Industry Update - Fall 2013
By Jason Watt, CD, CLU, RHU
The low interest rate environment has brought about some new product offerings in the insurance industry. Proving that everything old is new again, a couple of insurers have introduced permanent insurance products featuring variable premiums. Those of you who have been around long enough to remember might recall variable whole life insurance of the early 80s, when the product was designed to take advantage of high interest rates. This time, the product is being marketed to take advantage of putative increases to interest rates. As interest rates go up, and insurers are under less pressure to generate returns, they should be able to manipulate premiums in the policy owner’s favour.
I wrote about MGA consolidation in my last update, and it continues. The number of MGAs active in the country continues to decline as there are mergers between mid-size MGAs and acquisitions by larger MGAs. The regulators’ concern about not knowing who the MGAs in the country are will become less and less of an issue as this consolidation continues. In addition, there are the substantial barriers to entry to obtaining an MGA contract.
The most recent write of the Financial Planning Standards Council’s FPE 2 (Financial Planning Exam) bore disappointment for many, as the pass rate was around 65%, taking all exam writers into account. Our pass rate for FPE 2 students was lower, at around 50%. We are not happy with this, and we are expanding our FPE 2 exam prep to a 3-day class (from its previous 2-day duration) starting this November.
We are seeing an increasing trend towards direct distribution of insurance products. A few insurers now have websites that might be seen to compete with, rather than complement, the activities of brokers and agents.
It appears that there has been little organized opposition to the measures proposed in Budget 2013 concerning 10/8 insurance or Leveraged Insured Annuities, and I will not be surprised to see restrictions on both these measures in effect early in 2014. We have not yet seen the passage of the required regulations to update the Exempt Test, as was proposed in Budget 2012. Given the Department of Finance’s attention to insurance products over the past couple of years, I would also not be surprised to see Budget 2014 address the Adjusted Cost Basis (ACB) of policies transferred to a corporation for value. This has been a topic of interest for about a decade, and it would be in character for the Government to take action.