Sunday, July 31, 2011

(No.162) More on Manulife & Economical Mutual Insurance

I was prompted to recall recently a couple of matters on which I have strong opinions: Canadian vs. U.S. health care and the role of life insurance agents.

I received the other day an email from a Canadian living in the U.S. who apparently had been surfing the web and read my screed a couple of years ago on the (then) health care debate in the U.S. prompted by President Obama's attempt to provide all Americans with health insurance. I had written columns on the subject for RickardsRead.com (Nos. 47,48,51 & 55) as well as an op-ed article for the Toronto Star (Sept.9,2009), Canada's largest daily newspaper.

She wrote that "as a Canadian who's been living in the U.S. for awhile, I was glad to read your comments from Sept 2009 where you spoke about right wing propaganda regarding Canadian health care. That was so frustrating for me when I moved here. I remember being stunned at the outright lies about Canadian health care which were clearly put out there by the companies with the most to lose -- the insurance companies."

"My in-laws," she concluded,"are right wing and it's just painful to have to listen to their rhetoric like 'the US is the only country in the world where people can criticize the government and not go to jail!' sigh... Thanks for putting out some reason and sanity."

I replied to her and said, in part, that the reaction I had received from Americans to my views on health care in that country compared to Canada's were split about 50-50 between those who seemed to think that I was part of some left wing conspiracy to promote socialism and those Americans who agreed with me.

The other recent 'blast from the past' for me involved agents. I was retained to provide an expert opinion involving a dispute to which the parties were a life insurance agent, a client and a life insurance company. Reviewing the extensive documentation of the case brought back many memories of my association over the years with those who sell individual life insurance policies. They arose because of my working in the field as a financial planner with agents and their clients and then as an executive with agency system involvement employed by Mutual Life, Clarica Life and Sun Life and as the founding editor of the Canadian Journal of Life Insurance.

That experience, especially the initial period working directly with agents and their clients, gave me not only a valuable education about the reality of the core activity of the life insurance business (i.e., 'selling stuff') but also aroused my interest in the business to the extent that it left my erstwhile university colleagues nonplussed when I declined a doctoral fellowship in my heretofore chosen field of study (history) in order to follow my interest in the business. Working one-on-one with career agents was, more than any other factor, responsible for that decision.

Self-styled media experts and critics of financial services, especially involving the life insurance business, only occasionally have a sufficiently broad and deep understanding of the relevant realities. The value of an experienced life insurance agent/broker to a consumer of financial products and services is one of those realities. It is understood by, among others, those who are fortunate enough to have such relationships.

In this and other columns readers may have noted that I use the word agent rather than the more recently favoured and fashionable advisor. I do so not because life insurance agents don't act as financial advisors to clients -- they do. I prefer to use the word agent for two reasons:

1. Making a career as a professional life insurance agent is an honourable, valuable and longstanding role and there is no reason not to use that traditional reference, including for references to life insurance 'brokers'.

2. In the sale of individual life insurance policies in Canada there are in fact persons licensed as life insurance agents. Those engaged in the sale and service of life insurance whether as life insurance 'brokers' supposedly shopping the market place for consumers or as either non-exclusive or exclusive career agents are all licensed by their provinces as life insurance agents. These people are not licensed as financial advisors or in any other self-descriptive role not laid down in legislation or by regulation.

I have had some interesting responses to my recent column on "Economical Mutual Insurance: sham mutuality", column No.159 on RickardsRead.com, posted July 10, 2011. The demutualization of Economical Mutual Insurance is a subject to which I will return in future columns. However, although it is still early days in the process, it does seem to me very likely that the fewer than 1,000 participating policyholders of the company (out of the hundreds of thousands of the company's policyholders) will not be allowed by Ottawa to walk away from the demutualization of this P & C company with all of the company's net equity value (a $million+ per policyholder) or even with a majority share of it. Stay tuned.

Finally I will share a response I just received from a Canadian life insurance industry person to my last column on RickardsRead.com (No.161, posted July 24) "Manulife's retrocession: 'like a dog turd in dung'?":

"And here I thought I was just being cynical about Manu's stated reasons [for selling its life retrocession business]," wrote my industry correspondent. "And if the difference in regulatory diligence HAD been the reason for the sale, it makes one wonder about the potential safety issues now facing past and future reinsured policies .... Glad you're keeping a watchful and educated eye on all this!"

Gladder than some people associated with the insurance industry.

by Alastair Rickard

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email: Alastair.Rickard@sympatico.ca

blog: RickardsRead.com