Declining number of life insurance policies sold: missed opportunity or a natural market evolution?By Susan Yellin | October 22 2015 07:00AM
Jim Virtue, president and Chief Operating Officer of PPI
The number of life insurance policies being sold in Canada has fallen to depths unseen in years and both the industry and advisors need to be revitalized to provide critical, guaranteed solutions to families when they need it most, say some industry experts. But others in the industry say times have changed and insurance advisors are just following the trends by becoming more involved on the investment side of the business.
Jim Ruta, well-known author, speaker and consultant in the life insurance business, says the days of attaining a standard 100 applications a year seems to be a thing of the past, with agents themselves exhibiting little pride in what they do, preferring to use the general title “financial advisor” rather than “insurance agent.”
“We have minimized, marginalized and commoditized the life insurance business over the past 25 years,” says Ruta. “We need to re-energize the life insurance industry. We need to remind people that this is a good, noble business and people need this help – and not just as part of a huge, financial plan.”
Citing a study from industry research group LIMRA, Ruta says that in 1990, the average number of insurance sales was 22.5 per licensed life insurance agent in Canada. Then in 2012, despite all the education and training that went on during this time, that number fell to 7.2 per licensed life insurance agent, he says.
A spokesperson at LIMRA says the latest figures show that 700,000 individual life insurance policies were sold in Canada in 1993, dropping to 179,000 in 2014.
The spokesman says the fall stems from the fact that fewer people are looking for life coverage, while advisors are doing more work on the investment side, a situation in Canada that mirrors what’s going on in other countries, like the United States.
“So you have fewer people wanting to buy it and fewer people wanting to sell it,” says the spokesman.
But Ruta says financial advisors with both their CFPs and their life insurance designations totally miss the opportunity to speak to their clients about the role life insurance products play in their financial planning, says Ruta.
Review insurance needs
A 2012 survey by U.S.-based Saybrus Partners found that more than half of financial advisors do not speak regularly to their clients about life insurance. Only one third said they were “very comfortable” recommending life insurance to their clients, while nearly one in five advisors said they were “uncomfortable” or “very uncomfortable” recommending life insurance policies to their clients.
But Ruta says all those concerned with the financial health of a client should review insurance needs every year, just like the investment side of the plan.
However, Mike Woods, director of business development at the Mississauga, Ontario Freedom 55 Financial centre, says that like everything else, the industry has changed.
Those advisors equipped with both their insurance and financial planning licences use a full-service model with clients.
“Insurance is not just a transaction opportunity but a more holistic planning opportunity,” says Woods. “With an eye on practice profitability, established financial security advisors seem to be going deeper with fewer clients, finding it far more profitable than selling insurance to 100 new households a year.”
Woods says that in his organization, average advisor income has increased; yes, the number of pure life sales has gone down, but premiums have increased. Even the insurance sales are growing.
What has happened specifically is that with people living longer, selling just the traditional insurance coverage has had to change, says Woods.
“In the accumulation phase someone might buy insurance five to seven times. When you are 50 or 60 years-old, you buy life insurance once and it’s the last insurance product that you buy, it’s for the estate. After that, your needs are not increasing, but decreasing, and even if not that, your needs are now different.”
The actual number of policies being sold may also be down, but Woods says there are reasons for that. In the past, one person used to buy a number of permanent policies as time went on, but is now content to buy one with a much larger payout. As well, he says, you can now have one policy number with four different coverages that include a husband, wife and two children. “What were once six application policies is now one.”
However, he does note that the traditional protection model – a hard-working couple with some group insurance – is being underserved relative to how it was 20 years ago.
It’s not unusual that people are moving – at least now – to the investment side of the industry, says Jim Virtue, president and CEO of PPI Solutions Inc. Virtue says markets have been favourable and many advisors are simply taking advantage of that to provide necessary services to their clients.
“In an extended bull market, the money side of the business is fairly easy and it has drawn advisors into that part of the business which takes them away from selling insurance,” says Virtue. “The bull market might be coming to an end right now and if we see that, we will see insurance sales pick up.”
There has been a lot of talk over the past few years on the importance of Canadians saving for their own retirements and not relying on government, so it only makes sense, says Virtue, that many consumers are coming over to the investment side. But he also says most consumers realize that they need to cover off both retirement and insurance, including life, critical illness and disability.
“I think there’s a strong awareness among consumers that they need these types of [insurance] products. So we see our goal as helping the advisors migrate back to insurance from the money business and giving them the confidence and the tools that they need to have to feel comfortable to sit down and have those conversations with consumers.”
Over at Financial Horizons Group, president and CEO John Hamilton says he still tells new agents to aspire to 100 applications a year, whether it be life, critical illness or disability insurance. Agents who are good at this can build a strong book of business and make a good living, he says.
Younger advisors, especially, want to keep their hands in both as they build their books and the investment side brings crucial income in the early days, he says. “A disability policy can take two or three months…it’s a slow process to get issued,” says Hamilton. “But if you give me a $100,000 cheque today on the investment side, then I’ll get paid next week thank you.
Looking for balance
“You have to balance the two. If you lean too far one way and the market does a correction then all of a sudden everybody scatters, and you’re not getting any new money sales. But with life insurance, along with disability and critical illness, it can be a steady business.”
Productivity coach Hal Lumley says most agents aren’t writing the same kind of business as previously because they don’t have the skills to do so.
“I think they need to rediscover, reinvent and reimagine them,” says Lumley. “In my day if a client wanted to buy mortgage insurance, the advisor would ask them how it would fit into their family’s lives if something happened to them and ask them to consider life insurance. They don’t do that now.”
He has put together a computer-based product called The Assistant that includes four stages of a client’s life: no children; children at school; children at university and empty nesters. With this background, advisors work through a series of scenarios to determine what kinds and how much insurance a person needs.
As for the future, Virtue believes the pendulum is swinging back to insurance companies.
He sees an increasing number of young people at industry at PPI events, encouraging the premise that young advisors will attract sales from a younger market.
That seems to be the situation going on in the U.S. The Medical Information Bureau Life Index, which measures application activity for individually underwritten life insurance in the U.S., says demand for life insurance increased by 2% in June 2015 from the same time last year. The biggest leap was in the younger age category – those newborn to 44 years. “If this trend sustains, growth in younger age life insurance activity could surpass older age applicants in 2015 – a welcomed hand-off for the industry,” says the MIB.
In the Canadian market, LIMRA data for the second quarter of 2015 showed a 6% uptick in sales of individual life insurance policies – a strong rebound over the first quarter which saw the number of policies sold decline by 2% (See article in the September issue of The Insurance and Investment Journal, pages 6 & 8).
On the business side, Virtue says the industry will soon be boosted by the role insurance can play as a huge wave of baby boomer business owners prepare to sell their companies or pass them on to family.
“So we see a large wave of insurance sales relating to helping the baby boomer entrepreneur transition their business either to the next generation or to a third party,” says Virtue. “We are very bullish on that at PPI. We believe there’s a great opportunity for all insurance advisors to work in the baby boomer entrepreneurial transition marketplace.”