Desjardins Financial Security (DFS) is nearing the parity mark between sales outside and inside Quebec. The proportion should be equal by late 2010, Richard Fortier, President and Chief Operating Officer of DFS, told The Insurance and Investment Journal. Now, the insurer is determined to boost its market share in the rest of Canada.
To reach this goal, the Desjardins Group subsidiary wants to step up its presence mainly in Ontario, but also in Alberta, British Columbia and Atlantic Canada. "For all lines of business combined, our market share is about 16% to 17% in Quebec and only 2% to 3% in the rest of Canada. We need to grow to survive," Mr. Fortier says.
Organic growth is the pillar of DFS's expansion plan outside Quebec. "We can grow by acquiring a company or by developing our business. We prefer the second option, because to buy a company you need to find a seller. Also, we know that on average, seven to eight acquisitions out of 10 fall short of expectations," Mr. Fortier says.
As it takes on English Canada, the subsidiary is focusing on group insurance and pension plans. One reason is that group insurance is a shortcut to income, Mr. Fortier points out.
"When we sell a group insurance contract to a large group, we collect several millions of dollars in premiums at once. On the other hand, when we sell to individuals, this represents only a few thousand dollars per contract," he explains.
On top of that, individual insurance sales demand more resources. "You need a large number of intermediaries to make individuals aware of the need for insurance and to convince them in the field. This approach has a large unit cost. Conversely, in group, it's employers that buy insurance for their employees or set up a pension plan. They are the ones who turn to the large brokers to conclude the transactions and to actuaries to obtain services," Mr. Fortier adds.
DFS aims for equal success in group savings and group insurance outside Quebec. Although the insurer has set its sights on other provinces, Mr. Fortier insists that the subsidiary will not be neglecting Quebec.
"We want to hold onto our top ranking in Quebec, even improve our market share. In Quebec, we sell group insurance for borrowers and investors, along with individual insurance, through advisors associated with caisse populaires (credit unions)," he says.
Continuing to develop in Quebec may be a challenge for DFS. Mr. Fortier stresses that it is important to deal with the leading group insurance intermediaries and pension plans, 20 or 30 of whom operate in Quebec. To be competitive, the insurer must prove itself. "We have to show that we measure up, that we are financially solid and have a strong technological capacity," he says.
The goal: to appear on these intermediaries' lists of quotes. If the insurer meets the tender criteria, it has a better chance of being chosen by companies. Making the grade takes planning because the larger the client, the more specific its demands, Mr. Fortier explains.
In this context of heated competition, technology can give a company an edge. "If an employer has to report a change in the situation of one of its employees and can do this online using our system, everybody saves time and money. This is why we have invested considerably to upgrade to our competitors' level," he says.
Mr. Fortier adds that investing in technology can let a company develop and then reinvest in technology. This creates a virtuous circle. "The five largest insurers in Canada control about 80% of the market. This gives you an idea of how important technology is."
DFS reported solid results in Q2 2010. "We achieved growth of 45% in individual savings compared with the second quarter of 2009. Also, our individual insurance sales advanced by over 20% during the same comparison period. We went from being a company that was not earning profits to a very profitable one. This is especially impressive if you consider that the acquisition costs in some business segments are higher than the premium we receive," Mr. Fortier points out.
He attributes this growth to several factors. For one, DFS entered a new phase in individual insurance when it figured out how to recruit new advisors more easily. "We designed a formula that has succeeded both in Quebec and the rest of Canada," he says.
The subsidiary also cultivated its individual brokerage networks outside Quebec and its financial centres. "We open [centres] each year, five to seven outside Quebec, where we offer individual savings products (RRSPs) and individual insurance," Mr. Fortier says.
DFS is a strong performer in individual life insurance. Mr. Fortier attributes these results to the SFL network, whose growth he describes as satisfactory, to the retail caisse branches that seek out clients that have never been insured, and to the counterpart of the SFL network outside Quebec, the Desjardins Financial Security Independent Network.
Mr. Fortier also credits the highly efficient staff, technology and past decisions. For example, the insurer adequately hedged the risk of its Helios funds: comparable products with guaranteed withdrawal benefits have cost some competitors dearly.
Another driver of the subsidiary's solid results is rigorous expense control. "We are trying to do some tasks via technology rather than people. We're cutting expenses relentlessly," he says.