Life insurance industry ready to ride the T-20 wave
As consumers rush to satisfy their longer-term needs, including mortgage loan guarantees, 20-year term insurance (T-20) is enjoying an upsurge. Some insurers are sprucing up their products to meet the demand.
Although 10-year term insurance (T-10) still accounts for the majority of term insurance sales, T-20 has recently started to take a place in the spotlight.
Some long-time suppliers of T-20 such as Transamerica Life Canada are giving their products a makeover to tap into this re-energized niche, and other companies are leaping into the fray with new initiatives.
Transamerica gave T-20 special consideration when it reconfigured its term insurance portfolio in September. “We decided we wanted to be energetic in this sector,” said Joe Kordovi, assistant vice-president, life marketing and product development at Transamerica.
Specifically, the insurer revamped its entire term insurance line and increased advisors’ commissions on the sale of these products.
Mr. Kordovi now considers his T-20 highly competitive. One reason: Transamerica adjusted its line to particularly target clients aged 35 to 65 with annual incomes of $250,000 and up.
Advisors are recommending T-20 to clients that want to insure their mortgage loan, he continued, “especially because the real estate market is currently very hot.” He added that T-20 sales have been “very robust since 2000.”
Co-operators Life launched a new product in late 2002: a 25-year term, renewable as a T-20 at maturity. The insurer was inspired to design this product after researching the market.
Growth in this niche is virtually unlimited says Co-operators Life. “In 2004, we sold more T-20 than the year before. There is sure more interest than I thought,” comments John Dark, assistant vice-president and actuary.
He adds that representatives enjoy presenting this product to their clients, who are receptive to it. Even if T-20 prices are higher than those of T-10, renewal premiums catch up to T-10 very quickly. And they are very high. Over a 20-year period, the client ends up paying less for T-20 than T-10.
Empire Financial Group became a new player in the T-20 market in September 2004. “Basically, we wanted to respond to the requests of advisors and to a segment of the bank in terms of mortgages,” says Owen Rhoden, product marketing manager, individual life and health.
In addition, when Maritime Life bowed out of T-20, Empire further consolidated its position in this market segment.
Empire did not rush headlong into the T-20 insurance game. “We did quite a bit of research before launching the product. It is well-priced and well-positioned. We are not disappointed with the response so far,” Mr. Rhoden says.
Empire’s T-20 is aimed mainly at new homeowners that want mortgage insurance with fixed and guaranteed premiums.
The product is also designed for small business managers. “People who have a small business will choose 20 year term. They want the cheapest most predictable product, loan or line of credit. The bank will often require insurance for that,” he notes.
Because the product is in its infancy, Mr. Rhoden could not yet evaluate its results. Much depends on the advisors’ choice of the type of term that best suits the client’s needs, he explained.
Empire has set a sales objective for the product’s first year on the market, but Mr. Rhoden would not reveal the figures. “We have made a commitment to our advisors to always have competitive products. We will continue to monitor the effectiveness of our product,” he says.
La Capitale, a Quebec insurer which has been offering T-20 for several years, is currently engineering a new product, one it claims is unique. “It will combine the advantages of T-10 and T-20,” says executive vice-president Steven Ross, who declined to elaborate further about the coming product.
T-20 is a product that is well suited to mortgage needs in terms of duration and price of insurance, he comments.
Mr. Ross also believes that T-20’s star is rising. “I think insurers will highlight this product in the coming years.”
Reinsurers agree that the wave is building. At RGA Reinsurance, Robert Muller, senior vice-president, development, signalled a recent upsurge in the T-20 product. “In the past six months, some companies have added T-20 to their portfolio.”
Some advisors are convinced, however, that T-20 will stand out from T-10 only if insurers tack on added value. “T-10 is still the most popular term product. T-20 sales will stay at their current levels unless insurers add very important characteristics,” said Patrick Cloutier, sales and training manager at Cloutier Group, a managing general agency (MGA) in Quebec.
Currently, T-20 accounts for 2 to 4 per cent of total sales at Cloutier Group, says Michel Kirouac, vice-president, corporate development. The MGA also plans to showcase the product this spring, particularly via a distribution agreement with an insurer.