Insurance brokers are concerned that Insurance Corporation of British Columbia (ICBC) efforts to shore up its bottom line in the face of plunging corporate profits could hurt their businesses.
ICBC profit fell 36% to $361 million in 2010 while revenue stayed flat at about $3.7 billion.
Some brokers fear ICBC will compete with brokers by selling insurance direct to consumers online.
Other brokers fear ICBC might make a quick buck by lifting its moratorium on issuing new brokers licences, which currently resell for roughly $750,000.
Officials at the government insurer told Business in Vancouver that the corporation has no plans to do that “at this time,” but that doesn’t reassure all brokers.
“I’d like to know what ICBC plans on doing even if I can’t believe a word they say,” said one longtime broker who did not want to be named.
He is negotiating to buy an agency and fears that the value of his investment might drop dramatically if the public insurer starts issuing new licences.
Licences were free until ICBC capped their number at about 900 in the 1990s.
However, Abbotsford-based Mountainview Insurance Services Inc. owner Trenton Poy is not worried about the possibility of new licences being issued.
“Lots of twists and turns happen in business,” Poy said. “You just deal with it and move on.”
He spent $100,000 in 2000 to buy an ICBC broker’s licence when an agent in Keremeos who had two licences decided to merge operations and sell one.
Poy opened an agency in fast-growing Abbotsford, so he essentially bought an orphaned licence because it came with no clientele.
“For most people starting up now, it’s really expensive,” Poy said. “How many people have $750,000 plus overhead and working capital to set up an agency?”
The 750% increase in orphan-licence prices is steep enough that broker Alex Meier told Business in Vancouver he wouldn’t invest in one unless it came with a good business.
Along with partners, Meier last summer bought one of B.C.’s largest agencies – the 60-employee Shaw Sabey & Associates Ltd. on West Hastings Street. Most of that agency’s value comes from its book of clients.
Meier also co-owns agencies with his father, Jack Meier, who is one of B.C.’s largest insurance brokerage owners.
The Meier family’s Intercity Group generates more than $500 million in general and auto insurance premiums via 67 locations and 60 ICBC licences.
Recent Intercity acquisitions include:
- Lee & Porter Insurance in Park Royal in early 2011;
- Davis Insurance on Lonsdale Avenue in early 2011; and
- Bay City Insurance (now InsureBC Park Royal) in late 2010.
Because all B.C. drivers must buy basic car insurance through a broker, auto insurance agencies can be lucrative. ICBC does not sell any insurance direct to drivers.
Regulations were liberalized several years ago to allow private insurance companies to sell collision, comprehensive, excess third-party liability and other optional coverage via the Internet.
Private insurers such as Canadian Direct Insurance are now able to offer better rates online than customers would likely find in bricks-and-mortar locations.
Brokers estimate that ICBC, via its network of agents, continues to control about 90% of the optional insurance business.
“The key is to have an even playing field if basic insurance is sold on the Internet,” said Alex Meier.
“Now, the client has to come into the agency to sign the document. There are some ways when you can do transactions online, but you still have to visit the customer to get a signature. That can be done by a broker or it can be done by a courier service.”
Meier does not mind if ICBC liberalizes renewals so brokers can simply mail documents and decals – just as they do for home or business insurance.
He envisages a future where most auto renewals are done on the Interne, or, more likely, on the phone.
“That way it would not be onerous by having us have to send a courier or to make an appointment to meet with someone. We would be OK with this as long as they do it through the broker channel and they give us enough time to adjust,” he said.
“We’re set up with leases and huge infrastructures and huge expenses to do business the way we are today. For us to change that if they make [an adverse] decision would be very costly for us and the entire industry.”