Despite solid sales growth reported by career networks and the emergence of online insurance sales, managing general agencies are convinced of their added value. Many even see alternative distribution networks as opening the door for independent advisors that know how to distinguish themselves.
Annualized premium sales reported by the independent network slipped by 1% between 2008 and 2009, while sales of career agent networks advanced by 6%, indicates the Canadian Life Insurance Sales report by LIMRA International. While independents ended the year with 4% growth in Q4 2009, compared with the same quarter a year earlier, the career network was even more dynamic. Its growth in annualized premiums amounted to 11% during this period.
The LIMRA study compiles data from players that control more than 85% of the market share in Canada. These include the key life insurance companies in the career network: Great-West Life, London Life, Sun Life Financial, Industrial Alliance and Co-operators Life. The study also looks at companies with branch networks, such as Desjardins Financial Security, BMO Life Insurance and RBC Insurance.
In addition to traditional career networks and distribution through intermediaries at credit unions in Quebec, MGAs must also contend with direct sales alternative networks for which little data exist: the Internet, distribution by telephone or direct mailing, credit institutions and travel agencies.
In the United States, these direct networks captured 20% of the number of life insurance policies sold in 2008, LIMRA found, in a study conducted jointly with the Life Insurance Direct Marketing Association. These policies accounted for 5% of total premiums and 13% of the amounts insured in the United States that year, the study says. It adds that the number of American consumers that buy insurance online has doubled between 2006 and 2008.
At Desjardins Group, the credit union network boosted its premium volume by 17.7% in 2009, compared with 2008, according to the 2009 annual report.
One of the three challenges of Desjardins Group in wealth management and life insurance for 2010 is to "Proactively support the caisse network in order to expand the insurance and investment portfolio."
According to figures compiled by Desjardins Group, traditional networks were responsible for 86.5% of written premiums in Canada, versus 13.5% for alternative networks (combination of data gathered by the Canadian Life and Health Insurance Association, a 2008 Desjardins report and by LIMRA).
MGAs are unfazed by the rise in directs. "It is not hampering the growth of managing general agents," says Robert Frances, President and CEO of Quebec-based PEAK Financial Group. He points out that the progression of these networks, including banks', is driven by public awareness of their brand image. This positive image lets them attract first-time insurance buyers. "It's the same phenomenon that we saw in the mutual fund sector in the 1990s. Banks enjoyed phenomenal growth, but not at the expense of independent investment firms," he recalls.
Business at PEAK has grown year after year, Mr. Frances points out. This growth is happening in a niche that is out of reach of the banks - that of an older clientele that is knowledgeable about financial services. "We don't feel that our cases are competing with those of the banks. Their potential clients are often someone without insurance who buys from the first person that comes along, through the credit card, for example."
Tony Ryan Executive Vice President of Ontario-based MGA Financial Horizons Group, is positive about the ascent of the alternative network. "I don't feel threatened. Banks have been selling insurance for a long time. It increases people's awareness. Competition is a good thing," he says.
Developing the market
François Moïse, Director of the Westmount office of CMA Group, echoes this view: "I don't like these networks, but I must say they are developing the market for independent advisors."
Most often, alternative networks sell products without analyzing financial needs, Mr. Moïse adds. "Advisors can turn this situation to their advantage. For example, many clients of alternative networks hold non-transferable bank mortgage insurance products. Nine out of ten clients would choose an individual, transferable mortgage insurance policy if given the opportunity," he says.
Jim Virtue, President of Alberta-based Financial Management Group, also takes a positive view of the situation. "The world of insurance distribution is changing very quickly. Banks and other forms of financial institutions are looking at ways to distribute insurance products to their client base. Generally, I feel that the increased awareness of insurance will help the overall industry, increase sales as a whole and help improve the professionalism of the independent network."
He adds that while the most visible example of alternative distribution networks is the banks through their online offerings and direct marketing, some insurance companies are also focusing more attention on the direct marketing. "I don't see either of these forms of distribution as a serious threat to the independent broker as they are not set up to deliver advice, only products."