ppi solutions president and ceo jim virtue, ca, cfp, clu · financial services •current industry...

Our Industry: The Changes, The Opportunities.

Jim Virtue, CA, CFP, CLU

President and CEOPPI Solutions

Advocis - OttawaMay 22, 2014

Today’s presentation

• 30 years of change in insurance distribution and financial services

• Current industry pressures

• What the future holds

• Why this matters to you

• How to equip your practice to thrive

30 years of financial services

30 years ago

Banking InsuranceTrust

CompaniesSecurities

Brokerage Firms


Today

Banking InsuranceTrust

CompaniesSecurities

Brokerage Firms


Today

Banking Insurance

Banking


From 4 perspectives

1. Insurance Companies

2. MGAs

3. Advisors

4. Technology

1990’s1990’s

1. Insurance companies through the years

20 years ago

• No insurance company controlled more than 10% of the market

• 100+ insurance companies operating in Canada

1980’s 20142000’s 2010’s

1990’s

1. Insurance companies through the years

Today

• Consolidation has changed the landscape!

1980’s 20142000’s 2010’s 2014

1988 Westbury buys Canadian General Insurance

1989 Aetna buys Excelsior Life

1990 Sovereign Life buys Pioneer

1992 Standard buys Sovereign Life

1994 Canada Life buys New York Life

1994 Maritime buys Confederation Life

1995 Mutual buys Prudential of England

1996 Manulife buys North American Life

1996 RBC buys Westbury life

1996 RBC buys Voyageur Life

1996 London Life buys Prudential of America

1996 Great West Life buys London Life

1997 Empire Life buys Colonial Life

1997 Aetna buys Financial Life

1998 RBC buys Mutual of Omaha

1998 Mutual Life buys Met Life

1998 Canada Life buys Crown Life

1998 Royal Sun Alliance buys Gerling Global

1999 AIG buys Hartford

1999 Maritime Life buys Aetna

2000 RBC buys Prudential of America (Canada)

2000 IA buys Seaboard

2000 Provident buys Paul Revere

2000 UNUM buys Provident

2001 AIG buys Norwich Union

2001 Manulife buys Commercial Union

2001 Desjardins buys Imperial

2001 Maritime buys Royal Sun Alliance

2001 Transamerica buys NN Financial

2002 Canada Life buys CNA

2002 Manulife buys Zurich

2002 Sun Life buys Met Life (Clarica)

2003 Great West Life buys Canada Life

2003 RBC buys UNUM

2003 Manulife buys John Hancock (Maritime Life)

2009 BMO buys AIG

Major transactions

1. Insurance company consolidation

Now part ofNow part ofNow part of


A different perspective…

Aetna

Financial Life

Royal Sun Alliance

Gerling Global

Maritime Life

John Hancock (US)

Zurich Life

North American Life

Commercial Union

Confederation Life

Excelsior Life

Crown Life

Canada Life

London Life

New York Life

CNA

Great West Life

Westbury Life

Canadian General Insurance

UNUM

Provident

Paul Revere

Voyageur

Mutual of Omaha

Prudential of America (Canada)

Manulife Great West Life Group RBC Insurance


Impact on production todayIndividual Life Market Share:

Top 4 companies = 71% Top 10 companies = 93%

Individual Critical Illness Sales:


Segregated Funds:


1. Insurance companies with Career distributions

25 years agoNew York Life

Manulife

Metropolitan Life

Prudential

Standard Life

Prudential of England

Sun Life

Lutheran Life

Imperial Life

Pioneer Life

Canada Life

Mutual Life

Great West Life

London Life

Equitable Life

North American Life

Canadian Foresters

Laurentian/Desjardins

Monarch Life

1. Insurance companies with Career distributions

TodayNew York Life

Manulife

Metropolitan Life

Prudential

Standard Life

Prudential of England

Sun Life

Lutheran Life

Imperial Life

Pioneer Life

Canada Life

Mutual Life

Great West Life

London Life

Equitable Life

North American Life

Canadian Foresters

Laurentian/Desjardins

Monarch Life

Sun Life

London Life

Desjardins

RBC Insurance

1. Insurance companies: De-Mutualization

20 years ago

• All major companies are mutual• Canada Life• Manulife• New York Life• London Life• Sun Life

Today

• Equitable Life• the only one of top 10 producing companies• market share is less than 5%

1980’s 1990’s

2. MGAs through the years

Amount of written business written and MGA characteristics changed

20142000’s 2010’s

1980’s 1990’s


30 years ago

• MGA business in its infancy

• All MGAs regional, and relatively few in number

• Most MGAs have 1 to 3 contracts

20142000’s 2010’s1980’s

1980’s 1990’s


Transition

• Insurance companies: Career to MGA

• Many branch managers become 1st MGAs

• Some consolidation amongst MGAs

20142000’s 2010’s 20141980’s

1980’s 1990’s


Today

• Larger MGAs established

• 3 large• <10 regional• 200+ local

• MGA channel accounts for >50% of written business

20142000’s 2010’s 2014

Pinnacle Brokerage Ltd. (Vancouver)

Woodman Financial Group Inc. (Calgary)

Financial Management Brokerage Inc. (Calgary)

Edmonton Brokerage Ltd. (Edmonton)

Burns Financial Ltd. (Winnipeg)

AMC Marketing Centre Ltd. (Atlantic Canada)

Simon Jackson Insurance Broker Ltd. (Toronto)

Brugger Investment & Insurance Management Ltd. (Winnipeg)

Executive Financial Inc. (Atlantic Canada)

Couse & MacLellan Consultants Ltd. (Atlantic Canada)

Prolink Insurance Group Inc. (Atlantic Canada)

A.H. Bishop Ltd. (Atlantic Canada)

Packman Atlantic (Atlantic Canada)

MGAs that combined to form PPI Solutions over 10 years

2. MGA Consolidation: Evolution of PPI Solutions

1980’s 1990’s1980’s

3. Advisors through the years

30 years ago

• Almost all Advisors are with a Career Company

20142000’s 2010’s

1980’s 1990’s

3. Advisors through the years

Today

• Average age of Advisors is over 57

• Career system not bringing in as many advisors as before and retaining the ones they bring in

• MGA/Broker channel has not been able to develop new advisors

• Succession is a huge issue in MGA Channel

20142000’s 2010’s 2014

3. Advisors: What changed?

• In the career system advisors received support:

• Illustrations

• Admin

• Marketing and Sales

• Practice Management

• Financial

• Insurance companies stopped providing these services

• MGAs can fill the void ONLY IF they are equipped and financed to provide required support (many are not)

4. Technology through the years

• Internet radically changed consumer expectations about turnaround time and access to information

• Technology makes comparison of products and pricing easier and faster

• BUT due to insurance contract timeframes (i.e. lifetime) and many years of consolidating, insurance companies face challenges to upgrade systems

1980’s 1990’s 20142000’s 2010’s 20141980’s

Summary: Insurance distribution changes

Unprecedented changes in:

• Method of distribution (shift from career to broker/MGA, mutual to stock)

• Fewer companies in the marketplace

• Enabling technologies (easier to compare)

• Decreasing number of advisors and increasing age

• Emergence of MGAs as the largest distributor channel

• Increase in Direct Sales

• Regulatory environment

Current industry pressures

Current pressures: Regulatory

Issues

• Changes to MGA Compliance

• Commission disclosure

• Embedded Commissions

• Fiduciary Duty

• CRM 2

• Fintrac

• Ontario Bill 157


Canadian Council of Insurance Regulators reviewing MGAs

• What is this entity?

• What do they do?

• How do they interact with consumers?

• Do they need regulation to protect consumers?


• Provincial Regulators reviewing MGA business

• Looking at sales practices, disclosure, potential conflicts and compensation

• Market Conduct audits required by all Carriers


Worldwide regulation - disclosure and commission

• UK

• Australia

• US

• Where Canada is today on the disclosure issue


Embedded Compensation

• Canadian regulators following international trends

• Embedded commissions in investments products banned in U.K. and Australia

• Canadian regulators discussing banning embedded commission in funds


• CRM 2

• Started in July 2013

• Phased in over 3 years


Fiduciary duty under consideration for financial advisors

• Fiduciary duty is the highest standard of care in law

• It is a duty to act, first and foremost, in another person’s best interest, without regard to one’s own

• Professionals who are traditionally recognized as fiduciaries include lawyers, doctors and trustees


New Fintrac and AML rules coming

• All Financial Institutions being viewed the same

• Require ongoing monitoring – not just point of sale


Ontario Bill 157

• Bill recently introduced in Ontario to regulate financial planning

• Three key elements:

1. Advisors holding themselves out as planners must be registered with self regulatory body

2. A single system for complaints and discipline

3. A one stop reference check

Current pressures: Insurance Companies

• Stock (vs. Mutual) companies are motivated by profit

• Insurance companies pushing regulatory duties and supervision to MGAs

• Companies auditing MGAs and advisors for compliance

• Intense price competition among insurers creates cost/product pressures

• Prefer distribution costs to be variable

• Product re-pricing (possible withdrawals)

Current pressures: Competition

• Insurance and financial planning historically offered through insurance brokers

• Now increased competition from:

• Banks (retirement planning ads)

• Securities Firms (mostly owned by banks)

• Insurance company direct channels

Current pressures: Economic

• Low interest rates

• International Accounting Standards

• 2008 crash and enhanced regulatory sales scrutiny

• Results of these factors?

• Price increase on LCOI

• Some companies to withdraw from market

• Term policies continue to be very price competitive

What the future holds

Evolution towards the future

Regulatory environment

• More regulation and more public scrutiny


Insurance companies

• Possible further consolidation

• Price pressures on term will continue

• LCOI products in state of flux with continued price increases, product withdrawals or adjustable products

• New products will be designed

• Guaranteed products have uncertain future


Distribution

• Continued growth of MGA network

• Changes in what MGAs do and how they interact with advisors

• A renewal of the career system?

What does this all mean to you?

Through change comes opportunity.

It is a great time to re-evaluate your business and ensure that you are doing the right things

with the right people.

How to equip your practice to thrive

Building your practice

• Evaluate your practice to ensure that you are able to best serve your clients

Five steps to building your practice

Review your client base and ask yourself:

1. Do I meet regularly with each of my insurance clients?

2. Do I have a compliant file to back up my recommendations?

3. Do all of the clients I have reflect my ‘ideal client’?

4. Do I have access to resources and knowledge?

5. Do I have the correct distribution partners?


1. Client meetings

• Meet annually with clients to ensure their needs are met and new opportunities are identified


2. A compliant client file includes

• Disclosure Statement

• Engagement Letter

• Client’s pertinent financial details so you can assess the amount and type of insurance

• Details of insurance in-force

• A record of your analysis that assessed previously existing insurance


3. Decide who is your ‘ideal client’

• Take the time to think about it

• Write it down

• Direct your prospecting towards these people

• Go through your clients and find the ones that fit

• Consider selling part of your book to another advisor to allow you to focus on the clients most appropriate to your business model


4. Your resources and knowledge

• Tax and Estate Expertise

• Ensure you have a good network of professional advisors to work with



• Sales presentations

• Ensure they are compliant and correctly calculate present values and other data



• Take your continuing education seriously

• Obtain industry designation – CFP, CLU, RHU, etc.

• Join Advocis

• Check out courses offered through your MGA


5. What to look for in a distribution partner?

SUPPORT

• Sales and Marketing

• Productivity

• Tax and Technical Support

• Product Development

• Financial Planning Tools

• Technology Support

• Compliance


5. What to look for in a distribution partner?

COMPLIANCE

• Keep you informed with relevant, timely updates

• Provide easy to use tools that keep your practice compliant and save you time

Your future is bright

• Need for quality, professional financial advisors will continue to grow as:

• Population ages

• Fewer employees have pension plans

• Products became more complex

• Independence will continue to matter!

Thank you

www.ppisolutions.ca

Advocis - OttawaMay 22, 2014

ppi solutions president and ceo jim virtue, ca, cfp, clu · financial services •current industry...

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