Independent Thinking

Despite the trend of insurance companies jumping back into brokerage ownership, Aviva Canada CEO Maurice Tulloch remains bullish on the independent channel

One of the most eagerly anticipated events on the program during the annual conference for the Insurance Brokers Association of Ontario (IBAO) is the CEO panel discussion, and this year’s event in Niagara Falls this past October was no exception. When moderator Evan Solomon turned to the topic of insurance company ownership of brokerages, Aviva Canada CEO Maurice Tulloch described how disheartening it can be to find out that a longtime broker partner is now controlled by another insurer.

Maurice Tulloch, CEO of Aviva Canada, with independent broker partner John Walters, president of Hallmark Insurance Brokers Ltd.

“I can almost count the time on my watch as to when my business will start moving,” he said, alluding to the elephant in the room. Although few people in the industry will openly acknowledge it, when a brokerage owner sells to an insurer, the deal usually comes with an understanding that the majority of the brokerage’s business will move to the insurer that now owns it as a means of recouping the higher multiples the company can pay compared to other potential buyers.

“I just think that’s appalling,” said Tulloch. “It’s completely inconsistent with the values that this great industry has been built on and for what the vast majority of professionals out there stand for.” His repudiation of this practice and impassioned defence of a truly independent broker channel drew a healthy round of applause from the receptive audience in Niagara Falls.

Speaking with him a couple of weeks later at Aviva’s headquarters in Toronto’s east end, Tulloch again espoused his belief in the independent broker channel as the best option for consumers. It’s the main reason why his company has chosen to buck the trend that some of his biggest competitors have embraced.

“There is a life cycle to buying insurance from when someone first graduates and they have their first car and they live in a condo and have a tenant’s package. As people’s lives change, so does their risk, so does their complexity. When you start to look at that and the choices and complexities around coverage, you start to see there’s a real need for strong advice. And if advice is not independent, is it really the right advice?”

Tulloch is quick to disclose that Aviva does in fact own a small handful of brokerages that deal mainly in a few specialty lines. According to him, total transparency is the key to ensuring the consumer gets the right advice. In an ideal world, the consumer should know how many markets the broker has and any financial obligations or relationships they have with insurers.

“If I were a consumer, I would like to ask my broker what’s your largest market? What percentage of your volume is there? When I walk in and see the word broker, as a consumer, what does that say to me? This person is going to find out what the best product, coverage options and prices are for me. And I’m expecting them to have gone out to a number of markets.”

Tulloch holds himself up as an example by noting that he purchases his own personal insurance through an independent broker and that there have been times in the past when he’s been insured by carriers other than the company he now heads (hastening to add that he is currently insured by Aviva).

We found that providing them financing and getting the next generation to come forth and into the business, we think it’s the best solution.

“Working for Aviva, I could certainly buy [personal insurance] from an underwriter downstairs but I wouldn’t have that independence and that impartiality. And I can tell you every year that broker gives me quotes from a bunch of markets.”

Independent Strategy
Throughout the company’s 100-year history in Canada (through predecessor companies such as Pilot and Scottish & York), Aviva has grown through the success and support of its independent broker partners, says Tulloch.

“We have a two-pronged strategy: one is to be a great underwriting company; the other part is a commitment to the broker channel. That drives everything we do. That drives the strategic investments we make.”

One of Aviva’s biggest investments in the independent channel is its broker loan program where the company currently has approximately a quarter of a billion dollars in loans outstanding. The program, which Tulloch says has accelerated in the last four to five years, is a means for newer brokers to take ownership stakes in their business and allows others to invest in and expand their firms through acquisitions and successions. Tulloch says the broker loan program is a direct response to questions around what the company can do to serve brokers’ best interests.

“We found that providing them financing and getting the next generation to come forth and into the business, we think it’s the best solution.”

The other important area of investment that Tulloch is focusing on to bolster Aviva’s support of its broker network is in systems. He notes that in recent years the company has invested significant resources in its portal and the quality of its download to allow brokers to do as much of their work as possible in their broker management system (BMS) without transporting data back and forth or requiring multiple sign-ons etc.

“I talk to our partners and they say that our download is one of the best. That’s today. I’m still not satisfied with that because I think that it is not as efficient as it could be. I think if you look to who are the brokers competing against, what are their threats, it’s the single source. Whether that’s affinity or pure direct, or agent, there are other models out there where effectively you have a direct connectivity to one insurer or a very small group of insurers.”

In response, Tulloch has announced that the company will invest $100 million in systems over the next three to five years to achieve the goal of allowing brokers to start and finish all retail personal lines transactions in their BMS.

That announcement came as part of some more unfortunate news. In early November, Aviva’s parent company in the UK announced that it was cutting its workforce around the globe. The cuts affect 250 employees out of Aviva Canada’s total workforce of 3,300. Given the sustained soft market for commercial lines and the sluggish uncertainty of the economic recovery, both of which are a drag on the overall pool of premium, the job cuts at Aviva are not much of a surprise and are more than likely a harbinger of similar moves to follow at other companies in the new year.

“This is a game of inches and if you’re not efficient, ultimately you’re passing those additional costs down in the form of higher prices for your products and services,” explains Tulloch. “We’ve done extensive benchmarking on those sorts of measures. We’ve got a vision to be a dominant property and casual insurer in Canada. For me to achieve that, I needed to make some adjustments to our expense base.” He stresses that the majority of the cuts were to back-office support functions and the impact on customer facing areas such as underwriting, sales and claims adjudication was very minimal.

“It’s not all about reductions,” he adds. “It’s also about comparing and making investments for the future, which is why I also signalled, not only to my IT staff, but to my business teams here in Canada, that it was time to make the necessary investment in systems. We’ve done tremendous investments in systems in the middleware and the front end. But at some point you’ve got to tackle the legacy systems. They’ve served us incredibly well. They probably could still be viable for another 10-15-20 years. But I think back to the earlier discussion around that direct connectivity; that’s important if the channel that we count on is going to thrive. We’ve got to get that efficiency.”


© Copyright 2010 Rogers Publishing Ltd. This article first appeared in the November/December 2010 edition of Canadian Insurance Top Broker magazine.

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Transcontinental Media G.P.