Tuesday, October 27, 2009

(No.60) Pt.3 - Sun Life: Comments on its performance

This is the third in a series of columns this year commenting on the current performance of Sun Life's operation, particularly in Canada. Parts 1 and 2 appeared in column nos. 50 & 52.

Other RickardsRead.com columns about Sun Life (as well as many other non-business subjects) can be located by checking the monthly listing going back to January of this year. This listing and access to each column appears beside each RickardsRead.com column.


In terms of individual insurance sales Sun Life's Canadian career agency operation (which accounts for the bulk of its individual product sales) will be lucky to hit 95% of their 2009 plan sales objectives. Indeed by the end of December a real stretch may be needed to hit 90% of plan or even to equal 2008 sales.

There are a variety of factors relevant to this situation. Here are a few:

1. There was a cutback for 2009 in an already reduced and inadequate operating budget, especially as it relates to distribution. The 2010 Sun budget process now underway involving this area of operations requires a flat year-over-year profile. This means of course, given the effect of inflation and rising operating costs, that 2010 will see yet another in a series of budget reductions mandated by % or de facto by inflation.

2. Not only is the recruiting of new people into the Sun career agency system lagging (again), there continue to be insufficient recruits of the sort best suited to success in desirable market segments. Why? One reason is a level of financing for new agents that is inadequate for attracting people already experienced in careers appropriate to success in life insurance selling.

Why? Years of budget reductions so that today's level of supported income for new agents while becoming established in a very difficult role is insufficient to attract enough of the likeliest recruits and is low compared to what it once was in the Mutual Life career system of which today's Sun system is the continuation. At one point the Mutual Life career system achieved an industry leading 4 year agent retention rate of 40%; today's Mutual/Clarica/Sun career system would excel if it could manage to stick at 25%. It should be noted however that the Sun retention rate is still superior to industry averages.

3. In 2009 Sun Canada is devoting several million dollars of scarce operational budget better spent supporting the enhancement of Sun agency distribution to the cause of trying to get 'direct' insurance sales -- and at a time when agency distribution budgets are severely squeezed. It is a reflection of the triumph of hope over experience.

Like so many life company executives inexperienced in the reality of how a company can go about getting -- in quantity -- individual insurance sales, Sun's Canadian operation senior leadership are chasing a fantasy, i.e., the one that purports to offer the prospect of significant direct non-agent sales as the silver bullet to greater and easier sales success of a client resistant product. This is hardly new.

One example: Mutual Life/Clarica, with the best career system in the business, dropped $10+ million pursuing a fantasy not all that long before Sun took control of the demutualized company. The objective was to show the potential of direct sales, to show that lots of people would initiate the purchase of an insurance product of some substance by going online (i.e., a product to be distinguished from, say, accidental death insurance -- a type of life insurance much beloved by direct marketers but coverage of no value to the buyer except as a form of insurance lottery ticket promoted by life insurance companies for purchase by the foolish and the gullible).

The real sales results from this online effort were laughably low, a fact camouflaged by requiring agents in certain agent-involved sales to use a specific online process. The reality of only a few policies having been purchased as the result of buyer online initiative was of course never highlighted.

Online product offerings included, for example, a mutual fund. If purchases by the company's own people were excluded, external buyer-initiated purchases were few. With a 4 benefit critical illness insurance policy "only available online" notionally the clients who bought were applying directly for this CII plan. The reality was that actual purchases online were largely assisted by agents who were required by the company to use the online process to make the sale of this product. Best estimate: fewer than 100 genuine buyer-initiated, non-agent-involved, online sales.

This expensive non-result, one that had been predicted by some, was like the project itself -- quietly put aside. Of course there is usually adequate cover available in such situations for those executives who wish to create the appearance of significant, non-agent-involved, direct sales success where it does not exist.

Concerning Sun's current 'direct' sales initiative one can read the words of Sun's Canadian president (August 6) that "in direct distribution, sales continued to exceed expectations" in the second quarter of 2009. The expectations must have been modest indeed even with the "launch of a revised website for the online sale of Personal Health Insurance". Although the latter is the type of individual insurance product most likely to be the beneficiary of buyer initiative, Sun agents are still the ones moving the bulk of what Sun sells in PHI policies.

"Exceeding expectations" is always useful phrasing, vague enough to be reminiscent of the progress of other executive 'visions' to which I have borne witness during my insurance career. The industry reality is that the share of new premium generated by genuine direct individual policy sales initiated by the consumer without agent involvement is minor relative to the life sales generated by active agency systems in all their various forms.

How then is it possible to support claims of 'direct sales' success by agency companies not occupying that direct distribution marketing niche (whether by choice or out of necessity)? One method is by classifying and counting certain kinds of transactions as part of and the result of a direct buyer purchase -- even when they involve counting apples with oranges. Such direct sales numbers can be easily enhanced by counting as 'direct sales' transactions like pension rollovers, group conversions, agent online applications and the like.

For example: conversions of group life insurance coverage held through employment by exiting employees exercising their conversion rights to individual coverage, employees being directed to or contacted by Sun call centre people who refuse, even when asked to refer the caller to an agent for advice and service, to do so.

This sort of thing is not only a source of dissatisfaction among many Sun career agents, it is another example of the company trying to tilt the table in favour of creating apparent success with 'direct' sales. Agents know that the individual policy(s) available on most group conversions are rarely comparable to the policy choices an agent can offer to the departing group plan member. The fact is that if a departing employee is insurable at standard rates, it's a safe bet that a Sun career agent can find a better individual insurance option than what is available under the group conversion right.

[ To be continued in Part 4 of this series. It will appear in the next column (No.61) of RickardsRead.com]

Alastair Rickard


email: Alastair.Rickard@sympatico.ca

Monday, October 19, 2009

(No.59) Banks & insurance: like Wellington's horse

Canadian banks received a letter from federal Finance Minister Jim Flaherty the other day in response to which they expressed shock and surprise -- or pretended to do so. I say pretended because, in spite of the inbred arrogance and ignorance of the big banks in Canada, it is hard to believe that they were really surprised by the minister's direction to stop bank websites from hustling insurance (as distinct from the websites of the banks' insurance subsidiaries).

In June this year I took note (see RickardsRead.com, No.33) of a Globe and Mail report (June 10) that I characterized as having made a mountain out of a molehill by proclaiming that " banks have notched a rare victory in their fight with Ottawa over selling insurance". The article then went way over the top. It declared that a decision by OSFI, the federal regulator -- one refusing a request for action from insurance brokers -- not to prohibit bank websites from promoting insurance meant, expressed in an absolutely orgastic bout of hyperbole, that "the barriers the federal government has long maintained around bank sales of insurance could be crumbling".

I described this interpretation by the Globe as "breathless credulity" and emphasized that their story had ignored "a key reality about any expansion of bank retailing of insurance beyond the present permitted types: any decision to expand significant bank retailing activity will be a political decision, not one made by Ottawa bureaucrats; any such change is one that remains not merely unsupported by the government but opposed by the government and the opposition parties".

Minister Flaherty himself should now have made this fact of life clear even to the banks and their expensive but poorly informed advisors (perhaps the same ones who advised the banks when they made the mistake of appealing their losing Alberta case challenging provincial insurance regulation to the Supreme Court of Canada). The minister accompanied his recent direction to them to shut down their website insurance activity with a clear statement that he was carrying through with a Conservative government commitment to insurance brokers.

The action itself and the comment were yet another illustration in a line stretching back 20 years of the political power of the insurance industry, a lobbying power based more and more in recent years on the work of agents and brokers (particularly on the p & c side) and even less and less on insurance companies -- for reasons that constitute another story.

In an Oct 9 Report on Business "analysis" of "How a scattered army of insurance brokers outmuscled the Big Five" the Globe did a reasonable job of citing relevant facts and factors but omitted to make a number of key points. For example:

1. The "insurance brokers" to whom the Globe's story were devoted and who were quite accurately depicted as being so effective this time around in reminding the government of their commitment to restrict bank involvement with insurance were property & casualty brokers, not those on the life side of the insurance business. Indeed the p & c insurance people took over the de facto lead some time ago in opposing the banks' long desired expansion of their existing role in insurance retailing.

2.Partly this is the result of the life insurance agents' own trade association, latterly called Advocis, declining in terms of strong leadership, membership size, finances and effectiveness since the days in the 1980s and early 1990s when it was the key player on the insurance side of political lobbying in Ottawa.

3. In part this latest episode's key insurance players were who they were because most life insurance agents and brokers know, based on both experience and instinct, that they are not significantly threatened competitively -- despite the illusions of various life company executives who keep discovering 'direct' life sales to be what they think will be some sort of silver bullet to greater sales success-- by buyers initiating the purchase of individual life insurance via bank websites ( although it is important to note that life agents are far from indifferent to the prospect of any expansion involving bank branch sale of individual life insurance) .

P & C brokers do feel threatened and for greater reason: they understand the marketplace reality that their insurance products, unlike life insurance, are ones most people accept they must have (auto insurance) or really need (fire insurance). It is a very different buy-sell equation from individual life insurance. Hence the leadership on this bank website issue
from the p & c side of the insurance business.

4. The fact that the banks were defeated on this issue by insurance sales people's lobbying is unsurprising as well as consistent with the history of their successive political losses in Ottawa since they began their fight going on two decades ago to get government to change the rules to permit an expansion of the permitted types of insurance that can be sold in bank branches where inevitable even if subtle bank-based pressure can be brought to bear on bank customers.

On this whole banks and insurance issue the big banks today remind me of nothing quite so much as the aphorism about the Duke of Wellington's horse at the end of the Napoleonic Wars: it had been everywhere, seen everything and learned nothing. The back benches of all the parties are occupied mainly or exclusively by MPs with no sympathy for the banks, an absence reinforced not only by the effective lobbying of insurance sales people (who have long been systemically active in constituency associations for all parties except the NDP) but also by the consistent absence of public sympathy and support for the big banks.

5. Finally, a note to financial journalists and analysts: in writing about the issue of banks and insurance note that any federal government could, anytime it wished to do so, expand bank branch retailing of insurance without the obstacle of going to Parliament for a legislative change. The ground could be altered tomorrow by a change to existing regulations using an order-in-council.

That is one reason why insurance people move forcefully and promptly when they see the banks trying once again to change any of the ground rules governing bank involvement with insurance.

[More of my comment on banks and insurance and relevant facts and cases can be read in a number of columns to be found on RickardsRead.com. For example: Nos. 33,34,47 & 48].

Alastair Rickard


email: Alastair.Rickard@sympatico.ca

Wednesday, October 14, 2009

(No.58) Stumbling toward Steichen

As I stumbled and fell the last few steps in the Jeu de Paume gallery in Paris I cannot claim to have been distracted by thoughts of the Edward Steichen portraits Pat and I had come to see or about the 'degenerate' paintings the Nazis had put into bonfires outside the building but rather how much I must have looked at that moment like an extra in a Three Stooges movie. That thought is validated by the fact that the memory of seeing my pratfall can occasionally still convulse Pat with laughter -- although she certainly wasn't laughing at the time.

We had come to the north-west corner of the Tuileries gardens in Dec 2007 to view the renovated structure housing the Galerie Jeu de Paume as well as to attend the special exhibition of photographs by the American Edward Steichen presented under the heading: "Edward Steichen -- Lives in Photography". Steichen, actually born in Luxembourg in 1879, was a famous New York fashion and celebrity photographer of the 1920s and 1930s whose photographs appeared in Vanity Fair magazine. He died in 1973 and now seems to be undergoing a renaissance of interest in his work.

The Jeu de Paume, built in 1861, originally housed tennis courts during the time of Napoleon III. It was used by the Nazi occupiers of Paris during 1940-44 to store Jewish cultural property looted from its owners in France during the German occupation. Works by artists such as Picasso and Dali were indeed regarded as "degenerate art" by the Nazis and some pieces were burned.

After the war the building again served as a French art museum housing paintings by French impressionists. The Jeu de Paume was closed in 1986 when its collection was transferred to the magnificent D'Orsay Museum which occupies the grand space and structure of the former railway station. The Jeu de Paume was renovated and reopened in 1991 as a space for special exhibitions involving the history of photography among other things.

With Pat's reminders ringing in my ears I remembered to focus on avoiding a similar stumble when visiting a different Steichen exhibition currently in Toronto at the Art Gallery of Ontario: "Edward Steichen: In high fashion, the Conde Nast years, 1923-37". [It continues through Jan 3, 2010].

The exhibition is comprised of black and white photographs of fashion models (especially Steichen's favourite Marion Morehouse) as well as celebrities which appeared in Vanity fair and Vogue magazines, both Conde Nast publications.

It is interesting to see such finely executed pictures from an era now more than seven decades past -- for Steichen was a talented photographer: to see Noel Coward before the dissipation was evident and Marlene Dietrich pre-body suit and Joan Crawford when she had a natural beauty or Leslie Howard looking effete. Only some of what is displayed in Toronto overlaps the Paris exhibition in 2007 as I recall its subjects.

Another indication of how fashionable such events involving Steichen have become is another Toronto exhibition being held at the Royal Ontario Museum in Toronto: "Vanity Fair Portraits: Photographs 1913-2008". It features the work of Steichen but also of his contemporaries like Man Ray and Cecil Beaton and (latterly) Annie Liebowitz. This exhibition too will run until Jan 3, 2010.

Even if one is not consumed with a desire to see historic portrait photography from New York fashion magazines, the recently expanded galleries and permanent collections of both the AGO and the ROM make visits to both places rewarding.


In Victorian England in the late 1840s a small group of artists -- Dante Gabriel Rossetti, John Everett Millais and William Holman Hunt -- launched their Pre-Raphaelite rebellion against London's Royal Academy of Art. They opposed the Royal Academy's promotion of Raphael as the ideal artist, hence their self-description. Their subjects, taken from literature and poetry, dealt mostly with love and death and were painted in a realistic style.

John William Waterhouse (1849-1917), born just at the time of the launching of the Pre-Raphaelite rebellion, became a late Pre-Raphaelite. A special exhibition of Waterhouse's art has now been organized by the Royal Academy in London, the Groninger Museum in the Netherlands and the Montreal Museum of Fine Arts. This show is the largest retrospective (80 paintings) of Waterhouse's works ever mounted.

The exhibition, entitled "J.W. Waterhouse: Garden of Enchantment" is at the Montreal Museum of Fine Arts until Feb 7, 2010 for its only North American stop.

Waterhouse as an artist was, within a decade of his death, completely out of fashion where he remained for some decades. But today his paintings are even more popular than during the peak of his popularity. Indeed, without knowing the creator of them many people will be familiar with the much reproduced images created by Waterhouse (like his best known, the Lady of Shallot, four versions of which done by Waterhouse appear together for the first time in this exhibition).

The Waterhouse exhibition in Montreal is well worth a visit, all the more so given the fact that it is unlikely that there will be another like it in the foreseeable future anywhere in the world.

Alastair Rickard


email: Alastair.Rickard@sympatico.ca

Thursday, October 8, 2009

(No.57) Me & mutuality: for whom the bell tolled

Before joining the life insurance business I had several jobs and along the way earned three university degrees in history. The non-financial services experience was valuable to me as was the training in history although my graduate degrees made me an object of suspicion among some people in an industry still prone to regard such ivory tower achievement as indicative of one who was apt to have only a tenuous grip on what they regarded as 'the real world'.

My study of history has, among other advantages, helped me gain an understanding of the importance of learning from the past as well as informing my understanding of the present and occasionally some possible features of the future. However, learning from the past is not something I observed as being all that common a trait among life insurance executives or, come to that, executives in other pillars of financial services.

In terms of my education in the reality of the life insurance business, at root a business dependent upon selling stuff, the most valuable part came early on working in the field as a financial planner with career agents of Mutual Life and their clients. Indeed it was that experience which both created and propelled the growth of my unlikely interest in the business.

I well remember during drinks following my defence of a thesis that my erstwhile colleagues in Milton's grove of academe made clear their view that I had lost my ability to make wise judgements, the evidence for which was my having declined a Canada Council fellowship I had won (and had deferred taking up), thereby stepping off the path to a professorship in favour of pursuing my then budding interest in the life insurance business. I was not deterred by their scepticism.

Within a very few years I had cause to reflect on the quality of my judgement compared with that of two of the professors who had shared their opinions over sherry that afternoon: one ended up in prison while another was murdered by a stranger he invited to his Mexican hotel room.

The company I had joined was the Mutual Life of Canada (founded in 1870), the first and the only significant Canadian mutual life insurance company founded as a mutual. The other big Canadian companies in this category (Sun, Manufacturers, Canada, Confederation) had all been stock companies that mutualized in the late 1950s and early 1960s as a means of avoiding foreign takeover, an optional solution to their problem devised for them by then federal Supt. of Insurance K.R. MacGregor.

By the time I entered the industry these 'stock company mutuals' were chafing at the organizational restrictions imposed by mutuality, an approach to the life insurance business and to policyholder ownership and benefit in which their senior managements (it seemed to me) did not believe and to which they paid no more than lip service in any case -- and precious little of that. Only in Mutual Life had a fairly significant tradition and reservoir of belief in and practise of mutuality survived down the years.

The tolling of the final bell for a fine, historic Canadian company, one owned by its participating policyholders in Canada, began on Dec 8,1997 when Mutual Life's senior management and board announced that the company would demutualize and become a stock company (Clarica Life). Within the company this event had been presaged some time before, a signal some picked up while most did not, by senior management's newly discovered obsession with mutual company equivalents of irrelevant stock company ROE numbers.

The tolling of the bell concluded on Dec 17,2001 with the announcement of the purchase of Clarica Life by Sun Life (also demutualized). However the disappearance of Mutual Life (like Canada Life) was inevitable once demutalization had occurred and Ottawa's short term post-demutualization protection from takeover applicable to them had expired. Neither Mutual Life nor Canada Life was the beneficiary of the sort of ongoing backstop of federal 'permission for takeover' enjoyed then and since by both Sun and Manulife.

The fact that only half of the quartet of big demutualized Canadian companies (Confederation Life having become insolvent) had protection going forward is something for which the senior managements of Mutual Life and Canada Life, so eager to have their companies become stock companies available for takeover (which of course they were), can share as much blame -- or credit, depending on one's point of view -- as the feds.

Some of us who were associated with the Mutual Life of Canada will continue to remember job satisfaction not associated with a quarterly results perspective, nor with decisions aimed at winning smiles of approval from institutional investors, financial media, rating agency analysts and various toads in the life insurance garden, nor with the priority routinely accorded in recent years to the financial aggrandizement of a financial services company's senior management group.

Alastair Rickard


email: Alastair.Rickard@sympatico.ca

Sunday, October 4, 2009

(No.56) In order to stab someone in the back ....

I derive some wry amusement from the fact that as a life insurance company employee, a 'salaryman' as the Japanese have it, as well as in my spare time an editor, writer and industry critic, I have been threatened with termination of my employment as well as with libel action by several life company CEOs.

These threats related to my publicly expressed views on industry issues as well as about various companies, views that in some fashion offended some senior executive's delicate sensibility. I have a letter somewhere written more than 25 years ago by a CEO (a fine man actually) warning me that my job was hanging by a thread. That thread turned out to have remarkable tensile strength.

If my transgressions against corporate propriety or bans on unlicensed expression escaped notice by those who from their lofty corporate perch might exercise their authority, I could always count on at least one or two of those who -- yesterday -- told me privately of their great admiration for my frank expression of views to point out -- today -- to senior management my high crimes and misdemeanours.

Disappointing and servile behaviour one may say but really not all that surprising. In order to stab someone in the back it is first necessary to get behind him. Like company gossip, such politically driven career management is in the mother's milk of corporate culture.

It still strikes me as beyond bizarre that for the past several years my employer has been Sun Life Financial, a solid company in many respects but one which I had regularly criticized editorially in the pages of my magazine the Canadian Journal of Life Insurance, a pattern of frank comment that I maintained within the company after it had taken over Clarica Life (the demutualized Mutual Life of Canada), my then employer.

I have remained faithful to this tradition since I began RickardsRead.com as my columns about Sun and the industry attest, including the intermittent series about Sun Life that I began recently with Nos. 50 & 52, the first two parts of a series I intend to continue whenever the spirit moves me.

In golden days long past I was (as I am still ready and happy to lay claim to have been) a vigorous public critic of the process by which Sun Life orchestrated its highly questionable move of its long-time Montreal head office to Toronto.

Had anyone asked me then how likely it was that I would (1) ever see the takeover of Mutual Life by Sun Life (both then being mutual companies), and (2) that if such an unlikely event were ever to occur that my employment would not only survive but continue in the form of an executive role with Sun Life while 1800+ good people found themselves on the street in the cost-cutting wake of that takeover, I would have put the odds on a par with those predicting the likelihood of Her Majesty The Queen appointing me Archbishop of Canterbury.

More in this vein in my next column.

Alastair Rickard


email: Alastair.Rickard@sympatico.ca