Insurers must know their clients better to meet regulatory expectations

By Susan Yellin | June 18 2013 07:01PM

Canadian insurers are taking a page from their South African counterparts and are beginning to embrace a more hands-on approach to maintaining and knowing their clients – a traditional purview of advisors, the head of Empire Life told a recent Toronto conference.Les Herr, president and CEO of Empire Life, told the LIMRA and LOMA Canada annual conference, held on May 8 in Toronto, that the regulator of insurance companies in South Africa, the Financial Services Board, requires insurers to fill out a lengthy questionnaire on a regular basis. The reason, said Mr. Herr, is to ensure the insurance company has a broader knowledge of the customer.

The questionnaire has six major themes on topics dealing with treating customers fairly and honestly, ensuring customers are appropriately informed of changes to their products, determining whether the company has been providing suitable advice as well as whether clients have been told if the products they paid for performed as expected.

Who owns the client?

Doing this in Canada may well turn the question of who owns the client on its head.

“We believe the customer is our customer and the advisor is our business partner,” Mr. Herr said. “But only the customer owns the customer.”

Mr. Herr, who was outgoing chair of the Canadian Life and Health Insurance Association when he addressed the conference, said Canadian insurers already have a link to customers when they underwrite the policies and send annual statements. But insurance companies don’t know the client on a personal basis, have no idea of their annual incomes or their goals for the future.

“So we don’t really know our customer,” Mr. Herr said later in an interview. “But to me, as a company, we want to know our customers and we want to share as much information as possible with advisors. We want to partner in delivering the services to the customer. Regulators expect us to do that.”

International regulators have enshrined customer fairness into their laws and now, regulators here, like the Canadian Council of Insurance Regulators, have said they expect insurers to extend this principle through the entire life cycle of an insurance product – from manufacturing to handling consumer claims or complaints.

But Mr. Herr said Canadian insurers must first become more informed about the end client.

“We [currently] depend on our advisors to do this and maybe we’re not doing this directly as a company because we’re afraid to do this. We’re afraid to dip our toes into the space that the advisor has traditionally held and now depend on our advisors to provide that information,” he said. “South Africa is a very good example of a jurisdiction that is certainly influencing Canada.”

Mr. Herr said Canadian insurers currently perform a self-assessment of their governance every year, focusing on market conduct, the customer and how they manage risk.

But more needs to be done between insurers and advisors for insurance companies to get a better picture of the clients. “We can’t fight over territory that doesn’t belong to either one of us because the customer owns themselves. So let’s just get over that bit and get on with the fact that the more we collectively know as an industry, the better we are to meet regulatory requirements.”

Clients are also taking a stronger role in how they want to be engaged by insurers and advisors, said Michael Hamilton, senior vice-president of sales and distribution for RBC Insurance. This is especially true for the younger generation, which gleans much of its information online and buys many products the same way.

“Ten to 15 years ago if insurers underwrote you and blessed you to be part of our organization you [had the feeling you] should be grateful. Today, it’s completely in reverse. Clients own that marketplace and make those demands,” Mr. Hamilton said.

Clients today also have little patience for companies that make them fill out 30-page forms and wait 30 days for a response. More than likely, Mr. Hamilton said, today’s clients have an app they can use with their phones and can get the whole process done in minutes.

While there will always be a need for the face-to-face meetings with higher net worth investors, Mr. Hamilton said it will be up to the industry to become more creative in engaging the younger generation, who don’t want to sit down and talk to an “older” advisor about their hopes and dreams.

The advisor’s key strength will continue to be helping clients sort through the bombardment of information coming from the internet, said Perry Badham, financial centre manager at Sun Life Financial. Insurers are coming up with more tools for advisors to help clients figure out what they need and advisors would do well to teach financial literacy to their clients, said Mr. Badham.

Not only are advisors competing with the lack of time from future clients, they are also vying with new avenues of distribution – from companies like Walmart and Costco.

In the U.S., Met-Life is pilot testing selling one-year term life insurance at 200 Walmart stories in South Carolina and Georgia. The insurance is found on the store shelves and coverage can be purchased on a pre-paid card. A follow-up call to determine whether the person can qualify for the coverage can take as little as 10 minutes.

In Canada, Costco executive members can buy life and health insurance from Manulife Financial and get five per cent off monthly rates if they apply for health and dental insurance.

“It’s a whole new paradigm,” said Mr. Hamilton.

How advisors will be compensated in the future is part of an ongoing trend around the world, as some countries outright ban commissions, with many advisors moving to flat-fees.

But Frank Santa-Donata, a special consultant with LIMRA International, said studies have shown that while many clients prefer flat fees, only 20% are willing to spend more than $100 for a financial plan.

“So we have a basic disconnect between consumers, who on the one hand, say they want a financial plan, but don’t want to pay for it,” said Mr. Santa-Donata.

Fee-based has already been accepted with the affluent market, but it will be difficult for those on the lower end of the wage scale to take in stride, said Mr. Badham.

Some insurers, like RBC Insurance, are trying to make themselves more visible to their banking and other customers. RBC is setting up its insurance operations close to its bank branches, targeting the middle market with simplified products and advisors who can help clients either onsite or at their homes, said Mr. Hamilton.

In turn, banks have raised the awareness of insurance for everyone, said John Hamilton, president and chief executive officer of Financial Horizons Group. “We’ve never sold as much life insurance as in the first four months of this year in our company. So the more information and the more knowledge out there for consumers [the better for the entire industry].”

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