Investor fatigue with volatile markets is making whole life the insurance product of choice these days. But insurers and MGAs alike are finding it difficult to sell products on the living benefits side as carriers concentrate more intensely on maintaining distribution and more efficient application processes.David Stewart, executive vice president, national sales and training with Kitchener, Ontario-based Financial Horizons Group, says whole life continues to draw investors lured by an annual interest rate of as much as 6.1 per cent – a rate difficult to match with interest rates stuck in low gear.
As reported in The Insurance and Investment Journal earlier this year, whole life is one of the fastest-growing insurance products with new premiums up by 14 per cent in 2013, a statistic Stewart says stems from investors who are tired of trying to match wits with the markets.
But while whole life always pays out better than the run-of-the-mill guaranteed investment certificate, it does have its negative side.
“The downside of that will be that sometime in the future, when interest rates rise and they are 10 per cent or 12 per cent, your plan will still be paying the rate at which you bought it for,” cautions Stewart.
Relatively new adjustable products have been launched by Industrial Alliance and Empire Life with guaranteed features and premium prices that fluctuate when interest rates go up or down. The intent by the insurers is that clients will get a chance to pay lower premiums in the future if interest rates go back up.
Kevin Cott, president and CEO of Qualified Financial Services (QFS) in Toronto, also says these policies are well positioned because of the current low interest period.
"These are fantastic products," says Cott. "As rates climb, premiums will be reduced."
Term products have continued to be the largest sellers of all life products in Canada, both in terms of premium dollars and number of policies and many are still in the throes of pricing wars.
Figures released during the 58th Annual Canadian Reinsurance Conference in April indicate that in 2013, term products made up about $350 million in new issue premiums, representing about 30 per cent of all new business premiums. About 450,000 policies have been sold having a total face amount of $180 billion.
Prices have been and continue to be very competitive in the term market. “It’s still good to buy a term product as a consumer in terms of a pricing perspective,” says Stewart.
Any insurer that decides to increase premiums will more than likely find advisors looking elsewhere to get better deals for their clients, says Cott, noting that most term products have been in a downswing.
Byren Innes, senior strategic advisor, Consulting & Deals with PwC in Toronto, says companies have been cutting prices on term life, especially T-20 and T-10 for some time as they try to “one-down” each other.
Some of the biggest price changes have come in T-10, where companies have been slowly but consistently reducing prices for almost 50 years. At the Reinsurance conference in April, delegates were told that the monthly premium for a $250,000, standard T-10 policy for a 40-year-old non-smoking man was about $130 in 1967. Prices started to drop after that and by 2013, the premium was just over $20 a month.
“We’re now at one-sixth the price of 1967 rates and a little more than half of 1997 rates,” says Innes.
Market volatility has soured both the advisor and the consumer when it comes to universal life, says Stewart. Most people have not taken advantage of the investment component of universal life so many feel they might just as well buy a less expensive term product.
Many insurers, says Cott, are using term insurance as a way to keep in touch with some advisors whose MGAs may have been taken over by larger competitors.
“As the MGA consolidation continues to take place … some carriers see some of their smaller shops being purchased by larger MGAs and their products being moved to the bottom shelf, so they are using term insurance as a way to continue to attract distribution,” he says.
Meanwhile, living benefit products continue to be a tough sell for insurers.
Long-term care insurance seems to be more or less a non-starter with few advisors selling the product – and even fewer actively selling it. Cott, for example, says QFS with its 1,500 advisors, has only sold 86 long-term care policies since 2001.
Stewart agreed that long-term care sales have been difficult. “Quite frankly, I am surprised more people haven’t caught on to it what with the Sandwich Generation that will experience the potential challenge of not having enough coverage.”
But Stewart says all of the health and benefit products remain a tough sell for advisors. “Advisors have a wide shelf space of products to sell their clients anything they could possibly want, but it’s hard to focus and sell a client everything. There’s also only so many premium dollars to go around. It’s a challenge for us as an MGA, and I know we’re not alone.”
He also said there has been some upward repricing on the disability insurance front, adding that while it was never a huge market share, it’s been a long time since the product was repriced and was due for an adjustment.
Petrina Dolby, managing director, Consulting & Deals with PwC in Toronto, said it appears insurers are concentrating their product strength in the area of wealth management. “What we are seeing is more focus around annuity-type products with traditional underlying insurance fundamentals – longer-term, more guaranteed income, less ‘let’s beat the market’ or ‘let’s beat the indices’. These are the core competencies that constitute a good insurance product.”
Dolby also said some newer products, like the Manulife One product, are pushing the industry into new areas. “We are seeing more and more demand for that kind of product. So the future of the insurance industry will be very interesting.”
Cott said he feels new products are a secondary concern of insurers, next to maintaining distribution and gaining greater efficiencies in the application process through an electronic platform.
Empire Life launched a process in December called Fast & Full, a web-based tool that advisors can use with their customers to apply for life insurance coverage. Advisors can use an electronic life insurance application and find out very quickly – sometimes instantly – whether their client has been approved for coverage.
Canada Life also recently launched a new platform, says Cott.
“This will mean significant changes for MGAs in terms of the volume of work we actually do today, how business is processed and monitored, even the relationship between the advisor and carrier.”