The industry’s true value, impact and importance are under-appreciated by the masses. Although it faces this, and a number of very real human capital challenges in the future, Bernard Dorval says the industry is mature, well balanced, and “well-mannered” in Canada. Given the evolutionary challenges it faces, these positive aspects are a fortunate base of strength to manage the changes it will face going forward.
Mr. Dorval’s experience is unique in Canada. He has worked for a general insurance company, a life insurer and a bank. He is now the board chairman of TD Insurance Canada.
Today, he says there are between eight and 10 macro trends having a strong influence on the industry’s development, and on day-to-day operations. Each sector – property and casualty, life insurance, and banking – has its own strengths, weaknesses, challenges, and somewhat unique avenues of product and service evolution to follow as they move into the future.
Low interest rates, for example, affect all three sectors in different ways. Talent shortages at the sales representative level, and in general management as well, is having and will have an impact to varying degrees. Climate changes will impact the P&C business, and fraudsters will almost certainly stay ahead of the game, injecting costs into the system, while the need for electronic development will continue to exert pressure on balance sheets and capital requirements.
Finally, he says the sheer speed of progress will have a decided impact on companies, both today and in the future.
“It seems like yesterday that the iPhone appeared, but they’re already at iPhone 5,” says Mr. Dorval. “I don’t think we’re at life insurance five, and that’s been around for 150 years. I’m sorry, but that’s the kind of world we’re moving into.”
Where management depth is a strength on the banking side, however, he says it’s definitely more of a weakness in insurance, despite the fact that companies – life companies in particular – are nearly the same size, and would have the same long-term impact on the economy if they fail.
“It’s an industry that hasn’t been able to attract the same depth. Life or P&C, it’s an industry that is very much based on specialists. They’re very technically proficient people, but not necessarily great general managers or multi-faceted managers.”
This, in turn, leads to another area of weakness for insurance companies, that is, product complexity.
The sector, he says, has great claims management, administration, a variety of distribution systems and a wide product offering all working in its favour. Still, he says many times, “a lot of the needs are far simpler than the products” being offered.
“The people growing in this industry are specialists, which tends to bring solutions that are specialized solutions,” he says. “The products are too complex,” to the point that he says people don’t know what they’re buying. In a lot of cases, he says the products are often created more for the distribution network, and not for the end customer.
Distribution network renewal is another challenge for companies, since few people today are drawn to the life agent or insurance broker role as a career choice. “They bring a lot of value to their customers, but the perception of this profession is not professional.”
Finally, the amount of customer choice, the domestic focus of companies, the size of major players and the quality of distribution in personal lines, he says, are all areas of strength for P&C insurers.
An area of weakness for the P&C industry, however, is one that all three business lines share in common: The problem of public perception.
In P&C, the cost of coverage versus the benefit, is seen as being very high for consumers. “In automobile insurance in particular, it’s a very, very expensive part of owning a vehicle. It’s a big item, after tax, in people’s budgets and people don’t understand why it’s costing them so much.”
In banking and life insurance, meanwhile, he says the public perception is one of large companies that are bent on making a lot of money. If you divide the money made by the number of shares and by the number of employees needed to keep institutions running, however, he says the amount is not nearly so enormous. “It’s their size that creates this focus,” he says. “It’s not a balanced perception.”
He points out that the system is stable, Canadians have access to their money, without question, and that transactions and information flow, all occur seamlessly, every day. “People take that for granted. There is a huge value, and impact, and contribution that the industry brings to the economy on a daily basis. It’s because they are so big that they require so much capital.”
The value companies bring, he says extends far beyond liquidity, as well, as they add to productivity and help drive innovation in ways that are not immediately obvious.
“If you don’t have insurance against your product liability, you will not manufacture certain products.” Those without business interruption insurance against death, illness or catastrophe, would similarly need to be more careful, and essentially hoard cash to build financial buffers, rather than invest in business growth.
At the individual level as well, he says “with insurance, you can be more forceful in building your dreams and building your businesses, because you have somebody who looks over your shoulder for these catastrophes.”
In addition to risk and product simplification, Mr. Dorval sees a few areas of inevitable change that need to happen in all three sectors.
In banking, he says advice needs to improve, and banks need to do a better job of moving away from the model where they act like a store business – where people come to purchase a product, then leave – into a role where they spend more time on advice and on managing customer relationships.
Insurance, meanwhile, is perhaps the more interesting area of development. He says products and processes, along with service and distribution, all need to be better integrated and electronically driven going forward.
One example of innovation that could come as a result, is the better use of the GPS or OnStar systems being installed in newer cars. The act of simply crossing the border, for example, could result in a client’s car or health insurance being activated automatically, if they were signed up for such a service.
“There are so many things that will be possible and that will be more convenient for customers in the future, if you can harness the electronic,” he says. “I think things will look quite different than they do today, in the way (the industry) delivers services.”
The second major shift is one he sees occurring in the life and health sector. Specifically, he sees life insurance sales declining, to the benefit of living benefits. “People are not dying at 45 or 60 anymore,” he says. “They’re dying at 85 or 90, when they don’t need to leave anything.” The problem then is not one where they need to provide for those left behind; clients will instead need enough money to survive in their old age.
At the same time, he says governments are going to withdraw. “Whether they say it or not, it will happen. There is no way they’re going to be able to tax people enough to pay for all the benefits,” he says.