The economic and regulatory environment has prompted RBC Insurance to suspend the sale of several permanent individual life insurance products.
RBC Insurance has stopped selling universal life and T100. It is also suspending sales of three of its critical illness products, its long-term care insurance, and one of its disability products. Under pressure from low long-term interest rates and regulatory capital requirements, the insurer has decided to withdraw from the market rather than increase prices.
"If we reprice, as we continue to reprice, when does it become less and less affordable for Canadians to actually buy this sort of insurance? I'd rather take the resources that are involved in repricing and create product designs that are more innovative and sustainable," commented Rino D'Onofrio, Head, Canadian Insurance Business, RBC Insurance, in an interview with The Insurance and Investment Journal.
Mr. D'Onofrio notes that the problems affecting these products are not new ones. He says that long term interest rates and a changing regulatory environment have been exacerbating the situation for several years. Under these conditions, he believes price increases would only be a band-aid solution.
Despite the suspension of seven products, Mr. D'Onofrio says that RBC Insurance continues to offer one of the widest range of products in the marketplace. The insurer is committed to innovation and to maintaining a broad product offering for all of its distribution channels.
While he does not completely rule out the possibility that sales of some products might resume, it will take more than an increase in long-term interest rates to bring RBC back into the market for these products. The whole environment must change before RBC will consider a return: this includes interest rates, capital requirements, as well as demand and customers' ability to pay.
Mr. D’Onofrio says that reinstating a product that was unable to prove its long-term profitability beforehand is out of the question. After 2008, he remembers how pleased he was that RBC had not launched a guaranteed minimum withdrawal benefits product when it rolled out its segregated fund lineup in 2006.
Apart from being motivated by interest rates and capital rules, RBC has removed some products because they did not sell. Mr. D'Onofrio says this is why the insurer's long-term care and disability products have disappeared in this portfolio overhaul.
"The long-term care product has been around for 10 to 15 years. It really hasn’t gone anywhere. Sales never grew and are now pretty flat. We want our people to focus on where they can really make a difference, on products where everybody wins," comments Mr. D'Onofrio.
The non-guaranteed Quantum disability insurance product was also found guilty of poor sales. This product was not vulnerable to interest rates, notes Mr. D'Onofrio.
He points out that critical illness sales were and continue to be successful, and that in this case RBC only removed products that were most sensitive to low long-term interest rates.
The door remains open for a possible return to the long-term care insurance market. If opportunities arise, and if the market shows signs of recovery, that's when Mr. D'Onofrio says RBC will think about coming back in.
In a memo published on June 12, RBC Insurance lists the products it has decided to suspend and the distribution channels in which the changes apply. For individual life insurance, new sales are only suspended in the independent distribution network. The affected products are RBC Universal Life and RBC Term 100.
In living benefits, the suspension applies in all of the insurer's distribution channels. Sales of the three versions of RBC's Critical Illness Recovery Plan have been suspended: Level Premiums to age 100, Level Premiums to Age 75 - Pay to age 65, and Return of Premium on Surrender or Expiry. The Quantum long-term care insurance product and the non-guaranteed Quantum disability insurance product are consigned to the same fate.
In their memo, RBC Insurance indicates that its universal life, term to 100, and long-term care insurance products will remain available for conversion. They may also convert a disability or critical illness insurance product to long-term care coverage.
Those who choose to convert a life policy, however, will still have to reckon with a price increase. RBC is raising the cost of its level universal life and T100 products to bring itself in line with recent market increases. The average increase for the products in question is 15.5%.
As for new sales, advisors must submit their insurance applications on or before June 22. For advisors who want to convert a policy, the first year commission payable for universal life is decreasing from 60% to 55%. RBC will release its new commission rates and compensation schedule soon, while the 24 month chargeback period remains in effect.
The memo also states that the insurer will continue to sell T10 and T20 life insurance, as well as T10, T65, and T75 critical illness products. It will retain its non-cancellable Professional Series and Foundation Series disability insurance products, and its non-guaranteed Bridge Series product. In addition, RBC Insurance will keep selling its segregated fund products.