Empire Financial Group won’t be buying or selling any time soon, says president and CEO Douglas Hogeboom. On the contrary, the company is banking on organic growth to attain its expansion objectives and to attract advisors as suppliers dwindle.
Mr. Hogeboom says he wants to seize the opportunities generated by consolidation. The shrinking of supply and some advisors’ dissatisfaction with service, which inevitably follows mergers or acquisitions, is creating a gap.
“We are small enough to have preserved a culture of respect for clients, and especially advisors,” says Mr. Hogeboom. “We have a good portfolio of products. We are competitive. I think that all self-respecting advisors want to deal with a range of suppliers. That’s where we come in.”
Asked about the economies of scale that Empire’s large insurer rivals enjoy, Mr. Hogeboom replies: “I won’t resort to clichés, but my job is to perfect my relations with advisors. Our growth and our survival hinge on our respecting our distributors. I plan to take full advantage of our status as an alternative in a market where the number of suppliers is constantly shrinking.”
Don’t expect this insurer to wow the market with an unprecedented product or a highly aggressive approach. “We are following the major trends in our market to ensure that we remain competitive. The company’s size does not allow us to sink $10 million in a project that is not guaranteed to pay off. I will not invest in technology that I will have to throw away after a year or two. I need to be prudent all the time. But when we finally launch a project, we give it all we’ve got.”
Mass marketing was also nixed. Empire claims that it does not have the means to build a reputation among the general public from coast to coast. It prefers to inform its distributors directly. “If advisors do their work properly and portray us as a solid alternative despite the fact that we are not as well known as the market leaders, we will definitely score some points. Some clients may say, Empire, who are they? It’s here that the advisor’s recommendations make all the difference.”
At first glance, a comparison of the 2003 and 2002 financial results points to slumping business growth for Empire. Yet, Mr. Hogeboom puts a very different spin on the figures.
“Looks can be deceiving. From 2001 to 2002, we boosted our new life insurance sales from $16 million to $30 million. In 2003, they reached $34 million. Yes, the increase is less sustained, but in absolute terms the sales are very strong.”
The executive estimates that year-end 2004 should see an increase in sales on par with that of last year, as fierce competition continues to stunt growth. In individual insurance, the sales growth objective is 10%, versus 15% in group insurance.
The massive overhauling of the insurer’s product line in recent months sparked rumours that the firm may be put up for sale. Product reengineering is quite commonplace among insurers that want to spruce themselves up for potential buyers.
“Many advisors asked us this question lately. But we are not trying to seduce a potential buyer. Our only goal is to accelerate our growth. It is more a question of survival in an increasingly competitive market.”
As part of its makeover, Empire recently launched a new 20-year term (T-20) insurance product. At the same time, the insurer trimmed the price of its T-10, especially for ages 35 to 55 for coverage ranging from $100,000 to $1 million.
In addition, Empire launched an updated version of its universal life insurance product Trilogy Plus earlier in the year.
Mr. Hogeboom explains that the firm’s majority shareholder E-L Financial, a public corporation controlled by the Jackman family, has stated repeatedly that it has no plans to sell Empire.
With $350 million in excess capital in its coffers and no buyers on the horizon, is the insurer planning to go on a shopping spree? “We have absolutely no acquisition plans or targets. As I said before, our growth will be organic. We made some purchases in the past, like the insurer Montreal Life in the ‘80s, Concordia Life(ex-Colonia Life) and certain business blocks in the ‘90s. But these were simply opportunities that came along, not a deliberate growth strategy. And this type of opportunity is less and less frequent, you have to admit.”
Concentrating on MGAs
What’s more, Empire significantly reconfigured its distribution approach. Following the purchase and integration of Concordia, the insurer now does most of its business with managing general agents (MGAs). Before the absorption of Concordia, Empire dealt directly with advisors.
“We are moving in step with an irreversible and fundamental transformation of our industry. In the past, we dealt only with individuals. This let us establish solid long-term business relations, which have remained in place. But fewer and fewer advisors are working directly with insurers. We had to adapt. There will always be pros and cons to both approaches and I’m not rejecting either one. As an insurer, we try to cultivate long-term relationships with each of our distribution channels.”
Between 75% and 80% of Empire’s life sales are generated by MGAs. The corresponding proportion for wealth management is 60% to 70%.
Mr. Hogeboom doesn’t think much of the one-stop shopping approach. “Clients want to do business with an advisor, but they do not want to have the impression that they are missing out because they don’t have the flexibility to shop elsewhere. They don’t want to feel like they are paying more because they don’t have the freedom of choice.”
He predicts that in the next few years Empire’s growth will be propelled mainly by wealth management. “But this sector is both cyclical and risky. We have little control over this environment, which is at the mercy of economic turmoil and market conditions. You have to keep your feet on the ground when you are active in the financial services sector.”
For segregated funds, the challenge is to survive the up and down cycles. Mr. Hogeboom underlines the importance of convincing clients that they must focus on long-term returns. “We have never sold funds just because they were in fashion. We never presented them as the flavour of the week. Our main equity funds were created in the 1960s. Our in-house management team has a fairly conservative value approach. We offer competitive returns over a long horizon. In addition, I fully endorse the philosophy of our segregated fund managers. Because they’re the ones that manage investments for the entire company along with our excess capital.”
The insurer’s market share (3.5% of the Canadian life insurance market) is predominantly situated in Ontario. Between 45% and 50% of the total portfolio is concentrated in this province, compared with 36% in Quebec and the remainder in Western Canada. In group insurance, 80% of the portfolio is concentrated in Ontario.
Empire is also focussing on carving out a place in the Maritime Provinces. Rather than taking the region by storm, the insurer is opting for a prudent step-by-step strategy. An approach that suits its executives just fine.