Lorne Marr identifies final expense market as an area regulators could make improvements
Last week, the Ontario Securities Commission (OSC) announced new measures to protect seniors and their investments. The move was welcomed by the various stakeholders in wealth management, including the main advisory bodies. Lorne Marr, director Business Development at LSM Insurance is another supporter, and he believes similar policies could be adopted in the life insurance space. Life policies tend to be highly complex, which leaves a lot of room for confusion among consumers, especially those not using an advisor, he explains.
“You are now seeing a lot more carriers – RBC, BMO, CIBC – selling direct to consumers. BMO targets seniors with its guaranteed life plus plan. There is definitely some improvements on disclosure they can do.”
These policies don’t require a medical, so are often used by older people that may have health issues. Premiums are higher to reflect that, but there are other aspects of these policies that may be missed by consumers, believes Marr.
“With a lot of the senior policies, there is a two-year wait on the death benefit,” he says. “That means if the person dies in the first two years there is a return of premium, and after that it pays out in full. A lot of seniors don’t realize that. I think it would be useful to have that on the summary page and statement, rather than the back pages.”
Direct selling is common in the final expense market, where policies usually have $5,000 to $25,000 in coverage. Marr therefore believes greater transparency is needed, something the Office of the Superintendent of Financial Institutions (FSCO) should certainly consider.
“Direct carriers should mention somewhere in the correspondence to the consumer that they are only offering their own in-house product. There may be other products that are better suited and that’s where people need some kind of guidance.”
Another issue for seniors is having life insurance they feel is no longer necessary. Life insurance settlement is big business in the US, but so far Canadian regulators have resisted opening up the market.
“It could be a good idea for the consumer, but it could create some problems for the insurance companies,” says Marr. “Those policies have a certain lapse ratio assumption, especially on a term 100 or certain whole life policies. When the insurers price those policies, they were assuming a certain amount of policies will lapse.”
Although seniors selling their own plans would certainly boost their resources, Marr believes allowing such a market would ultimately leave all consumers out of pocket.
“I can see both sides of it, but it puts the insurance companies in an awkward position. It would mean higher premiums on more products. So there are plusses and minuses, and I don’t think a lot of consumers know that.”
