Brokers can expect ongoing pressure on their commission levels in 2013, as insurers look at ways to bring their acquisition expenses under control, an industry executive said in Toronto on January 17.
Philip Cook, CEO of Omega Insurance Holdings Inc., made the observation during his keynote presentation at the Insurance Institute of Canada’s 2013 PROEDGE: Annual Industry Trends Breakfast.
“It’s interesting that we still run our businesses at 30-35% expense growth,” Cook said. “And about 75% of that is still acquisition costs. Those of you in brokerage firms know the pressure you are under in terms of personal lines commissions.
“I think…pressure [on broker commissions will continue] as companies look at ways to improve their underwriting results and improve their loss ratio side, and as they find that getting additional premium is difficult because of the general economy.”
Cook noted that the Canadian property and casualty insurance industry’s overall performance was “better than expected” in 2012.
Third quarter statistics from the Office of the Superintendent of Financial Institutions (OSFI), Canada’s solvency regulator, show that Canadian federally regulated insurers took in $21.9 billion in premiums and paid $14.4 billion in claims, with a claims ratio of 65.56%. Claims ratios in the 70% or higher range are generally considered to be unprofitable.
Cook noted that the industry may in fact finish 2012 with a combined ratio of 96% to 97.5%, representing a small underwriting profit. This is in contrast to breaking even or posting an underwriting loss over the past few years.
However, the growth of insurers’ expenses in 2012 amounted to 30% or higher, Cook added. Broker commissions in 2013 may therefore be affected by insurers’ attempts to get their acquisitions costs under control.
Cook said the industry has to stop treating consolidation as a “trend,” or something that is temporary, because it is now in fact a permanent part of the Canadian P&C landscape. He noted that 175 regulated companies have disappeared through consolidation since 1967. And while 85 new companies started in their place during the same period, the result is a net loss, he said.
