Following the lead of Canada’s upper-tier, large brokerages, mid-sized brokerages are starting to expand their offerings to include risk management and insurance consulting services.
“My experience is that it’s the mid-sized and the regional guys that are definitely making those investments today,” said Michael Loeters, vice president and risk management practice leader of BFL Canada Risk and Insurance Services Inc.
Historically, Fortune 100 companies were most often associated with investment in risk management, Loeters told Insurance Business. But that interest in risk management has started to “bleed down” to the level of mid-sized to upper-mid-sized companies. And since these companies place their business with mid-sized brokerages, the mid-sized brokerages are compelled to provide risk management services to respond to their clients’ needs, Loeters said.
One big question is: How? (continued)#pb#
“Mid-sized guys are all struggling with how to do this, trying to figure out the model for it,” said Loeters. “How do we make money at it? Do we bring in a person to do this? Do we somehow raise the business acumen of the people we have internally? Do the producers do their own risk management for their customers? Or do we outsource this? It’s a quandary, because now it’s a change in our business model.”
Loeters was responding to one the findings in a market research report by IBISWorld on the state of insurance brokers and agencies in Canada. The report finds that brokerage revenue in Canada has been “subdued” for the past five years, in part because premium pricing has remained low following an economic recession. It projected an industry revenue growth rate of 1.3% for five years up to 2013 (to $8.5 billion), including an increase of 2.5% in 2013.
The relatively stagnant growth rate has painted brokerages into a corner, the report said. “In response, many brokers and agents have focused on expanding their level of expertise and expanding their product line to include risk management and insurance consulting services.”
Revenue growth rates may not be the only motivator: regulation may play a role here as well. In Canada, the federal government’s solvency regulator, the Office of the Superintendent of Financial Institutions (OSFI), has issued a number of guidelines and consultation documents over the past three years that deal with the importance of sound risk management principles.
Whatever the reason, “the new generation stepping into these decision-making roles in companies is different,” Loeters said. “They think differently. Their attitude towards insurance is: ‘Yes, I want it, I need it, but I’m really interested in knowing how you can help me not use it.’
Or they might say: ‘I’m really interested in taking on more risk, but if I’m going to take on more risk, I want to know how I can do that in a smart way.’
“Their expectations about what they are looking for from people in our industry are different. And a lot of those-sized companies reside with mid-tier brokerages.”
Generally speaking, this new way of thinking hasn’t reached the level of smaller Canadian brokerages yet. Several contacted for this story told Insurance Business that the risk management services they offer are “value-added,” meaning they do not charge a fee to provide risk management consultation to clients.
“It’s really nothing I’ve heard of in the small-sized brokerages,” said Judy Bell of Beyond Insurance Brokers Inc. “And if they do offer those kinds of services, there is generally no fee attached. It’s value-added.”
The definition of ‘risk management services’ appears to vary, depending on the size and complexity of the brokerages and their clients.
In small brokerages, “risk management” might mean reviewing contracts or coverages and making recommendations to clients.
However, larger companies, with revenues of between $50 million and $500 million, might be looking to brokers for guidance on mergers and acquisitions, supply chain issues, privacy issues, best practices questions, risk audits, and policies and procedures.
