before his presentation, Green looked at delegates’ websites and was dismayed to find that 51% of the sites did not have Google Analytics. “If you leave here today learning one thing, it’s this: you have to track and measure your website,” he said. “Tracking and measuring will allow you to make some important business decisions based on how people are looking at your information.” By learning who your customers are and what they are and are not engaging with, Green said brokers can tailor their websites to improve their marketing and, ultimately, their business.
“The Canadian economy is not in a very nice place,” said senior economist Michael Gregory, managing director at BMO Economics, in his presentation. Canada’s economy slowed down in 2012 for a variety of reasons, including the cooling of the housing market, high consumer debt loads, and decreased spending by Canadian businesses. Looking ahead, Gregory said the Canadian dollar will strengthen, presenting “a challenge for many parts of the Canadian economy.” However, as 2013 unfolds, the US economy will also strengthen and Canada will benefit from that, he said.
“We have 45 fewer brokerages in the province than 2009,” stated Randy Carroll, CEO of the Insurance Brokers Association of Ontario (IBAO), in his presentation on the state of the broker channel in Ontario. “But we have 35 more branch locations. So as far as serving the general population in the province … we still served as many locations in 2012 as we did in 2009.” Though the independent broker channel had roughly 62% of the overall market share in Canada in 2012, it has lost nearly half a percent a year in market share for the past 22 years, said Carroll. One problem Carroll addressed was that brokers “recycle” customers amongst themselves and fail to attract enough new business to the broker channel. “We need to start to align our product—and get our insurers to help us align those products—to start to attract those individuals who are actually seeking their insurance needs elsewhere,” he said.
In the final presentation of the day, Eric Walker, a partner at CW Consulting and host of the event, discussed the M&A trends his company has observed. “In 2012, in our office, the average purchase price was three times commission income,” Walker said of brokerage sales. In 1980, the average purchase price was 1.5 times commission income. “It’s doubled,” he said. “We’re at historical highs.” Walker attributed this to the involvement of insurance companies in acquisitions, something that doesn’t happen in the US, he said. Walker then introduced the CW Learning Network, a new online education platform that provides brokerage owners and managers accredited courses and business tools.
Copyright 2013 Rogers Publishing Ltd. This article first appeared in the March 2013 edition of Canadian Insurance Top Broker magazine.