Recently, RBC announced it was selling its General Insurance company to Aviva for $582 million. This happened a few months after Desjardins acquired State Farm’s Canadian business, making them #3 in the industry, after Intact and Aviva. And not many years ago, Intact acquired AXA’s business. In addition, Economical is looking to demutualize, to raise funds which will “likely be tied around acquisition activity,” in the words of CEO Karen Gavan.

About 15 years ago, the top 10 Property & Casualty insurers accounted for approximately 10% of the total market. A decade ago, that percentage grew to 33%, and it currently stands at 68%, more than doubling their market share in about 10 years. The biggest just keep getting bigger.

Insurers clearly believe that bigger is better. Sylvie Paquette, CEO at Desjardins, has said, “We don’t have any crystal ball, but our opinion is that our industry in Canada will be dominated by two or three really large players”. Looking at the landscape 10 years from now, Tom Reikman, Chief Operating Officer at Economical, stated: “You’re going to have either niche players, some very small regional players, or you’re going to have big, big companies.” Economical (currently ranked #8 in the industry) wants to be among the top five players in 5 to 10 years.

Insurers claim that auto insurance has not been profitable for them in Ontario. The economies of scale in back office operations and IT – the goal of Life insurance mergers and acquisitions (“M&A”) in Canada 15 years ago – is expected to improve General insurers’ financial performance.

But how will the presence of fewer – and bigger – insurance companies affect personal injury plaintiffs, and you, their lawyers?

Marc Spivak of Devry Smith Frank LLP in Toronto has practised law since 1992. His perspective on insurer M&A goes back to Liberty Mutual’s acquisition by what is now TD. He foresees:

  • Possible changes in claims handling, with adjusters having less authority to operate independently on a file
  • Committees making decisions, sometimes regardless of the file adjuster or defence lawyer’s recommendation
  • More refusals to pay, including 3rd party claims
  • More aggressive defence
  • Less competition, fewer products, and lower benefits for motorists.

Marc has noticed an “Americanization” of insurance companies’ tactics as they have combined to grow. “Bigger firms become more of a bully. They can afford to be wrong.” He expects increased “warfare” as insurers “starve out” plaintiffs.

Lawyer Hugh Scher, whose law practice includes disability claims, foresees two phases. Initially, he feels it will be more difficult to settle cases, and foresees delays in assessments and resolutions. But over time there will be a more stable progression of files. The key issues are how the now-larger firms integrate philosophies, staffing, and which offices stay open (or close). He has seen this on the Life insurance side. In any case, the insurers’ fundamental goal will be to minimize payouts and maximize profit.

Andrew King, QC practices personal injury law in London, Ontario. He sees centralization as a problem. Local adjusters don’t have authority any more; a committee sees a summary, and seems to base decisions on whether a case will proceed. Local adjusters are more knowledgeable, and their results are more economical and fair, he feels. Another aspect is that defence legal work is also centralized, usually among Toronto firms, who don’t know the local judges and lawyers. He gets “ludicrous” requests for information that he likens to “fishing expeditions”, such as requesting the records of every treating practitioner listed in OHIP’s detailed summaries. “The system is being controlled by too few, from afar.”

Although the lawyers we spoke with see insurer M&A from different angles, all foresee some kind of change that is NOT in the best interests of injured plaintiffs.

Top 10 P&C insurer's market shares

SOURCE: Canadian Underwriter