The measure of the efficiency of the insurance distribution within a nation is what we call the insurance protection gap. The insurance protection gap represents an economic risk and measure the gap between the amount of insurance that is economically beneficial and the amount of insurance actually purchased. In 2010, in Canada, this gap increased to 1 trillion of dollars… and it is still increasing…
As a result, for the APCSF to take the position in regards to the proposed revisions to Law 188 in Quebec that all sales of life insurance must be done by licensed advisors is the equivalent of a suicide. By taking a position that goes against all the research done around the world on this subject will only lead to the dismissal of the APCSF as being irrelevant. It shows that this organization is unable to deal with the reality and address the future.
Direct distribution of life insurance has been here for too long and it is here to stay. In fact the organizations involved in the direct distribution of life insurance are the life insurers who are cutting the MGA/Advisor out of the picture by offering insurance directly to the public; the same insurers that distribute insurance through licensed advisors…
This means that the greatest competitor to the MGA and advisors are the insurers. They are the one who solicits the public directly creating the impression that there is no value in an advisor relationship for the sales of life insurance in the lower end of the market.
Since direct distribution is here to stay; the answer to addressing the insurance protection gap is to increase the competitiveness of this channel. Since insurers compete against MGA/Advisors, could MGA and advisors compete against insurers by offering basic/simplified insurance directly to the public without using a life insurer?
Contrary to the insurer who is exclusively preoccupied by short term profits to make their shareholders happy; making the direct distribution of life insurance expensive; direct distribution through an MGA/Advisor by cutting the insurer out of the picture would increase the competiveness of the direct distribution of life insurance. Why? The answer is simple. For insurers, the direct distribution of the life insurance profit model is based on acquisition cost. However an MGA/Advisor would be willing to forsake any short term profits in exchange for the opportunity to build a client relationship that would yield long term profit. As a result, direct distribution through an MGA/Advisor would shift the profit model towards a philosophy based on the lifetime value of a consumer.
The organization that brings the least value to the consumer has always been the insurer. As a result, to close the insurance protection gap by increasing the availability of insurance to Canadians with limited income (where affordability of insurance is critical); any real savings realized in this channel leading to more competitive products can only be accomplished by cutting out of the picture the troublesome middlemen that is the insurance company and replacing it by a middlemen who is regionally present and willing to invest into a relationship with these consumers. This is the perfect definition of what is an MGA/Advisor. It is therefore time for them to step out of the insurer’s shadow or they will be doomed to disappear in the same shadow. (Richard Proteau 2015)
Is Direct Distribution of life insurance possible by an organization other than life insurers?
Absolutely! In fact whether anyone could be able to offer simplified/microinsurance to the public is an operational question and not a question of capital. For the moment an organization is able to underwrite (little underwriting or none at all is involved with simplified products), service (advisors are best suited to do this) and to handle claims, it can offer life insurance directly to the public.
How is this possible? The organization would only have to fully reinsure the simplified product therefore retaining no mortality or through a process we call “white labeling”.
While this is possible, reinsurance would be required to change. I believe that reinsurance would need to become portable to protect the consumers. In fact this should have happened a long time ago. I always wondered for insurance products sold by insurers which are fully reinsured, how the consumer could lose part of his insurance coverage because of the insolvency of that insurer? For the moment that underwriting, service and claims are maintained, coverage of fully reinsured products should be fully protected…
It is worth mentioning that for white labeling of life insurance products, this is already being done by insurers with banks and mortgage companies. Why has “white labeling” not taken off with MGA? Well it’s all about control and insurers while having no skin into the independent distribution of life insurance, they still want to control it.
Here are other changes that we will discuss and to consider if the sale of life insurance through advisors is to survive:
1. Clear separation between the captive channel and independent channel
2. Independent channel moving to a brokerage channel (no more agent contract allowed)
3. No more sponsoring of license by insurers for the independent channel
4. No more salesforce in the insurance industry. A profession and professionals are needed but do insurers want this?
5. Commission of life insurance moving to a lifetime value model promoting service
6. Change from licensing of selling products to licensing of providing a service and advice