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					                   Country analysIs: Canada

A formula
for success
Want to work in a country where the broker – even
the small independent – is king? Then move to
Canada, says Lauren MacGillivray

                  ost insurers in Canada, including       up somewhat to direct writers. And banks are now
                  AXA Canada, only use their brand for    a growing threat to brokers. They recently won the
                  brokers. More than 70% of all general   right to sell insurance online and in stores separate      One of
                  insurance business is sold through      from their branches – basically, anywhere they don’t       the major
                  brokers and that percentage won’t       grant credit.                                              differences
likely to change any time soon.                              Jean-François Blais, chief executive officer of AXA     here
   Dan Danyluk, chief executive officer of the            Canada, says: “One of the major differences here           compared to
Insurance Brokers Association of Canada (IBAC), says      compared to Europe is that banks cannot distribute         Europe is that
one of the main reasons Canadians are so loyal to         insurance in their branches. I don’t see it changing in    banks cannot
their brokers is that the country is so vast.             the short term. But who knows about the long term?”        distribute
   Covering 9,984,670 square kilometres, Canada’s            While AXA Canada’s brand is used only for brokers,
area is second only to Russia. Many of the country’s      the insurer has also had a joint venture with direct
                                                                                                                     in their
residents live in isolated areas and want to buy their    writer National Bank for 10 years. However, this
insurance from someone local whom they trust.             venture remains a minimal part of its portfolio.
   “There are very few communities of any size               “Our goal is to grow our market share,” Blais says.     I don’t see
where there isn’t a broker,” Danyluk says. “They’re       “Everybody has to adapt. It’s not because you have         it changing
virtually in every community... They have high rules      a new competitor that you completely change your           in the short
of professional aspiration, development and delivery,     strategic plan. We have to anticipate whether better       term.
and they’re located everywhere. That’s a formula for      competitors will come into the market, whether they’re
success.”                                                 banks or non-banks, joint ventures... you just have to
   Danyluk adds there’s room for brokers of all sizes.    make sure you have a company that is flexible enough         Jean-Francois Blais,
                                                                                                                     chief executive officer,
As in the UK, Aon, Marsh and Willis are major players.    that will adapt to the new environment. We believe we                AXA Canada
But so are the smaller fish.                              have that company.”
   Canada is of course not alone in having brokers
as the dominant distribution channel for general          Tough motor rules
insurance. But Canadians have not embraced other          For the most part, Blais enjoys working in Canada’s
forms of distribution as the UK has, for example          general insurance industry. But he does get frustrated
– particularly web comparison sites known as              about the strict regulatory regime, in which it can take
‘aggregators’ used for personal lines business.           insurers up to six months to change motor rates.
   According to general insurance consultancy EMB,
40% of new motor business in the UK in 2008 was
                                                          Personal property insurers
sourced through aggregators. Another 40% of new
motor business was bought directly from an insurer         direct premiums written – 2007              C$
via either telesales or the insurer’s website, and only    ING Ins Co of CA                            333,714
20% was bought directly from a broker.                     Wawanesa Mutual Ins Co                      391,641
   In the past five years the number of aggregators        Co-operators Gen Ins Co                     319,126
in the UK has swelled from about five to 130. But          State Farm Fire & Cas Co CAB                297,522
Canada has resisted this trend, with and        Desjardins Assns Generales Inc              245,838
                                                           Security Natl Ins Co                        219,735 as the only aggregators on
                                                           Economical Mutual Ins Co                    241,820
consumers’ radar.
                                                           Aviva Ins Co of CA                          184,435
                                                           Dominion of CA Gen Ins Co                   186,993
Growing bank threat                                        Chubb Ins Co of CA                          185,605
With that said, the situation in Canada is slowly          Source: A.M. Best Company
changing. Over the last 20 years, Canada has warmed

16 IP
                                                                             Country analysIs: Canada

                    Insurers don’t appreciate being         types of water damage such as damage from sewers.
                 handcuffed when they want to adapt            But as in any country, many of the major risks
                 quickly to market conditions. They         tend to be man-made. Blais has worked in various
                 also don’t like making rate changes        positions at AXA since 1988, becoming president and
                                                                                                                        If a broker
                 that they could be stuck with for six      chief operating officer in 2004. He’s seen challenging      runs into
                 months.                                    times before, but nothing like the credit crunch.           financial
                    “Portfolios don’t change every week        However, Canada has managed to hold its own.             problems,
                 or month; you need data to make            A.M. Best Company, Canadian Property/Casualty –             they can
                 a decision about where insurance           Review & Preview, published last September, stated:         move
                 losses are going to be projected in        “Canada’s property/casualty insurance market is             into their
                 the future,” Blais says. “But also you     stable and is expected to remain so in the near term.       basement
                 have to change sometimes because           Capitalisation should remain strong.                        and keep
                 of market reasons.                            “However, the industry will continue to be               operating
                    “So if you take your true analysis of   challenged by diminishing profitability, strong
where you think rates should be and you compare that        competitive market conditions, volatile equity markets,
to the market, you’ve got to take both into account if      risk of claims costs, potentially greater storm activity,
                                                                                                                                 Dan Danyluk,
you want to grow a profitable company.”                     uncertainty from regulatory intervention in auto...         chief executive officer,
   Canada is a federal state, which means its central       [this] may result in consolidations within the industry         Insurance Brokers
                                                                                                                                Association of
government has to share powers with 10 provinces            as pressures mount.”                                                       Canada
and three territories. So, legislation between provinces       Going forward, Blais predicts a long recovery for the
can vary greatly.                                           economy. But he says AXA will come out strong.
   For example, there is public motor insurance in             As for brokers, IBAC’s Danyluk says: “The difference
the Western provinces of Manitoba, Saskatchewan             between brokers and other financial institutions is
and British Columbia. And in the French province            that if a broker runs into financial problems, they
of Quebec, bodily injury cover is provided by the           can move into their basement and keep operating.
government, while the rest of motor cover is provided       Their overhead has to do with professional training
by the private market.                                      and looking after the needs and exposures of their
   Depending on which province you are in, the rules        customers.
on rates can differ. Blais says the insurance industry         “Canadians expect to be treated decently. Brokers
has pushed for more freedom with rates. But so far,         wouldn’t have anywhere near the market share they
lobbying by the Insurance Bureau of Canada hasn’t           do if they didn’t do a great job.” n
managed to convince the lawmakers.
                                                              Canadian private property/casualty insurance market
Earthquake risk                                               share by line (2007)
Meanwhile, insurers also face another issue, but it’s         Based on direct premiums written
one they can’t change – there’s a growing risk of a
major earthquake in the province of British Columbia,
which sits on the West Coast.                                                 Other
    Blais refers to British Columbia as ‘the California
of Canada’: “It’s the best weather, you have wonderful                                          10.6%
mountains and the Pacific Ocean, but it’s an                    Liability
earthquake-prone zone,” he says. “We have to buy the
right amount of insurance for our portfolio in Western
Canada; this is regulated.”                                                             13.2%
    Like other insurers, AXA simulates an earthquake                                                        45.0                 Auto
scenario to ensure it has bought enough reinsurance.
Cover is getting more expensive – insurers used to
buy enough cover for a 250-year event. But the risk                                     16.7%
of the next big one is growing by 10 years every year.          Personal
Now, AXA has cover for about a 360-year event and               Property
aims to buy cover for a 500-year event – something
the Canadian government is pushing.
    Other weather-related events are less pressing for
insurers. Flood, for example, is not a peril covered by
personal lines -–something that might surprise those                              Commercial Property
living in the UK, where flood cover is a necessity.
    Flood cover is available for commercial policies but
                                                            Source: A.M. Best Company
at a hefty price. Homeowners are covered for other

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