Regional insurers stepping up assault on Ontario group insurance market

By Reynaldo Marquez | November 18 2006 07:56PM

Consolidation in the Canadian group insurance market is galvanizing regional insurers to storm the nation’s largest market: Ontario. On one front, Quebec insurers are eager to tap into new sources of revenue. Meanwhile, smaller regional players see Ontario as a springboard to national insurer status.

The Canadian insurance group market is in a state of siege, pummelled by regional insurers from all over the country. Ontario, the largest and most obvious target, is the lightning rod for this steadily escalating phenomenon.

The latest annual report by the Fraser Group, a financial research firm, reveals that Ontario represents 54% of the Canadian group insurance market. The largest Canadian province accounted for $12.7 billion in premiums out of $24 billion for the entire Canadian market in 2005. Second-ranked Quebec packs a much smaller punch, with a market share of 19%, or $4.4 billion, the Fraser report notes (see text on page 20).

The wave of consolidation that swept through the life insurance market during the 1990s attracted the interest of regional insurers, says Ken Fraser, president of the Fraser Group.

“Some insurers are expanding outside their traditional territories and are making progress in establishing a presence across the country,” he notes.

Canadian insurers, including Group Medical Services of Saskatchewan, and Assumption Life, in New Brunswick, obtained permits to distribute their products across Canada in the past year, Mr. Fraser points out.
Why? Some insurers think that consolidation has created a growing interest in new markets, Mr. Fraser replies. “They believe it is now easier to enter other territories because of the mergers and acquisitions that have occurred in the marketplace,” he adds.

Regional insurers see an opportunity to become national insurers, Mr. Fraser continues.

Quebec is a different story, he explains. Finding the province increasingly cramped, group life insurers in Quebec are determined to accentuate their presence outside of their province to tap into new sources of revenues.

“They feel they are near the limits of their potential growth. They have no other choice but to expand outside of Quebec,” Mr. Fraser explains.

The threat from Quebec

Quebec life insurers are stoking the competition in the Canadian group insurance market. Having outgrown their local market, Desjardins Financial Security (DFS), Industrial Alliance and SSQ Financial Group are cementing their presence outside Quebec.

The magnetism of the Canadian market propelled La Capitale Life Insurance to acquire the permits to distribute products Canada-wide last year.

What’s more, the insurer bought out AGA Financial Group in October, to better arm itself for a head-on attack on the Canadian group insurance and claims management market.

AGA’s experience as a third party administrator, commonly known by the acronym TPA, was a strong selling point for this acquisition, says Robert St-Denis, president and CEO of La Capitale.

In August, La Capitale made its expansion intentions clear by acquiring Penncorp, as part of its parallel penetration of the Canadian individual insurance market.

Although most of these insurers are already active outside of Quebec, they have no choice but to fight it out in the markets of the other provinces, they confided in interviews with The Insurance Journal. And they will mine these territories more vigorously than ever, they say.

These Quebec-based players hope to find new sources of revenue to fuel their growth, which has become more difficult in a maturing home market, they say.

Ontario – the largest group insurance market in Canada – was singled out as a key stepping stone to a solid, nation-wide presence.

“Ontario represents 53% of the Canadian group insurance market. It’s an essential market for any insurer that wants to heighten its presence outside Quebec,” says André Simard, vice-president of sales, group and business insurance for Canada at DFS. “We intend to put a lot of energy into growing outside Quebec while maintaining our dominant position in Quebec,” he adds.

Doubling its share

DFS holds $1.2 billion in premium volume out of the $24 billion Canadian market. Nearly one third of its volume comes from the provinces outside Quebec, Mr. Simard points out.

The Quebec insurer aims to double its $380 million share by 2009, and is reaching for 7% of the market outside Quebec in the next five years, he reveals.

For now, Mr. Simard claims that DSF holds over 18% of the Quebec group insurance market and less than 3% of the Canadian market, excluding Quebec. “Our growth is being driven by markets outside Quebec. It is easier to grow with 3% in Canada than with 18% in Quebec,” he notes.

The Quebec insurer’s annual sales in Canada advanced this year. “We produced $120 million in group insurance premiums to date in 2006 versus $30 million in 2005,” Mr. Simard continues. This upswing is mainly attributable to the Newfoundland government’s participation in a DFS group plan during the year. “The contract represents $75 million in annual premiums and covers 35,000 members,” he says.

The organizational restructuring of DFS’ group insurance division in early 2006 also pumped up sales this year, Mr. Simard adds.

La Capitale eyes $40M

“The Canadian market has vast potential, says Marcel Bilodeau, vice-president, group insurance at La Capitale. After obtaining its distribution permit in 2005, the insurer is now in a prime position to take on the market, he explains.

Mr. Bilodeau mentions that the insurer has set an objective of $40 million in direct written premium volume in the market outside Quebec in the next three years.

He describes this objective as modest. Why? Because La Capitale plans to penetrate the market gradually, to maximize the impact of its campaign.

To attain its objective, La Capitale has begun establishing business partnerships with TPAs, Mr. Bilodeau points out, although he declines to name any of the partners. The insurer also plans to approach brokerage firms that operate in the rest of Canada, he says.

La Capitale is not directly soliciting companies, the manager notes, but rather aimed its publicity at TPAs. “TPAs have their own clients that periodically shop around for plans. We offer TPA our services as a supplier for their clients,” Mr. Bilodeau explains. He adds that La Capitale has submitted its first quotes but had yet to land its first contract by press time in October. “We hope to conclude one by year end,” he says.

La Capitale is also eyeing the claims management market. “As soon as we do our classes, we can do our own claims management. Starting from zero, without having formed any partnerships, is not a good tactic,” Mr. Bilodeau admits.

TPAs in the spotlight

Industrial Alliance and SSQ are also banking on TPA relations to buttress their Canadian presence.

SSQ is not interested in soliciting potential clients on an individual basis. Like La Capitale, the company much prefers to act as an insurance product supplier to third party administrators.

“We will look for business blocks from TPAs,” says Carl Laflamme, vice-president, sales and marketing and national development at SSQ.

All the same, SSQ says it is open to doing business with traditional brokerage firms if they bring in a certain volume. “We’re not interested in doing business one file at a time,” Mr. Laflamme stresses.

According to Mr. Laflamme, this strategy has borne fruit. SSQ has been operating in the rest of Canada since 2001. Today, the insurer generates much of its business outside Quebec.

In 2005, new sales outside Quebec topped sales within the province. “Out of $92 million, $51 million comes from other Canadian provinces, and the remainder from Quebec,” Mr. Laflamme says. A similar trend has emerged in 2006, the executive adds.

Group insurance premiums at SSQ reached $1 billion, including $175 million from outside Quebec. Its long-term objective is to bring its volume in the rest of the country in line with the premiums in force in Quebec, Mr. Laflamme points out, conceding that “we are aware that it will take several years.”

SSQ puts its share at 4% of the Canadian market, Quebec included, and 19% of the Quebec market. The insurer plans to deepen its inroads across Canada by soliciting TPAs. “The TPA network is very small. Word gets around!” Mr. Laflamme comments.

Concentration a boon for small fry

For their part, third party administrators are welcoming the new players. “TPAs feel abandoned by the top three lifecos,” Mr. Laflamme says.

This view was echoed by other insurers, that say that the cornering of the Canadian market by Manulife Financial, Sun Life Financial and Great-West Life is opening doors outside Quebec (see inset text).

One example: Industrial Alliance furthered its foray into the rest of Canada this past year. When the insurer granted The Insurance Journal an interview in late August, its total sales for 2006 were slightly above total sales generated in 2005.

At the time, Industrial Alliance’s premiums stood at $620 million. Of this amount, 40% streamed in from outside Quebec, mainly from Ontario, says Jacques Parent, vice-president, sales and underwriting, group insurance, at Industrial Alliance.

“In 2005, we generated 52% of our total group insurance sales outside Quebec. Up to now in 2006, our total sales garnered in the other Canadian provinces amount to 55%,” Mr. Parent points out.

The insurer confirmed that it is actively working on building awareness among market intermediaries, including actuarial firms that recommend the names of insurers to client businesses.

Industrial Alliance is also setting its sights on companies with over 1000 employees. This represents a step up from its typical clientele, the 50 to 1000 employee market.

Sales are particularly robust in Ontario and in the western provinces, Mr. Parent continues, where Industrial Alliance successfully entered the small business market. How did it do it? “We’ve built relations with partners that have trouble obtaining distribution contracts from the three large lifecos,” Mr. Parent replies.

“For the most part, these partners are TPAs that serve companies made up of small groups of participants,” he explains. “Our growth in these provinces is driven by our entry in the small group market.”