Anemic critical illness insurance sales are propelling insurers into the banks’ pet market — young middle income families. Their key weapon: term policies.
Affordable premiums, fewer illnesses covered, simplified selection and pre-qualification when submitting life insurance quotes are among the advantages the industry is offering as it tries to snag the clients that banks traditionally landed at the time of loan insurance sales.
“They are young, they have less money to spend, but they want to protect their mortgage, their family, their income. They’ve got a lot of needs but what they don’t have is a lot of money,” says John Parker, assistant vice-president, living benefits products and marketing, individual insurance, at Manulife Financial.
There is no reason, Mr. Parker continues, if banks sell critical illness insurance (CI) policies to their clients that purchase a mortgage loan, that insurers couldn’t do so as well.
This is a view shared by Lyne Lapointe, living benefits manager and supervisor of administrative services at Groupe Cloutier in Quebec. She sees the fact that banking representatives are flourishing in CI sales despite having less training as enlightening.
“Our sales are stagnating. So we have to change the way we present the critical illness policy. We should be offering more affordable products like T10 or T20,” she says.
Nathalie Tremblay, product manager at Desjardins Financial Security (DFS), says that rather than trying to win over the banks’ clientele, it is better to target the population that is still uninsured. Nearly 92% of the insurable population lacks CI coverage, she points out.
Unlike the insurers that are watching their CI sales flatline, National Bank saw its sales double in the past 24 months. Life insurance tops the list of products tacked onto mortgage loans, says Richard Hébert, executive vice-president and chief of insurance operations.
“Life insurance is purchased by about 50% to 60% of clients. About 8% and 10% of clients buy critical illness,” he says.
The TD Group has also done well in this market segment (see text on page 16).
Timing is everything
The sources interviewed by The Insurance Journal unanimously admit that banking representatives have timing on their side when it comes to soliciting clients. Buying a home is a stressful and emotional process, and very often, when the representative talks about protecting the largest investment of the client’s life in case of disaster, clients are most receptive.
“Agents are angry, but what do they do? Nothing,” Sean Long specialist consultant in health products, individual insurance at DFS, says.
Mr. Long adds that agents have only themselves to blame if the banks are stealing their sales out from under them. “It’s also the agents’ fault if banks are selling more CI than insurance companies put together. All the agents ever saw were problems, too much underwriting… That’s why they are not selling it,” he explains.
Alain Rondeau, financial security consultant and financial planner with the firm Rondeau and Associates, sees a bleak future for the product if agents don’t rally. “Agents aren’t talking about critical illness insurance enough. I think we’re clearly losing ground to the banks,” he says.
This certainly plays into the hands of financial institutions, Mr. Rondeau continues. Because not only is their offer systematic, but they distribute a mass product that is less refined and easier to sell. On the other hand, he notes that the banks’ product is not guaranteed, unlike that of insurers. He adds that agents should try to emphasize this selling point.
Ms. Lapointe, of Groupe Cloutier, agrees that it is crucial to highlight the qualities of insurers’ products. “We mention that the premium is guaranteed… that underwriting is done when the policy is issued and that the policy holder owns the contract,” she explains.
In contrast, the bank contract states that in case of critical illness, the benefit is paid directly to the mortgage. The insured will not receive the amount written. “In loan insurance, only the debt is repaid. The beneficiary is the loan. The client is then completely freed from debt and can concentrate on other things,” says Mr. Hébert, of National Bank.
Many insurers have realized that they need to lower the premiums if they want to reach middle income clients, including young families. T10, T20 and even T5 policies are looking better than ever.
LIMRA International reports that in first quarter 2008, the average annual rate for a term policy (T10, T20) was $480. By comparison, level premium policies (T65, T75) sold for $1,095, while permanent policies cost $2,045.
André Therrien, director of living benefits at Peak Financial Services, thinks term policies will bring CI to the masses. He also expects sales to climb in 2008. Interest in the product has reached new levels, he says. “The tides have turned; consumers are increasingly turning to T10 and T20.”
Ms. Lapointe is thrilled to see agents gearing up to vie with the banks. She says the real estate boom has truly changed the game and has prompted insurers to revamp their products.
Mr. Long explains that part of the reason DFS launched Basic Harmony T10/T20 was to make incursions into the banks’ turf. The product, which covers only ten illnesses, is aimed at a clientele that includes young families that want to procure $100,000, $150,000 or maybe $250,000 in insurance without compromising their budget. To ease the way for agents, DFS designed a pocket-sized card that lets them see at a glance the standard premium for a man or woman aged 32-45, smoker or non-smoker.
DSF’s Mortgage Critical Illness Protector, whose capital decreases with mortgage payments, is designed for households that want insurance at a lower cost. Covering 25 illnesses, MCIP differs from the banks’ CI because the benefit amount remains the property of the insured, and underwriting is done when the policy is issued.
Since its debut just over three years ago, Ms. Tremblay admits that Mortgage Critical Illness Protector has not really taken off. “Agents prefer to recommend protection with amounts that do not decrease over time. We saw a lot of enthusiasm for Harmony T10/T20, whose capital stays constant,” she explains.
Manulife is aiming for the bank’s clientele with a simplified CI product. On top of its existing T10 and T20 term policies, the insurer launched a simplified issue product, specially designed to conquer a clientele who ordinarily would opt for the banks’ loan insurance.
Lifecheque Basic is the insurer’s new term policy without guaranteed premiums.
“The maximum face amount is $25,000 and it is more like a T5. The premium changes every 5 years,” Mr. Parker says.
The resemblance between Manulife’s CI product and that of the banks is quite obvious, notably because the content of the health questionnaire is verified at claim time, Mr. Parker says.
As proof of term’s revival at Manulife, the insurer saw premiums grow by 10% in 2007, coupled with a 25% increase in the number of policies sold. For the first quarter of 2008, the number of policies was up 10% since the corresponding period last year.
“Each company may have a different focus. At Manulife, we don’t want the price to be a barrier. So we lowered our premium prices early in 2007,” Mr. Parker explains.
Another major player in CI, Sun Life Financial has long offered a T10 product. David Baker, individual health products manager says the insurer did not actively develop CI products last year, but is currently examining the possibility.
“I am not prepared to share some of the specifics but we agree that there are opportunities in…the mortgage/young family market.”