Some of Canada's largest managing general agencies are reporting that insurance sales activity has held up despite tough economic times, but the products in demand are different.
John Lutrin, Executive Vice President and Chief Marketing Officer of Hub Financial and Hub Capital, says sales volumes have held steady but there has been "a change in the nature of the business; a change in the products being sold." In particular, he pointed to increased term and whole life sales, while overfunded universal life (UL) policies have declined. This reflects clients' flight to guarantees offered by whole life over UL, and the shift towards affordable basic coverage offered by term insurance.
But while sales volume is holding its own, the products being sold more are not as profitable for MGAs, says Mr. Lutrin. The top line revenues are still intact, bottom line earnings are impacted by the type of products sold. "Looking at the surface of the business you don't notice a tangible difference, but when you dig deeper you do see a trickle down effect."
Year to date, he says UL sales are down for Hub by about 10%, whereas term sales are up approximately 15%. However, it might take five term policies sold to make up for the commission on one overfunded UL sale, he points out. "The difference is in terms of the magnitude of premium."
A spike in whole life sales, which are up by just under 10%, has helped compensate for the drop in UL premium, he adds. "That has saved our margins."
Mr. Lutrin estimates the top line impact of the economic crisis on Hub's entire line of business, including insurance and investments, over the past year to be a drop of five to 10%, whereas the bottom line impact would be from 15-20%. "Yes, we felt it, but it is far from dramatic."
To make up for the thinner margins, part of Mr. Lutrin's marketing strategy involves meeting with advisors and encouraging them to keep their activity levels up. He points out that a term sale now could be converted into a permanent policy down the road when the client is ready for a bigger financial commitment. "As soon as things turn around, at least we'll have gas to cook with...It's a case of spinning our wheels faster and working harder."
Mr. Lutrin is also encouraging advisors to not forget other types of coverage, such as critical illness insurance and long-term care. For insurance advisors, the market crisis has created an opportunity, he adds. More than ever before, Canadians are aware of risk and see the value of guarantees, he says.
Asked if he has some advice for advisors, Mr. Lutrin replied, "Focus on the things you can control. You can't control the economy, but you can control the conversation you are having with your client...Find the product that fits the need, make the sale and keep the activity up."
Interviewed at the end of September, John Hamilton, President of Financial Horizons Group, has also observed changes in product sales trends. At Financial Horizons, he says life insurance applications written were up eight per cent, although overfunded UL sales were down. "The mix is different. Whole life is starting to come back."
Mr. Hamilton says he is impressed by the resilience and consistency of the life insurance business. "I'm always amazed. You'd think in a down economy that people might not put their dollars in insurance, but they do.
He adds that segregated funds sales have also held their own. Financial Horizons saw seg fund sales drop 25% in the first quarter of 2009, but they gained steam in recent months and year over year sales are now virtually equal to same period the year before. Because of this upward trend in recent months, Mr. Hamilton predicts that seg fund sales will be strong this fall.
For MGAs with fund dealerships, the impact of the economic climate has had a greater effect on the investment side than on the insurance side. A 40% drop in assets during the market crisis meant a lower amount of service fees, Mr. Hamilton says. However, the assets have been recovering well in recent months, he notes. "This too shall pass," he comments philosophically.
Rene Pereux, one of the two Principals of Daystar Financial Group, reports an increase in insurance sales of 20% or slightly more. He is not surprised to see insurance business growth during difficult times. "Over my 34 years in this business, I've observed that when times get tough, many people have a flight to security."
About a month ago, Daystar did an analysis and determined that year-over-year insurance sales are up on all product lines. "There are even more UL sales, although a little less overfunding."
He has seen a negative impact, however, in certain corporate markets. For example some large cases of co-owned life insurance have been put on hold. "But overall, people are buying life insurance."
Is part of Daystar's growth due to an expanding sales force? Mr. Pereux says that the firm has not made any recent acquisitions, but it has been growing organically through recruitment. He estimates that Daystar has expanded its advisor network by 10% over the past year.
Another reason that Daystar has seen insurance sales growth is that many dual-licensed advisors have been focusing more effort on life insurance and less on mutual fund sales. "As a result of the economic meltdown, some have shifted their focus back to, or more on, life insurance. That has definitely happened."
After the stock markets recover though, Mr. Pereux is not sure that these advisors will continue selling as much insurance. "I'm not certain this trend will continue...because investment sales are technically the easiest...It's the path of least resistance."
He hopes, though, that all advisors will recognize the "tremendous opportunities" in the insurance market, particularly in the 30-50 age group. "These people are not receiving phone calls."
Why not? Because the average age of advisors is older than this age group. Most older advisors are not prospecting anymore, instead they are serving their established clienteles. Meanwhile, the industry is not recruiting "green pea" advisors like it once did. "There's not enough new people coming in.
Mr. Pereux says this is a concern for the whole industry. He has been having discussions with insurance company executives on this issue. "I think life insurance companies would be wise to partner with MGAs to bring new advisors into the industry."