Many managing general agencies are in the process of launching in-house products branded under their own name. Although the trend of agencies developing insurance products is nothing new, branding under their own name is, and it is necessary to be competitive, say experts.
The trend dates back over five years, when Copoloff Insurance Agencies, the Montreal-based managing general agency (MGA), was one of the first to launch its own privately-branded healthcare product, For Women Only. The product provides financial support if female clients are diagnosed with one of the seven cancers.
Five years ago this was one of the few products privately-labelled by an MGA. Today the trend is moving full steam ahead and while most MGAs usually created products for insurers, now they want their name on the products they are developing.
“Really we are trying to develop a brand and our brand does not include other people’s brands,” says Chris Reynolds, President of the Investment Planning Counsel of Canada (IPCC).
IPCC currently has one product under its name, which it launched about one year ago. The product, underwritten by AIG Life of Canada, is part of the money management division. “As a company it worked out really well for us,” says Mr. Reynolds.
IPCC plans to launch a range of products. “We would like to have a bunch of products on the shelf in all our lines of business,” says Mr. Reynolds. He adds that IPCC would like to have everything from mortgage insurance to critical illness (CI), long-term care (LTC), and disability insurance under a private label, adding that they are also negotiating a quick-issue term-life product.
“What is really the differentiating factor between one MGA and another?” asks Mr. Reynolds. “The only reason a broker deals with one MGA over another is really who pays him most. Now that everyone pays the same, what is the difference?” he asks. MGAs have to give brokers another motive to choose one agency over another and that incentive is private labelling, he adds.
Mr. Reynolds explains that most MGAs who take part in a private branding initiative also service financial planning divisions. “MGAs who serve the independent broker are a dead business, in my opinion. MGAs who service large networks – like ours, Assante, and Cartier – we want the brand to be ours and not the manufacturer’s,” he notes.
He adds that he would like to see private labelled products with specific, unique features. For example, if IPCC introduces a CI product, he would like to see it with features not offered on other industry products.
David Prince, President of Edge Benefits, one of the first MGAs to begin private branding, agrees that agencies need to diversify to succeed. He says it is extremely important for smaller MGAs to give brokers a reason to do business through them. He says that the major reason that led Edge to have its own product is to have control in the marketplace.
Mr. Prince says that Edge cannot compete against MGAs that offer 20 to 30 different universal life (UL) products. Any number of brokers today can go to any number of MGAs for products. There is no reason for brokers to deal with us as a small MGA unless we can distinguish ourselves,” explains Mr. Prince. “So by having a unique product, if anybody wants to sell the Edge in Canada, it must go through our distribution, so it really is about differentiating yourself to survive,” he adds.
In 1997, Edge launched its first privately branded product, Roadside Edge, a disability product that provides coverage to operators in the trucking industry. Mr. Prince says the product had phenomenal success and made $2 million in premiums in its first year. The MGA also offers the Edge Disability plan, a product targeted to the growing self-employed marketplace.
The MGA also has plans to add other Edge-branded products to its roster. “We have an agreement with UnumProvident to have simplified CI in early 2003. It would be an Edge product but Unum will underwrite it as Edge Critical illness,” reveals Mr. Prince.
Mr. Prince stresses once MGA’s create their own products, they must continually change them to avoid being copied.
You can trademark the name but not the features of the product and the only way to stay in front of the competition is to continually evolve,” notes Mr. Prince. He adds that the company is having discussions regarding a range of enhancements to Roadside Edge.
Cartier Partners is also planning to launch its own products on the insurance side. It already has mutual funds and banking products branded under its name but it plans to unveil Cartier-labelled UL and CI products in the Spring of 2003. Michel Desjardins, Vice-President of Marketing at Cartier Partners, says part of the importance of having Cartier-named UL and CI products is to ensure it will be part of the underwriting process.
If we can have an agreement with one or a group of insurers that would agree to give us a part of the underwriting risk then we can make an additional profit as one of the insurers on that product,” says Mr. Desjardins. He adds that the insurers who will underwrite the product have yet to be chosen.
Mr. Desjardins adds that Cartier does not want to push its own product compared to the products of other carriers. “If we cannot prove that our product is more efficient compared to the product of the carriers, we won’t sell that product to the client.”
In terms of prerequisites, Mr. Desjardins stresses that a broker does not have to sell a certain volume in order to sell the Cartier products. As for commission rates, Mr. Desjardins says that the Cartier product rates may vary compared to other products, but the aim is to have rates similar to those in the marketplace.
“We would normally try to encourage the selling of our product through other means. For example, we have a stock option plan,” he notes.
Mr. Desjardins adds that when launching a private-branded product, some insurers can ask up to $10 million in premiums. “I have not seen it as a minimum threshold, but some insurers have indicated that they would love to have something in that range,” he states.
Too much pressure
Hub Financial found that the hefty volume demand would create much pressure, says Paul Brown, Chair and CEO for the company. The MGA was in the process of developing a combination, UL, CI and LTC product but decided not to carry through with the project, says Mr. Brown. Though he did not disclose the insurer who would underwrite the product, Mr. Brown says it was asking for $10 million in premium in one year. Despite the project not being carried through, Mr. Browns says MGA private-branding, is not a necessity for survival.
“For an MGA to survive it needs to reach a level of scale to satisfy a large number of carriers and it must have systems to deal effectively with carriers… in-house products have nothing to do with it,” he says. “In my opinion brokers want individual advice and they want a wide spectrum of products,” he adds.