Thursday, September 17, 2009

(No.52) Pt.2 - Sun Life: Comments on its performance

A recent column of (No.50) began this commentary on Sun Life's current performance, one written from the perspective of an insurance industry veteran and until my recent retirement an executive with Sun Life Financial's Canadian operation.

The column below continues a listing concerned with a variety of Sun Life challenges, especially involving sales and distribution in Canada. If readers wonder whether I expressed the views in these columns within Sun Life -- I did, frequently, in writing and verbally.


-- A decline already evident in the morale of the Clarica Life career agency sales force was intensified after the takeover by Sun Life and its rate of growth accelerated when Sun Life corporate management in Toronto made a fundamental error by replacing an experienced Mutual/Clarica senior executive, popular and generally trusted by the sales force. He had continued to direct individual distribution for some time after the takeover but was replaced by leadership from elsewhere in the Sun empire without experience in career agency distribution. The background to this included the fact that Clarica agents were already uneasy post-takeover because they knew how Sun had gradually in the 1990s done away with its own career agency system in Canada.

The new leadership style was the opposite of positive or helpful and soon became anathema to many of Sun's Canadian career sales force. An absence of understanding of career agency distribution was soon communicating itself to the sales force along with a lack of empathy for the system and its practitioners. Actions, decisions and anecdotes illustrating this and confirming agent suspicions began circulating within the sales force.

Anecdotes as well as some 'official' statements (including an early and badly received speech to a national managers meeting) not only became oft-used currency in the sales force to illustrate what many perceived as an anti-career agent bias but also served to reinforce for many agents their belief (justified) that in the process of reviving Sun's brokerage system it received favoured treatment in comparison with and often at the expense of career agents (e.g., the shift and allocation of underwriting resources).

That perception continues today among some Sun career agents who take an ongoing interest in the infatuation certain senior executives have demonstrated for the chasing of a relatively few big premium life sales. What many do not yet see although some certainly do is that these same executives tend to see the career system as some sort of 'farm team' with Sun's non-proprietary MGA brokerage as a 'big league' to which successful career agents should aspire.

Such executive perceptions are the product of ignorance and self-deception since the Sun career agency distribution system in Canada is actually the sales power supporting Sun's competition for 'broker' life sales, an effort which relies heavily on under-priced and often unprofitable 'big premium cases' involving ( particularly) Sun's Universal Life policy, the under-pricing of which has long been determined by pursuit of sales in the brokerage market. [More about that in a future column.]

Even after several years of spending money on the courting of brokers (a process which for most life companies has always reminded me of a giant rugby scrum) the comparative importance of Sun's two Canadian distribution systems for individual sales can be judged by their new premium from life, critical illness and long term care insurance in 2008: brokerage approximately $25 million; career approximately $130 million. That leaves to one side the issue of profitability of the particular Sun life insurance products sold in the main by brokers on the one hand versus Sun's career agents on the other.

But I digress.

The actively negative influence of leadership on the attitudes of the Sun career agency sales force lasted three years before a change was made but its counter-productive impact on sales force morale and on what career system sales would otherwise have been was significant -- and that melody lingers on although some progress has been made under new leadership.

-- For a variety of reasons, to some of which I have already alluded, many agents in today's Sun career agency system do not have the kind of positive attiude (or loyalty or trust) that was typical in the career system of which it is the continuation, i.e., that of the Mutual Life of Canada which at its zenith (pre-Clarica) was the highest quality system in Canada and one of the top 3 or 4 in North America measured by indices of overall quality such as policy lapse rate and agent retention rate. [It still is today, relative to its competitors, a superior distribution system.]

The relationship between Mutual Life and its career sales force was so strong that the company was able in 1983 to discard successfully the industry's traditional heaped commission system (the industry standard then and still prevalent in the North American industry) and introduce its pioneering and the North American life industry's first genuine lifetime level commission system. Mutual Life did so in the face of an informal consensus among agency executives in its peer companies that if it did so Mutual would lose most of its career agents as a result.

It did not and a major reason was that it had the trust of most of its agents that the company would not act against them and would not sacrifice their interests; to use a phrase I often heard in those days, most Mutual agents believed the company would NOT screw them with the new commission system. I recall the comment of one leading agent who called me at home late one evening for my opinion while the change was under discussion: "I have real doubts about this new commission system but I'll stick with Mutual because any time the company's made changes before I ended up ok".

[In fact the lifetime level commission system was and remains the glue holding together the Mutual/Clarica/Sun career agency distribution system. However recent management decisions by Sun may sew the seeds of its destruction.]

The depth of company-agent relationship I have described no longer exists in the Sun version of the Mutual Life career system, nor anything close to it. I recently received a nice illustration of this in the words of an 'original ' Mutual Life agent who has remained with Sun [see my analysis of the Sun sales force in terms of the origins of its members in column (No.50)].

He wrote: "I know that for myself I have taken an attitude that Sun Life is the devil I know. Generally I now view myself as being truly in business for myself and it is my firm that counts. Sun is simply a manufacturer and as such I know they can change the rules whenever it suits them ... But they really need an education on what the sales force means to the company."

-- In a previous column (No.49 ) I referred to Sun Life manufacturing life insurance products for competing financial institutions in Canada, including Bank of Nova Scotia. These institutions in turn can use these insurance products to compete with the exclusive career agents in Sun's own proprietary career agency system. My years in the business have taught me that if a life insurance company's senior management desires loyalty from its career agents, they must understand that such loyalty is seen by agents as a two way street; too few executives understand this in any meaningful way and agents have long since recognized that reality.

After my column touching on the Sun/Scotia relationship was posted I received an email from a longtime career agent in the Sun sales force, one who is representative of the sort of agent attitude and morale issues Sun has yet to address effectively, at least in ways that go well beyond pro-career sales force rhetoric delivered to agent audiences.

The agent wrote: "As a member of the career sales force I look upon the Sun/Scotia distribution arrangement re individual product with a very dim view. I can accept the creditor group insurance arrangement but for Sun with its career channel to enter into this arrangement is shameful when I know how the career sales force is being squeezed and slashed. Then again some executives in Sun may view direct distribution and bank insurance distribution to be more attractive than having the boring old career agent who goes out day after day selling billions of $s of product while continuing to starve for new investment in the career system by Sun."

This agent's attitude (and that of many other Sun career agents) concerning the bank relationship is unlikely to improve since many of them and many of their clients are receiving direct mail offers from Scotia of Sun Life critical illness insurance. Moreover it is a CII policy with differences from the CII product with which they are equipped.

It is all the more irritating to those career agents who recall that it was the career sales force that gave Clarica and then (after the takeover) Sun Life a commanding lead in the CII market, likely still in the vicinity of 20-25% market share. They also know that Sun's CII sales through direct marketing by the Bank of Nova Scotia will be dwarfed by those made by its own career agents. And they have received yet another illustration of how loyalty can be a one way street.

One more body blow to the morale and attitudes of an exclusive career agency system.


Alastair Rickard