Monday, November 2, 2009

(No.61) Pt.4 - Sun Life: Comments on its performance

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

The third part of the series (which is continued in No.61 below) appeared in No.60.

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


Continued from No.60

4. Another factor in Sun Canada's failing to achieve the desired level of increase in new individual insurance premium is the Sun-orchestrated and promoted shift in emphasis and incentive for the members of its career agency sales force involving asset products (particularly CI mutual funds) and life insurance. In a nutshell: Sun has made it more attractive for many of its life insurance career agents in terms of compensation to sell more asset products and this has had the effect of reducing their efforts directed to new life sales.

Sun disturbed the relationship in compensation and other sales incentives between the hard sale (life insurance) and the much easier sale (mutual funds), i.e., what was a better balance if the company wanted to be both realistic and serious about utilizing its proprietary, prospecting life insurance distribution system to focus on selling its core product in the fashion that Sun's life insurance sales goals suggest it still wants. If anything needed to be increased it was the level of life insurance commissions; in fact there have been reductions.

Here is an example of the sort of current compensation reality that can influence the choices that established Sun agents can and do make about where more (or less) of their sales time and effort are best allocated as between easier sales and harder sales:

Sun Life career agent, level 6 in production, with the company 5 years -- a $3000 annual premium on a Sun Universal Life sale will generate first year commission of approximately $1500 including all business development commissions and the like. Compare this to a $100,000 asset product sale (e.g., from a mutual fund RRSP rollover from another company) which would generate a commission of $3300.

If there are Sun Life executives (and there are) who believe that this sort of comparison does not influence some agents and does not contribute to the evident subtraction from some agents' time and effort spent making new life sales, then they ought at the very least to be exiled to one of Sun's corporate islands for downgraded executives where their ignorance cannot continue to endanger greater sales success by the career system.

OR Sun could increase life insurance sales compensation and incentives.

OR Sun's senior management could indicate, especially to their career agents, that they have forsaken their foolish notion that in this respect the company can have its cake and eat it too.

Certainly the Sun distribution system has experienced greater emphasis than formerly on asset product sales by its career life insurance agents, an emphasis dictated from the top. This benefited Sun because of its 1/3 ownership of CI mutual funds although, if anything, it has had a negative overall effect on the Sun career agency system.

It certainly enriched CI which was given preferred access to the Sun career agents even though CI was not required to pay an appropriate surcharge or a special 'fee' for it. There should have been a special CI contribution made to the ongoing support and enhancement of the distribution system on which CI came to depend to a significant extent. In one year that I recall perhaps 2/3 of CI's mutual fund sales when viewed on a net basis were generated by the Sun career system; at least a 1/3 share on a net basis has not been unusual.

In any case Sun has now sold its interest in CI to Scotiabank and the continuation of CI's preferred access to Sun's proprietary distribution is not just unwise, it is counter-productive unless CI is prepared to pony up the sort of financial support for the Sun system on which Sun senior management ought to have insisted long since.

While mutual funds are an easier sale than life insurance the sales of the mutual fund industry's products are also largely about effective distribution and Sun should, however belatedly, ask a fat fee from ANY mutual fund operator wanting to gain any sort of preferred access to one of Canada's largest, proprietary, prospecting and exclusive financial services distribution systems. Why Sun has dragged its feet when there are other operators which would welcome the sort of preferred access to the Sun career system CI has enjoyed is a matter for speculation among those most affected.

5. Sun's senior management continue to set life insurance sales goals that ignore certain distribution and marketplace realities including handicaps they have imposed on their own distribution system. These annual sales goals are laid down as if their creators are oblivious to the fact that Sun itself has tilted its own principal distribution system in Canada for individual products away from the harder sale -- an easier thing to do with career agents if they are established in the business and have a substantial block of in force level commission business.

The Sun career agents are operating under essentially the same lifetime commission system which Andre Anderson wisely convinced Mutual Life to pioneer and which was implemented in mid-1989. Today I fear that too few in Sun's senior management understand that the lifetime level commission system is the glue holding the Sun Canadian career agency system together in the face of increasing challenges (many the fault of Sun), in spite of tampering with the system by Sun and the evident lack of interest by the company in strengthening that compensation system -- perhaps in its maintenance at all.

Indeed so much has Sun Canada's individual insurance strategy become the captive of 'big case-itis', the chasing of new life business top line growth from that marketplace rugby scrum called brokerage (the longtime source for so many companies of low or no profit business) that it has largely ignored the new life insurance product needs of its career agency system. For example: the lack of a new mid-market, permanent Sun life insurance product with appropriate guarantees and cash values has been another factor in the cannibalizing of risk sales by low margin asset/wealth product sales which I have described.

[ To be continued in Part 5 of this series in the next column -- No.62].

Alastair Rickard