an economic impact and future growth study of New Brunswick s high-value insurance sector over 340 firms 49% employment growth over the past six years 15% employment growth over the next three years
FEBRUARY 2012 This document is a summary of two separate reports. The first was prepared by the Conference Board of Canada and is entitled Assessing the Impact of the Insurance Sector in New Brunswick: An economic footprint analysis (2012). In the report, the Conference Board has developed a broad economic impact assessment of the insurance industry in New Brunswick, including direct and indirect employment, gross domestic product, direct and indirect tax benefits to government and other impacts of the industry to the provincial economy. It also provides a detailed assessment of the property and casualty insurance sector in New Brunswick. The second report, prepared by Jupia Consultants Inc., is entitled New Brunswick s Insurance Industry: An Economic Growth Engine (2012), and includes an assessment of the size and scope of the industry, its regional impacts across New Brunswick and its potential for future growth. The report also highlights some of the impediments to achieving its growth potential. Authors: Report Partners: Funders:
: Table of Contents 1. Insurance matters: a critical service for residents and businesses 1 2. An important economic engine for New Brunswick 1 3. Insurance in New Brunswick: economic footprint 2 4. Insurance in New Brunswick: a significant export industry 4 5. Insurance spending in New Brunswick stays in New Brunswick 5 6. Providing economic benefit to all regions of New Brunswick 6 7. Insurance brokers: local economic impact across New Brunswick 7 8. An industry dominated by small and medium sized businesses 7 9. A strong value proposition for the insurance industry 8 10. Building on the industry s growth: 2012-2015 9 11. Strengthening the value proposition for the insurance industry 10 12. Conclusion 10
1. Insurance Matters: a critical service for residents and businesses Insurance plays a critical role in the New Brunswick economy by assuming part of the financial risk inherent in running a business, driving a car, or owning or renting a home. The property and casualty (P&C) insurance industry touches the lives of just about every resident and business across New Brunswick by providing insurance protection for homes, cars and commercial enterprises. Health and life insurance also provides vital protection for New Brunswickers. The business of insurance is to limit the risk of unexpected events to policyholders. The P&C insurance industry, in addition to paying for losses, works to prevent them. For decades, P&C insurers and Insurance Bureau of Canada (IBC) have worked in partnership with communities and officials on road safety, fire prevention, anti-fraud campaigns and many other safety-related projects. Most recently, the industry has encouraged governments nationwide to develop a comprehensive strategy to deal with the effects of the increasing number of severe weather events resulting from our changing climate. 2. An Important Economic Engine for New Brunswick The insurance industry in New Brunswick, as a whole, is made up of 385 business establishments directly employing approximately 5,000 people. More than 3,600 of these jobs are in the insurance carrier sector and another 1,300 are in the insurance agencies, brokerages and other insurance-related activities sector. More than two out of every hundred people employed in the private sector in New Brunswick work for the insurance industry. This is more employed New Brunswickers than in either the real estate sector, the accommodation sector or the architectural, engineering and related services sector, to name a few. NEW BRUNSWICK S INSURANCE INDUSTRY: AT A GLANCE PROPERTY & CASUALTY INSURANCE CARRIERS: (INCLUDING AUTO, HOME AND BUSINESS) 22 Businesses LIFE & HEALTH INSURANCE CARRIERS: 20 Businesses INSURANCE BROKERAGES, AGENCIES & OTHER SERVICES: There are OVER 340 insurance agencies, brokerages and related businesses in New Brunswick. INDUSTRY SERVICE PROVIDERS: There are HUNDREDS of firms generating business from the insurance sector including those in construction, auto repair, medical services, legal, etc. The insurance industry also offers relatively high wages. Workers in the insurance industry earned 29 per cent more, on average, than other workers in the province. The insurance industry contributes more gross domestic product (GDP) to the New Brunswick economy than either mining, agriculture or the customer contact centre industry. did you know? In 2010, the property and casualty insurance industry in New Brunswick paid out over $546 million worth of net claims for personal property, commercial property, auto and liability. 1
3. Insurance in New Brunswick: economic footprint The Conference Board of Canada estimates that in 2010 New Brunswick s insurance industry directly contributed $440.1 million to the provincial economy. However, when all spinoff effects are included, the total impact rises to $781.2 million, yielding an economic multiplier of 1.78. The boost in economic activity also means that the sector supports nearly 8,100 jobs (direct, indirect and induced) in the province considerably more than the 4,890 who were directly employed by the sector in 2010. The property and casualty carrier segment of the industry alone generated an estimated $278 million worth of GDP in 2010 and some 2,650 direct jobs. ANCHORING NEW BRUNSWICK S INSURANCE INDUSTRY TD INSURANCE MEDAVIE BLUE CROSS COOPERATORS INSURANCE ASSUMPTION LIFE WAWANESA FIRST CANADIAN TITLE ALLSTATE CANADA GROUP AVIVA CANADA THE ECONOMICAL INSURANCE GROUP INTACT INSURANCE JOHNSON INSURANCE GDP AND EMPLOYMENT IMPACTS IN NEW BRUNSWICK (2010) Direct, indirect and induced impacts ($ millions, $2002 1 ) P&C CARRIERS MEDICAL, HEALTH & LIFE CARRIERS AGENTS & BROKERS TOTAL INSURANCE INDUSTRY $141.0 $161.4 $137.7 1.97 MULTIPLIER $278.3 1.96 MULTIPLIER $316.3 1.35 MULTIPLIER $186.6 $440.1 1.78 MULTIPLIER Legend Real GDP Total GDP Impact TOTAL EMPLOYMENT IMPACT P&C CARRIERS 2,650 MEDICAL, HEALTH & LIFE CARRIERS 3,335 AGENTS & BROKERS 2,107 TOTAL INSURANCE INDUSTRY 8,092 $781.2 Source: The Conference Board of Canada; Statistics Canada. did you know? The average employee in the insurance industry across New Brunswick has an income tax bill over 50 per cent higher than the average for all employed New Brunswickers. The insurance industry is a major generator of tax revenue for provincial and local governments. 1 GDP is expressed in chained 2002 dollars in order to allow for inflation adjusted comparison over time. 2
The Conference Board of Canada report measured the overall increased economic activity and employment created by the insurance industry which lifts labour income and boosts corporate profits, both important sources of revenue for federal and provincial levels of government. In 2010, $228.8 million of additional revenues are estimated to have flowed to government funds as a result of New Brunswick s insurance industry. 2 While not captured in the Conference Board study, the insurance industry also provides at least $6.5 million worth of resident property tax revenue each year used to support municipal governments across the province. 3 The impact of the insurance industry goes well beyond direct employment and economic activity. Many jobs in the legal, medical services, construction, auto repair, and other sectors are indirectly linked to the insurance industry. Indeed the industry is a necessary enabler of business and community activity of all kinds. According to the Conference Board of Canada report, the insurance industry in New Brunswick generates a total of $383 million per year worth of personal income and $295.2 million worth of personal disposable income (after taxes). This level of personal income will support $114.7 million worth of retail sales each year. INSURANCE INDUSTRY TAX IMPACTS: 2010 ($ millions) 44% $101.5 - Corporate Taxes (provincial and federal) Using the average household spending figures developed by Statistics Canada, we can estimate how this personal income is disbursed throughout the provincial economy. The insurance industry supports some $66.5 million worth of spending each year on shelter (mortgage payments, rent, etc.) and another $21.6 million on household operation (utilities, maintenance, etc.). 31% $70.3 - Indirect Taxes 25% $57.0 - Personal Income Taxes Source: Conference Board of Canada. The industry supports over $60 million worth of spending on personal vehicles, operation and maintenance. It also supports some $42 million worth of spending on groceries, restaurants, etc. did you know? From 2004 to 2010, total employment in the insurance industry across New Brunswick grew by 49 per cent - faster than all other provinces in Canada, adding 1,600 new jobs. The next closest province for insurance industry employment growth was British Columbia at only 19 per cent. 2 This includes: corporate income taxes, personal income taxes and indirect taxes collected. It excludes premium taxes paid by insurance companies. 3 Estimated based on the average household expenditure on property taxes (2009). 3
4. Insurance in New Brunswick: a significant export industry The majority of insurance firms are serving more than just the provincial market from their New Brunswick operations. In the survey completed for this report, two thirds of the insurance firms indicated they export products and/or services to the rest of Canada from New Brunswick. The average insurance firm in the province generates more than 35 per cent of its revenue from markets outside New Brunswick. Statistics Canada provides information on the international export of industries across Canada. Based on its data, New Brunswick has the most export-intensive insurance industry among the 10 provinces in Canada. For every dollar of insurance carrier industry output, there was $0.143 worth of international exports generated in 2008 4 25 per cent higher than the national average. INSURANCE INDUSTRY EXPORT INTENSITY - Amount of international export per $1 of industry output $0.143 NEW BRUNSWICK $0.119 ONTARIO $0.115 CANADA $0.114 NOVA SCOTIA $0.099 QUEBEC $0.088 BRITISH COLUMBIA Source: Statistics Canada. Provincial Input-Output Multipliers, 2008 Multipliers and ratios per $1 of exogenous industry output shock. Insurance is also one of New Brunswick s biggest services-based export industries, well above other industries such as engineering, advertising, accounting or publishing. INTERNATIONAL EXPORTS PER $1 OF INDUSTRY OUTPUT - Export intensive service industries New Brunswick $0.152 - SOFTWARE PUBLISHERS $0.143 - INSURANCE CARRIERS $0.122 - AMUSEMENT & RECREATION INDUSTRIES $0.104 - ARCHITECTURAL, ENGINEERING & RELATED SERVICES $0.034 - ADVERTISING & RELATED SERVICES $0.015 - NEWSPAPER, PERIODICAL, BOOK & DIRECTORY PUBLISHERS Source: Statistics Canada. Provincial Input-Output Multipliers, 2008 Multipliers and ratios per $1 of exogenous industry output shock. did you know? Much of the growth of the New Brunswick insurance industry in recent years has come from expanding claims management, customer service and other support for markets in Quebec, Ontario and Western Canada. 4 The most recent year for which data is available. 4
5. Insurance Spending in New Brunswick Stays in New Brunswick When a New Brunswicker purchases a smart phone or television, buys clothing or goes to the movies, most of the economic activity associated with those purchases leaves the province to support economic development elsewhere. Not so with the insurance industry. The insurance industry is one where the bulk of the economic activity stays within the province. For every dollar of premium paid by a New Brunswicker, 77 cents worth of gross domestic product (GDP) is created in the province either directly through the cost of operations (payroll, facilities, etc.) or indirectly through the supply chain. TOTAL (DIRECT & INDIRECT) GDP IN NEW BRUNSWICK - Per $1 of direct GDP OIL & GAS ENGINEERING CONSTRUCTION $2.65 SAWMILLS & WOOD PRESERVATION $2.33 INSURANCE CARRIERS PERFORMING ARTS, SPECTATOR SPORTS & RELATED OTHER PROFESSIONAL, SCIENTIFIC & TECHNICAL SERVICES SOFTWARE PUBLISHERS ARCHITECTURAL, ENGINEERING & RELATED SERVICES OFFICES OF PHYSICIANS $1.34 $1.29 $1.21 $1.20 $1.11 $1.72 MACHINE SHOPS $1.10 Source: Statistics Canada I/O Tables 2007. Source: Statistics Canada I/O Tables 2007. did you know? The insurance industry has one of the largest employment multipliers of any industry in New Brunswick. For every direct job in the insurance carrier sector, three jobs are created across the economy. Industries such as the film sector, software publishing and engineering services have much smaller employment multipliers across the province. 5
6. Providing Economic Benefit to All Regions of New Brunswick The insurance industry is widely distributed around New Brunswick. According to Statistics Canada there is at least one company (provider, brokerage/agency, claims adjustor, etc.) in more than 80 communities around the province. Northeastern New Brunswick, from the Miramichi to Campbellton, is home to 66 different firms. Northwestern New Brunswick (from Woodstock to the Quebec border) has 55 different insurance-related firms. There are 65 firms in the Fredericton area, 99 in Greater Moncton (southeastern New Brunswick) and 100 firms in Greater Saint John (from St. Stephen to Hampton). This represents only the direct firms and does not include the hundreds of firms involved in auto repair, construction, medical services and other service providers to the industry. NEW BRUNSWICK S INSURANCE INDUSTRY - Firms by geographic region (2011) (Firms in Saint John, Moncton and Fredericton are not represented on the following map. They are captured in the table below.) EDMUNDSTON BATHURST MIRAMICHI MONCTON (MONC) FREDERICTON (FRED) SAINT JOHN (SJ) Source: Statistics Canada. Canadian Business Patterns ( June 2010). Life & health insurance carriers Property & casualty insurance carriers Other direct insurance carriers Insurance agencies & brokers Claims adjustors Other insurance activities SJ MONC FRED Rest of NB 5 7 3 5 9 3 2 3 1 0 2 2 41 33 35 178 6 7 4 25 1 4 1 8 did you know? Adjusted for the size of the labour force, Edmundston has the second highest concentration of insurance industry employment in New Brunswick. In addition, there are also significant concentrations of insurance industry employment in Moncton, Saint John, Fredericton and Bathurst. 6
7. Insurance Brokers: local economic impact across new brunswick The network of insurance brokers and agents across New Brunswick is a vital part of the industry. According to Statistics Canada, there are an estimated 1,300 people working for more than 300 insurance brokerages and other insurance related firms matching clients with products offered by insurance companies, and providing a variety of support services from insurance selection through to the claims process. The Conference Board of Canada s economic footprint analysis estimates the insurance brokers and related services sector generated more than $186 million in total GDP in 2010 5 (direct, indirect and induced impacts) and supported more than 2,100 jobs. In addition to the economic impact, insurance brokers are active supporters of their local communities. The survey of insurance brokerages conducted for this report found that 97 per cent supported local charities, 86 per cent sponsored local sporting or cultural events and more than three-fourths encouraged staff to volunteer in their local community. 8. An Industry Dominated by Small and Medium Sized Businesses New Brunswick is fortunate to have attracted significant regional offices for some of Canada s largest insurance companies. At the same time the vast majority of the overall industry s firms are small and dispersed around the province. More than 80 per cent of them have less than 10 employees and 97 per cent employ fewer than 50 people. Over 98 per cent of the province s insurance agency and brokerage establishments have less than 50 employees and 96 per cent of the firms providing claims adjustment services have less than 50 employees. INSURANCE FIRMS IN NEW BRUNSWICK BY EMPLOYMENT LEVEL (2011) UNDER 10 EMPLOYEES 10-49 EMPLOYEES 50-199 EMPLOYEES 200+ EMPLOYEES Source: Statistics Canada. Canadian Business Patterns ( June 2011). did you know? There are insurance industry business establishments located in over 80 New Brunswick communities. 5 GDP is expressed in chained 2002 dollars in order to allow for inflation adjusted comparison over time. 7
9. A Strong Value Proposition for the Insurance Industry Insurance firms in New Brunswick face a very competitive overall cost environment. According to the KPMG Competitive Alternatives report for 2010, New Brunswick cities offer a significant overall cost advantage for back office operations compared to large urban centres such as Toronto, Calgary, New York and Boston. The cost advantages include lower payroll costs, lower facilities costs and a reduced tax burden. According to data compiled by IBC, P&C insurers in New Brunswick face a lower overall tax burden compared to most other Canadian provinces. The insurance industry has a growing concentration of insurance industry employment. As of 2010, only two other provinces had a higher percentage of the workforce employed in the insurance sector. The employee turnover rate in New Brunswick is also well below average. TOTAL LOCATION SENSITIVE COSTS ($ millions) 145 person back office facility SAN FRANCISO, CA $13.58 BOSTON, MA $12.85 CHICAGO, IL $12.04 TORONTO, ON $11.77 DENVER, CO $11.76 EDMONTON, AB $11.39 VANCOUVER, BC $11.27 HALIFAX, NS $10.37 FREDERICTON, NB $10.03 MONCTON, NB $9.89 Source: KPMG Competitive Alternatives (2010). The bilingual workforce allows insurance firms to easily serve Quebec and other francophone markets from New Brunswick. 8
10. Building on the Industry s Growth: 2012-2015 New Brunswick has the fastest growing insurance sector in Canada driven mainly by the expansion of firms serving regional and national markets. There are four broad categories of growth potential for the insurance industry in New Brunswick. 1. Organic Growth: The industry has the potential for considerable growth from within. The consultations completed for this report indicate an estimated 260 new jobs are forecast to be created in the next three years. This was based on a sample of the firms as many of them were not prepared to estimate employment growth. 2. Expanding the National Footprint: Related to organic growth is the potential of the current firms in New Brunswick building a broader, national footprint. At least one third of the firms indicated they have identified areas where more national activity such as claims management, customer service or training could be facilitated out of their New Brunswick operations. 3. Expanding the Scope of the Industry/Building the Cluster: Aside from the head offices, most of the insurance firms are focused on claims management and other customer service activities from their New Brunswick facilities. There could be potential to expand the range of activities undertaken in New Brunswick. Three firms already do actuarial modelling and related activities in the province. There could be potential for more interaction between the ICT sector and the insurance industry. New Brunswick could also target the insurance firms and their social media functions. 4. Attracting International Firms: Three other Canadian provinces have attracted international insurance operations. The cost of telecommunications has dropped to a point where the economics of this can be supported. New Brunswick has the additional advantage of offering bilingual (French and English) workers to support French language markets in Europe. 9
11. Strengthening the Value Proposition for the Insurance Industry Based on the consultations with industry and a review of other financal services sector development efforts across North America, there are some important initiatives that should be undertaken by local and provincial stakeholders (government and industry) to position the insurance sector for further growth. Help build the talent pool by attracting skilled workers (through immigration and from the rest of Canada) and by expanding training options, including the development of a community college diploma program. There are currently no insurance industry focused, college-level diploma programs in Atlantic Canada. Raise awareness of the insurance industry as a good career option for New Brunswickers. The industry offers above average wages and a host of career opportunities. Advance university-level cooperative education programs with the insurance industry. Closer ties between the insurance industry and education providers will strengthen the value proposition and support further industry growth. Ensure a stable and predictable regulatory environment. Uncertainty in the regulatory environment may stifle investment by the industry in New Brunswick. Companies unsure about the future of the regulatory environment may put off investments or may divert additional back office or other support services to markets they consider to have a more positive business environment. Promote New Brunswick as a location for the insurance industry. There could be merit in setting up a group of company representatives, economic development officials, education representatives and other stakeholders to work on ways to grow the industry in the province. 12. Conclusion The insurance industry is an important economic driver for the New Brunswick economy, growing its employment faster than all other provinces in Canada by a wide margin since the early 2000s. Much of this growth has come from firms using New Brunswick as a base to service clients across Canada. This export-based activity supports hundreds of jobs and generates millions of dollars worth of tax revenue for New Brunswick. The Conference Board of Canada report concludes the insurance industry in New Brunswick supports nearly 8,100 jobs and generates over $780 million worth of GDP. Governments benefit from over $228 million worth of taxes each year. There is considerable growth potential over the next few years. Among the companies interviewed for this report, an additional 260 jobs are expected to be created in New Brunswick over the next three years. Industry growth cannot be taken for granted. Community stakeholders, including government, have a role to play to ensure the value proposition remains strong and is enhanced in the coming years. 10
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