Canadian property and casualty insurers reported generally improving financial results in 2012, although it’s a mixed bag as to how this will affect brokers.
Some brokers do not see a direct correlation between insurers’ and their own profits.
Having said that, brokers do see a number of indirect connections between the industry’s improving results and their own day-to-day operations and financial results. They include happy clients, a potential increase in frontline underwriting downloaded from the companies, as well as an indication of shared financial success.
MSA Research published a report on the Canadian property and casualty industry’s results for 2012, and overall the industry’s financial health is recovering. Of particular note is the industry’s underwriting profit of nearly $1.9 billion and a decrease in the insurers’ combined ratio from a nearly break-even level of 99.5% in 2011 to a more profitable 96% last year.
Individually, company results were a mixed bag, with neither direct writers nor broker companies claiming any monopoly over profits or losses. The top five companies’ underwriting results, listed according to direct premiums written, were: Intact ($225-million profit), ICBC ($77-million loss), Security National ($152-million loss), Aviva ($28-million profit), and Co-operators General ($73-million profit).
To the extent that brokers contributed to insurers’ profits in 2012, there is a connection between insurers’ results and broker results. (continued)#pb#
"Insurer profitability affects brokers," said MSA Research president and CEO Joel Baker. "First off, persistent losses can drive a hard market, driving up rates and commission income, while making the brokers' role ever more important to policyholders, since business is harder to place. Soft markets reduce commissions as rates go down."
If the broker commissions are based on a profit-sharing basis, a good result for insurers can sugest a good year for brokers as well. “It’s safe to assume that if [insurers] are doing well, probably from a profit-sharing standpoint, the broker community is also doing well,” said Michael Stack of Archway Insurance of Nova Scotia. “There’s shared profit. Obviously more brokers are adding to the profitability of the insurers.”
By and large, however, brokers said they saw very little correlation between insurers’ results and their own. In some ways, brokers could see an inverse correlation between a broker’s and an insurer’s financial results.
Good insurance results could lead to decreased rates for consumers, said Gary Groom of Groom Insurance Ltd. “If we [brokers] receive a commission based on the rates, then if the rates drop, then we receive less money.”
The trade-off in that scenario, Groom added, is that brokers will have happier clients because their rates will have gone down. “We always like happier clients,” he said.
For brokers, it matters how the insurers improved their financial station. For example, if the improved results are based on a lower frequency of catastrophe and weather-related claims, then the insurers’ results will not affect broker day-to-day operations.
But if the improved results come out of insurers reducing their operating costs – either through better use of technology, or through reduction of staff levels – then that will have an effect on brokers’ costs, said Stack.
“We’ve had work downloaded from the company level to the front line, so we’ve done a lot more front-line underwriting,” Stack observed. “I think it’s connected [to insurers reducing operating costs]. The more sophisticated [insurers’] computer systems get, and by having their front-line underwriting done by the brokers – to whom the companies are not increasing their compensation – insurance companies are certainly able to reduce their staffing and create efficiencies at their level. It’s more work passed on to the brokers, but not the savings.”
