Province overruled MPI on paying brokers 'for work not performed,' documents reveal

Months before the Pallister government ordered Manitoba Public Insurance to extend an existing compensation agreement with brokers, the corporation told the province that it was no longer willing to pay commissions for little or no work.

In a briefing note to government dated Aug. 31, 2018, MPI explained why it felt the agreement, negotiated in 2012, was too rich.

"In negotiating a new broker accord, the Corporation will not entertain a new minimum compensation guarantee," according to the briefing note, authored by Ward Keith, a now-retired MPI vice-president.

"Doing so would equate to paying broker compensation for work not performed, and cannot be reasonably justified from (a) ratepayer perspective except as it may relate to maintaining the financial viability of MPI's rural broker distribution network in communities where the Corporation does not otherwise have a physical presence, and for which alternative strategies will be developed."

At the time Keith wrote the note, brokers were guaranteed $83 million annually from MPI under the remuneration model. Brokers received sales commissions totalling $85.6 million in 2018-19, according to the most recent MPI annual report.

The two-year extension — to Feb. 28, 2021 — granted to brokers last fall was directed by government despite MPI's objections, according to documents obtained by the Free Press. It calls for annual inflationary increases. On March 1, 2019, the Consumer Price Index rose by 1.9 per cent.

About a month before the contract extension was granted, MPI president and CEO Ben Graham laid out the corporation's rationale for wishing to lower the guaranteed annual amount paid to brokers in a lengthy email to then-deputy Crown Services minister Grant Doak.

He explained to Doak that MPI wanted to change the compensation model so as to eliminate so-called "trailing commissions" paid to brokers on policies and driver's licences in non-renewal years. Such commissions are worth tens of millions of dollars annually to brokers. The corporation would partially offset this loss in revenue by increasing commissions paid on new auto insurance policies and other enhancements.

However, the net outcome would have seen total compensation to the province's approximately 300 brokerages reduced in 2017-18 by $10 million to $12 million.

Needless to say, the Insurance Brokers Association of Manitoba was not impressed. It had been asking for a $10 million increase, according to documents obtained by the Free Press through the provincial NDP.

In an email to the Free Press Tuesday, IBAM CEO Grant Wainikka said if MPI had implemented its proposed remuneration model, the livelihoods of brokers would have been placed at risk.

"The upshot of a $10 million-$12 million reduction would be a number of business failures and private-sector layoffs across the province," and "many Manitobans" would not have had a local option to purchase insurance of any kind, he said.

Wainikka said the corporation "enjoys an enviable distribution model where brokers are compensated only when they deliver revenue to MPI."

All costs of running a brokerage, including salaries, storefronts, pensions, training, IT equipment, "are paid for by the small-business broker as opposed to the taxpayer," he said. "We believe there are many benefits to this model."

As the Free Press has reported, brokers are insisting that all future online insurance and driver's licence sales go through them once a web-based transaction system is created. According to internal MPI communications, the Pallister government has directed that this occur.

MPI has estimated that such a move would cost the Crown corporation an additional $23 million over a five-year period in commissions. It has also projected that if brokers were bypassed completely in online sales, the corporation could save $237 million over five years, the equivalent of a 4.4 per cent reduction in basic Autopac rates.

Manitobans are keen to do business with MPI online, the corporation says. But its dispute with brokers over compensation for online transactions has delayed the introduction of such services.

larry.kusch@freepress.mb.ca