CBUS President Paul Martin believes his organization can be a boon to smaller producers whose clients are pursuing cross-border opportunities.
In today's property/casualty insurance marketplace, competition is intense in the personal lines segment, and small and mid-sized brokers understandably are looking toward developing more complex commercial lines relationships with clients to replace lost income on the personal lines side. These producers see their clients, even the smaller commercial establishments, considering the prospect of selling their products and services outside their own domestic markets. How does the agent or broker who lacks international expertise assist the client in that expansion?
Obstacles often confront the producer who is attempting to cross borders and do business in the international arena. Volume commitments may exceed the capabilities of the smaller and medium-sized agent or broker, and administrative problems present another hurdle. These challenges may cause a producer to walk away from an international exposure, ceding it to larger brokers or, in some cases, leaving the client to remain uninsured on the international side.
Both scenarios are unacceptable, according to Paul Martin, president of Cross Border Underwriting Services (CBUS), a Canada-based specialty wholesale underwriting facility whose purpose is to assist smaller and mid-sized brokers in conducting cross-border business. CBUS was formed in 1997 to assist Canadian brokers whose clients were expanding into the United States. Today CBUS is also aiding U.S. brokers whose clients are moving into Canada. CBUS is a novel concept, and it is still in the early stages. If it works, Martin believes it can be a boon to smaller agents and brokers.
CBUS staffers, from left: Amanda Grozier, sales and promotions coordinator; Lisa Ivan, senior marketing representative; Lin Zufelt, vice president-administration; Wanda Thrush, general manager; Paul Martin, president; Damian Brooks, marketing representative; and Wendy Galati, executive assistant.
"We formed CBUS because we realized that in Canada there was a tremendous lack of knowledge in the brokerage community on how to underwrite Canadian companies with U.S. operations," says Martin. "A broker would look at a manufacturing plant based in Canada, either with an operation in the U.S. or planning to start up one, and just didn't know what to do. They didn't know how to place the insurance for the U.S. part of the business. Sometimes they would wind up with duplicate liability limits or even two distinct insurance programs.
"We're able to help them by providing information about U.S. insurance products, structures, and exposures. We offer access to U.S. insurance markets to Canadian brokers, and we require no volume commitments."
"And we offer counseling," adds Wanda Thrush, general manager of CBUS. "What is the workers compensation system like in the U.S. versus Canada? How do U.S. plants operate versus Canadian plants?"
Keeping track of regulation issues
For a fee that involves a split in commissions, Martin and Thrush say that CBUS can help guide the Canadian insurance broker through a labyrinth of U.S. state insurance laws and regulations and handle the technicalities of U.S. workers comp, international property risks, products liability, professional liability, catastrophe and environmental exposures, and employment practices liability. They believe CBUS is an important aid to brokers, especially because Canadian businesses appear to be exporting more and more of their products and services to the United States.
In 1998, for example (the latest year for which figures are available), Canadian exports to the United States jumped to $279 billion from a little more than $149 billion in 1993. That accounted for more than 84% of all Canadian exports. "In everything from franchising to processing to manufacturing, Canadian companies have been extremely successful in cross-border business, especially since the North American Free Trade Agreement (NAFTA) was introduced," says Martin. "Originally, Canadian businesses were against NAFTA," he notes. "The reason was that Canadian businesses thought they could not compete with the U.S. What Canadians forgot is that we do things very well here. NAFTA cut a lot of red tape and allowed our businesses to truly expand into international markets."
And now, according to Martin and Thrush, it's time for insurance brokers to keep pace, and that's where CBUS comes in. "In any business, you can only be really good at so many things. No one can be all things to all people. The Canadian brokers don't come across U.S. business too often, so they don't know what questions to ask. Yet their clients are moving cross-border, and they want their brokers' assistance in insurance matters. We want to be the arm of the broker that helps them compete with the larger broker. We have the expertise the smaller broker needs and has not the time to acquire. We know the legal environment in the U.S.; we know how windstorms are handled and which states have absolute liability, for example."
Martin and Thrush also believe that small and medium-sized brokers in the United States might do well to use CBUS for doing cross-border business in Canada. In fact, CBUS recently opened a Chicago office to service U.S. brokers who want to do just that.
Competition in the United States for personal lines business is no less fierce than it is in Canada, and U.S. brokers are feeling every bit as squeezed as their Canadian counterparts. In fact, there is every indication that competition for personal lines business will become even more intense after last year's passage of the Financial Services Modernization Act of 1999. That law effectively nullified the Depression-era Glass-Steagall Act, which created artificial barriers among insurance companies, banks, and securities firms.
With the boundary lines eliminated, banks and securities firms will begin moving into the insurance arena, and the first market they will enter will be personal lines. Initially most of this competition will affect smaller producers, and they likely will seek to recoup lost premium dollars in the commercial lines arena, especially in cross-border business.
When U.S. brokers need help in Canada
"Right now, there is more Canadian business flowing into the U.S. than the other way around," says Martin. "But we believe that more businesses will begin turning to Canada and that brokers will have to follow their clients or lose the business. There are a great many advantages to doing business in Canada. For one thing, we don't have the same legal environment as in the U.S. We don't have the contingency fee system for lawyers. Lawyers are very expensive here, so there are not the frivolous lawsuits that we see in the U.S. In addition, the U.S. dollar is strong compared to the Canadian dollar."
For these reasons, Martin believes U.S. companies that want to cross borders might find Canada an attractive proposition. "And the same situation that exists with Canadian brokers exists with U.S. brokers. Many of them are not well versed on doing business internationally. We can help them with licensing requirements as they vary in the Provinces, and we can help them with Canadian insurance laws."
How has CBUS fared in the few years it has been in existence? It may be too soon to tell. In addition to the opportunities it opens up for wholesalers, there also are challenges.
CBUS is working with quality insurance markets such as Chubb, Hartford, CNA, and AIG, not just placing business with them but also attempting to iron out the administrative problems that come up with U.S. "paper." A more streamlined way of doing cross-border business would certainly eliminate headaches for brokers.
But the real growth potential for CBUS lies in attracting brokers to sign on to the group's cross-border business approach. Some brokers dislike the split commission arrangement and would rather lose the business to larger brokers than work fifty-fifty. In addition, some brokers may use the service once or twice and then go to the markets directly for full commissions. Thrush says the risk of broker defection is one CBUS is prepared to take. "While some brokers might decide to place their business on their own after we have helped them initially, more often than not they will refer another broker to us. One takes the place of another."
Regardless of the pitfalls, Martin and Thrush believe strongly that CBUS is a facility whose time has come. "Everybody talks about the global insurance environment," says Martin. "The smaller broker is usually left out of those talks. But here is a way for small Canadian and U.S. brokers to take advantage of global developments. We know the opportunities are there for brokers, and we believe we can be of immeasurable assistance. Those brokers who want to join us are welcome. Those who want to sit and complain about excessive competition in the personal lines arena--well, that's their option." *
Correction
In the January issue "It's all about Money" column (page 52) the opening sentence incorrectly identifies the name of Bill Bailey's radio talk show as "Sound Money." The correct name of Bailey's show is "It's Your Money."
"Sound Money" is a public radio program distributed by Public Radio International and hosted by Bob Potter.
©COPYRIGHT: The Rough Notes Magazine, 2000