Paring insurance offerings puts Cdns at risk

Banks have faced more rigid capital and liquidity policies due to the recession.

And now insurance companies are struggling with the same challenge, said Kevin Wark, president at CALU, during a panel discussion at the 2012 Advocis Regulatory Affairs Symposium this week in Toronto.

Along with low rates pushing companies to pare their product lineups, they’re facing higher solvency and capital requirements, as well as tougher accounting standards and distributor models. He says the federal government’s changes to pension and retirement funding are also putting extra pressure on insurers to provide products that serve aging Canadians.

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“The only other time that closely compares to today’s tough selling environment is when exempt test rules were proposed in 1981,” says Wark. That year’s federal budget proposed substantial changes to the tax-favoured status of life insurance policies, changing how they could be used and marketed.

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In today’s market, regulatory reforms are causing the same shift. “When insurance companies were polled earlier this year, they recognized regulatory and compliance as their biggest challenge and threat in coming years,” says Anne Butler, senior vice president of general counsel and corporate secretary at Empire Life.

She says current restrictions and interest rates limit the profits of insurance companies, as well as their abilities to provide new, innovative products.

Joanne Abram, CEO of the Alberta Insurance Council, agrees. She insists regulators are being “highly reactive, rather than proactive, and this doesn’t necessarily result in a better system.”

She adds, “That rushed, reactive approach often has other unintended consequences such as a less-competitive business climate, or in some cases, businesses deciding to get out of certain areas or carry fewer products.”

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Manulife’s Steve Krupicz, actuary and assistant vice president of special case markets, confirms this reality. “It’s caused us to rapidly change our products, in terms of repricing current products, raising the cost of insurance on our guaranteed products, weakening the guarantees out there, and withdrawing products.”

There’s a silver lining, however. Though CI insurance and guaranteed products will likely get more expensive, panel members say companies will find ways to keep products moving.

They predict insurers will develop more complex policies with narrower targets, and expect consumers may be able to choose between pared-down products at competitive prices versus guaranteed products at higher premiums, for instance.

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Even so, shrinking product lineups are worrisome, says Butler.

As product shelves are pared and altered, advisors have to further educate clients about what policies are still available, as well as discuss how any changes affect their overall financial plans, she says.

She also urges them to ensure people fully understand terms and conditions when entering into policies, since few customers read long, complex agreements.

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But, what happens if advisors don’t have the time or resources to offer this advice?

Abram finds many buyers will turn to the Internet, seeking providers who offer speed and affordability; many of these products are one-off policies that come with cars and loans, for instance.

One way insurers can try to curb this trend is by eventually offering more readable documents and product descriptions, says Butler.

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