Group insurance: Crisis took its toll in 2009

By Alain Thériault | November 24 2010 04:00PM

After five years of sustained growth, group insurance revenues lagged in 2009. The growth rate was 3.9% between 2008 and 2009, versus 7.0% a year earlier. Economic uncertainty ushered in job losses and plan trimming in 2009. 

Data from Fraser Group’s Group Universe Report 2009 point to revenue growth in group insurance of 3.3% in Ontario from 2008 to 2009, compared with 6.5% in western provinces and 5.8% in the Atlantic provinces. In Quebec, group insurance revenues edged up by a meager 0.6% between 2008 and 2009. Far from the 8% reported during the previous comparison period.

For many insurers, the effects of the economic crisis on group insurance surfaced in 2009. Fraser Group, an insurance and group pension plan research firm, reports that the economic recession that arose in the third quarter of 2008 began to impact group insurance during 2009.

One culprit was the sluggish growth of employment last year in Canada. “Usually, the employment rate is growing 2% per year. A decline of 2% means a drop of 4% from normal,” Ken Fraser, President of Fraser Group, points out. He cites figures compiled by Statistics Canada on job growth between 2008 and 2009 in Canada and by province.

Mr. Fraser adds that moderate increases in drug costs in group insurance plans, as opposed to steep hikes, reined in premium growth. All the same, the plunge in employment rates is a key factor behind the lacklustre growth of group insurance in 2009, he explains. “There’s been big layoffs in companies with big group insurance plans, like car manufacturers in Ontario,” he says. Ontario saw employment decline by 2.4%, which was a more pronounced decrease than the national average. In contrast, Quebec sustained a softer blow, with employment slipping by only 1.0%, Mr. Fraser says.

Josée Dixon, Regional Vice President, business development, group benefits for Eastern Canada at Sun Life Financial, attributes the slowdown to the economic bubble. After a five-year streak of sustained growth in group insurance sales, the recession finally struck Canada, she says. However, the country emerged relatively unscathed, she points out. 

In line with the Fraser Group’s Group Universe Report 2009, Ms. Dixon noted a greater slowdown in Quebec. “We were expecting to see more generous plans in 2009, but the opposite happened. Employers proved to be more prudent. In Quebec, for example, we saw plans split or shrink. Some employers decided to stop offering short-term disability, decrease their participation in co-insurance or reduce dental coverage.”

Exceptional results

Sun Life, on the contrary, boasted exceptional results in Western Canada in 2009. In Ontario, the insurer’s group insurance revenues rose by 4.6% in 2009 from the previous year, revenues from the Atlantic provinces were up 6.1% and the Western provinces saw growth of 13.5%. “There were many acquisitions between companies in this region. The recession hit the west differently. These provinces felt it more in 2008 and will feel it again in 2010,” Ms. Dixon says.

At Sun Life, Ms. Dixon expects notable growth in group insurance sales by the end of 2010 and an accelerated momentum in 2011. This trend will be particularly strong in Quebec: Ms. Dixon predicts that the new Quebec president, Isabelle Hudon, will have a lever effect on the insurance business.

André Simard, Vice President, sales, group and business insurance said that the recession had a weaker effect than expected in group insurance business at Desjardins Financial Security (DFS). Growth slowed, but he hesitates to pin the blame on job losses. “Many laid off employees had been working in precarious sectors that did not have very elaborate group plans, while the remaining jobs are often in richer plans,” he explains.

DFS garnered group insurance sales of $146 million in Canada in 2009, up from $137 million in 2008, for growth of 6.6%. “The loss of a group of $50 million in premiums – the city of Montreal employees – hampered our growth,” Mr. Simard says. DFS ceded this group to SSQ Financial Group last year. Mr. Simard describes the Quebec market as very competitive. 

“Group turnover is more frequent in the Quebec market. Also, we saw that groups with fewer than 200 employees have a termination rate of 11% to 12%, while groups of 5,000 employees or more have a termination rate of 2%. On average, Quebec groups tend to be smaller, the majority of the larger groups have head offices in Ontario,” Mr. Simard says, adding that the termination rate of groups of 200 to 500 employees stood at 8%, versus 6% for 500 to 1,000 employees and 4% for groups of 1,000 to 5,000 employees.

Aware that Quebec is a mature market, DFS is focusing on expanding its group insurance operations outside Quebec. “Year in, year out, we sell twice as much group insurance outside Quebec than in. In early 2012, we should have more premiums in force outside Quebec than in the province,” Mr. Simard says.

Disparate results in 2010

Group insurance sales results often vacillate sharply from quarter to quarter. At Industrial Alliance, for example, group insurance results rose in Q3 2010 after falling in the second quarter.

Sun Life saw group insurance sales explode by 86.4% in Q3 2010 compared with the same quarter in 2010. Sales grew from $44 million to $82 million.

At Standard Life Canada, group insurance premiums inched ahead by 8% in Q3 2010, to reach $166.2 million, compared with $154.2 million a year earlier.

At Manulife Financial, group insurance sales held steady at $83 million between the third quarter of 2010 and the same quarter in 2009.

For its part, third quarter results for Great-West Lifeco (Great-West, London Life and Canada Life showed growth of 18.7 % in sales in group insurance. Sales rose from $107 million in Q3 2009 to $127 million in Q3 2010.