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The brokerage kingdom around the rule of 20%… in 1987

by

Hubert Roy

21 June 2017 13:30

Paul-André Simard, Jean Martin, Claude St-Pierre, Gerald Laberge, Simon Brisson and John Morin

While the debate rages today, the rule of 20 % raised 30 years ago, a real unanimity among the brokerage firms. The three associations that represented them at the time had even rallied around a common position.

At this time, the damage insurance brokerage lived the shaking of the decompartmentalization of financial institutions. It is in this context that the rule of 20 %, which limits the shareholders that can own an insurer in a brokerage firm, had seen the light of day.

A tripartite Committee on the reform and regulation of the insurance brokerage had been set on foot. It consisted of theinsurance brokers Association of the province of Quebec (ACAPQ), the Regroupement des cabinets de courtage d’assurance du Québec (RCCAQ), as well as a grouping of large firms.

The tenors as a broker in the first lines

The tenors of the brokerage had signed their submission to the government of Quebec : Paul-André Simard, president of the ACAPQ, who would later become the first president of the board of directors of the Chamber of damage insurance ; John Martin, who has directed the activities of Martin Insurance & risk Management, became Hub International Québec; Claude St-Pierre, who was the chief executive officer of Johnson & Higgins, largest broker in the world of the time; Gerald Laberge, chief Gérard Parizeau ltée; Simon Brisson, owner of the Group Plural; and John Morin, a broker whose career was marked by the brokerage industry, through his involvement and his positions within various associations of brokers in Quebec as well as within theinsurance brokers Association of Canada. The RCCAQ has hailed his career by naming an award in his name. It was this which recalled the existence of this memory of the insurance Journal.

«How can it have no influence ? »

A large part of the memory of the tripartite Committee focused on the ownership of capital of a brokerage firm by an insurer. The three organizations that brought together the committee were opposed, at the time, that an insurer may, directly or indirectly, be the owner of a company one of whose objects, is the exercise of the insurance brokerage.

«The property of a company means the natural way not only the inflow of profits it generates, but also, obviously, the control of its operations. In such a context, how the broker can not be influenced in the discharge of its mandate ? Specifically, how to the broker who is managing director of the brokerage firm and whose retention, salary, bonus and other benefits are decided by the owner will be there or not influenced by the latter in the establishment and daily administration of the policies of the brokerage firm if the owner is an insurer ? «could we read there.

No influence due to the commissions contingency

And what is it commissions contingency ? Have they endangered the neutrality of the broker ? No, argued the tripartite Committee. «The fluctuations of premiums in a context of free market require the broker-dealer that does not want to incur the desertion of the customer to provide advice without regard to the report of the commission-bonus. «

The tripartite Committee had also considered the reason for establishing a 20 % ownership threshold that an insurer could hold. «It is inspired of an accounting principle generally recognized in virtue of which the income of affiliated corporations or related are recorded at their equity value in the financial statements when the threshold of 20 % is reached. «

According to the exclusive agent of the insurer concerned

The tripartite Committee also proposed that the company which does not meet the threshold of 20 % are no longer entitled to use the title of insurance broker. «It should be limited to the function of exclusive agent of the insurer concerned or prohibit the placement of a risk with that insurer. «

In the end, a few months later, the government had accepted the proposal of the tripartite Committee.

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