Maritime insurance looks for smooth sailing
Out of his office window at Cluett Insurance in Dartmouth, N.S., broker Jordan Hipson can see five tall construction cranes across the bay in Halifax. To Torontonians or Vancouverites, spotting five cranes along the skyline is unremarkable, and construction is a daily annoyance. But for Haligonians, development is welcome.
“There is a large construction boom right now,” says Hipson, the excitement palpable in his voice. “We can’t keep up with the number of people that are looking to move into apartments. There are six or seven constant development sites in Halifax right now in our downtown core.”
For Canadians living west of the Maritimes, it’s tough to view a city of 417,000 people—one-fourteenth the size of Toronto—as an economic powerhouse. But Halifax has the largest economy in Atlantic Canada, and is home to the majority of the region’s brokerages and insurers. Over the past decade, that economy struggled. The oil boom created a large job market in Alberta, and drew many Maritimers out west.
Since the drop in oil prices, Atlantic Canada is due for a renaissance as other natural resources and exports increase in importance. In fact, Jeff Cooke, the president of Charlottetown’s Cooke Insurance Group, says, “Basically in the past you’ve got two economies, Ontario-East and Ontario-West. When oil is high, the economy is Ontario-West. When oil drops, the economy is Ontario-East.”
As Canada holds its breath to discover if the Maritimes catch wind in their sails, regional insurance brokers are facing challenges like increasing acquisition, competition, and insurer centralization. The main factor triggering those hurdles—while simultaneously spurring the revival of Halifax—is urbanization.
Jamie Reid, the president of A.P. Reid Insurance operating out of Dartmouth, says, “For the last number of years folks would move away from the small towns and into the city. That’s largely where most of Halifax’s growth has come from.”
So while Jordan Hipson might sell a lot of apartment and motorcycle insurance in urban Halifax, Reid says the situation is in stark contrast to rural towns. “That starts to translate into higher insurance claims; it’s hard to maintain business. There [have] been a lot of fires and a lot of claims activity in those [rural] areas.”
Insurance companies are following suit with Atlantic Canada’s urbanization trend and are centralizing in Halifax, and in many cases, mainland Canada. “You think about Economical and Travelers,” says Cooke, “they have both outsourced all their processing and answering their personal lines and small business to Ontario.”
Insurance companies still have sales offices out east, says Hipson, but, “it’s unfortunate for the people who had jobs, and for us, since we can’t develop the same type of relationship with underwriters as we used to.”
Even if insurers don’t have offices in the Maritimes, brokers in Nova Scotia, New Brunswick, and P.E.I. have a distinct advantage over those in Canada’s most easterly province. Not only do insurers—apart from Intact—not have representatives in Newfoundland and Labrador, they are pulling out of the market altogether.
Margaret McQueen, the owner of Action Insurance in St. John’s, says, “We didn’t have a large number of insurance markets to begin with, and in the last 12 months three of these have moved out.” The three that abandoned the market were Portage Mutual, Federation, and Economical. Comparatively, in the rest of the Maritimes, “they have eight or 10 markets available, whereas down
here the most you’d have are two personal lines markets, and three or four commercial markets.” Currently in Newfoundland, brokers have access to Intact, Aviva, Royal & SunAlliance, and Travelers.
All that makes for strong competition between brokers in Atlantic Canada. “[There are] a lot of small brokerages in small communities that are trying to survive,” explains Cooke. “There’s nothing you can really do other than go out and find new customers.”
“There really isn’t that much commercial growth here for the business to go around so it’s quite competitive,” says Jamie Reid. “To grow your business you have to take business from someone else; it’s a zero sum game.”
Competition is even fiercer in Newfoundland due to the slim number of insurers. “People are shopping around trying to get different rates, and we’re all writing for the same market,” says McQueen. “How you write your business here is to respond to a quote right away because otherwise somebody else is going to get the quote with that same market.”
And like everywhere else, there have been more mergers and acquisitions in recent years. As the industry shifts in terms of centralization and consolidation, not to mention the fact that Jordan Hipson—a self-proclaimed “young broker”—describes the average broker in the Maritimes to be “middle-aged,” owners are considering their exit plans.
Cooke says, “[Acquisition is] happening all the time. There are still a number of independents but that trend of them consolidating is increasing. We hear about the big buzzword, scale. ‘Do I have enough scale?’ For some of the numbers these people have been offering, it’s hard for a broker to say no.”
But Hipson argues consolidation is positive for the Maritimes. “I think we’re going to start seeing more brokerages coming out with more competitive products. When you have all these larger brokerages with more resources competing against one another
you’re going to see better brokers, more investment in employees, doing more to retain their employees.”
Those larger brokerages acquiring smaller shops aren’t necessarily national firms, though. Reid says the majority of the time it’s a regional brokerage with offices in multiple towns acquiring independents— like Hipson’s employer, Cluett Insurance, purchasing Creative Solutions Insurance, or Huestis Insurance Group’s buying part of Founders Insurance Group.
In Newfoundland, though, acquisition is far from the brokers’ main worry—it’s an oil-based economy. The provincial government released a budget in April that has strict measures, such as a hike in income tax and public service job cuts. Insurance had been tax-free since 2008, the peak of the oil boom, but to battle the province’s current $1.83-billion deficit, a 15-percent sales tax is being added to all premiums as of July 1.
“You owe a tax just for waking up in the morning in the province,” complains C.J. Nolan, the vice-president of business development and sales at Munn Insurance in St. John’s. Plus, there will be added strain on resources as brokers will be responsible for collecting and remitting the new sales tax. “People are having a tougher time and are going to be searching the marketplace a little bit more. If you’re a commercial client, say with $100,000 premium, that’s now a $115,000 premium and in tough economic times that’s a bill that’s pretty tough to swallow.”
Margaret McQueen says beyond shopping for lower premiums, Newfoundland residents will have less disposable income for insurable items like cars and recreational vehicles. Most worrisome, though, is that “our premiums are so high that people are driving without insurance. If they couldn’t afford it before, they’re certainly not going to afford it when there’s another 15 percent on top of the premium.”
Consequently, Nolan says, “I would think over the next few years we’re going to see some decrease in the volume of business that we’ve seen increase over the last 10 years.”
About 1,500 kilometres away, Halifax is doing so well that the city is inviting 50,000 new residents to move there in the next five years. One of the main draws of that influx is Irving Shipbuilding’s proposed $26-billion deal to build a new class of ship for the Royal Canadian Navy.
“It has the power to change a lot of the economic picture here in Nova Scotia because it’s going to employ thousands of people for many years,” says Jamie Reid. “It’s a massive potential operation for us. It takes time for that to work its way all the way through but it’s something that’ll bring economic spinoff.”
New Brunswick, one of the country’s largest exporters of lumber, is also seeing increased sales. Plus, the weather was better in Atlantic Canada this year than it was following the harsh winter of 2014-2015, and Jeff Cooke in Charlottetown expects a strong tourist season in all Atlantic provinces, particularly in P.E.I. “A low Canadian dollar brings in more tourists, specifically more from the U.S. It’s going to be nuts here this summer. We’re seeing bookings are way up in many different tourism sectors.”
But it may be some time before insurance brokers see a benefit. Cooke points out that business confidence remains low because this cycle has happened before. “I don’t think people are ready to jump in and spend a whole bunch more money in creating new businesses to go back into something that could be short-lived. The lumber industry was devastated in New Brunswick when the dollar went to par; the mills closed, jobs were gone. It’s cyclical, we’re going back to where it was before when oil was low out west.”
He says his firm is finding success digitally. “Through technology you gain productivity. You’ve got to do twice as much now to make the same dollar as before. So you’ve got to keep expenses in line, so the only way… is investing in technology.” For example, he uses transportable systems like VOIP phone and software, and builds digital relationships with clients through software like Client Desk.
While tech is one way to help sales, Margaret McQueen is adamant that service remains paramount. “If us brokers are all selling the same product for the same price, why would anyone purchase from Action Insurance and not the guy around the corner? Provide exceptional service. Pick up the phone, work for your client. In these financially difficult times, people will be reviewing what they pay out more closely, and that includes insurance.”
“There’s so much going on, so much development, a shift in our economy, I think we have a good future,” says Hipson. “The way our economy works is changing but that isn’t necessarily a negative thing. As people always say: In Nova Scotia we don’t have an economy problem, we have a mentality problem.”
Reid agrees. He says, “They’ve been saying since I was a little kid, it’s hard times in the Maritimes. It’s a different marketplace, but it only goes down so far before it bounces back.”
Copyright © 2016 Transcontinental Media G.P. This article first appeared in the June/July 2016 edition of Canadian Insurance Top Broker magazine