Financial institutions, more often than not, have surplus capital.
“To satisfy their shareholders, either they need to invest that capital or buy into businesses so they can have a return,” notes Suzanne Pountney, president of Insurance Brokers Association of Ontario (IBAO).
“If you’ve checked your investments or RRSPs lately, it’s not been pretty, so they’re looking for better places to invest that money. Brokerages are stable, they are safe, and so a lot of financial institutions are choosing to invest in them.”
While it’s great that brokerages are a good investment, Pountney noted there’s a cyclical quality to M&A.
“I’ve seen these cycles of mergers and acquisitions before,” she told CU. “What’s different this time is that there seems to be a better understanding of the fact that when you buy a brokerage now, you’re not buying a book of business, you’re buying the people.
“It’s important to keep the people. It’s important to keep those branch offices.”
She views the current M&A enthusiasm as a sign of the industry’s health. “Because we’ve become such a good investment, it’s going to push values up,” she says.
Those same factors also make the brokerage industry a good bet for those seeking career opportunities.
“In economic downturns, we don’t lay people off — the industry hired during the pandemic,” Pountney said. “Brokers were working hard. You rarely hear of a broker being laid off, that just doesn’t happen…It’s a stable, stable job.”
Customer-service changes
Shifting gears, Pountney said CCIR’s new guidance on sales incentives, in and of themselves, don’t present a huge challenge for brokers.
“If there are certain reporting requirements, it’s going to involve implementing process changes in an office,” she said. “RIBO’s Code of Conduct has always required that brokers act in the best interests of their consumers.”
Regardless of how a broker is compensated or incented by an insurance company, the code of conduct dictates that brokers owe a duty to their consumers.
“This CCIR guidance just reinforces that for us. There’s not really a huge effect on brokers as a result other than it may affect how their insurers are incenting or compensating them. We haven’t heard any rumblings about any big changes,” she told CU.
The other side is that in a brokerage, the principal broker signs the contract with an insurance company that states what the compensation incentives will be.
“Down the line to the staff that’s actually on the front lines, they don’t know what principals signed with each insurance company,” Pountney said. “So, if a brokerage is having a sales contest, it won’t be an insurance company-branded sales contest, it would just be a sales contest.
“I don’t think it discourages a broker from having any kind of incentive program on their own because a broker’s incentive program is never tied to anything other than serving the consumer. That RIBO Code of Conduct tells them they have to do what’s best for the consumer, regardless of if there is a sales promotion from an insurance company for selling.”
This story is excerpted from one that appeared in the August-September print edition of Canadian Underwriter. Feature image by iStock.com/frender
