Automaker General Motors (GM) is looking to capture a share of the Canadian auto and home insurance markets. Through its subsidiary Motors Insurance Company, GM is aiming for a 25% increase in its direct auto insurance sales this year.

GM dealers will soon be offering consumers auto insurance from Motors Insurance, the manufacturer’s insurance subsidiary. Not wanting to restrict itself to passenger vehicles, the insurer is ready to move to the next level with plans to enter the home insurance market in 2003. However, the company has been keeping quiet about the sales targets and strategies for this latest project, still in its initial stages.

After a successful launch in Ontario, Motors Insurance extended its auto insurance offering to GM dealers in Quebec in August 2001. To do so, the company filed a distribution guide with the Quebec Bureau des services financiers in accordance with the legal provisions concerning distribution without a representative.

In addition, Subaru Canada customers have also been able to take advantage of the insurer’s offerings for more than a month now. “GM owns 20% of Subaru, which is why Motors Insurance packages are being offered through our branches,” says Jean Piché, General Sales Manager at Subaru Canada.

In addition to home insurance, Motors Insurance is licensed to sell property, mechanical breakdown and liability insurance as well as warranties. However, the company has not recorded any sales in these niches.

In the United States, GM offers auto, motorcycle, boat, home and commercial insurance through brokers. It is also active in life and health insurance, reinsurance and flood insurance. The combined premium volume for GM’s various insurance subsidiaries is US $1.3 billion.

To avoid being left in the dust, Volvo USA is joining the race for new markets. Through its subsidiary VSF Insurance, the automaker has just obtained the necessary licences to sell insurance in 13 states. Founded last August, VSF Insurance is targeting the trucking segment. It has a 24-hour call centre to respond to claims from consumers. It is planning to invest in 27 more states in the next three years.

Although available only in Ontario and Quebec, Motors Insurance products earned direct premiums of $128.4 million in 2000. Premiums in Quebec for that period were $2.8 million, and the insurer posted net earnings of $10.4 million. According to Charlie Hastings, Director of Motors Insurance Canada, this amount is divided up between liability insurance, auto insurance and assembly plant insurance, but declined to give further details.

“In-house auto insurance got underway a few years ago at our Ontario plant,” says Georges Demers, a spokesman for Motors Insurance. “We started out by selling to assembly line employees and gradually expanded to dealers.”

Since dealers are prohibited by law from selling insurance directly, they have developed passive selling strategies to direct their customers to Motors Insurance, Mr. Demers explains. “The dealers put out information pamphlets at specific places in the showroom. They also have cardboard pamphlet holders on their desks so that customers are exposed to the information the minute they sit down to talk business.”

According to Mr. Demers, the target segment is comprised of “five-star” drivers; in other words, drivers with an impeccable driving record. If they are accepted, these customers can benefit from a maximum 15% rebate on their premiums.

Mr. Demers admits that GM is not expecting spectacular profits from its insurance arm. “We want to see customers reinvesting what they save on their insurance premiums in additional options (electric windows, air conditioning) for their vehicles. By consolidating all our customers’ auto and home insurance needs, we can offer them a rebate on their premiums. If we can save them money on their insurance, there is every reason to believe they will buy more automotive products.”

The pamphlet gives a telephone number and a website so that customers can find out more about Motors Insurance products as well as the amount of their premium. A Web-based quote system developed by the firm Compu-Quote enables buyers to obtain exclusive rates for Motors Insurance products in the space of a few minutes.

Competitors on the alert

Pierre Lambert, President of the Quebec-based brokerage firm Inovesco, is dismayed at the entry of a new player of GM’s stature into the insurance market. “Now we’ve got one more direct insurer to fight,” he observes. “The market is starting to get crowded, and my impression is that just about anyone can hang out his shingle and sell auto insurance. But selling insurance is one thing; after-sales service is another. I wish them luck, because auto insurance may be profitable in Quebec, but it isn’t in the rest of the country.”

“We aren’t happy to see GM entering the industry,” concurs Jacques Valotaire, Vice-President of ING Canada for the Quebec region. “We’re going to keep a close eye on what the new insurer does and act accordingly.”

“I think GM is a powerful force in automobile manufacturing, but it has yet to prove itself in the insurance field in Canada,” he continues. “If we look at what’s happening in the US, GM hasn’t succeeded in becoming a State Farm-size player.” Mr. Valotaire expressed surprise at GM’s interest in the home insurance market.

At Desjardins Financial, the largest direct insurance company in Canada, management is playing it cool. “General Motors certainly represents a major competitor, but we think we’ve got the expertise to continue offering an excellent price-quality ratio,” stated Jean Vaillancourt, Senior Vice-President, Quebec Operations. “Our growth prospects for the future are very promising.”

An industry trend?

With respect to insurance, GM and Ford made a timid foray into the insurance market in Quebec from 1993 to 1998. Both offered a special auto insurance promotion in partnership with the firm Dale-Parizeau LM. The manufacturers opted not to continue the arrangement, preferring other ways to boost sales, explains Maurice Bussières, Vice-President, Corporate Markets at Dale-Parizeau LM.

According to Ontario automobile analyst Dennis Desrosiers, owner of Desrosiers Automotive Consultants, no one should be surprised at this development. “Everyone thinks the manufacturers are making money hand over fist,” he says. “But in reality, selling vehicles doesn’t generate a huge profit because the market is so competitive. The manufacturers and dealers make a lot more money on the sale of accessories and derivative products like insurance.”

The figures from Mr. Desrosiers’ firm show that the number of light vehicles produced in the first quarter of 2002 fell by 3.2%: 650,365 versus 671,532 in the same quarter of 2001. “I think that it’s only natural for automobile manufacturers to start looking to other sectors of activity for new sources of income,” Mr. Desrosiers concludes.

Sharing this opinion is Luc Gagné, Editor-in-Chief of Auto Journal and a seasoned observer of changes in the automotive market. “Today, it’s getting harder and harder to sell vehicles because their prices keep going up,” he points out. “Net profits on auto sales have fallen in the past 10 or 15 years. The manufacturers have to start looking for alternative income sources.” Putting auto insurance and auto parts under the same roof is simply one strategy to generate additional revenues.