The proportion of Canadians without life insurance coverage is on the rise, as a shrinking sales force is leaving the middle market underserved. As a result, a big opportunity exists for financial advisors to help members of the underinsured segments of the population get the coverage they need.
“We have the largest amount of underinsured Canadians in history,” says Sean Long, an insurance consultant based in Kitchener, Ont. “What we’re missing is the middle class and the lower middle class, who [largely] have no insurance whatsoever.”
Research from Windsor, Conn.-based global insurance association LIMRA International Inc. confirms that life insurance ownership is declining. The 2013 Canadian Life Insurance Ownership Study, which surveyed more than 3,200 household financial decision-makers, found that 68% of Canadian households have life insurance, compared to 79% in 2006.
This decline comes in spite of a growth in the number of Canadians who acknowledge the need for insurance. In the 2013 study, 45% of households reported that they need more insurance, up from 38% in 2006.
“If you ask, a lot of people will say yes, they either need insurance or they need more insurance,” says Caron Czorny, vice president of business development with BMO Life Assurance Co. in Toronto and chairwoman of the Toronto-based Financial Advisors Association of Canada (a.k.a. Advocis). “They recognize the need.”
As the economy has slowed in recent years and debt has increased, Czorny says, limited discretionary spending may be a factor preventing Canadians from purchasing insurance.
However, she says, a bigger part of the problem is that fewer advisors are discussing insurance with their clients. Since life insurance is a product that is largely sold, rather than bought, agents play a key role in distribution. As the industry has shifted away from career sales and toward independent sales, fewer firms are recruiting and training new insurance agents.
“We’re not doing a very good job of attracting younger people into the business,” Czorny says. “So, the young married families who need more insurance aren’t being approached for it.”
Furthermore, many of the advisors who are coming into the business are concentrating on investments rather than insurance. Some advisors are still wary of a perceived stigma surrounding becoming a life insurance salesperson. In addition, insurance typically follows a longer, more difficult sales process compared with investment products.
“Advisors are much more focused on selling money products, rather than insurance, because it’s an easier, sexier sale,” says Helena Smeenk Pritchard, who provides life insurance sales coaching and training with Helena Smeenk Pritchard & Associates in London, Ont. “There are no underwriting challenges and there’s no possibility of ratings or declines.”
This shift has left too few advisors focused on insurance, a product category that requires a specific set of sales skills, says Jim Ruta, president of AdvisorCraft Media and Consulting.
“As we have become financial advisors, we have abandoned the life insurance business,” Ruta says. “This industry is trying to make everybody a ‘holistic’ planner. How can we be holistic if we’re not covering basic things like life insurance?”
Adding to the problem, Czorny says, is the growing complexity of life insurance products, which makes the whole topic more intimidating for both advisors and clients.
“There’s so much information, and products are more and more complex,” Czorny says. “It’s just getting more confusing, and [consumers] can’t make a decision.”
The good news is that those Canadians who are buying life insurance appear to be buying more of it. Statistics from the Canadian Life and Health Insurance Association Inc. (CLHIA) show that the average life insurance policy sold in 2013 had a face value of $309,400. That’s up 60% from 10 years ago, when an average policy was $194,500.
Those numbers reflect affluent individuals buying large policies, according to Ruta: “There’s a lot of smart, wealthy folks who are buying a lot of life insurance.”
Among middle-class Canadians, it’s a different story. A growing segment of these consumers appear to be relying on the insurance coverage offered through their workplaces. Specifically, 37% of households in LIMRA’s 2013 study indicated that they depend only on group coverage, up from 31% in 2006.
Although that’s better than having no coverage at all, Czorny says, given the limitations of group coverage, the industry needs to do a better job of engaging these clients on an individual basis.
“It’s a good start, but I don’t think Canadians should be relying on only group insurance,” Czorny says. “We need to be able to reach these people, wherever they are, who are saying that they need insurance.”
Up next: Strategies for engaging the underinsured.