Experts weigh the trend of consolidation at CIFF conference

Could have a thinning-out like life industry

A financial expert at MSA’s Canadian Insurance Financial Forum warned yesterday that consolidation in the P&C sector will rapidly continue, with the top 10 companies controlling 80 percent market share within the next decade. “I think it will intensify. At the same time, if you look at the distribution of those players, it’s going to take a while,” said Jean Royer, VP finance and CFO at Desjardins.

P&C consolidation may go the way of the life industry in the 1990s, which resulted in the “thinning out” of the middle of the market, said Randy Musselman, chief risk officer of The Guarantee Company of North America.

Musselman, who was previously in the life industry himself, said technology will be a big driver of consolidation, as “the cost to acquire the technology needed to compete on an ongoing basis is going to be significant.”

Low investment returns, high capacity in the business (with new entrants into the market every year), and consolidation of the distribution system will also be important factors.

But he also sees differences in Canada’s P&C market, including fewer “mega players,” and more foreign-owner companies, which are driven by global management strategies and are positioned in the middle of the pack. “I still expect to see more deals like the Ace-Chubb deal, or the aborted Zurich-RSA deal.” He added, however, that specialized companies offering unique solutions will always have room in the industry. “There’s still a place for those specialists.”

But the P&C sector will need to stay ahead of the curve if it is going to compete, which means being on top of new technologies and digital demands, said Claudette Cantin, senior vice-president and chief risk officer at Munich Re of Canada. To date, the industry has been largely responsive to changes, and even then, it “has to be able to react faster.”

Munich Re has scouts in Silicon Valley and Berlin, for example, and an innovation group “to be able to innovate and offer solutions” to clients’ changing needs.

Resources must be allocated to staying ahead of the curve, Cantin said, and insurers shouldn’t be afraid of shaking up their own business models to do just that. If BMW, a company known for manufacturing powerful engines, can now release electric vehicles and ride-sharing models, anything is possible, she said.

“I think to be successful in that innovation world, you have to not be afraid to take these big steps and say, ‘I’m going to disrupt my own model.’”

And thanks to customers’ experiences in other, more digitally-minded industries, that certainly appears to be where P&C insurance companies are heading.

“We’re kind of being forced to evolve and accelerate the change,” said Royer, “and change the way we interact with the client.”

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