The traditional life insurance carriers admit that they haven’t fully understood the market for critical illness insurance. And now they’re looking to the banks for inspiration.

As of Dec. 31, 2006, 1.8 million Canadians owned some form of CI insurance. But the bulk of those policies — more than 63% — had been sold to holders of mortgages and lines of credit by the bank-owned life insurers.

A few traditional insurance carriers have created strategies for reaching customers and gaining market share with the help of both independent advisor networks and career sales forces. But the banks, by far, outmarket them by focusing on the middle market and the average consumer’s simple need to protect credit and mortgage payments.

“The banks have just made the sale really simple,” says Byren Innes, senior vice president and director with NewLink Group Inc. in Toronto.

In 2006, advisors sold about 90,000 individual CI policies, up from 58,000 in 2005. The banks, by comparison, sold about 700,000 in 2006. (They bundle smaller policies together as group sales.) If premiums are used as the measure, however, the story is different. Of the $576 million in CI premiums written for the industry in total, more than 80% of the total is sold through advisors. The banks sell small policies — the average policy is slightly more than $25,000 — while traditional carrier tend to insure wealthier individuals.

Still, by most measures, the level of growth that the advisor channel anticipated has never appeared. Since 2003, sales of CI insurance has been almost flat, growing at a rate of about 2% a year.

The carriers, however, are coming off a good fourth quarter. Bright spots are notable and insurers are gathering lessons from each other and from the banks. By policies sold, Waterloo, Ont.-based Sun Life Financial Inc. leads the advisory channel, ahead of Toronto-based Manulife Financial Corp. and Montreal-based Desjardins Financial Security. Sun Life has leaned on the strength of its dedicated sales force, the former Clarica advisors. Growth in individual CI insurance sales — at about 5% — has outstripped the industry, the Sun Life says.

“The whole market has been fairly flat in the past couple of years,” concedes Paul Fryer, vice president of individual product development for Sun Life. “There were some [industry-wide] price increases in 2005. That messed with the growth trend somewhat. But that’s behind us now and we’re in a growth mode again.”

For its part, Sun Life has focused on carving out a place for CI insurance in each client’s financial plan. That has meant a long-term training program for the sales force to make sure that CI insurance is part of the modelling that advisors provide to clients.

As a result, Sun Life advisors address the risk that a critical illness could have on their clients’ finances. “We’ve developed awareness throughout the career sales force so that they can talk about those risks in an informed way,” Fryer says. “We’re trying to take the success we’ve had there and broaden it into wholesale distribution, as well.”

Educating the sales force on the underwriting process and the claims experience for the product is important, too, because these differ significantly from life insurance. “We see ourselves as leaders, in terms of experience,” he says, “as to what works with the clients and the advisors. It’s a matter of taking that experience and leveraging it.”

With more than 20% of the market, as measured by policies, Sun Life has a little room to invest in more training and development. As a result, it can start to compete on price and features — if that’s the strategy it chooses — because the company has the capital to back new initiatives. “At that point, you have a better spread of risk,” says Innes. “[You have] more stable and predictable claims experience. So, you can start leading the marketplace. So, they did a great job.”

Manulife, too, has had its share of success, although historically it has marketed the product to wealthier clients. (Although it sells far fewer policies, its share of premium-dollars is close to Sun Life’s.)

Manulife’s approach is decidedly more mainstream. For more than a year, it has offered a simplified CI insurance application to clients who already qualify for its “best risk” classes of life insurance. It offers CI insurance coverage on 25% of the life insurance coverage, a marketing plan that’s helped increase awareness of the product among advisors while keeping the underwriting queue short. “We’re trying to make it very easy,” says John Parker, assistant vice president for product and marketing individual living benefits insurance in Waterloo.

@page_break@Manulife is also breathing life into an old paper-based tool that was used as long ago as 15 years to sell life insurance to the mid-market. It will be Web-enabled and help advisors define needs on all living benefits, including CI, disability and long-term care insurance. “We’re trying to get advisors to incorporate CI needs analysis and life insurance into financial planning,” says Parker.

But it’s the banks that have made the biggest gains. TD Life Insurance Co. leads the charge with more in-force CI insurance policies than any other institution. Most often, the Toronto-based firm sells to clients who have signed on the dotted line for their mortgages.

TD Life president Sean Kilburn would like to see the insurer become the Amazon.ca equivalent for all types of life insurance. He wants to sell a stripped-down, simple version of the products to mainstream Canadians through branches, over the phone and via the Internet.

ScotiaLife Insurance Co. has taken a similar approach and has experienced strong sales growth. BMO Life Insurance Co. , also based in Toronto, only began offering CI insurance late in 2007.

“Scandinavian Airlines coined the term ‘the moment of truth’ to define the opportunity to sell something to clients when something significant is happening in their lives,” Innes says. “The banks are selling at that time.”

The banks have also tied CI sales to specific needs. Although a sale might not be a $1-million policy, a client can see the logic in covering his or her mortgage for one year with a $30,000 policy that will pay out while he or she is recovering from a critical illness.

For their parts, Sun Life and Manulife say the banks’ approach is working. To the extent that consumers are hearing the words “critical illness insurance,” the insurers don’t mind the banks increasing awareness.

“Sun Life can take that awareness and work with advisors to define the broader needs for people,” Fryer says. “The key is making sure that there’s a conversation between the advisor and the client. The mortgage is built right into the process, and that’s what we need to do with our advisors.”

Parker concurs. The CI insurance market is in a dynamic growth phase in which firms are learning from each other to some extent. It’s encouraging that none of the carriers are retreating from the market altogether, he notes, and that new initiatives and marketing are still in development.

“When the pie grows,” Parker says, “we will all grow.” IE