Hardening market? Restrictive carriers? Reduced commission? Loyalist Insurance Managers
represents a model that could provide some brokers with a safe haven in turbulent times

By Anna Sharratt

(Reprinted with permission from ci Canadian Insurance Magazine, October 2001)

Hidden away in Ancaster, Ontario, the offices of Loyalist
Insurance Managers are deceptively ordinary upon first glance. So it’s quite a
surprise when Don Coons, president and CEO of Loyalist Insurance Group looks like
he’s revealing a well-kept secret when discussing his broker network.

The managing agent of 27 independent brokerages in Ontario,
Loyalist Insurance Manager offers brokers clout at a time when insurer demands are
growing. Unlike a cluster, in which brokers band together, feeding off each other’s
resources, Loyalist is the insurance middleman. A firm which provides brokers with access
to four major insurers while satisfying the volume requirements of major carriers,
it’s true to its small town base. At Loyalist, it’s all about service.

The first question that pops into broker’s heads is
“Where’s the catch?” laughs Katarina Pongrac, vice president and managing
director of Loyalist Insurance Managers. “No catch!” Pongrac voices the feeling
many prospective brokers have when presented with the managing agent’s financials.
And they are surprised to hear that Loyalist charges no commission or membership fees. As
Coons puts it: “The broker doesn’t pay us – the insurer pays us to work on
its behalf. The [brokers] are getting their standard commission, we’re providing them
with a high level of service and our goal is to deliver better service and better loss
ratios to the insurers as well.”

Loyalist Insurance Managers, which started out in 1991, is
a managing general agent for an ever-expanding broker network. It acts as an intermediary
between brokers and insurers, among them the Loyalist Insurance Company, part of the
larger Loyalist Insurance Group – a financial services holding company. Undertaking
insurer functions such as underwriting, marketing and processing claims, Loyalist
Insurance Managers acts as a service provider, saving costs to the carriers it deals with.
And because it can meet insurer demands through its sheer size alone, it has an edge over
smaller, independent brokers. Last year, the Loyalist Insurance Group had revenue of $7.4 million.

Loyalist targets suburban brokers in the $3 million volume
range with a solid, profitable book of business. “They’re small, they’re
profitable and what we really want is the broker in a suburban area that has good loss
ratios and needs access to markets,” says Bob Hunter, director of corporate
development. Adds Coons “We don’t want to be in with ten offices in any one area
– we want exclusivity to that area.”

Having handpicked its brokers, Loyalist gives them options.
Instead of forgoing ownership, brokers enter a contract with Loyalist, agreeing to an
average premium volume of half a million dollars during three years. While they are
allowed to stray, dealing directly with carriers affiliated or independent of Loyalist,
they must meet the requirements laid out in their initial agreement.

In exchange, they receive access to four commercial and
personal lines insurers, service in the form of consulting, access to professional
education and higher turnaround times on new business and the information sharing a broker
network offers. Above all, they are provided with the stability a fledgling broker needs
while struggling to stay afloat.

What it comes down to is fostering broker relations.
“Basically we’re looking for a good relationship with the broker. Volume is
secondary to profitability and a good working relationship,” says Coons. To prove it,
he rhymes off the pluses of belonging: highly skilled underwriters who coach brokers
through problems, ten day turnaround times on new business and endorsements, and two day
processing of commercial quotes.

Pongrac says Loyalist frequently acts as a negotiator in
dealing with different carriers. “We are also trying to work with brokers if there is
a problem instead of saying ‘Here is the manual, sorry we can’t help you.’
We’ll try to explain, try to help the broker out if we can.” She adds that
broker assistance can also take the form of carrier selection based on expertise. While
personal lines brokers are free to select the insurer with whom they want to place
business, in commercial lines, Loyalists’ underwriters suggest carriers that are
better at certain types of business. “That’s better coverage,” notes Hunter.

Professional education is another advantage Pongrac
mentions. She says that Loyalist organizes sessions for member brokers to ensure they
clock in their mandatory 6 hours a year. For no cost, brokers can attend company or
in-house presentations and fulfill their education requirements.

The brokers can also educate themselves through information
gathering sessions, held bi-annually at Loyalist. Held to discuss the group’s
profitability and long-term strategies, the meetings are a way for brokers to discuss
their satisfaction with the managing agent’s performance and air their opinions.
“We assemble all the brokers and discuss their needs as a group, ” says Coons.
“We relish the feedback we get on that and get imput on the direction we should be
taking. Seconds Hunter “If we find our brokers as a group need a specific market and
we can help them meet the volume commitments as a group, we can go out and look for that.”

In addition to providing Loyalist with crucial information
regarding the success of the operation, brokers have the opportunity to make connections
with fellow members. ” They interact with themselves too, says Hunter. “They
meet at our meetings and one person will have a trucking risk and they know this other
person has a trucking market, so they work together as a network – but totally
outside of our structure.”

Safety in numbers is what brokers truly gain as part of the
Loyalist Group. “A group of 27 brokers together can give the volume commitment that
an insurance company wants – something these smaller brokers may not be able to do,
” says Hunter. Coons and Hunter agree that carriers are re-evaluating broker
contracts, and passing over brokerages based on factors such as volume and technological capability.

” They keep raising the bar – the bar keeps
getting higher,” says Coons. He notes that many insurers, particularly the big
players in the industry, are now demanding premium volumes of $1 million. “Even if
it’s a small profitable broker – they say ‘We don’t want that
broker,'” adds Hunter. He explains Loyalist’s competitive edge is that it
is viewed as a large broker with a huge volume. “The insurance companies look at us
as a branch, but they also look down to us a broker. And from a volume point of view,
Loyalist Insurance Managers has already hit their target.”

Hunter explains how insurers’ perception of the
MGA’s role as broker impacts members. “If that broker was dealing with the
insurance company directly, then that insurance company directly from the broker would
probably want a volume commitment at the very minimum of half a million dollars. So if you
wanted access to four insurance companies, you’d have to have a volume commitment of
half a million with each one. We give you the same access to same [four] insurance
companies for a volume commitment of half a million dollars.”

According to Hunter, in addition to volume requirements,
insurance companies are becoming techno-biased, selecting brokers who have computerized
offices over the less-technologically savvy. “With some insurance companies, if you
can’t upload and download, you’re not fully computerized, ” he says. He
adds that many companies will not invest money in small brokers to give them access to
their interface. Loyalist, on the other hand, is more concerned with brokerage
profitability. “I think we’re a bit more forgiving in that area.”

With data exchange, clout in a firming market and a group
of committed brokers, Loyalist’s arrangement seems to be a panacea to instability.
But as Coons points out, there are still challenges. He cites brokers who don’t meet
volume targets, losing members to M&A activity and increasingly shifty insurers as
examples of what Loyalist has to watch out for in coming years.

While the managing agent has canceled only two brokers to
date, for failing to meet contract requirements, Loyalist emphasizes it’s not overly
zealous in rooting out brokers. It is more concerned with ensuring it they remain
profitable. If brokers don’t meet their volume expectations, the managing agent knows
it will be hard-pressed to pay for staffing costs, occupancy fees and acquisition costs.

With no direct competitors in sight and a novel spin on the
clusters of the 80’s and 90’s, Loyalist Insurance Managers definitely proves
there is safety in numbers. It hopes to expand its broker base to fifty by the end of next
year –and potentially launch financial services offerings in the future. In the
meantime, Loyalist is still working out the bugs of its unique business model. Jokes
Hunter: ” We have people who work here who don’t quite understand it.”