Canadian life insurance outlook 2014

Address changes in the consumer demographic landscape

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The life insurance business is built on demographics. Over the past several decades, Canadian life expectancy has increased, spurred by advancements in preventive and curative medical treatments. At the same time, health care expenditure per capita has risen to $4,519.96 in 2011 from $2,519.13 in 2000, and $2,054.13 in 1995, according to the World Bank. As the need for health care insurance solutions increases further, insurers may want to develop new products or add benefits or riders to existing products.

Understanding changing demographics will have a significant influence on Canadian life insurers’ ability to capitalize on market opportunities. For example, Canada will experience a significant wave of retiring baby boomers over the next several years. This represents a significant opportunity for product innovation — insurers should look to post-retirement product needs, hybrid products and products for working retirees.

Of course, insurers must capitalize on the risk transfer and savings needs of people of all ages, from the young to pre-retirees and retirees. As insurers address the product needs of the younger, more technologically savvy consumer demographic, product innovation is critical. Products such as term life insurance and whole life insurance will continue to generate interest among younger consumers because they are simpler and easier to understand. Such products also can be purchased easily through digital technology.

These features contrast with more complex retirement savings and insurance products, purchased by individuals who today are retired or near retirement, and who prefer to deal directly with agents. And they differ from the products targeting high-net-worth individuals and mass-affluent segments, which include repriced variable annuities, an expanding line of indexed and deferred income annuities, and life insurance products targeting estateplanning needs.

Insurers also must look to expand growth opportunities beyond the wealthier demographics. Developing cost-effective ways to distribute to the mass market will differentiate successful insurers from the rest of the marketplace. This requires insurers to operate efficiently and segment the market effectively, responding to the growing demographic, socioeconomic and digital diversity of potential mass-market consumers.

But the continuing success of the wealth management arms of certain insurance companies cannot be ignored. While these products represent a conscious move away from protection and risk transfer, they have proven to be simpler for customers to understand, and they continue to generate sales in Canada and worldwide. Because such products lend themselves more easily to the use of technology, they represent an area where insurance companies can level the digital playing field with the larger banks.