With demutualization successfully completed in 2006, Standard Life has a clear strategy for its Canadian operations going forward into 2007, a strategy that sees life insurance as a complementary offering to the company’s core wealth management products.
In November, Sandy Crombie, Standard Life group chief executive, from headquarters in Scotland, and Joseph Iannicelli, president of Standard Life Canada, sat down with The Insurance Journal at the Canadian head office in Montreal to explain this strategy. Mr. Crombie says that preparing for demutualization required the company to sharpen its profitability and ensure that capital is being wisely deployed. In the Canadian market this means focusing the company’s activities on its strengths in wealth management, particularly in the group savings and retirement market.
The focus is off capital intensive products that offer a poor rate of return, in particular universal life insurance (UL). “We have effectively priced ourselves out of the universal life product line for two reasons… [it] is very capital intensive and the profitability in that product line was very poor. It just wasn’t giving a good return on capital deployed,” says Mr. Crombie.
He explains that Standard Life is still willing to sell the product, “but others are willing to offer far better terms than we are.”
Presently in Canada, insurance products, including group insurance, account for 22% of Standard Life’s business moving towards 10% in 2009, says Mr. Iannicelli. “The emphasis on life insurance is minimized. Now it is more of a complementary offering.” he explains.
“[Insurance] is not the focus at all. The focus is on wealth management.” This includes group savings and retirement offerings, mutual funds and segregated funds.
He adds that this strategic reorientation is in line with the group’s international direction. “Insurance for us, worldwide, is a relatively small activity.”
The emphasis is on the less capital intensive product lines. “We’re not out of the other product lines. We’re just putting a lot less emphasis on them. We’re putting a lot of focus on product areas where we can get a good margin and that would tend to be the wealth accumulation product areas.”
Standard Life group’s business results for the nine months ended September 30, 2006, discuss this change in strategic direction. A press release on these results issued Nov. 8, 2006 notes that Canadian sales declined by 7% “following the management actions to reorientate towards profitable lines.” The press release goes on to note that the company is continuing to target the group savings and retirement market where it witnessed a 32% increase in year-to-date sales in Canada. Meanwhile, individual insurance, savings and retirement sales were down 33% “following the repricing of the universal life product in 2005.”
A major goal for 2007 is to strengthen Standard Life’s visibility in Canada, says Mr. Iannicelli. Focus group studies have revealed that “when people know us, they love us. But not enough people know us.”
Standard Life’s offering stacks up well against its competitor’s, he adds, but the company needs to do more to get the word out about its new product launches. “We tend to be more quiet about it and when we see other companies launching something we say, ‘We’ve been doing that for two years!’”
These companies seem to do more marketing, sending out press releases more frequently, taking out full page advertisements, etc., he explains, adding that Standard Life intends to boost its marketing activities to raise its profile among Canadians.
Mr. Crombie adds that Standard Life already has very high quality products and services and the challenge is to let more people know about them. One advantage that the company has over some of its main rivals in the Canadian market is the fact that it achieved its scale through pure organic growth, not mergers and acquisitions, he says, observing that quality service is often a casualty of a merger integration process.
When people come to us, for sure they can expect and will receive first-class service from very highly trained and dedicated people….”
As for the persistent rumour that Standard Life’s Canadian operations are up for sale, Mr. Iannicelli says, “I’m not sure if we’ll ever stop fighting that rumour. I think it’s just our competition that tends, I think, to start some of these things (see The Insurance Journal, May 2005).
For his part, Mr. Crombie categorically refutes the rumour. Noting that Canada accounts for one-quarter of the group’s profits and value, he says, there are “absolutely no plans (to sell). We’ve been here since 1833…It’s a very important market in the world, the fourth largest pension market and we have a very big position in that market…It’s not something I have any intention of giving up.”