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Whole life sales continue to show muscle

par La rédaction | April 18 2013 03:15PM

Canadian whole life insurance premium results shot up 25% for the year 2012 compared to the year before and premium market share grew to 43% for this product, according to industry research organization LIMRA.

In its fourth quarter 2012 report on Canadian individual life insurance sales, LIMRA notes that individual life products premiums in Canada were up six per cent for the year with the gains made by whole life (WL) driving this increase. In the fourth quarter, whole life new premiums grew by eight per cent.

Much of whole life’s gains were made at the expense of universal life. “WL continued to leach market share from UL, gaining seven percentage points through the end of 2012,” says the LIMRA report, which shows annualized premium market share in 2012 at 28% for universal life, down from 35% in 2011. Meanwhile, whole life posted premium market share of 43% in 2012 up from 36% in 2011.

LIMRA noted that the whole life sales success was spread across the industry. “All but one company posted year-to-date growth in WL, with all of the top five carriers posting growth in the double digits,” explains the report, which is based on a survey of 19 insurers and two subsidiaries operating in Canada.
Premium market share

Whole life also made posted gains in average policy size and premiums. In terms of premium market share by distribution sales channel, whole life dominated the affiliated market with a six per cent increase. Whole life also increased its premium market share in the independent channel, gaining seven percentage points.

Interviewed by The Insurance and Investment Journal, Chris DiSalle, executive vice-president and chief sales officer for managing general agency Hub Financial, confirmed that he has also seen a similar sales trend toward WL among Hub’s advisors.

Mr. DiSalle says he thinks there has been a fundamental shift from UL over to whole life for a couple of reasons, particularly due to pressures that insurers are experiencing with level COI universal life in today’s low interest rate environment. New international accounting standards are also adding further pressure. These conditions have resulted in multiple rate increases in the level COI UL market and now the price differential between Ul and WL isn’t as far apart as it used to be. Mr. DiSalle adds that his sense is that “level COI is coming close to being over…the way (the insurers) have to account for this business makes it impossible for them to be profitable on it.”
Comfort for advisors and clients

Also, the comfort provided by whole life appeals to both advisors and their clients. “People are looking to it as a safe place to go with their money, if they’re actually looking to overfund…” He says whole life will deliver a return that’s safe, positive and better than what the bank will provide and frees clients from the need of managing this money themselves.

This safety also is an attraction for advisors who may be leery about putting their clients’ money in UL following recent market downturns. Prior to the tech bust, everybody only thought markets could go up, he recalls. “But when you have people putting money into a UL and they get a statement saying there’s no money there anymore...There were some difficult situations across the country with a lot of unhappy clients.”

The nature of whole life and particularly par whole life is that “it smooths out the bumps in the road that reality delivers,” Mr. DiSalle adds. “In par, the carriers have got their historical returns and they’re smoothing out the credit that they’re giving to the par policyholders. It’s a smooth, comfortable rate of return and definitely that is more attractive to clients and brokers these days.”

He adds that he definitely believes there is less chance of potential litigation in a whole life sale.
Justin Hamilton, a financial advisor and business development consultant for MGA Financial Horizons Group, says the firm has also observed a similar sales trend among its advisors. “We have certainly seen a trend back to whole life the way it was, say 20 to 25 years ago, as opposed to the last ten years when UL did seem to be king.”

Mr. Hamilton believes the shift is due to a combination of reasons. Like Mr. DiSalle, he also believes the performance of the equity markets and the effect on UL has been a major factor in driving sales towards whole life. “I think a lot of clients who took equity weightings in their UL policies received a very large downturn in 2008…” The result was that many minimum-funded UL policies lapsed, he says.

He adds that one of the main issues with UL policies is that clients didn’t really understand what was actually happening within these policies. The guarantees offered by whole life, however, are clearer and attractive to clients.

“Whole life takes the guessing right out of it. ‘Here’s your death benefit, here’s your guaranteed cash value, here’s your premium’ That has a lot of power –  to say that these are guaranteed.”

Mr. Hamilton added that he believes universal life has its place and its advantages in certain circumstances, but that the product must be better explained to clients.

He also thinks another reason behind the influx of whole life sales is the lack of Term to 100 products available in the market today. Term to 100 was the most inexpensive permanent product, he explains, but it is now only offered by a few carriers, so advisors have turned to whole life to fill the void.

 

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