Friday, November 6, 2009

(No.62) Pt.5 - Sun Life: A few conclusions about its performance

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

The third and fourth parts of the series (which is continued in No.62 below) appeared in Nos. 60 & 61.

Other columns about Sun Life and the life insurance business (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.61

The several factors involving problems in Sun Life's Canadian operation about which I have commented in the first 4 parts of this series are indicative; they are by no means intended to be seen as a comprehensive treatment of the subject.

I may well return to aspects of Sun's operation which work against the company achieving the level of insurance premium increase annually that it desires in profitable individual product sales in its Canadian operation. That operation has in turn been a key element contributing to the company's total profits world-wide since the acquisition of Mutual/Clarica.

The reality of insurance sales and distribution problems for Sun Life in Canada is unlikely to be meaningfully addressed so long as Sun's senior leadership, so many of whom are unburdened by experience in individual sales and agency matters or indeed by much real knowledge of how it actually works on the ground, continue to delude themselves that -- for example -- an inadequately resourced but core distribution asset central to their individual product distribution and sales success in this country can be expected year after year to produce more and more based on less and less. This delusion is likely to continue so long as Sun's senior leadership refuse to pay real attention to and act on the views and advice of those few executives still remaining in its Canadian operation who know better.

Sun's desire to acquire the Mutual/Clarica career agency distribution system was animated, as Sun CEO Donald Stewart explained to a national meeting I attended in Toronto of the members of the (then) Sun 'managed channel', by a recognition that Sun's distribution of individual insurance in Canada was producing declining sales and decreasing market share. He might have added, although he did not, that the profitability of the policies Sun was using to compete for Canadian individual business from its non-exclusive sources (i.e., all its sources at that time) was highly suspect and for some products non-existent.

In my view the roots of Sun's sensible and understandable interest in acquiring the Mutual/Clarica career agency system can be found in the process beginning in the 1990s by which, as the result of a series of poor corporate decisions, Sun had pissed away its own proprietary career agency system in Canada.

It is looking more and more as if Sun is at risk of repeating that process: same company, same script, different career system.

However it needs to be emphasized that there is precious little reason for other life insurance companies in Canada to view Sun's stewardship of the Mutual/Clarica career system (as I have described it in this series and elsewhere) and feel the least bit smug or self-satisfied. If there is one area of the life insurance business which over the past 20-30 years has been consistently mismanaged by most of the Canadian industry it is individual product distribution.

So parasitic have most life insurance companies become in their efforts to tap a diminishing core distribution resource -- i.e., experienced, active, prospecting, sellers of life insurance -- to even the maintenance of which (never mind expansion) they contribute little or nothing of significance, that one is surprised the industry staggers on as well as it does cobbling together individual life insurance sales (profitably or not) however and wherever they can. As I observed in a speech some years ago (with only a hint at hyperbole) many companies would attach their life insurance applications to the backs of stray dogs if they could figure out how to get them to return.

Sun Life had the wit to acquire as part of its Clarica purchase what it no longer itself had in Canada -- effective, reliable, profitable, predictable, proprietary agency distribution with the capacity to go into the market-place in a major way and sell life insurance that can actually be priced so that, if the company chooses, it can make a decent profit. That assumes of course that it values real product profitability at least as much as it does trying to impress the 'financial services paparazzi' with top line sales growth as often as not itself based on over-compensated and under-priced products aimed at attracting brokerage business.

Sun still has in place in Canada the essential elements of a successful career agency distribution system. This is an asset which few companies could or would attempt to create these days for reasons of cost, degree of difficulty and executive incapacity in career agency management.

It remains to be seen whether at the end of the day the potential of Sun Life's career system will be enhanced or dissipated.

Alastair Rickard