Friday, October 29, 2010

(No.122) Banks: rediscovering the past

In September I spoke to a conference of ife insurance brokers held at the Crowbush Resort on Prince Edward Island. The meeting was organized by the MGA firm Younker and Kelly. The column below is derived from that presentation.


Sometimes, in financial services as in life, what's thought to be old is new again. By the 1990s Canada's big banks were looking to shed many of their 'bricks and mortar' branches, not adding more; how old-fashioned branches were in the digital age. Fashionable and trendy business wisdom (and we all know how flawless that is) represented bank branch retailing as the way of the past.

Banks saw the future clearly: they wanted customer use of branches and tellers to be sharply reduced so they could cut their costs and increase their already bloated profits. Indeed they were anxious for their Canadian retail customers, the backbone then as now of their profitability, to pay more and steadily higher fees for the privilege of serving themselves at bank ATMs as well as online.

Today one can see the fundamental shift in that conventional wisdom. While banks still love their ATM fees -- even more than ever -- they have realized that their branches are not only important but a gold mine generating lots of luscious income from (for example) sales of asset products by branch staff (commissioned and otherwise).

The big banks have been adding branches to their extensive national networks and are treating them more like retail sales outlets than ever before. Fifteen years ago or so 70% of the big banks' business was corporate; today it is more like 70% retail. And bank profits continue to set records.

But while many bank customers use online banking to pay their bills and the like, it turns out -- as TD Canada Trust has the led the way in demonstrating (up to and including opening bank branches on Sundays) -- that branch networks are more important to profits than ever in marketing financial products and services to consumers, including those who are already a bank's customers as well as those who are not.

Can one conclude that banks have actually learned more about the value of person-to-person distribution tied to actual service when it comes to distributing financial products which the majority of their customers will not take the initiative to purchase from them online? This is of course a fact of financial services life that many executives in the life insurance business (although, sadly, far from all) have never forgotten.

Finally, I cannot pass by the opportunity to rehearse a point I have made before in these columns as well as in speeches. The praise heaped upon the big Canadian banks and their senior managements for the banks' admirable performance (i.e., comparative record of safety) during the international financial crisis really belongs mostly to the sort of strong Canadian federal banking regulation (about which Canadian bank executives have actually complained) and to strong federal regulators who enforced the rules whether the banks liked it or not.

These were the factors that had most to do with preventing the Canadian banks from following some or much of what their peers in the U.S., the U.K. and elsewhere did. Even so it is interesting that the big Canadian banks in the 3 years 2007 through 2009 wrote off an estimated $21.5 billion they would otherwise have recorded as profit because of their exposure to bets they made largely on American investments that blew up.


Alastair Rickard


Monday, October 25, 2010

(No.121) American crime fiction

Three of my favourite American wrtiers have recently come out with new novels.

Carl Hiaasen, Florida-born and a longtime columnist for the Miami Herald, has built a huge following for his novels set in Florida. They incorporate sharp and effective commentary about the destruction of Florida's natural habitat by developers and their political allies. Star Island (Knopf, 2010) follows Cherry Pye, a young female pop star on her way to being a 'has been', trying to make a comeback. She has a double who appears in public for her when she is too wasted to function. A problem arises when Cherry's double is mistakenly kidnapped by an obsessed celebrity paparazzi. She gets help from a half-crazed ex-governor of Florida.

This latest novel is not Hiaasen's best but it is better than many of the bestsellers out there and well worth reading for pleasure.

Archer Mayor lives in Vermont and works as an investigator for the state's chief medical officer as well as being a deputy sheriff. He has written more than 20 novels. His series featuring a cast of Vermont police characters led by Joe Gunther are often referred to as 'police procedurals'. I think that makes a novel sound formulaic, even dull. Mayor's novels are not. His latest, Red Herring (Minotaur, 2010), again features Joe Gunther of the Vermont Bureau of Investigation.

It places more emphasis on cutting edge forensic technology than some readers like me may care for but he knows how to use Gunther to advance an interesting plot. While Mayor is not in the same league of crime novelists as the Scot Ian Rankin, most who write in this genre are not. I have followed the Joe Gunther novels for years with considerable enjoyment.

Michael Connelly has for some years written novels featuring L.A. police detective Harry Bosch. More recently he created another series character: criminal defence lawyer Mickey Haller. In his latest novel, The Reversal (Little Brown,2010), Connelly has the two working together on the retrial of a convicted child murderer for which Haller has been persuaded by the LA district attorney to act as an independent prosecutor. The novel has an interesting plot and several surprises.

Donald Westlake died nearly 2 years ago at the age of 75, one of the most highly regarded of American crime/mystery writers with output and longevity combined with quality perhaps rivaled in the American crime genre only by Elmore Leonard. He was an even more prolific novelist than many of his readers knew since he also wrote under pseudonyms (at least 16) including Richard Stark. It was as Stark that he created as the central character of a series of novels a professional criminal named Parker, an unsympathetic individual but a sociopath not a psychopath. In other words he was violent when he saw a reason to be but not gratuitously.

From 1962 until 1974 Stark [Westlake] wrote 16 Parker novels. For years thereafter there were no more and then in 1997 he returned to writing Parker stories. The Parker novels are spare noir crime fiction and well plotted. If you like them you like them quite a bit. And I do. All the Parker novels by Richard Stark are being republished in softcover format by the University of Chicago Press (2010) and are in bookstores now. Try Deadly Edge, The Green Eagle Score, The Sour Lemon Score or The Black Ice Score.

Another long series of excellent American crime novels featured private detective Lew Archer. The series was written over several decades by Kenneth Millar from Kitchener-Waterloo, Ontario who, living in the U.S. where he had been born, wrote under the name of Ross Macdonald. His California location provided apt settings for his novels written beginning in the mid-1940s; he died in 1983.

Some critics regard Macdonald as the literary successor in crime fiction to Dashiell Hammett and Raymond Chandler. I can see why although I am not sure that it is an appropriate category for him. His two dozen novels have been republished in soft cover by Vantage and provide the reader with many hours of reading pleasure. Taste this crime fiction flavour by reading The Goodbye Look or The Way Some People Die or The Barbarous Coast.


Alastair Rickard


Tuesday, October 19, 2010

(No.120) A reply from Conrad Black

On July 23 this year I posted a column (No.104) to "Rooting for Conrad Black" in which I began by referring to my having attended Carleton University in Ottawa at the same time as several interesting people including Conrad Black. I went on to explain why I had been "rooting" for him in his legal difficulties in the U.S. and quoted from an email I had sent to him after he went to prison.

I received several responses to that column, most recently from Conrad Black. With his consent I present below his comments as well as excerpts from selected responses from followers of RickardsRead.

A suggestion: for readers to appreciate the context of Conrad Black's comments (below) they can read or reread my July column to which he is responding. That column (No.104) is easily accessible -- like all columns on -- via the links listed by date appearing in the left hand margin beside every column.


an email of Oct 17, 2010 from Conrad Black:

Your comments about me in July, just as I was released from prison, have turned up in a troll through the heavy message traffic of that time as I was changing residential and email addresses and I apologize for my lateness in thanking you, once again for your kind words.

I was as confident as you say, not because I have much regard for the American justice system, but because I knew the facts and knew the poverty of the government's case and the liberties the prosecution had taken to win every sliver of the charges that they made at trial. They started with 18 counts, 13 went to the unsolomonic jury, and only four were not acquittals, and they were nonsense.

There was, and could be, no evidence of a crime and all their witnesses appeared with rods on their backs extorting perjury. We tore their witnesses to pieces and they dropped three of their counts during the trial. Even during the trial, a good part of the media saw how weak the case was, but flopped back to pile onto me when there were a few convictions. There never was any alternative but to fight it out, and either win or go down fighting.

Your kind words are no less appreciated for that. I share your admiration for Naomi Griffiths [a history professor and Dean of Arts at Carleton University] but have not been in touch with her for some years. In fact, you motivate me to call her.

I knew Esmond Cooper-Key slightly, via my late friend Wilda Lossing. He was as you described. Of course I know his Harmsworth relatives now. I don't recall meeting Patrick Shaughnessy but did meet, presumably, his father, a pleasant man, though no world beater in any field.

I don't think any of us qualify as the British aristocracy. Those are the great Tory and Whig hereditary peers, like the Marquis of Salisbury, the Duke of Norfolk and Lord Carrington. The best of them are impressive people and give a glimpse of how the British controlled so much of the world with what was essentially a confidence trick of an empire.

As you wrote, there was a time when I had few defenders in public, though more, privately, than was evident. Your gracious and, if I may, perceptive comments, were gratefully received initially and when restated. I take the latest piece as a comparison of my personal qualities to those of Rocket Richard and Jean Beliveau and could not fail to be deeply flattered by that.

You are a thoughtful and generous man and I would be pleased if our paths crossed one day.


from an email Oct 18:

As I said I would, I called Naomi Griffiths and had a very nice talk with her. I had had no contact with her for seven years. She is in good health and spirits and is writing a biography of Romeo Leblanc, the former g-g. Thank you for putting me in mind of her. There are no friends like old friends. Best wishes to you.


Conrad Black


Excerpts from selected email responses to column No. 104 "Rooting for Conrad Black" by several current and former financial services executives:

1. I fully agree. He was pursued for politically correct reasons and although some may have found the personal service agreements inappropriate, none were concealed and he built an empire. The naysayers have effectively destroyed [shareholder] value and shareowners are certainly not better off than when Conrad was at the helm.

Thanks for the well stated views.

2. Well said. I admire you for similar reasons. [Also for ] your steadfast dedication to our [life insurance] industry and, most significantly, career field forces.

3. I agree with you. Black is characteristic of one of the better traits in many Canadians and I continue to root for him.


CORRECTION: in column No.118 "Great-West '0', par policyholders '1' ", there was a typo that requires correction. I stated that as part of its financial arrangements for the takeover of London Life, Great-West Lifeco had transferred $20 million from the Great-West par policyholder fund to the shareholders. In fact the amount of that transfer was $40 million.


Alastair Rickard


Sunday, October 17, 2010

(No.119) Great-West & London Life [+Manulife] receives a variety of interesting responses to the views I express in my columns. I periodically select excerpts from a number of them for presentation here (see below).

As in previous presentations of responses from readers, for reasons of privacy I have withheld email writers' identities unless they write to RickardsRead in an official capacity. However in order to provide context for their views I have preceded each excerpt with a brief reference to the writer's role or connection to the subject.

Words in italics are mine.


Ref. -- COLUMN NO.118: "Great-West '0',par policyholders '1' [about the Ontario court decision in the favour of a par policyholder class action against Great-West Lifeco -- $455.7 million -- over its use of par funds in its takeover of London Life.]

1. from a securities lawyer:

A splendid account with historical depth that makes me wish I had at my command a tenth of what you have forgotten. It led me to try to track down a CLU text I used to rely on, Pedoe and Rudd ("D.S." [Rudd], someone else it appears) Life Insurance and Annuities in Canada, ca. 1993 ....

[Note: D.S. Rudd is in fact the 'Bill' Rudd to whom I referred in Column No.118. His first name is D'Alton. He revised and updated the original text by Arthur Pedoe. It is an excellent work of reference.]

2. from a Canadian life insurance executive:

Cheering ... cheering ...cheering... Way to go Bill Rudd and thank you Al for letting us know about it. I had NO idea and of course didn't read about it anywhere.

3. from a former London Life regional manager:

I knew Bill Rudd when he was chief actuary at London Life and to say that he was brilliant is not an overstatement. ... I enjoyed your piece on Bill.

4. from an executive at a major Canadian life insurance company competitor of London Life:

Great article! Here's to Bill Rudd.

5. from an American insurance professor:

Thanks for a great article! I never met Bill Rudd but I wish I had. He is my kind of guy.

Ref. COLUMN NO. 116: "Trying to bury a turd on a frozen pond" [about trying to sell individual life insurance 'directly' without using selling 'traditional' agents]:

6. from a Canadian internationally experienced life insurance executive:

Great article as always. But an important point is missed and it should be more of a positive. Just think of all the expert witness retired [life insurance] underwriters can work on as they prove there was nondisclosure [on direct life insurance sales].

Since the real underwriting will be done at claim time there should be lots of work for all --- just like creditor [group] insurance where more and more it appears risk selection is done after death or disability.

7. from an American life insurance person of long experience:

Years ago (probably 1979) I was in a meeting with Larry Jenkins, then president of Monumental Life and some guys from outside North America. My international friends had heard Larry say in a presentation that Monumental used ordinary, home service, and direct response distribution methods. They asked how the company could use direct response and still keep the sales force happy.

Larry's response was: "We pay them (the agents) a commission if they can prove that they lost a sale to one of our direct response products. If they go into a situation where a prospect tells them that the prospect bought a direct response product in the last year we give the agent the commission he would have earned on the product if he had sold it."

Larry then said: "Guess how many commissions we paid last year! (Pregnant pause) Less than five .... Our agents don't contact the kind of prospects who buy our direct response product."

If companies want to compete with their agents by offering direct response products, they would do well to consider Larry's option. The [direct sales] marketing strategy probably creates a lot more angst than actual damage to the agents, but why annoy those who have made you successful?

Ref. Column No. 113: "Manulife & Sun Life: a safety parallel?"

8. from a policyholder of John Hancock Life Insurance Co. of Boston, a company taken over by Manulife in 2004:

I just read an article on Manulife that you wrote last month comparing their recent financial difficulties to that of Sun Life back in the Depression. As a John Hancock policyholder, how concerned should I be about the parent company's problems? My policies are well in excess of state guaranty limits. Thank you in advance for any advice/comments that you would be willing to make.

[ I exchanged emails twice with this policyholder explaining why I considered Manulife's recent profit performance and related financial matters NOT to be a threat to the safety of the policyholder's contracts with Manulife's subsidiary.]

9. from an executive of a large Canadian life insurance company:

Great article! It's interesting how history shapes us.

10. from a Canadian career agent:

Thanks for the history lesson. Makes you wonder what people learn ... apparently not much.
It would be interesting if you could contrast this with the financial shape of the mutual companies both through that time and now through these current times.


Alastair Rickard


Friday, October 8, 2010

(No.118) Great-West '0', par policyholders '1'

It was at a Queen's Park hearing of the Ontario Select Committee on Company Law that I first met Bill Rudd. The legislative committee was looking into the life insurance business -- and quite a serious effort it was. For example: I recall that one of the invited witnesses was Professor Joseph Belth (one of the best informed industry critics in the U.S.) who gave them a slant on policy disclosure that they did not expect. The Committee's Report on Life Insurance was published in June of 1980.

At this time Rudd was a senior executive of London Life, then still controlled by the Jeffery family. Indeed I recall that there was industry talk that he would be a future London CEO. Control of London Life subsequently passed to a Toronto (non-insurance) company and Rudd left London Life in the early 1980s.

In October 1997 Great-West Lifeco, one of the Desmarais family's financial vehicles, beat out the Royal Bank in a $2.9 billion competition for ownership of London Life. As part of the financial arrangements $180 million from the funds belonging to London Life's participating policyholders (for a stock company, London Life traditionally sold an abnormally high proportion of participating life insurance) and $20 million from a Great-West par fund were used by Great-West to help pay for its takeover of London.

When Bill Rudd received his London Life 1997 annual report in March of 1998 he learned that the par policyholders of London and Great-West were contributing $220 million to the takeover. At the subsequent London Life annual meeting Rudd rose and pointed out that what was being done was illegal under Section 462 of the federal Insurance Companies Act which prohibits such transfers out of par funds ( footnote -- these 'borrowed' funds were not repaid to the par accounts).

At the time Rudd questioned the legality of the transfer the response to his objection was to refer to the opinions of several actuaries who had been commissioned to provide justification for the arrangement. I have long regarded as a disgrace the fact that the Office of the Superintendent of Financial Institutions (OSFI), Canada's federal insurance regulator, turned an accommodating eye to what was being done with and to the financial interests of the par policyholders of a federally incorporated life insurance company. It remains to this day a blot on OSFI's record.

During the remainder of 1998 Rudd tried to persuade various involved parties that this action was a great mistake. He prepared to launch a class action but was pre-empted by another action by a different party which started first. It stumbled along for several years without result.

By 2005 Bill Rudd was able to launch his own class action lawsuit working with James Jeffery, a member of the Jeffery family who was also formerly an actuary with London Life, and a third London policyholder, John McKittrick. The action was on behalf of 1.8 million policyholders. It finally came to trial (judge only) in Ontario Superior Court in London Ontario on Sept. 28, 2009. The trial took 45 days and concluded on Jan. 15, 2010.

On Oct. 4, 2010 Judge Johanne Morissette released her decision. The decision awarded $455.7 million in compensation to the par policyholders. As one of the largest Canadian awards for a contested class action in our history it -- and the reasoning on which it was based -- is very significant, far more so than the financial media's longstanding lack of attention to the class action and the trial itself would indicate. Even when the significance of the decision was clear, the case apparently still could not compete for appropriate editorial attention with the financial ephemera and corporate cheerleading that fills so much of the financial media these days.

Of course Great-West will appeal the decision, not just because of the award's size but also because of the implications in terms of setting a precedent with -- it is to be hoped -- positive implications for the rights of par policyholders of stock life insurance companies. This should have been a much greater concern long since.

I once asked a former federal Supt. of Insurance whether a par policyholders' director in a stock life insurance company (who is supposedly on the board to represent a company's par policyholders) had ever approached the regulator about the way the company's par policyholders were treated? His answer: "never". I suspect, based on my involvement in the industry, that nothing has changed since. This makes it all the more important for OSFI to regard the Great-West decision as a prompt not to fall asleep at the switch.

Bill Rudd had argued from the beginning that what had been done with par policyholder funds was illegal. Finally, 13 years later, Judge Morissette concluded that " there was no legally justifiable method to deprive the participating policy accounts of the merger synergies, except by changing the allocation methods in a lawful and proper manner, which was not done in this case."

Rudd, an actuary and former London Life executive, took the lead in this affair. He was the person who objected to an illegal action by a large conglomerate, an action which federal insurance regulators should have reversed but did not. Bill Rudd refused to be quiet about this case although most of the corporate media were content to be so most of the time (with a few notable exceptions like Toronto Star financial columnist James Daw and Bloomberg News), right the way through the 13 years and the 45 day trial.

Bill Rudd, now age 80, rose to object 13 years ago and he never backed down from the challenge of taking on one of Canada's largest corporate interests. Not only par policyholders of these companies but Canadian life insurance consumers generally are in his debt -- although few will ever realize it. I salute his courage, dedication and perseverance. I thank him for the light he has caused to be directed at the important subject of policyholders' rights.

Quite apart from 'takeovers' of the sort involving London Life and Great-West, it is time for federal insurance regulators to pay far closer attention to what stock life insurance company managements and boards of directors are allowed to do (and not do) vis-a-vis their policyholders (especially par).

The expenses stock life insurance companies charge against the company's par funds (to the profits of which shareholders by statute have restricted access) need more careful monitoring so that par policyholders do not -- in effect -- end up paying for costs which should be charged to non-par business and therefore against shareholder profits. A company's setting of dividends for shareholders versus those on the policies of par policyholders is another subject worthy of scrutiny -- in demutualized companies in particular.

Finally, a prediction: Great-West may well drag out this decision on appeal for as long as it can. But if the case should happen to reach the Supreme Court of Canada, its decision will favour the par policyholders whose interests Bill Rudd represented so doggedly for so long.


Alastair Rickard


Monday, October 4, 2010

(No.117) Nova Scotia treasures

In comparing the painting of Nova Scotia folk artist Maud Lewis with that of Nena Sanchez of Curacao I referred to the role of the Art Gallery of Nova Scotia (AGNS) as the place to visit for anyone interested in the life and work of the late Maud Lewis (see "Maud Lewis & Nena Sanchez, Nova Scotia & Curacao", column No. 89 posted April 25, 2010 on

The time is past due for me to highlight a place that Pat and I visit every time we are in Halifax: the Art Gallery of Nova Scotia whose director and CEO is Ray Cronin. There are two connected gallery buildings in downtown Halifax housing the AGNS. They are well laid out and filled with worthwhile art.

The AGNS regularly presents special exhibitions and is currently mounting (until Nov 21) "The Atlantic Long List for 2010" of the Sobey Art Award. It features the work of this year's five Atlantic region nominees for the national Sobey award. The artists include Lucie Chen, Emily Vey Duke & Cooper Battersby, Mario Doucette, Graeme Patterson and Vanessa Paschakarnis. The art presented is diverse and includes video and sculpture.

The permanent installations draw us back to the AGNS. For the visitor they comprise a rewarding collection including historical Canadian works with a special emphasis on artists and subjects in the Atlantic provinces, expecially Nova Scotian.

At the moment there is a fascinating section devoted to the 300 Years of Nova Scotia's Annapolis Royal settlement which flourished in the late 1770s as a major arrival point for thousands of loyalists fleeing the American Revolution. Particularly interesting are the paintings done in 1775 by Richard Williams, a 2nd Lt. in the 23rd Royal Welch Fusiliers.

A floor of the gallery is devoted to the Folk Art of Nova Scotia, an appropriate allocation of space for the AGNS to make especially since elsewhere in the gallery it displays the tiny house once the home of Maud Lewis. The folk art on display ranges from paintings through ship models to wood sculpture including fish and birds as well as life size figures. It offers an impressive range of creativity including figures of the Obama family.

A particular favourite of mine is the part of the gallery housing the art donated to the AGNS by the Sri Lankan-Canadian businessman, author and philanthropist Sir Christopher Ondaatje. It includes pieces by Canadian artists who are favourites of mine like William Kurelek and Miller Brittain as well as Pat's (Jean Paul Lemieux and Paul Emile Borduas). His donation also bolstered the AGNS's interesting holdings of the Group of Seven.

There are other galleries. For example: the Art Gallery of Nova Scotia rightly devotes special attention to works painted by Wolfville, Nova Scotia resident and well known Canadian artist Alex Colville. The AGNS is currently marking his 90th birthday. This effort and much more make a visit not just interesting but eminently worthwhile.


While in Nova Scotia on this recent trip we also revisited two other provincial treasures, both near or in Annapolis Royal: the North Hills Museum and the Historic Gardens.

In 1964 retired Bank of Nova Scotia executive Robert Patterson, a dedicated art and antique collector, bought an old home built ca 1764 that was in need of repair and restoration. The home is located on what is sometimes called the oldest road in Canada -- the "Settlement Road" dating back to the 1600s -- not far from the early French settlement of Port Royal, also an attraction of the Annapolis Royal area.

Patterson supervised a lengthy and meticulous restoration of this 200 year old house, then installed throughout the house his extensive collection of mainly Georgian paintings, furniture and furnishings. He lived in the house himself, making it his home for the last eight years of his life (he was a bachelor).

On his death in 1974 he left the house, its contents and a fund for maintenance to the province of Nova Scotia. He also attached a couple of what I regard as wise and clever stipulations to this legacy: the objects in his collection must remain in the house and not be dispersed and they must stay in the rooms where he had placed them.

It is a lovely collection of 18th century art displayed in an interesting and historic structure staffed by well-informed guides, a treasure I suspect is often missed by visitors given its out-of-the-way location. It is well worth a visit to the Annapolis Royal area, especially if combined with other attactions in the area. For example: carry on down "the Settlement Road" to the Port Royal site.

From the Patterson house ( officially - the North Hills Museum) we drove into Annapolis Royal to revisit the Historic Gardens, an extensive 17 acre setting overlooking a tidal river valley and located very near the reconstructed Fort Anne just up George Street. It is a stunningly beautiful horticultural collection reflecting the past and present, operated by the non-profit Annapolis Royal Historic Gardens Society.

The Historic Gardens are divided into more than two dozen theme gardens and sections and include a cafe and shop. Pat's favourite was the lush and colourful Victorian garden, as was mine. Her second favourite was the Rose garden.

For a pleasant meal afterwards we dined at the nearby Garrison House Inn also on George Street. It is located in a restored home built ca 1854.

We regard all of these Nova Scotia places as treasures, each worthy of repeated visits and all ranking among the most interesting we have encountered anywhere in Canada.


For more information visit these websites:


Alastair Rickard


Friday, October 1, 2010

(No.116) Trying to bury a turd on a frozen pond

In September I spoke to a conference of life insurance brokers at the Crowbush Resort on Prince Edward Island. The meeting was organized by the MGA firm Younker and Kelly. The column below is, in part, taken from that presentation.


It would be foolish to minimize much less ignore the role of the internet as a rising force in the business of 'selling stuff'. How can one fail to be impressed, for example, by the fact that in 1992 there were only 50 websites and today there are more than 300 million?

Nor can even the technology Luddites with whom I have sometimes been grouped be blind to the contribution (albeit mixed) to the information age of Facebook, YouTube, Twitter and other new social media. I confess however to wondering how to measure the net improvement to the body politic's knowledge in North America when, to take just one current example, 27% of Americans think -- almost two years after the last presidential election -- that their president was not born in the U.S. while 18% believe he is a Muslim.

Such contradictions of the information age abound but do not interfere with the desire of many in business to believe that the availability to consumers of a new method they can use to buy products directly means that most or even many will use it to make a purchase even when it involves a notoriously client-resistant product like individual life insurance.

When it comes to distributing this financial product, and after decades of increasingly sophisticated attempts to take individual life insurance to the public using various non-agent methods, I wonder if these 'direct distribution' methods are not beginning to resemble the state of religious grace: nobody knows for certain where or at what moment it can be said to exist.

Indeed the predictions of the inevitable decline or obsolescence of the active, prospecting, selling agent and broker in favour of the rise of non-agent selling of individual life insurance have moved beyond being merely wrong-headed to being tedious -- but there is no shortage of CEOs and other life insurance executives who periodically discover 'direct' sales as the wave of the future, rather like the late Malcolm Muggeridge rediscovering Jesus.

The reality after years of 'direct' life insurance sales: the proportion of new individual life insurance annual premium in Canada from so-called direct, buyer-initiated, non-agent sales remains far less than 10% of the total.

Even with mutual funds, a financial product many people actually think they want, distribution is a key factor. This is a point the Bank of Nova Scotia would do well to consider carefully when it comes to negotiating a price to buy the rest of the shares of CI Financial (BNS bought Sun Life's 37.6% interest in CI for $2.3 billion in 2008, one that Sun had acquired by trading its own mutual fund operation and Clarica Life's larger one to CI.)

Why exercise caution? To avoid over-paying since an important element in CI's post-2000 sales success has been its preferred access to Sun Life's career agency distribution system, a system which produces quality business. I recall one year when more than 60% of CI's NET sales came from Sun's career agents. Now that Sun Life no longer has an ownership interest in CI it should long since have been actively seeking competitor interest from other mutual fund players for access to its distribution system, access which (unlike CI's sweetheart arrangement) requires an investment in that system's enhancement.

As with so many of the numbers among which life insurance executives can choose to prove their points, beware of the numbers used if there already exists a corporate commitment to demonstrating a growing significance for direct sales of life insurance, online or otherwise. In fact the bulk of current premium from direct, non-agent life insurance sales in Canada actually originates from creditors' group insurance of one sort or another distributed by banks, car dealers and that ilk.

Individual life insurance is less than 15% of the toal direct premium which in turn (including group with individual) is less than 15% of the industry's total premium from all distribution channels. In other words, when it comes to individual policy sales, it is a 15% share of a 15% share.

A life insurance company seeking to inflate the apparent success of its direct sales of individual coverage has various ways available. For example, it might count conversions by group certificate holders (on leaving an employer) of their group insurance to individual coverage as 'direct sales'.

Or a company could introduce for sale to the public online, say, a basic four disease critical illness insurance policy (CII) and when it became clear that consumer-initiated purchases made without the involvement of a traditional intermediary would be embarrassingly small, the company could try to redeem the situation by making the product available for sale by agents. BUT require agents to go online to complete their sales of this CII policy and then count the agents' sales as 'direct/online' sales.

However agency system life insurance companies can and do alienate their sales people when they -- the company -- competes with them (the agents) by introducing policies available directly to the public for purchase, policies the public may even perceive as superior to the same company's policies the agent/broker offers. Sun Life provides a recent example of this with the introduction in Canada this past summer of a yearly renewable term policy for 'direct' sale. After progress had been made at a much needed improving of Sun's career agency system's trust, loyalty and morale, especially following the return of Kevin Dougherty to the Canadian operation's CEO role, many Sun agents were disappointed and ground was lost -- and for what sort of new 'direct' premium?

As one experienced Sun Life agent wrote to me: "I am disheartened at today's announcement that Sun is getting into the online term business. Out of one side of our mouth we are saying 'proper financial planning requires an advisor' and out of the other side we are saying 'analyze your own need and purchase direct from us' ".

The modern history of non-agent selling of individual life insurance in Canada calls to mind nothing quite so much as the image of a cat trying to bury a turd on a frozen pond: there is focus and much concentrated effort but not all that much in the way of results (particularly if one sets aside the industry's promotion and sale of its own form of lottery ticket -- accidental death insurance).

If the sales from direct distribution methods actually increase significantly in future as a share of total individual premium, more than anything else it will be the result of the fact that too many life insurance companies operating in Canada have failed their own agency systems and agency distribution generally to the detriment of the consumer and advisor-based opportunities to buy this product.


Alastair Rickard

email: Alastair.Rickard@