Property and casualty insurance advisors face growing competition from other distribution channels, including the “inevitable” entrance of the Big Five banks and their branches into the arena.
That’s the warning from the president of Guelph, Ont,-based, Co-operators Group Ltd. , one of the largest Canadian-owned P&C insurance distributors.
“We have [P&C insurance] distribution all over the place now,” says Kathy Bardswick, who was a guest panelist at last month’s A.M. Best Co. ’s conference in Toronto, which discussed the outlook for the insurance industry. “To argue the banks shouldn’t be in it becomes weaker and weaker over time.”
The banks’ entry into P&C is inevitable, she concludes.
Retail sales from bank branches represent a logical extension of a competitive marketplace, she insists: “We can’t argue for convenient competitiveness, and that’s what we’re trying to do with this argument. You either think that markets should be free and that they should be free for whomever to compete in, or you don’t.”
Independent agents have always competed with dedicated sales agents, like those at the Co-operators or Great-West Life Assurance Co. , for example. And, today, the industry faces additional threats from sellers such as ING Canada Inc. ’s Belair Direct and online retailers such as Kanetix Ltd. , which is majority-owned by Canada Life Insurance Ltd. (itself owned by Winnipeg-based Great-West Life’s parent), and a host of smaller Internet sales channels.
Bardswick also notes that consumers in Italy, for example, buy 80% of car insurance policies from their auto dealers. Toyota Motor Co.’s plan to enter that arena in North America is well known.
Throw into the mix direct sales agents, who either work for a single underwriter or who have signed contracts that make their relationship with one carrier clear, and competition is increasing. “That’s happening more and more as we time goes on,” Bardswich says.
Today, Canada’s Bank Act prevents banks from selling insurance products directly from their branches; a change in that policy is not imminent. A little more than a year ago, at an annual conference of the Insurance Brokers Association of Ontario in Niagara Falls, Prime Minister Stephen Harper said insurance brokers were protected from such a change.
The Bank Act, which was first passed in Parliament in the 19th century, is updated every five years. Its next review starts in 2010.
And, certainly, the banks selling insurance in their branches is an old debate, going back as far as anybody in the financial services industry can remember. The bankers’ position on the debate is predictable. In May 2005, it published an independent report noting that consumers find it “nonsensical” that they can’t buy insurance in banks.
More interesting is that the Insurance Bureau of Canada has modified its position on the debate. In the 1990s, says James Geuzebroek, manager of media relations at the IBC, the association lobbied against bank distribution. Today, the industry group is agnostic about the argument.
“That’s a matter of distribution,” he says. “There are many different ways to sell insurance, and our members do it all. We have no position on that.”
Regulators, such as the Office of the Superintendent of Financial Institutions, do not look to protect any particular industry. OSFI encourages competition; its primary role is to help ensure the safety and soundness of financial services companies themselves.
“Ultimately, if the banks wandered into the market, the smaller insurance companies would pay a price for that,” says Bruce Thompson, director of financial institutions group at OSFI, who attended the Best conference in September. “And that brings me around to the safety and soundness issues. But that would take time to build up and shouldn’t override the competitive mandate that we have.”
OFSI, notes Thompson, is aware of the consumer protection issues on which organizations such as the IBAO, which represents independent insurance brokers across Ontario, concentrate.
Randy Carroll, president and CEO of the Toronto-based IBAO, says its focus, as well the government’s focus, has always been and will probably remain on the consumer: “Consumers would not be better served if credit-granting institutions were allowed to retail insurance directly to the consumer. And giving up this fight on their behalf is not something the IBAO would consider.”
The argument goes that if banks were allowed into insurance they would immediately take advantage of the reams of financial data they have access to through their bank products; data on consumers’ spending and credit habits would make consumers vulnerable and a marketing bonanza would ensue.
@page_break@Privacy issues make for great political hay, but Gregory Ellis, co-founder of Toronto-based Kanetix, a direct online insurance retailer, says the real issue is that the data would make it much easier for bank-owned insurers to underwrite their products. “Compared with businesses that couldn’t do that, the banks would have an advantage,” he says. “It’s not about the consumer; it’s about the industry.”
Leery of channel conflict, insurers themselves have been slow to wade into new channels — such as direct Internet sales. (See page 10.) But it’s clear that from a broad industry perspective, insurance brokers may not be able to count on the manufacturers to protect them.
Most mutual funds, for example, are available through all of the banks, not to mention online, in every which way.
Insurance manufacturers will widen distribution to keep market share, explains Charlie Huber, a senior analyst with A.M. Best in Oldwick, N.J. “Anybody who has a one-channel distribution channel is always at risk,” he says. “Your best bet [as a manufacturer] is to offer that product through multiple channels.
“I mean, you don’t want to be a direct-only writer,” he adds. “If a car dealership offers insurance, it has leg up. For a consumer, it might be easier to sign an insurance policy while you’re there. As an insurer, if you don’t have access to that channel, it could hurt your business. It’s the concern everybody has.”
Huber says that A.M Best is interested in the question of bank distribution because it was something of an issue in the last federal election — and it could be one in the future.
New threats to the business aren’t nothing new for insurance advisors. The real question is: are brokers ready? It will be up to independent advisors to show their value, says the IBAO’s Carroll. IE