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