The life insurance industry is every bit as much involved in both of these areas of government regulation and risk management as the big Canadian banks, the same banks now taking bows over their comparatively solid financial standing coming out of the US-generated financial crisis. These were bows for behaviour and prudential rectitude the credit for which belongs as much or more to the federal regulators (OSFI) who both required and enforced over the years that admirable financial behaviour. But that is a story for another day.
The membership in the Canadian life insurance industry's church of compliance and risk management has grown steadily in recent years. When the life insurance company adherents of this new church gather to bow their heads before 'enterprise risk management' [ERM] icons it is an impressive occasion indeed -- one I have witnessed. I confess my own baptismal certificate in this church is not yet signed: I lack even probationary status.
Nor have I begun to memorize the ERM catechism much less have I made my first profession of faith. Why? One reason is that I have increasingly come to wonder whether many compliance people in companies and the regulatory community alike will not really be content until each agent/broker has a compliance officer at his or her shoulder every time they meet a client. That is hyperbole but it reflects a certain compliance mentality that is not only far from rare but on the rise.
Although I have long been an advocate of effective but practical regulation of the market place for insurance and of those who sell it, I am increasingly sceptical about the negative effect on genuine opportunities to buy individual life insurance (a socially important but client resistant product) of the trend toward loading up career agents and brokers like a tinker's mule with an increasing volume of unnecessary and unrealistic obligations and restrictions. For a convincing example of the negative and counter-productive impact this can have on the effectiveness and viability of active, prospecting agency distribution systems and on genuine opportunities to buy individual life insurance one need look no further than the United Kingdom.
This is where the central question is joined: the appropriate regulatory balance between market conduct and the need, by companies and consumers alike, for intermediaries to actually be able to 'sell stuff' in the real world. Many in both the industry and the regulatory community don't seem to have a firm grasp on a fundamental reality of the role of the life insurance business in serving the consumer: it is first about selling stuff.
There is a core risk too little considered by too many executives and regulators -- the risk of inducing partial paralysis or worse for life companies and their agency distribution. It also involves a failure to recognize adequately the reality that in any type of effective, active prospecting agency distribution system for selling stuff -- activity that occurs largely one-to-one -- occasionally shit happens.
That fact does not invalidate or call into serious question the importance of one of agency distribution to most insurance product manufacturers, i.e., the life companies. Rather it is a fact of life in a sales-based, one-to-one agency distribution system involving a client resistant but very socially and economically important product like individual life insurance.
The reality of the marketplace means that a life insurance company should be preapred to understand and live with sales reality and should stand ready to make whole the occasional buyer who is disadvantaged by the inappropriate conduct of a sales intermediary. If not then that company should get out of the business of selling stuff. Acquiescing to or even endorsing regulatory 'compliance creep', the effect of which if it continues unabated may well be the gradual strangling of the sales effectiveness of the active agency system, is foolish and ultimately self-destructive.
I have no doubt that some ( but certainly not most) regulators and life company executives would be privately pleased to see the disappearance of those they perceive stereotypically not as professional financial advisors but as commission-driven intermediaries who sell insurance to reluctant consumers. I have certainly encountered many with this prejudice. Perhaps the single benefit of the strangling of the active, selling agency system in its various forms would be to demonstrate to such people its central role by the magnitude of the resulting reduction in individual life insurance sales in the North American market.
Finally, as a footnote, I offer my view that all the fashionable and trendy chatter in both the life insurance industry and regulatory community about the desirability and advantage of principles-based insurance regulation does not seem to be changing all that much the rules-based environment in which the selling agent/broker must operate in the real world of the market place.