On October 2, 2013, LIMRA, an insurance-based research and consulting organization, published an article that indicated that roughly three quarters of all Canadians would prefer to purchase life insurance from a person rather than online. However, despite that statistic, LIMRA also noted that only 68 per cent of Canadian households have some form of life insurance. That is down 11 per cent from the 2006 LIMRA finding on the same statistic. So why are life insurance sales decreasing?
The fact is that life insurance sales are on the decline because over the last 20 years, the insurance industry has moved away from the traditional career agency system. In a career agency system, insurance companies would hire and train agents to work in-house.
The career agency system created a life insurance agent that was knowledgeable about the company and its products. These agents were also willing to work hard to promote a long and personal relationship between the client and the insurance company. So why are life insurance sales decreasing as the industry moves away from the career agency system? There are several factors that could explain this decrease.
Insurance companies that are moving away from the traditional career agency system are now using a managing general agent (MGA) to solicit new business. This approach to life insurance sales, while saving the insurance company money on in-house training and other wages, does little to promote the same close, personal relationship with the client that the more traditional approach did. But this reason alone cannot answer the question “Why are life insurance sales decreasing?”
When MGAs are used, many clients and insurance companies prefer the more personalized approach of a smaller MGA. However, due to recent regulations imposed upon MGAs, it has become less cost-effective to own and operate this type of insurance intermediary, and this means smaller MGAs are finding it harder to survive. Because of this, there are fewer trained insurance brokers to bring life insurance to consumers in the public marketplace, which can help to explain why life insurance sales are decreasing across Canada.
Another factor that may be playing a role in declining life insurance sales in Canada involves the National Do Not Call List (DNCL). On September 30, 2008, the Canadian Radio-Television and Telecommunications Commission initiated the National Do Not Call List. The DNCL allows Canadian consumers to remove their home and cellular phone numbers from the public phone lists often used by telemarketers. For years, the life insurance community has counted on the ability to cold-call new clients to initiate a conversation about life insurance, so this could be considered a contributing factor to why life insurance sales are decreasing.
Another consideration for the decrease in life insurance sales in Canada is that many large insurance companies such as RBC Insurance, BMO Insurance, and Manulife Insurance are beginning to remove insurance agents and brokers from the life insurance sales equation. These companies are capitalizing on society’s growing reliance on technology to market and sell their products, either through their own website or their call centre. Although this purchasing method may be convenient, it removes the consumer’s ability to pursue personalized and knowledgeable advice before making this important purchase. Since many Canadians have indicated that they would prefer to purchase life insurance from a person rather than a computer, this trend toward online and call centre sales could be affecting the yearly life insurance sales figures.
Why are life insurance sales decreasing in Canada? This question has no easy answer. What doesn’t change is that, according LIMRA, three in four Canadians admit that they would experience financial hardship if a household wage earner were to die, and life insurance can help ease that burden. This proves that the need for life insurance has not decreased. However, life insurance is not the type of purchase that Canadians are likely to make on their own. Life insurance is complicated for consumers, which is why Canadians would rather purchase life insurance through an advisor than look for the perfect plan on their own.
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The primary factor for the decreasing number of life insurance policyholders is, as the article states, a significant drop in personal service relationships as the marketing of life insurance trends away from personal service to impersonal interface, including reduction in professional advice/service.
Another factor that the article unfortunately doesn’t address is the affordability factor. While on the surface, costs for term life insurance seem to have decreased, the decrease is largely optical. To explain:
1. Life insurance, including term insurance, is priced in large part on the basis of the person’s age at inception (and for term, at the periodic renewals as well). To facilitate an illusion of price reductions, insurers have moved the “insurance age” goal-post through adoption of “age nearest” (the age at the person’s closest birthdate) instead of the REAL age, or “attained age” (the person’s actual age). This gave the insurance companies an average of a 6-month jump ahead to an age that is higher by 1-year than the person’s actual age. So, if the insurance company reduced the rate for a 36 year old by 5% but the increased cost difference between age 35 and 36 is 4%, it’s not a 5% but a 4% reduction that is pitched as a 5% reduction.
2. Starting in Canada during the 1990s, insurance companies have introduced multiple underwriting classes, increasing the costs from the prior mean for some of the classes while reducing the rates for other classes. For term insurance, the reduced premium classes are often the advertised prices, especially on those impersonal term-o-matics; however, normally even if you qualify for the utra-preferred, super-duper, hooptidoo class, you will often find that the guaranteed renewal rates are based on the most expensive, “hearse at the door” class.
So what may appear at first glace to have been a trend toward reduction in premium costs is actually a wolf in sheep’s clothing, particularly for term. This brings me to my next point:
Unless you have a good and loyal insurance advisor, equipped with LifeGuide and/or are lucky enough to re-qualify for the ultra-preferred, super-duper, hooptidoo class, you may need to have your cardiologist by your side as you open the envelope to face the renewal cost of your term insurance at the end of its initial level premium period. At that point, the thought may go through your mind to reduce the coverage to bring the premium costs within reason or to drop it entirely and fly solo. Neither is usually good but neither is the prospect of having your life insurance premiums compete with your overall budget and income.
IMO, disenchantment with having been sold “term” on the premise that insurance will not be need after 10 or 20 years only to realize when it is too late that the premise is and was nonsense, while facing the substantial hike in premiums is a factor in loss of faith and the consequential reduction of life insurance policy ownership.
IMO, speaking as a consumer, it is difficult to justify commissions being paid to intermediaries selling insurance through web-sites without personal advice and interaction. The commission loads on such policies should be eliminated so that consumers who don’t receive the charged-for personal advice and service are not forced to pay for it.
That’s a very good point about how multiple underwriting classes have actually increased the costs for Standard rate risks.