Whole life insurance sales are continuing to show robust growth as Canadians turn to the security offered by this product's guarantees. This increasing popularity is being seen across the demographic and wealth spectrums.
At the end of 2009, Canadian companies reporting their results to industry research organization LIMRA International, saw whole life sales jump by 10% in 2009 over 2008 results. Whole life saw the strongest sales growth of any life product category tracked by LIMRA. By comparison, universal life insurance (UL) sales dropped seven per cent in 2009, the weakest performance among life product categories.
Market share for whole life products grew by two per cent in 2009 compared with 2008 from 28% to 30%. Meanwhile, UL was down four per cent from 41% to 37%. (See more on LIMRA's 2009 product sales statistics, pages 28 to 30).
At Industrial Alliance, Jacques Carriere, Vice President of investor relations, points out that "2008 and 2009 were kind of turmoil years. The sales picture we've seen or the usual pattern of growth and the composition of products has changed," he says. "It doesn't mean that it is a trend. It may be a consequence."
During the market turmoil, the savings components for a lot of universal life products took a significant beating. "When you get really busy in your life and the market starts to tank, you start to panic," says Peter Wouters, Director of tax and estate planning and director of retail risk product marketing at Empire Life. What's more, during this time many clients felt they would lose, no matter where they placed their assets. "Except for term deposits or sticking it under the mattress, it seemed that everything went down. No one could win and it looked that way for a long period of time. People got really skittish."
Commenting on whole life sales results, Christoph Trachsel, Manager of life insurance product development at Standard Life Canada, said "I think it's pretty significant...The growth in market share is certainly explained by the financial crisis."
Will growth continue?
The question, then, is whether things reverse once markets pick up steam again. "I don't know," he says. "I think whole life will probably keep a bigger share than in the past. People did get the lesson from the financial crisis and now understand that there's a real risk managing their own assets. I would expect that universal life will probably be sold more, but I don't expect whole life will go back down to 20%."
In the long-run, he says he doesn't expect whole life will ever overtake universal life, simply because the two products meet different needs.
Standard Life is a relatively recent entrant and new addition to the whole life line-up available in Canada. So far, the company says the product is selling "proportionately" to its other products in terms of market share. Empire Life says whole life sales are trending a little higher than the industry average, while other companies say their sales are pretty much in line with LIMRA's statistics.
While there are no hard and fast statistics on who exactly is buying whole life products, each company has its own evidence. Surprisingly, there doesn't seem to be any single generation or client group that prefers the product. Singles (both young professionals and older widows) are purchasing the product and, although some say it is most geared towards the family market, more affluent clients are also using the policies in different ways to generate income.
Couples between 45 and 50 years old, with middle class incomes and concerns about investment security are often cited as one group interested in whole life products. Some boomers are also beginning to convert all or parts of their term insurance to permanent policies.
"Life is too short," says Rob Jackson, Regional Sales Manager at Desjardins Financial Security. "I think what is happening here is that the goals people had ten years ago haven't materialized. As a result, they are rethinking their strategies."
He says wealthy individuals are interested in straight line asset transfer to the next generation. "That requires a permanent solution." For singles, the market is starting to sell more blended products that offer permanent insurance that includes permanent critical illness tied into the same plan.
In the family market, clients are concerned about clearing up any outstanding debt on death while the affluent use whole life as a tax shelter. "Wealthy individuals typically use life insurance but the average individual needs it," he says.
All of this is happening against a backdrop where fewer companies are offering whole life products and market performance is affecting client attitudes toward certain products, but could also be impacting returns on the few participating policies left in the industry.
Clients, meanwhile, boomers in particular, are looking for simplicity and guarantees. In times of prosperity, many accepted risk in exchange for the ability to manage the different parts of their plan. In a UL policy, for example, having the ability to play with interest rates, make investment decisions and have flexibility about managing deposits were all attractive features. In the shift towards whole life, many are now preferring to pass that risk and responsibility back to the insurance company to manage.
"In times of prosperity individuals have shifted away from the traditional guaranteed permanent product," agrees Mr. Jackson. "But as that changed, we are now seeing them retrench back to those guaranteed solutions."
It's a sentiment both Mr. Wouters and Mr. Trachsel echo. "People are looking more at the guarantees than in the past and certainly the financial crisis had an impact on the behaviour of the policy holders," Mr. Trachsel says.
Mr. Wouters suggests that Tax Free Savings Accounts (TFSAs) might also have negatively impacted universal life sales. "It's like a supercharged universal life policy without the insurance portion," he says. "People had no extra money. There was no extra money to put in. They were reeling from the fact that their portfolios dropped 20 and 30%. They were going to sit on the sidelines and wait. That was one issue. The other effect was the introduction and formal implementation of the Tax Free Savings Account."
Although whole life sales are doing well, the number of carriers offering the product continues to shrink. For those seeking par or participating policies in particular, the pickings seem to get slimmer with each passing year.
Once the mainstay of nearly every mutual company, participating policies pay dividends to consumers who maintain their coverage. These in turn increase the surrender value of whole life policies and increase coverage. Traditionally the dividends were based on interest rates, stock market returns, mortality rates and overall company results.
When companies demutualized from 10 to 15 years ago however, most stopped offering par policies, in part because shareholders now needed a cut of returns as well, but also because the complexity of legacy systems made it increasingly difficult for companies to offer a gamut of all products.
"Part of it is simply strategic, saying 'I can't do it all. What is it we'd prefer to commit to from an administrative, a legacy and a marketing support perspective?'" says Mr. Wouters of Empire Life. "The other situation is that to make these things work, you've got to hit a critical mass and have a block of a certain size to make things pan out. It's pretty hard to grow that organically - $50, $100, $250 million of assets under administration, it's a hard number to get to."