Top Ten Issues 2009/2010:
Brenda French, The French Group
December 11, 2009
Brenda French is the founder and president of The French Group a firm that specializes in helping insurance firms and professionals develop competitive strategies and attain real results. With more than 20 years experience in the financial services sector of insurance, French has a keen awareness of the issues that impact the industry. When asked her thoughts on the top issues that shaped 2009 and the factors to watch for 2010, she responded: I’ve picked topics that were [important] issues this year and will continue to be issues well into 2010.
1. Great Recession
This has affected every facet of Canadian society and its impact is still rippling through our economy; whole industries have failed, credit markets have been pummeled and unemployment is high. Our cousins to the south are left with a staggering debt and divided views on how to get their economy moving again.
Consumers are pinched and looking to cut their budgets, reinsurance rates are going up and investment portfolios are down. The industry is hurting and there may be solvency issues with some players.
2. The Phantom Hard Market
Costs for carriers have been going up for the past three years but they haven’t taken rate increases. In the short-term, this has been good for the consumer but bad for the markets.
Lack of rate adequacy over several years and an economic meltdown could mean double-digit rate increases, which will be a public relations mess for the industry.
3. Credit Scoring
Some carriers use it, some don’t—but all the banks use it—and the brokers are left with a mish-mash of rating and rules. The industry is divided over this and the regulators are being asked to either enforce the letter of the law or change it.
This is a clash of values versus actuarial modeling and the historical purpose of insurance. Expect to hear much more on this.
4. Intact Becomes Canadian
This is good news, so why aren’t the brokers happier? Probably because Intact multi-channels, uses credit scoring and have recently implemented a new rating process which Intact says will provide more accurate pricing. It’s early days yet but brokers are reporting that it seems to be working as Intact said it would.
Many brokers still believe that Intact has divided loyalties and are not committed to the broker distribution system. Intact is probably one of the best-managed carriers and as a result gets grudging respect.
Intact is innovative, competitive and have money in their pockets. Expect more from them in 2010.
5. Banks Websites & Insurance Sales
Political action by Independent Brokers Association of Canada (IBAC), the Independent Brokers Association of Ontario (IBAO) and brokers successfully got their message through in Ottawa. However, many feel that they have poked “The Bear” and expect the banks to regroup and come back with an even stronger lobbying effort.
Banks and insurance will continue to be an on-going issue. I wrote my first article for CI Magazine on this in 1992 and what I said then— that banks are committed and take a long-term view—still holds true today.
The banks will try to get a partial win on this over “technical interpretations” of Mr. Flaherty’s directive and, as of this writing, have not changed their websites. This one’s not over yet.
6. Ontario Auto Product
The Ontario government has just announced changes to the auto product which, will provide much needed relief to the Ontario consumer who, because of overly generous and mandatory BI coverage, has had the most expensive auto product in Canada. Whole industries developed around this—assessment centers, physiotherapy, chiropractic, etc. Throw in inefficiencies and fraud, and the whole thing was/is one big mess. Fortunately, the Ontario government has recognized that above all else the base product must be affordable.
The Ontario industry will now begin retooling which is an opportunity for the brokers to shine with their customers.
7. Property Product
What was once a fire product has now become a water product; between 40% and 50% of all property claims are now water related. Limiting sewer back-up coverage in some locals and pricing may help (more increases for the consumer) but a well maintained infrastructure will do more to solve this problem than anything else.
Some carriers are mapping this problem—as well as limiting their exposure in some postal codes—so we can expect more on this topic in 2010.
8. Insurance to Value (ITV)
Vendors of ITV tools are under real pressure to account for the figures that their tools generate. With deteriorating property rates, carriers are challenged to achieve rate adequacy and brokers are frustrated with conflicting information and time-consuming processes. Consumers are often caught in the middle and experience processes that are illogical and inconsistent, all of which is the antithesis of customer service.
IBAC and the provincial brokers associations are weighing in on this topic in an effort to bring all relevant parties together to find a workable resolution. Reaching consensus will be difficult and time consuming. Since some stakeholders have their own proprietary tools, this issue will continue to bedevil the industry.
9. Consolidation
Brokerage perpetuation continues to be of concern for all segments of the industry. With boomers getting ready to retire and few with perpetuation plans this issue continues to be troublesome. Carriers are concerned about their portfolios, the brokers’ associations want to see independent brokers thrive and consumers don’t like to see long standing relationships disturbed.
Carriers are now the major acquirers and they are paying top dollar for the best opportunities that fit with their strategic plans. Other acquirers are large regional brokers who also have deep pockets.
With interest rates low and a potentially ugly hard market, broker consolidation will probably pick up speed once more. I also wouldn’t be surprised to see something on the carrier side in 2010 as well.
10. Regulatory Framework
The big questions for our regulators are:
- Do we want cross pillar mergers?
- Do the 3 pillars of banking, life and P & C provide Canadians with the right spread of risk?
- Do we have the right regulatory framework today or does it need updating?
Canada has come out of this global financial meltdown relatively unscathed and we have been praised for our good governance and oversight.
I’m not unbiased on this topic. As a Canadian, I don’t believe that having our financial services sector concentrated in a few hands is good for the country. When financial markets go wonky, as they have recently, we don’t want to have companies that are too big to fail. As one broker recently asked, “If CIBC and Manulife had been allowed to merge, would it have doubled their solvency problem?” |
