2006 General Meeting

Assemblée générale 2006

Chicago, Illinois

2006 General Meeting

Assemblée générale 2006

Chicago, Illinois

Canadian Institute

of Actuaries

Canadian Institute

of Actuaries

L’Institut canadien desactuaires

L’Institut canadien desactuaires

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Who is PPI Financial Group?Who is PPI Financial Group?

• Insurance marketing & distribution company

• 7 offices across the country

• More than 200 employees

• In business for almost 30 years

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Who is PPI Financial Group?Who is PPI Financial Group?

• Markets a full line of individual insurance & group benefit products from a variety of insurers

• Investment product line is not a major focus

• Markets through a network of independent agents and brokers

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Target Consumer MarketTarget Consumer Market

• Affluent & high net worth individuals

• Owners of small to mid-size companies

• Professionals & executives

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Target Agent MarketTarget Agent Market

• Agents that target the same consumer groups and that:

– Have a good reputation in the business

– Have a proven track record in this market or the desire and the potential to do so

– Are attracted to our value proposition

• PPI has relationships with several hundred agents that fit this description

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Agent Value PropositionAgent Value Proposition

• Provide agents with:

• Strong agency contracts

• Full range of products, including unique & proprietary products

• Strong case & marketing support for all lines of business

• Tax, legal, underwriting & product support

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Agent Value Proposition – Cont’dAgent Value Proposition – Cont’d

• Provide agents with:

• An attractive pooling arrangement

• Ongoing education on products & sales applications

• Post issue administrative support

• Advice & support in solving problems of all sorts

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Agent Value Proposition – Cont’dAgent Value Proposition – Cont’d

• In conclusion, we help agents to successfully & profitably grow their businesses

• Competitive base commission rates

• Override rates not nearly as competitive

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Consumer Value PropositionConsumer Value Proposition

• High quality & leading edge techniques for personal estate and/or business planning issues

• Emphasis on tax efficiency

• Ability to work cooperatively with client’s accountants & lawyers to achieve client objectives

• Not simply a product sale but an advisory relationship

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Individual Sales ResultsIndividual Sales Results

• Total new annual premium from individual insurance sales > $50 million

• Average term face amount ≈ $1,000,000

• Average UL face amount > $2,000,000

• Average UL annual premium > $50,000

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Past Events Impacting DistributionPast Events Impacting Distribution

• Move from career to brokerage & MGA distribution

• Significant consolidation at insurer level

• Significant reduction in recruiting of new sales people by insurers

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Brokerage & MGA DistributionBrokerage & MGA Distribution

• Variable cost distribution model

• Most brokerage companies & MGA’s have evolved to compete primarily on price and/or compensation levels

• Does not allow such entities to provide high levels of support to agents

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Brokerage & MGA Distribution – Cont’dBrokerage & MGA Distribution – Cont’d

• As you move upscale, sales application knowledge becomes much more important & complex than product knowledge

• In the brokerage & MGA markets, who is educating the agents in these areas?

• Retained distribution margins insufficient to permit an adequate job to be done

• Inadequate training has consequences

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Brokerage & MGA Distribution – Cont’dBrokerage & MGA Distribution – Cont’d

• Should also provide support to agents & ensure compliance

• Again, inadequate retained margins make this difficult

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Insurer ConsolidationInsurer Consolidation

• Significant consolidation in last 15 years

• Resulting insurer challenges:

• Acquisition indigestion

• Difficult, costly & time consuming systems integration

• Loss of many knowledgeable service staff

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Insurer Consolidation – Cont’dInsurer Consolidation – Cont’d

• Market Consequences:

• Companies too inwardly focused

• Difficulty in getting proper insurer support to service older new money and UL products

• Latter point much more problematic as you go upscale in the market

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Significant Reduction in RecruitingSignificant Reduction in Recruiting

• Graying & aging of existing distribution system

• Most products not priced to support recruiting & related training efforts

• Most companies do not seem particularly focused or concerned about bringing new sales people into the business

• In a demutualized industry, sales growth is a requirement for a healthy share valuation

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Distribution Company ConsolidationDistribution Company Consolidation

• Over the next 10 years, there will be significant consolidation at the MGA level, due to:

• Inadequate margins for many MGA’s

• The need to invest in technology

• Increasing legal & regulatory complexity, compliance & associated costs (PIPEDA, E&O requirements, Fintrac, etc)

• Surviving MGA’s will progressively increase their margins to sustaining levels

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Profile of New Sales PeopleProfile of New Sales People

• The average age of new sales people will increase significantly compared to the past:

• Insufficient compensation to make a living selling primarily term to young adults

• Family formation now much later than it was a generation ago

• Many new sales people will enter the business with some prior business experience

• Should result in lower agent failure rates

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Development of Sales People by MGA’sDevelopment of Sales People by MGA’s

• The surviving & larger MGA’s will become a source of new sales people:

• Some of their market support staff will evolve into sales people over time

• Affinity relationships with other financial services firms will naturally produce insurance sales people from such firms

• The numbers of such new sales people will not be great enough to satisfy industry needs & will tend to be focused on the upscale market

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Industry Level RecruitingIndustry Level Recruiting

• In the past, an insurer would take responsibility for recruiting new agents to market its products

• Going forward, recruiting & training new sales people will need to become an industry level initiative, involving all stakeholders

• Insurers• Industry associations (CLHIA, Advocis, CALU)• MGA’s• Agents

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Industry Level Recruiting – Cont’dIndustry Level Recruiting – Cont’d

• All industry stakeholders have a serious vested interest in this issue:

• Insurers & MGA’s have the most obvious interest

• The CLHIA has an interest in having healthy & domestically growing companies as members

• Advocis needs more rather than fewer members and can play an important role in training & education of new sales people

• The majority of today’s successful agents do not have a succession plan. Capable younger sales people are their best bet.

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Industry Level Recruiting – Cont’dIndustry Level Recruiting – Cont’d

• In the past, new sales people came into the business:

• At a very young age

• With little or no prior business experience

• Were thrust into full commission sales jobs after relatively short training & financial support periods

• Not surprisingly:

• The agent failure rates were high

• The quality of the business written was low

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Industry Level Recruiting – Cont’dIndustry Level Recruiting – Cont’d

• Going forward, sales apprenticeship programs need to be developed at an industry level and should involve:

• Much longer training periods

• Work experience in the industry that is relevant to sales & moves progressively towards a full sales role

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Banks & Insurance DistributionBanks & Insurance Distribution

• Unless the insurance industry can effectively service the broad based market, banks will eventually win on the issue of in branch retailing of insurance

• Industry sales people recruiting success is very relevant to the outcome of this issue

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Distribution CostsDistribution Costs

• In the upscale markets, particularly where permanent insurance is involved, agent compensation levels are fine

• In the younger issue age mid market, which is where most new sales people will be focused, the agent compensation levels not sufficient to attract & sustain the new sales people that the industry needs

• Over time, expect to see compression of compensation rates for the larger amount, older issue age market & higher compensation rates for the smaller amount, younger issue age market