The best thing to come out of upcoming Autopac rate hearings this month at the Public Utilities Board is — for the first time — Manitoba vehicle owners are going to find out all the costs built into their premiums.
Such as trailing commissions.
Known more as an issue in the securities industry, trailing commissions in an Autopac context are fees paid private brokers — even in years when they do not actually perform any direct service to, or have any direct contact with, vehicle owners.
It became a feature of the contract between Manitoba Public Insurance and brokers in 2008, when the Crown insurer went to a five-year term for vehicle policies.
The trailing commissions were agreed to by MPI, in part to help sustain the network of private brokers that, at the time, handled the gross majority of Autopac transactions and basically functioned as the retail arm of the Crown auto insurance monopoly.
However, not only was the creation of trailing commissions not publicly disclosed, neither was the fact private brokers now make more money in trailing commissions than they do from providing an actual service to an actual person.
Documents filed at the PUB for the upcoming 2020 Autopac rate hearings show in 2009 and 2010, just after MPI went to the five-year policies, trailing commissions formed a slight percentage of overall commissions paid to brokers.
However, from 2011 until March 2019, trailing commissions became a much more important stream of revenue for brokers.
Over those eight years, MPI paid private brokers more than $635 million in commissions for both basic and extension insurance services.
Of that total, $334 million (roughly 52 per cent) was from trailing commissions on five-year policies.
Over that time, the words "trailing commissions" did not appear in any MPI report, study or news release. Total commissions paid to brokers were disclosed in the Crown insurer's annual financial report, but there was no attempt to break out trailing commissions as a separate cost.
Manitoba vehicle owners may have never learned about trailing commissions, if it weren't for the e-commerce revolution and MPI's interest in taking most of its products and services online. In internal documents, MPI argued it could save hundreds of millions of dollars per year by bypassing brokers and offering most services online, direct to vehicle owners.
Not surprisingly, MPI's online aspirations have been vigorously opposed by brokers — who know as more vehicle owners buy and renew insurance online directly with MPI, there will be less commission paid out, trailing or otherwise.
The story took on political dimensions when documents obtained by the Free Press showed Premier Brian Pallister and the Progressive Conservative government directed MPI to extend its contract with brokers until 2021.
MPI had wanted to negotiate a new deal that ended certain aspects of the previous agreement, including trailing commissions.
Now, again at the Pallister government's directive, the brokers and MPI are engaged in conciliation to see if a compromise can be found.
Political critics have labelled this part of an extended campaign by Pallister — a former insurance broker — to continue paying brokers, despite clear savings that could be realized by reducing their involvement.
Which brings us back to the PUB hearings.
Interveners in the case have asked the PUB to consider the role of brokers and the overall cost they bring to the Autopac system. Acknowledging it will be a live issue, the Insurance Brokers Association of Manitoba has also registered as an intervener.
It is important to note MPI has been clear it does not want to eliminate brokers from the retail side of operations. However, in pursuing online transactions, MPI is also making it clear the brokers are going to get a smaller slice of the Autopac pie than in the past. How small remains to be seen.
The slow transformation of the insurance industry to online interactions has proven to be a difficult issue as well in British Columbia and Saskatchewan, the other two western provinces with government auto insurance monopolies.
In B.C., for example, residents must go to a broker to renew a licence or insurance, which has caused an uproar.
In Saskatchewan, many transactions can be done online, but residents still have to designate a private broker as an auto insurance representative — allowing them to be paid a commission, even though they don't really provide any direct service.
There is room for some sympathy for brokers in this story. For many years, brokers provided a relatively convenient option for vehicle owners to renew licences and insurance and helped MPI avoid the cost of setting up its own service centres.
It's fair to say brokers provided more opportunity and convenience than MPI could have ever provided on its own.
However, like so many other industries, digital transformation is changing the basic rules of the game. Some Manitobans will continue to prefer direct contact with a person. For that reason, it is safe to assume brokers will continue, in some form, to be part of Autopac.
It is just as safe to assume the future for private brokers will involve substantially less revenue from MPI as Autopac goes online.
Born and raised in and around Toronto, Dan Lett came to Winnipeg in 1986, less than a year out of journalism school with a lifelong dream to be a newspaper reporter.