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IDC Worldsource Insurance Network has acquired the MGA business of Calgary-based Strategic Brokerage Services. The transaction also includes the business of SBS West, an associated firm located in Langley, British Columbia.

Kelly Smith, formerly Vice-President of SBS, has been appointed vice-president of business development for the Prairie region of IDC WIN.

Read: MGA regulation covers basic issues at consumer level

The move is in keeping with IDC WIN’s growth strategy and will strengthen the firm’s presence in the Prairies and British Columbia.

“IDC Worldsource is excited to have the advisors and employees of SBS join our company,” says chairman and CEO Paul Brown. “This transaction gives us a strong foothold in Alberta, with the ability to grow our business throughout Western Canada. SBS has experienced strong growth over the past 9 years, and we are confident that together we can continue to build one of Canada’s top insurance distributors.”

Read: Merger creates new MGA giant

The integration of SBS will add over $400 million of segregated fund assets to IDC WIN, and increase new first year insurance premium to in excess of $45 Million in 2012.

The consolidation trend starting in the late 1990s and is now approaching 15 years.

Byren Innes, senior vice president and director of NewLink Group, says this trend will continue for several reasons and that an AGA or smaller/regional MGA may be better off joining or merging with a larger/national MGA.

Innes highlights some of the larger issues facing distributors today:

Regulatory change: Compliance, advisor supervision, AML, CCIR are not the end but part of a continuing trend. The effort required to be compliant is growing and this will prove difficult for smaller firms as well as advisors.  AGAs will be affected even more as they receive less gross compensation than an MGA and just don’t have the margins to spend.

Supplier/carrier Focus: Most insurers today deal with a much smaller number of distributors than just a few years ago, as low as 20%. Insurance company clients are concerns that many of their MGAs would not be able to deal effectively with the new regulations.  While part of this is wanting to work with more compliant firms, it is also a change in the distribution model. Dealing with fewer outlets costs less, is more efficient and doesn’t necessarily result in less business.  The smaller MGAs and AGAs aren’t losing their contracts because they did anything wrong, they just aren’t big enough or no longer fit the insurer’s business or strategic focus.

Shrinking product shelf: Advisors tend to use four or five companies for their sales and while loss of one of those may not make a difference, if it is the key insurer or if the advisor has significant in-force business with a ‘lost’ company they may wish to change distributors. This can lead to a run on the agency with both a shrinking shelf and potentially a shrinking number of advisors. If this continues it could jeopardize one or more remaining supplier relationships. A vicious downward cycle could ensue.

Technology: To combat some of the above, firms need to become more efficient. Even the largest firms have lower net margins today than they used to due primarily to increased regulatory and contractual compliance.  One way to be more efficient is to use technology that allows a firm to do more with fewer people and provides scale. Technology, however, is not free and its effective implementation requires an investment. A smaller firm is disadvantaged as they have fewer advisors to spread the cost.

Read: MGA merger: Financial Horizons acquires Audis

Originally published on Advisor.ca
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