(No.112) Gaming the system in hotels & life insurance

An article I saw in an economics journal looked at how companies hide fees and costs. The two authors (economists) concluded that sophisticated consumers have learned how to 'game the system' by having enough consumers around to subsidize them.

For example: you are attracted by an offer for a room at Hotel Nirvana for $75 a night, a room which costs the hotel $100 to provide. The person checking in behind you will rack up $70 in fees from the mini-bar, the phone and hotel parking (all of which cost the hotel $20 to provide). You used none of these. Hence the other person subsidized your room.

But getting cheaper goods and services subsidized by the uninformed consumer works as long as the sophisticated consumer knows what he or she could be charged. And it does not pay if too many people know the same thing.

But that may not be as big a problem as one might think since research has shown that even the most knowledgeable people can make dumb decisions although they have been provided with all the information they need to avoid doing so.

How does gaming the system play out in the life insurance business? Let's use first generation Term-to-100 policies as a case in point.

When T-100 policies based on lapse-supported pricing were introduced in Canada, the pricing badly over-estimated the level and rate of policy lapses that would occur. These policies were sold on the basis of offering lifetime protection but assumed -- indeed demanded from the perspective of the issuing life insurance company's financial interests -- that many Term-to-100 policyholders lose their lifetime protection and the sooner they lost it the better.

The sophisticated consumer held on to these policies -- and if you dear reader have an early Term-to-100 policy, hold on to it; it is worthy of Mark Twain's advice about land ("they are not making any more"). This created real challenges for those life insurance companies which had jumped into this market with what turned out to be seriously under-priced policies and thus tried to promote lapses of these policies or had to increase reserves on them or both.

Who were the life insurance consumers most likely to have held on to these policies, to have been sufficiently sophisticated to have refused to replace or lapse them? In my experience it was most likely to have been those policyholders who had career agents and brokers who were not only professional and gave good advice to clients but who themselves were sophisticated enough to appreciate what was happening with the companies and these policies.

In terms of this under-priced first generation T-100 business the better-managed companies pulled back. Great-West Life even pulled out of T-100 altogether providing an admirably frank explanation to their sales people of why the action was being taken.

A few companies tried to address insufficient lapses of their policies by going beyond promoting replacement of their T-100 policies by sales intermediaries to a tactic such as failing to send out an annual premium notice/reminder in the hope that the policy would lapse for lack of a timely payment of the annual premium.

A very successful and experienced Toronto life insurance broker, the late David Cowper, told me of a case where a client had a large T-100 policy (one sold to him by another broker). Cowper advised him to diarize when his policy anniversary date was and be sure to pay the annual premium promptly since he might not receive a timely premium notice if the company sought to have him (inadvertently) lapse his policy. Sure enough the policyholder received no notice but, thanks to Cowper's warning and advice, paid his premium on time anyway.

In this example, in terms of gaming the system -- and dealing with a company trying to game the system in its own interests -- both the policyholder and the broker understood that the price of this particular policy would have to be subsidized by other policyholders of the company and therefore that the company might seek to generate relief for itself.

And this fact underlines a reality of the life insurance market-place as real today as ever it was: some of the policies sold by life companies designed and priced to compete for market share and impress the financial services paparazzi with the company's volume of new business actually return low or no profit.

The premiums charged for such policies are, like the hotel room in my example, subsidized by (among others) the purchasers of life insurance policies priced by the company to actually return an adequate profit, say, a 15% ROE.

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Alastair Rickard

RickardsRead.com

email: Alastair.Rickard@sympatico.ca

(No.111) Did the critics see the same "What The Butler Saw"?

The previous column on RickardsRead.com (No.110) dealt with Englishman Joe Orton's 1969 play What The Butler Saw now being performed (through Sept 18) in Toronto by the Soulpepper Theatre Company. Last summer Soulpepper had presented a production of the Orton play Loot.

Our column reviewing What The Butler Saw was posted Aug.25. We prepared our review before the publication of those of the theatre critics of the major daily newspapers in Toronto.

It is sometimes interesting for us to compare our views of a play with those of these critics as well as comparing their reviews (see for example "Duelling critics over An Ideal Husband", Column No.96 on RickardsRead.com, posted June 3, 2010).

While Pat and I agreed that What The Butler Saw "is a worthwhile evening at the theatre", she "liked it somewhat more than I did." Among the trio of Toronto theatre critics, two liked it less than we did and one perhaps somewhat more.

Here are some illustrations excerpted from their reviews:

Robert Crew in The Toronto Star, Aug. 26, 2010:

"Back in 1969, when it first produced, ... it was hailed (by a few) as a black farce par excellence, an outrageous peek at modern society at its most insane.

"Forty years on, the same material does not play well at all. What once seemed cutting-edge and daringly shocking now seems distasteful and jejeune.

"And right from the get-go, the cast seems struggling to find the seam of humour that everyone assures us make this play Orton's masterpiece. ...

"The cast is a good one and the director, Jim Warren, usually has the surest of touches with this kind of comedy. But everyone -- without exception -- is pushing too hard to find the humour and put it across. There is lots of shouting and squawking and slapstick but to little avail."

[The Star's rating of the play was 1 1/2 stars out of 4 ]

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J. Kelly Nestruk in The Globe and Mail, Aug.27, 2010:

"Following up on his popular production of Loot at Soulpepper last summer, director Jim Warren is taking another stab at the outrageous oeuvre of Joe Orton. But while he gts a few satisfying spurts out of What The Butler Saw, Warren misses the major arteries this time around. ...

"More than 40 years on, What The Butler Saw's grotesques retain their ability to entertain and outrage on the page. But this dark comedy is difficult to transfer effectively to the stage. Not only do Orwell's epigrams run the risk of sounding overloaded when spoken, but they must be delivered in the midst of farcical physical comedy. ...

"Warren's production is probably still worth a visit ...."

[The Globe's rating of the play was 2 stars out of 4]

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Robert Cushman in The National Post, Aug. 31, 2010:

"Joe Orton [is] the young playwright famously dubbed 'The Oscar Wilde of the welfare state' .... The play ... reached the stage in a posthumous unrevised state, the source of some of its charm and some of its untidiness.

"Jim Warren's Soulpepper production is very lucid, which in this play is both a virtue and a vice. .. Warren gets the Orton tone more consistently than in last year's Loot, but not the tempo ....

"There is one triumphant performance: Graham Harley, resisting all temptation to play for eccentricity, makes [Dr.] Rance the ultimate civil servant. ... Blair Williams [as Dr. Prentice] exemplifies the good and bad in the production."

[ The National Post does not use star ratings in its theatre reviews]

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Alastair Rickard

RickardsRead.com

email: Alastair.Rickard@sympatico.ca

(No.110) Joe Orton's "What The Butler Saw"

What the Butler Saw is the last play written by the Englishman Joe Orton. It does not have a butler in it. Rather the title is a reference to the popular name of an English amusement arcade peepshow machine dating from the 1890s.

What The Butler Saw was not staged until 1969, two years after Orton's murder on August 9, 1967 at age 34 by his lover Kenneth Halliwell in the Islington (London) apartment they shared. Nor was the play well received at the time by London audiences. It was rescued from potential obscurity in 1975 when the director Lindsay Anderson mounted it successfully at London's Royal Court theatre.

As an English playwright Joe Orton was at the other end of the social and political spectrum from a contemporary like Sir Terence Rattigan. "I'm from the gutter," declared Orton, "and don't you forget it because I won't."

An Orton stage farce like the Soulpepper Theatre Company's What The Butler Saw directed by Jim Warren or last summer's Soulpepper staging of Orton's play Loot (also directed by Warren) is only superficially just about comedy. An Orton play has an overlay of social comment and criticism very particularly about England in the 1960s.

Last year the staging of Loot was a great success at Toronto's Young Centre for the Performing Arts. Pat and I saw the play and enjoyed it very much (see our review in column No.42 on RickardsRead.com, posted July 30, 2009). Soulpepper artistic director Albert Schultz deserves credit for mounting it; we credit him again for presenting what some regard as the best of Orton's nine plays: What The Butler Saw.

What The Butler Saw takes place in a psychiatric clinic. The doctor in charge is a seducer, his wife a nymphomaniac and a visiting government medical bureaucrat incompetent. The play is, it can be argued, Orton's attack on various aspects of the English establishment, especially the handling of the mentally ill, but a critique and satire that is contained within a frantic farce.

Orton could toss off lines that remind one of what a very rude Oscar Wilde or Noel Coward might have written. For example: the doctor in What The Butler Saw to his unfaithful and over-sexed wife -- "You were born with your legs apart. They'll have to bury you in a Y-shaped coffin." Or this declaration by the civil servant -- "I am a scientist. I deal in facts. I cannot be expected to provide explanations." Or: "The insane are famous for their wild ways"; "Simple explanations for simple minds."

The entire play is set in the clinic doctor's office, a set which -- true to the conventions of such a farce -- is equipped with multiple doors to accommodate the characters' frantic coming and going. And it is a funny play.

The strongest performance is by Blair Williams as Dr. Prentice, the clinic head, with Graham Hurley as Dr. Rance a close second. The other performances, particularly Brenda Robins as the doctor's wife, are more than competent.

We did not enjoy What The Butler Saw quite as much as Loot a year ago. Pat liked it somewhat more than I did. She argues that I am unsure whether the reason lies with my expectations, or with the play itself, or with this particular stage production or a combination of all three. It may well be the latter.

We do agree that What the Butler Saw is a worthwhile evening at the theatre.

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What the Butler Saw runs through Sept.18 at the Young Centre for the Performing Arts located in the Distillery Historic District in Toronto.

Box office information: online at www.youngcentre.ca; by telephone at 416-866-8666; seats from $31 to $75.

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Alastair Rickard

RickardsRead.com

email: Alastair.Rickard@sympatico.ca

(No.109) How Now Mrs. Brown Cow!

In Saturday's Globe and Mail (Aug.21) columnist Christie Blatchford , writing about politically incorrect Toronto mayoral candidate Rob Ford, commented on those Torontonians for whom a favourable comment about him would make their "heads [to] explode. Certainly, if they live downtown [in Toronto] and are of the gentle arty or intellectual stripe ... and assume that this is indeed the norm and that all others are suburban knobs ...."

I thought of that comment when, in the same issue of that newspaper, I read the review by Globe theatre critic J. Kelly Nestruk, of the Irish stage farce How Now Mrs. Brown Cow. He could hardly wait to pan the comedy that elicited what apparently seemed to him an unsophisticated audience's "giggles" and to advise the cultured to "run" in a direction away from the Canon Theatre where Mrs. Brown is playing. How precious and discerning of Mr. Nestruk.

Most of the theatrical reviews Pat and I prepare are based on seeing plays before reviews from the major dailies appear. On this occasion we saw Mrs. Brown the evening of the day the Globe's review appeared. Hence the inevitable comparison of our experience with that of the Globe's critic.

Mrs. Agnes Brown is a Dublin widow with several adult sons and one daughter. They are mainly 'under-achievers'. As a character Mrs. Brown has become the centrepiece of an entertainment mini-industry of which 5 plays (this is the 5th) form only a part. Mrs. Brown's creator, writer, director and (in drag) performer is Irishman Brendan O'Carroll -- and funny he is as the foul-mouthed Mrs. Brown.

We had never heard of the Mrs. Brown character or any of its various entertainment manifestations. The play can most easily be likened to British-style comedy in the vein of On The Buses and Are You Being Served? with more than a touch of Monty Python's Flying Circus but without the restraints English televison of that era imposed on the use of coarse language as a central part of the comedy.

The Mrs. Brown character which O'Carroll plays so effectively apparently has a large and enthusiastic following in Ireland and the U.K. and elsewhere, not just on the stage, television and even movies but on YouTube and Twitter. Certainly most of the audience of which we were members in the Canon Theatre seemed familiar with the characters and clearly anticipated the laughs in the comedy they had come to enjoy. The audience enjoyed the show tremendously, almost like members of a large family come together for a common experience.

Pat and I cannot remember an evening in the theatre anywhere when we have heard such continuous laughter (nothing so low key as the "giggles" Mr. Nestruk reported). We laughed too -- a lot. If you enjoy this sort of British-style comedy you could not have a jollier evening at the theatre.

There was nothing partial or half-hearted about the standing ovation for the cast at the conclusion of the evening.

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How Now Mrs. Brown Cow! is at the Canon Theatre in Toronto through Sept. 4 .

Tickets can be purchased online at www.Mirvish.com or by telephone at 800-461-3333. Seats range in price from $25 -$75.

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Alastair Rickard

RickardsRead.com

email: Alastair.Rickard@sympatico.ca

(No.108) Adolph Hitler's third nipple

Along with the American novelist Alan Furst the Scottish writer Philip Kerr is a favourite of mine -- and for similar reasons. He has brought life in pre-war Nazi Germany and in post-war occupied Germany alive using as his first person narrator a Berlin detective working for the Kriminpolizei (Kripo) named Bernie Gunther who, refusing to become part of the 1933 National Socialist takeover of the country including the police, soon left the Kripo and became a private detective and for a time a hotel detective at Berlin's upscale Adlon Hotel.

Kerr, who has also written a number of fine 'standalone' novels, began the Bernie Gunther series with three novels published in short order: March Violets (1989) the title comes from the deprecating name commonly given in Germany to those 'late comers' who didn't join the National Socialist Party until after Hitler had assumed dictatorial powers on March 23, 1933; The Pale Criminal (1990) and A German Requiem (1991) set mainly in occupied 1947 Vienna, the first two novels having been set in Berlin. This trilogy was subsequently republished in one volume in 1993 under the title Berlin Noir. The volume is still widely available in softcover.

The Bernie Gunther novels have been called by some reviewers "suspense thrillers" and "murder/political mysteries" by others. They have been likened with good reason to the novels of Alan Furst but with a continuing central character (see my column devoted to Alan Furst's novels "Spies,masks & coffins" on RickardsRead.com (No.103); this column was published on Aug. 16 as a review article in two daily newspapers: the Waterloo Region Record and the Guelph Mercury).

Another comparison which occurred to me when first reading Berlin Noir was with a lead character in the Robert Harris 1992 bestseller Fatherland, an interesting novel based on an unusual premise: it is set in the 1964 Berlin of a victorious Nazi Germany whose lead character Xavier March is, like Gunther, a detective in the Kripo.

Kerr's novels with Bernie Gunther, no anti-Semite, as the lead character depict in appropriately dark and ominous tones what everyday life became after 1933 for Germans and -- most darkly -- for Jews in Germany. Indeed the steadily more inhumane treatment of Jews in post-1933, pre-war Germany is one of the key plot lines in the first two novels of the Berlin Noir trilogy.

In 1936 Gunther was sent to Dachau Concentration Camp by the SS. As he observed in March Violets "Dachau was the model for all later camps; there was even a special school there to train SS men to be more brutal." The portrait Kerr paints of Dachau, speaking through Gunther (who managed to extricate himself -- barely), is stark indeed.

Gunther was assigned to an "Aryan hut"; these housed 150 men while the Jews were assigned huts which "contained three times that number. It was true what they said: there's always somebody else who is worse off than you. That is unless you were unfortunate enough to be Jewish. ... in all respects Jews were the worst off. ... I met a convict who was a Jew. He was also a homosexual. And if that weren't enough he was also a communist. That made three triangles. His luck hadn't so much run out as jumped on a fucking motorcycle."

For many readers I suspect that this trilogy is likely to do more to bring alive pre-war Nazi Germany than would picking up most histories of the post-Weimar Republic period. The focus is not all that common in recent English language fiction although several writers have taken it on, like David Downing in his fine Zoo Station [2007].

Philip Kerr's lead character before and after the war (and especially during it, on the eastern front) is far from heroic or even all that sympathetic. This harder edge is softened a bit in the latter three novels in the Gunther series; the first of this trio did not appear for more than a decade after the first three.

The plots of these latter three novels occur chronologically -- in part -- but follow Gunther in different periods within the same volume: The One From The Other in 1937 Palestine and 1949 Munich; A Quiet Flame in Berlin 1932 and Buenos Aires 1950; and the latest novel If The Dead Rise Not finds Gunther in 1934 Berlin and pre-revolution Cuba in 1954.

Bernie Gunther is a hard and perforce a cynical man. Near the beginning of The Pale Criminal he must meet someone at night at the ruins of Germany's parliament building, the Reichstag. As he approaches he observes that the Nazi-organized 1933 Reichstag fire had been "the clearest piece of pyromancy that Germany could have been given as to what Adolf Hitler and his third nipple had in store for us."

Bernie Gunther drinks, smokes and womanizes to excess but above all he is a survivor. Kerr's creation is a fascinating character.

The next in the Gunther series, Field Grey, is due for publication by Quercus in the UK later this year with publication in Canada likely to follow early next year. The novel's title suggests that it may address a particularly dark period in Gunther's life: the war on the Russian front during part of which he was forced into serving in the SS. In the previous novels of the series there have been only relatively brief references to that period of his life including his capture by the Soviets near the end of the war and his escape from internment after a year.

I recommend without reservation the Gunther novels and especially the Berlin Noir trilogy. They are enjoyable and often rewarding reading. I suggest that readers new to this series pick them up in the order in which they were published because, although time periods are often mixed in the same volume, the reader will benefit from having the background provided by the preceding novel(s).

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The Bernie Gunther novels of Philip Kerr:

(the trilogy) Berlin Noir, Penguin, 1993

The One From The Other, Penguin, 2006

A Quiet Flame, Putnam, 2008

If The Dead Rise Not, Putnam, 2010

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Alastair Rickard

RickardsRead.com

email: Alastair.Rickard@sympatico.ca

(No.107) Executives addicted to cheap mortality

RickardsRead.com received a number of interesting responses to the views I had expressed in column No. 105 "Making money in a race to the bottom" (posted July 29). I have selected excerpts from several of them.

As in previous columns presenting emails from readers, for reasons of privacy I have withheld email writers' identities unless they write to RickardsRead.com in an official capacity. However in order to provide context for the views expressed I have preceded each excerpt with a brief reference to the writer's role or connection to the subject.

Words in italics are mine.

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REF. -- COLUMN NO.105: "MAKING MONEY IN A RACE TO THE BOTTOM"

1. from a former member of Sun Life management:

Well said! On all counts ....

2. from a Sun Life agent:

Great commentary and right on the money. I can confirm that my b.s. detector has never beeped in the presence of any of the Sun executives you mention [i.e., Kevin Dougherty, Kevin Strain and Vicken Kazazian, senior executives in Sun Life's Canadian operation].

Keep up the great work.

3. from another Sun Life agent:

Gotta love your way of expressing things. ..

Don't bullshit a bullshitter ... as in "Such executive pretence is almost always counter-productive since most agents have highly developed bullshit detectors." You are so right.

As to how I, as an agent, feel, the jury is still out [on Sun Life and its Canadian career agency system ]. I do agree with your assessment as in: "Sun career agents came to like Dougherty and have been pleased to see him back. ...".

... As always, love your columns.

4. from a former Sun Life executive:

... the [Sun Life] stock is up a buck or two since you wrote this one so one never knows the impact of your views and how it all plays out.

5. from a former staffer and member of the London Life sales force:

Loved it!! Especially the comment "most agents have highly developed bullshit detectors". Bulls eye!

I can also attest to your comments about London Life, the Jeffery family and "its lingering culture". Too bad that even though they still have a Par [policy sales] culture, all the agents are selling so little life insurance of any kind, e.g., about 35% of what was the industry norm 'back in the day' ... or should I say 'hay day'.

It'll be no surprise to you that given my London Life roots ... I'm a big believer and owner of Par [life insurance].

... I am dismayed,shocked and appalled at how few life licensed advisors and insurance specialists understand that the cash value of any permanent contract -- par or non-par -- is the property of the insuring company as the reserve for that contract.

I am a member of a [industry discussion] group ... and someone recently started a "discussion" asking for explanations for the difference between term and whole life. The responses ... drove me to distraction!

6. from a senior life insurance business insider with a wide variety of experience in the industry:

Another good article but it left one unexplained point when one compares Canada to the USA.

In spite of tight money and difficult times for financial institutions south of the border they reinsure far less of their [life insurance] business than Canada. In 2009 the US reinsurance industry saw their share of risk drop as a percentage for the 7th straight year and now sits at 33.9% (falling from a high of about 63% in 2002).

I am perplexed by the huge difference and can only explain it that Canadian pricing actuaries and company executives are so addicted to the cocaine of cheap mortality and morbidity from reinsurers they cannot fathom the withdrawals they would face should they wean themselves.

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Alastair Rickard

RickardsRead.com

email: Alastair.Rickard@sympatico.ca

(No.106) Dangerous Liaisons

On the eve of the French revolution, not long before the guillotine overtook the ancien regime, a French artillery officer named Choderlos de Laclos wrote a novel called Les Liaisons dangereuses (1782). Two hundred years later the British playwright Christopher Hampton adapted the Laclos novel into a successful play and then into an Oscar-winning screenplay for the 1988 movie Dangerous Liaisons.

The Hampton play is one of the productions at this season's Shakespeare Festival in Stratford Ontario. Pat and I saw Dangerous Liaisons recently.

At the core of the play is the relationship as well as a sort of competition between le Vicomte de Valmont (played by Tom McCamus) and la Marquise de Merteuil (Seana McKenna) involving the sexual conquests with which each becomes involved.

To avenge herself on a lover who deserted her Merteuil asks Valmont to seduce the man's fiancee. Valmont is already preoccupied with the seduction of a respectable married woman but agrees to Merteuil's request provided that she renews their sexual relationship if his 'assigned' seduction is successful.

That plot precis may make the play sound rather squalid. It isn't. Dangerous Liaisons is not a descent by Stratford into soft core porn but rather the presentation of a rather sophisticated drama with many laugh lines. Hampton has supplied it generously with epigrammatic lines in the style of Oscar Wilde like "She couldn't have hated him more if they had been married ten years"; "one does not applaud the tenor for clearing his throat"; "excess is something you reserve for people you are about to leave"; and "like most intellectuals he's intensely stupid".

Dangerous Liaisons does present special challenges of design and staging on a thrust stage that works well with what has become a traditional approach to staging Shakespearean plays. However these challenges are met successfully by director Ethan McSweeney and designer Santo Loquasto. The latter's costume designs are superb and enrich the production's look.

The play's setting is various salons and bedrooms in and around Paris. Sight lines to the actors across the thrust stage remain unobscured through the use, for example, of transparent acrylic period style chairs. Beds on sliding bases are pushed onto and out of the stage by footman, often with the actors in bed. Servants smoothly remove or place pieces of furniture.

The cast is strong overall. The 36 year Stratford Festival veteran Martha Henry is a pleasure to watch in a smaller part as Madame de Rosemonde. The play's best roles and, unsurprisingly, its strongest performances come from McCamus as Valmont and McKenna as Merteuil. Indeed McCamus' performance approaches the superb.

This Stratford production of Dangerous Liaisons is enjoyable and a worthwhile experience for the play goer. I am not a fan of 'star' ratings of plays or movies but I admit they are sometimes an appealing bit of critical shorthand.

Pat and I agree on a 'rating' of 4 out of 5 stars for Dangerous Liaisons.

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"Dangerous Liaisons" continues at the Stratford Festival through Oct.30, 2010. Tickets can be purchased online at www.stratfordshakespearefestival.com or by calling 1-800-567-1600.

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Alastair Rickard

RickardsRead.com

email: Alastair.Rickard@sympatico.ca