Direct insurers remain in brokerage channel’s shadow

The direct market channel in the Canadian property and casualty sector has lost market share over the past year. Although it is expected to increase its market share in the near future, experts say it will never surpass the brokerage network.

The top twenty property and casualty (P&C) brokerage channel insurance companies continue to dominate. They increased their market share from 41.8% to 44.5% from 2000 to 2001. Conversely, the top twenty direct insurers decreased in total market share over the past three years. In 1999, the top twenty direct insurers had a 29.1% market share, which dipped down to 28.7% in 2000, and decreased another 1% to 27.9% in 2001.

However, some experts claim that the direct network will see success with the younger generation. Ted Belton, President and CEO of Forecast Publishers, producers of the P&C publication, The Belton Report, explains that when it comes time for young people to purchase insurance, many will opt to buy on the Internet as supposed to going through their parents' broker.

Mr. Belton stresses that though the direct channel will grow, he does not foresee the day when it will outmatch the brokerage network.

"People who buy insurance seem to favour the broker approach over the direct writing approach," says Mr. Belton. Adding, "there is a certain segment of the population that likes to deal online and then there are other people who prefer the personal touch."

Henry Klecan, President of Scor Canada agrees that the brokerage channel will always win over the direct network in P&C. As well, he is not surprised that the brokerage channel continues to lead.

"Online insurance has not been the success it was publicized to be," he remarks, adding that online insurance sales are not impressive in Canada. Mr. Klecan suggests that the reason behind the lacklustre results is due to security issues. Many do not feel comfortable submitting confidential information online, he says. He does not even see this changing with the younger generation since he explains, they are also concerned about security.

However, overseas the situation is different. In the United Kingdom, direct sales in P&C have surpassed the brokerage channel. Mr. Klecan explains that it is simply a matter of cultural differences. He highlights that this situation will never occur in Canada, since Canadians have a history of being attached to the brokerage channel.

Derek Fee, Senior Public Affairs Specialist for State Farm Insurance agrees that the brokerage channel and the personal touch is what the client looks for. He says that even the younger generation will continue to value the opportunity to talk to someone face-to-face.

Though State Farm is labelled as direct, Mr. Fee explains that the company is still committed to the agency system. He says that State Farm always looks for ways to link the client back to the agency system. State Farm was one of the few direct insurers which increased its market share in 2001, it increased from 3.5% in 2000 to 3.7% in 2001.

Mr. Belton also highlights that it is not always so black and white when determining whether an insurer is direct or a brokerage, as is the case with State Farm. He says that some brokerages also have a direct operation, and the direct writing results have been blended in with the rest.