Mr. Lutrin has a clear opinion about what is behind intense repricing. "Term insurance is an easy vehicle for a company to attract attention. Pricing drives [the market] because term is a commodity product. When advisors look at LifeGuide, price stands out… Repricing term is really an attempt by companies to put their name up in lights…They’re trying to gain market share."
This trend is cyclical, he adds, since prices can only go so low.
While he does not call the current term repricing activity a price war, Neil Skelding, President of RBC Insurance, says "the market is very, very competitive with plenty of price leadership going on."
He adds that his company always monitors pricing with the aim of staying in the top 10 among its peers in most age bands.
Part of the reason that some companies have been able to lower term pricing is due to their investment in technology, Mr. Skelding says. Having efficient technology lowers the carriers’ costs, which can enable them to offer lower pricing. An insurer has to have scale to make these technology investments, he adds.
Meanwhile, Ami Maishlish, President of CompuOffice Software Inc., the company that produces and distributes LifeGuide Professional Software, which provides comparative pricing quotations, along with other research and product suitability assessment features, says the pace of pricing activity for term insurance has not been quicker in the past 12 months (October 2008 to September 2009). "If anything, it appears to have slowed down somewhat over the most recent 12 months relative to recent earlier years."
During this period, Mr. Maishlish has observed that term pricing activity has involved some pricing reductions and pricing increases, along with some revisions in initial underwriting evidence requirements.
Asked which insurers have been most actively repricing, Mr. Maishlish pointed out that AXA Canada "revised its pricing for T10, T20 and T70 last fall and then revised again several months later with increases in pricing in most cells for these products introduced effective June 29 of this year."
Otherwise, he says, term price revision activity does not seem to have increased in pace.
"All in all, I’d say that activity has not been anything even remotely resembling a price war and doesn’t appear to be headed that way in Canada, at least for the time being." Interestingly, Mr. Maishlish notes that in the United States term pricing during the past 12 months has been generally on the increase "in some cases involving substantial increases."
Mr. Maishlish adds that, in the past, he has seen insurers create the appearance of price reductions through modifications. "Term insurance pricing can be ‘tweaked’ downwards by stripping or limiting valuable contractual provisions. Likewise, by making price structure changes such as replacement of level renewals with US-style skyrocketing cost YRT renewals, some pricing tweaks may be had."
He adds that over the past couple of decades, insurance age determination has moved from attained age to nearest birthday age.
"By moving the bar from attained age to nearest birthday age, insurers have essentially jumped the gun by as much as six months. In doing so, they could create the illusion of price reductions," explains Mr. Maishlish.
He says that those are just a couple of examples of creating the appearance of price reduction. "Should competitive pressure bear on term pricing, other changes of the same kind could be incorporated by insurers," Mr. Maishlish says.
Looking beyond price
Mr. Lutrin of Hub says pricing is an easy aspect of the product to manipulate, but there is much more for the advisor to consider when choosing a product. Experienced advisors know to look beyond pricing and evaluate other factors such as conversion options, renewal rates, length of the underwriting period, and the health accessibility of the product. "Is [the pricing] reserved for Olympic athletes, or is it for the normal client?"
He says this last factor is especially important for newer advisors to consider. Less experienced advisors can sometimes risk losing clients if they go after the lowest pricing and the client is turned down for the best rate, he warns. "Advisors can set themselves up for failure. If the client is disappointed, they may think the advisor has overpromised and under-delivered."
This doesn’t mean that low pricing is not an important consideration. If the product serves the client well, "Take advantage of it. Go for it, just be cognizant that there are other features that will be well worth your while," he advises.