Bank-owned life in-surance companies are leading a charge to sell their products directly to consumers via phone, e-mail and “snail” mail.

At first blush, it’s a trend that could worry and irritate advisors. But even some traditional insurers openly admit that it’s a distribution model with which advisors can co-exist — and they have found a way to keep advisors happy.

The numbers are surprising. A Forrester Research Inc. report shows that while advisor-based life insurance sales are still by far the dominant channel, accounting for 59% of sales, 20% of Canadians applying for life insurance do so over the phone, 16% by mail and another 5% online. The Massachusetts-based researcher’s report, published this past November, is based on a 2006 survey of more than 6,000 Canadians.

Defining exactly what products were sold is tough, but the report did find that about $3.5 billion, or less than 3% of total premiums sold in 2006, is defined as “creditor insurance” — the kind that banks can sell to protect their clients’ mortgages, lines of credit and credit card debt, for example.

Byren Innes, senior vice president and a director of Toronto-based consultancy NewLink Group Inc. , says direct sales isn’t a core channel: “But it’s a growing channel. It’s meaningful, and the numbers add up.”

Moreover, there is consensus in the Canadian life insurance industry that direct sales are an integral part of the industry’s growth outlook. Up for grabs is the middle-market Canadian who either has no insurance or is underinsured. The logic is that most traditional insurance advisors don’t serve the largest part of the population because they can’t make an easy living doing so. It’s much easier to focus on more affluent clients; even if there are far fewer of them, a sale or two of high-premium universal life beats a handful of accidental death and term-10 policies every time.

“Our research suggests that 57% of middle-market Canadians don’t have an insurance agent,” says Gordon Henderson, president and CEO of Toronto-based BMO Life Insurance Co. “The stat that floors me is that 36% of households say that no one has ever approached them to buy individual insurance.”

So, the Big Five banks and their life insurance subsidiaries have marched in. The Bank Act doesn’t allow them to comb client data to cross-sell life insurance policies such as term products, universal life or annuities. But regulations allow them to sell creditor insurance and, in some cases, accidental death policies.

The policies that are sold directly may be relatively small, but this category of products represents the thin end of the wedge, so to speak. Once the bank-owned insurer sells an accidental death policy to a client, it can now sell the client its entire suite of products, because the client has become a client of the life insurance subsidiary.

BMO Life, for one, has seen 30% annual growth in premium sales since it opened up shop in 2002, says Henderson. Its raft of products includes some simplified term products and critical illness insurance, which it introduced late in 2007. All of this is offered to consumers in an online environment in which an underwriting agent works in the background.

“If you answer ‘yes’ to four questions, you’re covered for $100,000,” says Henderson of the CI product.

BMO life will continue to invest in the online channel, aiming to maintain its 30% annual growth target via direct-mail campaigns, call centres and the Internet. “The market is just that huge,” Henderson says. “The key is to get to people and introduce your products in a market that isn’t being approached by the traditional agent force.”

All of the banks’ life insurance units — none of which ranks in the top 10 insurers in Canada by assets — are in this online market, in which the focus is on simplified, easy-to-understand, relatively low-cost products to meet needs that clients can easily articulate.

Mark Cummings, managing director and head of domestic insurance at Scotia Life Insurance Co. in Toronto, says direct life insurance has become a growth platform for the parent bank, and Scotia Life is rapidly growing its customer base. It is among the leaders in the direct-sales business, along with Toronto-based TD Life Insurance Co. Scotia Life sells guaranteed issue life, hospital cash insurance, term life insurance and accidental death insurance.

@page_break@Mississauga, Ont.-based RBC Life Insurance Co. is relatively new to the direct-marketing channel, but its president and CEO, John Young, confirms that this is an important channel for the company. “There’s a segment of the client market that prefers this channel,” he says. (See page 16.)

So, where are the traditional insurers? They’re selling directly, to some extent, but there’s no question that traditional carriers are
conflicted about the channel. And they don’t want to give the wrong impression to advisors.

“Our company position is around financial advice and life-time financial security,” says Ray Kong, vice president of marketing of individual insurance and investments at Sun Life Financial Inc. in Waterloo, Ont. “But we also recognize that there is a significant part of the population that is unwilling or hesitant to engage with an advisor.”

Sun Life wrapped up a successful accidental death insurance direct-mail sales campaign in the fourth quarter of 2007; its consumer response rate was more than 20%. “In the direct-marketing world,” Kong says, “that’s unheard of.”

The policies are relatively small and they added up to fewer than 4,000 in total, but campaigns such as this show insurers that their advisors can’t reach everyone who needs insurance.

Just as important, Sun Life has found a way to sell directly to clients with the approval of its advi-sors: the insurer asks an advisor for permission to call a segment of his or her clients; most advisors give it (less than 1% have declined); then the advisor receives a small slice of commission and they’re informed if a client buys.

“It helps advisors identify who is undergoing life change, or who is thinking of insurance more,” Kong says. “An advisor might call the client to thank him and to talk about what else might work. We’ve seen ancillary sales success, too.

“The view in the industry is that direct sales and the advisory base are competing channels, but we really do believe that they are complementary,” Kong adds. “You’ll never sell a complex product like universal life directly. But direct sales gets people in the door.”

Technology is also part of it, says Brad Smith, president of Toronto-based ReMark Americas, a unit of Amsterdam-based ReMark International BV, and a consultant who has three of the top five banks as clients. If brokers, MGAs and the insurers can sort out their databases, the economies of scale for mass marketing will be obvious. “We feel that there’s a much bigger opportunity out there,” he says.

Many signs suggest that the direct-sales trend is going to grow. Forrester’s research shows that 23% of Canadians use the Internet to research life insurance. Another 29% complete research over the phone, while 15% do so by mail. The implication is that once the technology is available to underwrite through these channels, sales will follow.

“It’s nothing but good for the whole industry,” says Henderson. “If people don’t start somewhere, they go much of their lives without the basic coverage.” IE