New regulatory mandates, expanded capital requirements, historically low interest rates and continued pressure for insurance companies to rediscipline their approach to underwriting are among the challenges Canada’s insurance industry faces.

These pressures are causing insurance companies to re-price some of their products and withdraw others from their shelves, Steve Krupicz told delegates to the 2012 Advocis Regulatory Affairs Symposium in Toronto last month.

They will also mean that guarantees will become more expensive added Mr. Krupicz, who oversees Special Case Markets, Canadian Division, at Manulife Financial. “Clients will have a choice between purchasing guarantees at a cost, and lesser or no guarantees at a cost-savings.”

The shrinking product shelf, noted Joanne Abram, CEO of Alberta Insurance Council, “as companies decide to get out of certain areas or carry fewer products” is problematic as it will leave consumers with fewer options.

One delegate suggested that with more expensive guarantees on the horizon, advisors should now work to get clients into guaranteed products. But Anne Butler, senior vice president, general counsel and corporate secretary at Empire Life, noted that would mean locking clients in at today’s rates, which might not be appropriate. “That question that always has to be asked,” she said, “is ‘What is suitable for the client?’”

The pace of change has been more rapid in Canada, Mr. Krupicz said, “than for our international competitors. This poses a real challenge for advisors who work with clients on both sides of the [Canada-U.S.] border.”

Changing tax policies

Canada’s insurance industry also has to deal with changing government tax policies, Kevin Wark, president of the Conference for Advanced Life Underwriting (CALU), told the symposium. “Federal and provincial governments face funding issues resulting from low interest rates, deficits due to recent financial downturns, high unemployment and an aging population. This will impact product development in the insurance industry.”

Trends in government tax policies include an upward creep of tax rates, a broadening of the tax base, a simplification of tax rules, a focus on greater disclosure and making products more understandable to consumers, a focus on financial literacy, and concerns around longevity, he added.

The implications for insurance advisors are many, he said, and include possible:

  • Changes to retirement income programs such as the Old Age Security and the introduction of Pooled Registered Pension Plans (PRPPs).

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  • Increased government scrutiny of tax-avoidance measures in insurance planning.
  • Anti-avoidance legislation.“I
nsurance advisors need to actively involve themselves in the process of developing tax policy,” Mr. Wark said, by building relationships with government officials.

“Companies need to review existing products, and insurance advisors need to learn a new set of tax rules,” he added. “Certain products will become less attractive and alternatives will need to be considered.”

The changing landscape also provides a number of opportunities for the insurance industry. There is a need to create new products to meet the increasingly diversified needs of consumers, Mr. Krupicz said.

“There is a need to develop products to insulate Canadians from the risk of dying too young and living too long,” Mr. Wark added. “And there is a need for products that will change as clients grow older, such as disability products that convert into long-term-care products as clients age.”

In this new landscape, the role of the insurance advisor will be more important than ever, noted Ms. Abram. With the plethora of information available on the internet, she said “people are asking for advice from their 600 friends on Facebook. They need qualified advice.”

“The growing complexity of financial products and how they can be used in a tax environment necessitates good financial advice,” Mr. Wark said.