When you think of power imbalances in insurance, you might think about DE&I learnings and workplace conduct, or perhaps vulnerable customers – but a recent regulatory investigation has shone a light on another power imbalance that could be dogging the insurance industry.
Ontario’s financial services regulator published a report last week into the province’s top auto insurers’ systemic failures to comply with Take-All-Comers requirements. During the regulator’s investigations, some brokers had been reluctant to engage and discuss concerns on the record for “fear of reprisals”, the Financial Services Regulatory Authority of Ontario (FSRA) said. Brokers were anxious that their commercial relationships could be cut short and of “potential financial repercussions”.
Take that in for just a moment, because what the FSRA appears to be saying here is that some brokers are so concerned about the risk of being cut off by insurers that they felt they could not engage with a regulatory intervention. So much so, in fact, that this was one reason that the FSRA, which worked with The Registered Brokers of Ontario (RIBO) on its investigation, sought out whistleblower-protection authority from the government.
Whether it’s true or not that insurers would say farewell to any broker partners based on their feedback, that brokers feel this pressured is not healthy. If it is true, then that is damning.
The role of the broker is not just to generate leads and make money for themselves and insurers – it is to work well for a policyholder and to offer the best advice possible. If brokers are unable to stand up to insurance companies when they see wrongdoing, then this strips out a vital part of what should make brokers valuable.
It’s also damning that the FSRA found that some brokers might even have felt incentivised to flout rules for financial gain, or out of a wish to keep their insurers happy.
If brokers cannot prove themselves worthy by balancing the interests of consumers with those of their insurer paymasters, then customers (the ones who really pay the bills) will surely be left asking: “What’s the point?”
Brokers and insurers have coincided for a very long time, but nobody is invincible and perhaps some brokers are feeling that strain. Canada’s 38,000 plus insurance brokers can and do play a key role, but to continue doing so properly amid tech advancements they cannot fear the wrath of their bigger partners and must prove themselves a force to be reckoned with and be the right bet for customers.
Look across to the UK market, where aggregators – another focus of the FSRA’s investigation – have boomed in personal lines insurance, while broker numbers have dwindled, with the result being what some have called a ‘race to the bottom’ and a recently addressed loyalty penalty headache.
When capacity is tight and insurers want brokers to build the most profitable books they can, the pressure to deliver can be very real.
Throw consolidation into the mix, on both sides of the Canadian insurer and broker equation, and the power imbalance potential only grows.
Ultimately, an M&A goldrush means fewer potential partners and bigger players, with options likely to continue shrinking.
“Unfortunately, the appointment of new brokers with smaller unprofitable volume is just not in strategy this year,” a representative of an un-named insurer wrote in an email to Keyes Real Estate & Insurance, which has denied having shared any numbers that might show unprofitability with the insurance company, earlier this year.
“Quite a few brokers like you are seriously looking at partnering up with large brokers at this point to gain access to more markets and system capabilities. I would highly recommend you consider this as an option.”
It is, of course, an insurer’s prerogative to pick its partners, but this paints a potentially dim picture for some brokers that have not been swept up in the M&A tide as insurers look to work with bigger fish. It further adds to the risk that some brokers may feel beholden to those that will work with them.
All this considered, it’s perhaps not surprising that some might feel that you anger your insurer partner at your own peril, even when the point you want to raise is justified.
But relationships, as we hear time and again, need to be built on trust. This is true in business, as in life.
Papering over cracks and failing to speak up when something isn’t right on one side, or both sides, will only add to issues in the long run. Becoming, to some extent, complicit in bad behavior for fear of retribution can only be bad for brokers.
Insurers have skin in the game here too – they cannot be seen to be throwing their weight around to the ultimate detriment of customers, leading to potentially reputation-damaging outcomes where issues are not fixed when they could have been. They must listen to their partners and allow an open dialogue. They cannot make brokers, the conduit to the consumer, fear for their financial safety net for doing the right thing.
If brokers incorrectly feel they cannot speak up, then insurers should work to address this.
Brokers, who hear both the insurer’s and insured’s perspective, need to feel free to call out bad conduct and areas for improvement, not only when they are quizzed by a regulator, but in the course of their duties.
If not, you have to ask: is the insurer/broker power dynamic broken? And just what other harms could this lead to for consumers and the industry at large?
Do you have any thoughts about the FSRA findings on brokers concerns? Tell us in the comments.
