High household debt, weak economy also affecting insurance sales

By Megan Harman

November 2013

Fewer Canadians are buying life insurance policies compared with a decade ago, research shows. And, unless insurance advisors find better ways to penetrate the market, they risk losing market share to alternative distribution channels.

The 2013 Canadian Life Insurance Ownership Study, released in early October by global insurance association LIMRA International Inc., a subsidiary of Windsor, Conn.-based LL Global Inc., shows that the proportion of Canadian households with life insurance coverage has fallen to 68% from 79% in 2006.

“We’ve seen declines in ownership over time,” says Cheryl Retzloff, senior research director for LIMRA. “Both individual life and group life are down, so it kind of got a double hit.”

Statistics from the Canadian Life and Health Insurance Association Inc. (CLHIA) reveal a similar trend, with fewer individuals purchasing new insurance policies over time. Although the overall value of individual life insurance coverage has increased significantly to $2.25 billion in 2012, up from $1.23 billion in 2002, due to steady growth in average policy size, the number of new individual policies sold per year dropped to 681,600 in 2012 from 871,135 in 2002.

“In the past 10 years,” says Alice Freeburn, director of statistical services with CLHIA, “it’s definitely been slowing.”

A key factor contributing to this trend appears to be the slowdown in the number of new financial advisors entering the business. LIMRA’s research shows that 13,500 sales professionals were recruited in 2012, down by almost 14% from 15,600 five years earlier.

“The number of new, full-time recruits into the business is dropping year-over-year,” says Paul Brown, chairman and CEO of Mississauga-basedIDC Worldsource Insurance Network Inc.“There aren’t as many life insurance advisors serving that market.”

Brown adds that the decline of the career sales force and the growth of the independent managing general agency channel have left very few companies actively recruiting and training new advisors.

Sales impact

Since advisors constitute the primary channel for life insurance distribution in Canada, any slowdown of growth in the advisory sales force can have considerable impact on sales. This is particularly true because clients typically don’t take the initiative to purchase life insurance until they’re urged to do so.

“Consumers procrastinate about life insurance; they don’t know what to buy, and how much to buy,” says Retzloff. “They’re not going to be proactive about it. Somebody needs to prompt them.”

Other factors probably have contributed to the decline in life insurance policy ownership as well. During the economic downturn, for instance, individuals who lost their jobs may have lost their life insurance, too. It has become increasingly common for individuals to rely on their employer’s group plan as their only source of coverage, says Retzloff: “People are more and more dependent on group life. That puts people at risk because, if they lose their job or leave their job for any reason, the coverage doesn’t usually continue. [This dependence] leaves them very vulnerable.”

The economy also may have affected sales on the individual side. As people find themselves squeezed by growing debt loads and various other demands on their income, says Doce Tomic, president and CEO of Vancouver-based Credential Financial Inc., they’re less likely to make life insurance a spending priority.

“Individuals only have so much money,” Tomic says. “They’re making decisions to try to save and build their wealth and preserve what they have today in tough times.”

Furthermore, with the growing emphasis on saving for retirement and the various wealth products that are designed for this purpose, life insurance has not received as much attention in recent years.

“It generally hasn’t been as much of a focus for individuals,” Tomic says. “Insurance is something that isn’t discussed as much as wealth products are.”

Still, Canadians appear to recognize the importance of having life insurance. In fact, LIMRA’s study found that many Canadians feel that they need more life insurance. In the key market of married couples with children younger than age 18, in particular, three out of four people surveyed said they would have difficulty with living expenses if a primary wage earner were to die.

Primary market

“This is your primary market for life insurance – families with kids,” says Retzloff. “And more than half of them are saying they need more life insurance.”

The study’s findings highlight an opportunity for advisors to generate more sales, particularly since Canadians are more inclined to buy life insurance from advisors than elsewhere. LIMRA’s research shows that 76% of Canadians prefer to buy life insurance face to face, as opposed to buying from work, online or by direct mail or telephone.

Given the complex nature of the product, it’s not surprising that consumers want advice from a professional, says Tomic: “There are many different types of insurance, so it really requires that face-to-face time, and an explanation. It’s not something that is clearly understood by the consumer market in Canada.”

In the U.S., however, consumers have shifted away from the advisor channel in considerable numbers. In that country, LIMRA’s research found, almost half of the individuals (43%) surveyed would prefer to buy life insurance from work, online or by direct mail or telephone rather than from an advisor face to face.

If advisors in Canada fail to serve consumers better, Brown says, Canadians’ preferences could shift in the same direction.

“There are all of these Canadians that aren’t being served,” he says. “If we’re not delivering to this market, then it’s going to create opportunities for alternative-distribution channels to capture market share.”

There’s no shortage of demand, Brown adds – it’s simply a matter of getting in front of more Canadians. “Research shows that people want to buy life insurance – they’re just not getting the opportunity to buy it,” he says. “There are definitely opportunities.”

Tomic says advisors should be addressing insurance more often as part of the overall financial planning process, and advisors’ firms should ensure that they’re providing the necessary support. Tomic already has seen more advisors becoming dual-licensed in order to be able to offer their clients both wealth-management and insurance products – and, he says, that’s an encouraging sign.

“We’re seeing [dual licences] a lot more these days,” Tomic says. “When people are sitting down with a financial advisor, they’re looking at the overall financial picture, not just one side of the balance sheet.”