The transaction in which ING and Zurich exchanged significant property and casualty (P&C) portfolios leaves few brokers untouched. Just as the improved access to products is being lauded, the resulting decrease in competition is being deplored.
In November 2001, ING Canada announced its acquisition of all personal and group P&C operations from Zurich North America Canada. In exchange, Zurich took hold of ING’s large corporate business.
Despite the size of the transaction, brokers will not feel any immediate effects, states Bernard Deschamps, President and General Manager of Ultima Group, a brokerage network with over $265 million in premium in Quebec. He feels that the lines of business involved are simply being moved to those companies best able to distribute them. “The volume to both sides will remain. I don’t see any impact in the short term,” he comments.
Dave McFarlane, Vice-President for brokerage TOS Insurance Group, which has over 35,000 clients and is part of Hub International, applauds the fact that broker interests were considered in the transaction. By sharing the same distribution network, the two companies maintain the flow of business and stimulate the efforts of their brokers, he proposes.
Pierre Boisvert, President and Chief Director at P&C banner AssurExperts, is also in favour of the deal. “We regularly do business with ING, but Zurich was a company with which we had no link. Now we have access to their products.”
Nonetheless, Mr. Boisvert worries about the sharp concentration of the P&C market into the hands of just a few insurers. It’s a situation he feels may endanger broker independence.
The Executive Director for the Insurance Brokers Association of Ontario (IBAO), Robert Carter, shares that concern. He says it all depends on the broker, the size of their firm, and its structure. If two thirds of all brokers all deal with the same insurer, then single brokers will have difficulty distinguishing themselves from their competition down the street. A single company will now offer products that both companies had previously offered, decreasing price competition.
“I think small brokers who happen to have both companies are going to have difficulties,” states Mr. Carter.
He feels that the number of players that small brokers can sign with is diminishing.
Mr. Deschamps of Ultima doesn’t share the brokers’ worries. He doesn’t believe that the Canadian insurance industry could one day be reduced to just two or three players. “There will always be a place for local insurers,” he asserts. He also feels that market consolidation in Canada is part of a normal process. “Given the small size of the market, there aren’t enough premiums out there to justify too large a number of insurers.”
Zurich: a niche player
Zurich’s retreat from the personal lines and group markets doesn’t seem to be a surprise to brokers. “They had a personal and a small commercial lines division responsible to a division of a large insurer that only understood large commercial. It wasn’t a good fit,” says Mr. Carter.
That is a view shared by Mr. Macfarlane. “Zurich tried to work with the brokers over the last four years and it’s clear that Zurich has the expertise in-house to make money on larger risks.”
Barry Gilway, President and CEO for Zurich North America Canada, affirms, “ING will clearly acquire our business in Zurich. There’s very much a repositioning. We become a specialty carrier.”
Mr. Gilway recognizes that the conceded P&C markets had become an under-performing problem for Zurich.
“The agreement allowed us to exit an area of business that has been non-performing for the last seven or eight years. On the other hand, property and casualty for personal and small business lines is the core business of ING.”
He adds that the shared distribution network should offer optimal possibilities to increase market share for ING and Zurich. “The essence is that you have two companies that will absolutely focus on the strengths that they bring to the table, and the results will be unbeatable for consumers, brokers, and employees.”
Zurich is betting heavily on the development of its commercial insurance business throughout North America.
Mr. Gilway estimates that Zurich holds 21% of the large corporate and commercial market in Canada.
He also feels that, ironically, the September 11 attacks may create opportunities for the company. “It helps us in the way that there are fewer companies that can handle the U.S. risks and exposure. They’re very few now. It allows us in Canada to really work with North American businesses.”
According to Mr. Gilway, Zurich’s U.S. business revenue for 2001 will hit US$14 billion while the total Canadian market for commercial lines is estimated at CAN$9 billion.
“I know that there are other people looking to get out of Canada,” adds Mr. Carter, “so I’m sure this isn’t the last announcement on a sale or merger that you are going to hear over the next six months.”