Top Life Insurers Unite to Stop BMO’s Lifetime Cash Flow

Posted on July 26, 2011 and updated July 28, 2011 in Life Insurance Canada News 2 min read
Even a small company can bring big benefits
Life insurers have asked BMO
to stop selling their
Lifetime Cash Flow Product.

As first reported by The Globe and Mail, industry leading life insurance companies have banded together and written a letter to Office of the Superintendent of Financial Institutions [OSFI]. The group is requesting that the regulating organization prevent BMO Financial Group’s Bank of Montreal from selling a new product called Lifetime Cash Flow.

The product gives those aged 55 and older guaranteed payments for life, but according to the Bank Act, bank branches are not allowed to sell most insurance products. These top life insurers believe that Lifetime Cash Flow is an annuity, which banks are forbidden to sell.

The OSFI launched an investigation after various complaints from those in the life insurance industry, but regulator president Julie Dickson estimates that a decision won’t be made until later this summer or early this fall.

In the meantime, leading insurers have accused BMO of an unfair advantage in the detailed letter, which outlines the reason as BMO not having to abide by the same capital and reserve requirements as an insurer who issues annuities regularly.

The letter also details that because BMO’s branches have this advantage, they can charge less for an annuity than life insurers are able to. The letter then predicts that this cheaper product would give insurers an incentive to shift their annuity businesses over to affiliated banks, which would no doubt be imitated by other banks. The letter continues that this phenomenon would further blur the line between life insurance providers and banks, which violates a promise made the conservative government to separate the two domains.

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PG_CFP
PG_CFP

That’s too bad if they win their case. Other than the first generation of GMWB Plans, I am not a big fan of them.

What I don’t understand is my Group DCPP has low MERs of 1.5% to 2% on avg (Big Insurance Co is the carrier). Why can’t the Retail Seg Fund charge the lower institutional level mutual fund MER rather than the retail MER, then they add the capital/DB and GMWB fees on top of that. If they had the lower MER on the underlying fund, then they can easily compete with BMO.