Open Collections

UBC Theses and Dissertations

UBC Theses Logo

UBC Theses and Dissertations

Canadian life insurance trends and marketing implications Rollins, Victor John 1971

Your browser doesn't seem to have a PDF viewer, please download the PDF to view this item.

Item Metadata

Download

Media
831-UBC_1971_A4_5 R64.pdf [ 15.87MB ]
Metadata
JSON: 831-1.0101873.json
JSON-LD: 831-1.0101873-ld.json
RDF/XML (Pretty): 831-1.0101873-rdf.xml
RDF/JSON: 831-1.0101873-rdf.json
Turtle: 831-1.0101873-turtle.txt
N-Triples: 831-1.0101873-rdf-ntriples.txt
Original Record: 831-1.0101873-source.json
Full Text
831-1.0101873-fulltext.txt
Citation
831-1.0101873.ris

Full Text

CANADIAN LIFE INSURANCE TRENDS AND MARKETING IMPLICATIONS  by VICTOR JOHN ROLLINS B. Comm., University of British Columbia,  1970  A THESIS SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION in the Department of COMMERCE AND BUSINESS ADMINISTRATION  We accept this thesis as conforming to the required standard  THE UNIVERSITY OF BRITISH COLUMBIA  August  1971  In p r e s e n t i n g an  this thesis  inpartial  advanced degree a t the U n i v e r s i t y  the  Library  I further for  shall  agree  his  of  this thesis  that  for  copying  shall  that  Date  Utfifarwiher  2.Q  /97/.  ofthis  thesis  n o t b e a l l o w e d w i t h o u t my  D e p a r t m e n t o f COMMERCE AND BUSINESS ADMINISTRATION Columbia  that  c o p y i n g o r pub 1 i c a t i o n  permission.  The U n i v e r s i t y o f B r i t i s h V a n c o u v e r 8, Canada  I agree  b y t h e Head o f my D e p a r t m e n t o r  I t i s understood  f i n a n c i a l gain  Columbia,  f o r . r e f e r e n c e and Study.  p e r m i s s i o n .for e x t e n s i v e  representatives.  written  of British  make i t f r e e l y a v a i l a b l e  s c h o l a r l y p u r p o s e s may b e g r a n t e d  by  f u l f i l m e n t o f the requirements f o r  The Canadian l i f e insurance industry has been undergoing constant market and product changes since 1950.  This study is meant to identify,  analyze, and document those economic and social factors that have influenced the growth and decline in sales of ordinary; group and industrial l i f e insurance.  The method by  which each of these products  is marketed is also examined. Much of the information used was obtained through a series of comprehensive interviews with the personnel of a number of l i f e insurance companies.  Many factors have been isolated as having a significant impact  on the sales of the various forms of l i f e insurance.  Many of these  factors were identified principally from current literature in the particular field and tested by means of a correlation and regression analysis. The study found that sales of ordinary l i f e insurance in force has declined from 73.82 percent in 1950 to 52.79 percent in 1969.  Applying  net new purchases as the unit of measurement i t was found that ordinary l i f e sales have decreased from 74.76 percent in 1950 to 60.16 percent in 1969.  Net new premium was decided upon as the most relevant unit of  measurement for this study.  Net new premium income for ordinary l i f e  increased from 80.34 percent in 1950 to 81.85 percent in 1969.  It was also  found that marriages and the number of f u l l time l i f e insurance agents have had a significant impact on ordinary l i f e sales over the past 20 years. Industrial l i f e sales in force declined from 9.76 percent in 1950 to 0.60 percent in 1969.  Net new purchases of industrial l i f e declined  from 8.94 percent in 1950 to 0.045 percent in 1969.  It was found that  net new premium income dropped from 13.46 percent of the total premium income to 0.01 percent in 1969.  The decline has been a reflection of  the growth in group l i f e policies, and the increased affluence of the blue collar worker who can now afford ordinary l i f e policies. Group l i f e insurance sales have grown at an astonishing rate. In 1950 group l i f e insurance in force accounted for 16.40 percent of the total l i f e insurance in force.  By 1969 the figure had climbed  to 47.10 percent of the total amount in force.  Net new purchases of  group l i f e policies over the same period jumped from 13.50 percent in 1950  while 18.12 percent of the total premium income in 1969.  It  was also found that gross national product, total employment, and the' number of federally registered l i f e insurance companies have each had . a significant impact on the aggregates sales of group l i f e over the past 20 years.  Chapter I  Page INTRODUCTION.  1  Purpose of the Study  . ...  1  Importance of the Study  II  '  Limitations of the Study  2  Data C o l l e c t i o n  3  Chapter Organization....  3  INTRODUCTION TO THE LIFE INSURANCE INDUSTRY  5  Types of L i f e Insurance Companies..........  5  Importance of Marketing.....  7  The D i s t r i b u t i o n  System  Types of Agents... 1. 2. 3.  Ordinary Agent.... Combination Agent The Broker  PART I III  1  10  '  11 •  11 11 12  THE FAMILY LIFE INSURANCE MARKET  INTRODUCTION AND DEFINITIONS Ordinary L i f e 1. 2. 3.  "  •  .  16  :  Whole L i f e Insurance Endowment L i f e Insurance Term L i f e Insurance  16 16 16  Ordinary Annuities Juvenile Insurance  14  18 /  19  Women's Insurance....  20  Special Contracts..  20  Industrial  21  Distribution  Life  22  Chapter IV  Page MARKET AND PRODUCT TRENDS FOR F A M I L Y L I F E MARKET Ordinary Net  and I n d u s t r i a l  INSURANCE .  Life  28  New P r e m i u m I n c o m e  Ordinary  35  Annuities  . ...  37  OTHER PRODUCT TRENDS I N FAMILY L I F E INSURANCE MARKET  37  M o n t h l y Premiums  37  .. ...  Women's I n s u r a n c e .  V  28  39  A N A L Y S I S OF ORDINARY L I F E INSURANCE. Introduction  . • ..  :  Methodology  Factors  ....  53  Variables  Influencing Ordinary Disposable  54 Life  Insurance  1.  Personal  2. 3. 4.  T o t a l Employment Number o f M a r r i a g e s Number o f F u l l T i m e A g e n t s . . . . . .  •Results  53  o f Data  Unquantifiable  52 52  Treatment o f Data Availability  52  of Preliminary  Income  54 ..  55  ..  55 55 55  Output....  56  Lagged V a r i a b l e s  56  Ordinary  57  Results  Life  Insurance  o f the Simple Regression  Conclusions  57 v..'  '..  Multiple Regression . .. . Ordinary Annuities - A Simple Regression  ••  61 61 64  Page  Chapter . VI  PART I I  THE BUSINESS L I F E INSURANCE MARKET  INTRODUCTION AND DEFINITIONS Group L i f e  '  Insurance......  .  75  .  76  Group L i f e M a r k e t i n g  79  Other B u s i n e s s E n t e r p r i s e L i f e . I n s u r a n c e Uses.. Partnerships  ............................  83  . Key-Man I n s u r a n c e .  .....  Group. A n n u i t i e s Group Permanent  . ... Life  . .... ........  Deposit A d m i n i s t r a t i o n Plans  ..  86 '.  89  Group L i f e I n s u r a n c e  89  M e d i c a l Expense I n s u r a n c e  92  Group A n n u i t i e s  Insurance  .'.  ...  94  ............  95  ANALYSIS OF GROUP L I F E INSURANCE..' Factors  IX  87  MARKET AND PRODUCT TRENDS FOR-THE BUSINESS L I F E INSURANCE MARKET ........  F u r t h e r B u s i n e s s Uses o f L i f e  VIII  86 86  M a r k e t i n g the P l a n s  VII  84 85  Insurance  Group D e f e r r e d A n n u i t i e s . . .  . 82  .  I n f l u e n c i n g Group L i f e S a l e s  R e s u l t s o f Simple  Regression  CONCLUSIONS  , .•  100  ,..  .  •  . . ..'  103  . .. .  G e n e r a l Summary o f S a l e s Growth o f L i f e Policies •  Insurance  R e s u l t s and I m p l i c a t i o n s o f C o r r e l a t i o n Analysis  and R e g r e s s i o n  BIBLIOGRAPHY...  ...  '  100  109  109 113 123  LIST OF TABLES TABLE  '  PAGE  I.  An Analysis of Life Insurance In force and Net New Purchases, in Canada, 1950-1969.'  27  II.  An Analysis of Ordinary Life Insurance In Force and Net New Purchases, in Canada, 1958-1969  44  Net New Premium Income Received by Federally Registered. Life Insurance Companies on Life Insurance Policies in Canada, 1950-1969  47  An Analysis of Amounts of Annuities Owned by Canadians By Type, 1950-1969  48  Net New Premium Income Received by Federally Registered Life Insurance Companies on Annuities Owned in Canada, 1950-1969  49  Equation No. 5 Estimates;  72  III.  IV. V.  VI. •VII. VIII.  Actual versus Fitted Values..  Number and Amount of Annuities Owned by Canadians by Canadians, by Type, 1950-1969  98  An Analysis of Guaranteed and Variable Annuity Premiums Received in Canada by Federally Registered Life Insurance Companies, 1962-1968  99  FIGURE  •  PAGE  A Growth Comparison of the Types of Life Insurance In Force in Canada, 1950-1969  42.  2.  A Growth Comparison of the Types of Life Insurance In Canada, By New Purchases, 1950-1969 .  43.  3.  A Growth Comparison of the Types of Ordinary Life Insurance in Force in Canada, 1958-1969  45.  4.  A Growth Comparison of the Types of Ordinary Life Insurance in Canada, By New Purchases, 1958-1969  46.  5.  A Growth Comparison of the Types of Life Insurance and Annuities, By Total Premium Income Received by Federally Registered Life Insurance Companies in Canada 1950-1969  50.  A Growth Comparison of the Types of Life Insurance and Annuities, By Net New Premium Income Received by Federally Registered Life Insurance Companies in Canada 1950-1969  51.  7. -  Ordinary Life Insurance as a Function of Personal Disposable Income in Canada, 1950-1969  67.  8. '  Ordinary Life Insurance as a Function of Total Employment in Canada, 1950-1969  68.  9.  Ordinary Life Insurance as a Function of the Number of Marriages in Canada, 1950-1969 •. .  69.  Ordinary Life Insurance as a Function of the Number of Full Time Life Agents in Canada, 1950-1969  70.  1.  6.  10.  ••••  11..  Durbin-Watson Tests for Independent Variables  ••  71.  12.  Graph of Equation No. 5 Results, Actual Values versus Fitted Values  73.  13.  Ordinary Annuities as a Function of Long Term Interest Rates in Canada, 1950-1969 :  74.  14.  Group Life as a Function of Canada Gross National Product, 1950-1969 •  106.'  15.  Group Life as a Function of Number of Federally Registered Companies in Canada, 1950-1969  107.  16.  Group Life as a Function of Total Employment in Canada, 1950-1969  108.  The writer would like to express his appreciation and gratitude to Dr. Gerard M. Dickinson for his counselling and guidance during the preparation of this study.  I would like  to thank Dr. Dickinson for the many long hours of his valuable time that he spent in assisting the writer in the methodology, data collection, and analysis that was so necessary for this paper.  INTRODUCTION Purpose of the Study The purpose of this'study is to examine and analyze several market trends in the Canadian l i f e insurance industry over the past twenty years.  Some factors have had important implications, on the  actual market trends and may continue to affect the marketing policies and strategies of the l i f e insurance companies in the near future.  It is the intention of the author to examine those economic  and.social factors that have influenced the growth and decline in sales of ordinary, group, and industrial l i f e insurance.  Ordinary  l i f e insurance w i l l be broken down into whole l i f e , term, and endowment; participating and non-participating plans w i l l also be examined.  In order to assist in determining those factors influencing  the l i f e insurance market some correlation and regression analysis w i l l be applied. Importance of the Study It would seem that although the Canadian l i f e insurance industry is one of the largest and wealthiest financial institutions in operation in Canada, there has been an obvious absence of written material analyzing the market trends in l i f e insuarnce.  It is there-  fore hoped that this study w i l l consolidate some of the information that has been gathered in this area as well as to generate new ideas  on the factors which have affected the market trends in l i f e insurance. Limitations of the Study This study has been limited to the l i f e insurance industry in Canada.  Of course, some of the data and trends which have been  applicable to the United States are also applicable to Canada.  Such  overlaps w i l l be indicated where relevant. It must also be noted that there is an obvious absence of  ,  statistics and written material on the Canadian l i f e insurance market.  The Canadian Life Insurance Association through its annual  publication, Canadian Life Insurance•Facts, contains valuable information, although the series only started in 1955.  Thus, in  many circumstances information is only available from 1955 to 1969 inclusive, instead of the 20 year period.  The annual government  public publication, The Reports of the Superintendent of Insurance for Canada, also f a i l in many instances to have an adequate analysis, of s t a t i s t i c a l  trends for ordinary l i f e (whole l i f e , term and  endowment) and do not have figures on the net new premium income written by the insurance industry. Hence, these statistics were estimated or similar relevant statistics were used in their place.  It should also be indicated  that much of the information available from specific l i f e insurance companies could not be obtained due to its confidential nature.  Data Collection Much of the information used was obtained through a series of comprehensive interviews with the personnel of a number of l i f e insurance companies.  Data was also provided by examination of material  at the University of British Columbia and the Vancouver Public Library. Further data and information was provided by the Canadian Life Insurance Association's  annual publication Life Insurance Facts.  Finally information was obtained through the annual government publication, Reports of the Superintendent of  Insurance.  Chapter Organization Briefly, Chapter II introduces the Canadian Life insurance industry in terms of its financial impact, the types of l i f e insurance • companies and the reason for the importance of marketing to this industry.  The distribution system discusses the general types of l i f e  insurance agents, and the branch office system. Chapter III,  IV, and V are included in Part I of the paper  which analyzes the family l i f e insurance market.  Chapter III examines  the make-up of the family market and the size of the market.  Ordinary  l i f e insurance is defined as to whole l i f e , term and endowment. Ordinary annuities, juvenile insurance, women's insurance, and industrial l i f e insurance are also defined.  The final section, of. the  chapter examines the method by which these products are marketed. Chapter IV examines these same products, which entail the bulk of the family l i f e insurance market, as to product trends over the past  20 years and the reasons behind such trends'.  Chapter V attempts to  examine those factors that may have influenced the market trends in ordinary l i f e insurance.  A correlation and regression analysis are  applied to the data to ascertain the degree of relationship with ordinary l i f e insurance. . Part II of the paper is divided into Chapter VI, VII, and VIII which examine the business l i f e insurance market.  Chapter VI defines  group l i f e insurance, group annuities, and other business uses of l i f e insurance and examines the method, in which each is marketed.  Chapter  VII examines the trends in these products over the past 20 years and into the near future.  Chapter VIII examines these factors that may  have influenced the market trends in group l i f e insurance through the use of a correlation and regression  analysis.  Chapter IX examines the recent general industry trends in the Canadian l i f e insurance business and its future impact on market and product trends.  It also contains the conclusions of the ordinary l i f e ,  ordinary annuity, and group l i f e analysis and the marketing implications.  If one examines the Canadian l i f e insurance industry, i t is not d i f f i c u l t to understand why i t is a major part of the financial sector of the Canadian economy.  In 1969, i t was comprised of 151  Federal and Provincial companies with combined assets of about 15 b i l l i o n dollars and insurance in force of 110 b i l l i o n dollars.''" This was more than six times the amount owned in 1950.  In the last  20 years, l i f e insurance ownership has grown more than twice as quickly as income after taxes.  Examining the longer perspective,  since the mid-1920's l i f e insurance ownership has increased 22 times; in comparison, after tax income of Canadians only increased 12 times.  2  It is estimated that at the end of 1969, there were more than eleven million l i f e insurance holders in Canada.  This figure is more 3  than double the number in 1925 and more than 20 times the 1900 total. In comparison 7y million Canadian's paid income taxes in 1969 while the population of Canada is over 21 million. Types of Life Insurance Companies Briefly, there are two major types of l i f e insurance companies: mutual and stock l i f e companies.  Any incorporated company with share  ^The Canadian Life Insurance Association, Canadian Life Insurance Facts, 1970 (Toronto: Canadian Life Insurance Association, 1970), p . l . 2  Ibid. , p . l . Ibid., p . l .  capital is called a stock company and is controlled by i t s board of directors who are elected by the shareholders.  However, a stock l i f e  insurance company, subject to the insurance laws of the federal government of Canada, must have two classes of directors represented and elected by f i r s t l y , the shareholders and secondly, participating policyholders; the l a t t e r , the policy holder directors, must number at least one-third of the total number of directors.  In a mutual  l i f e insurance company there is no capital stock and hence no shareholders, and thus there is only one class of director, namely those elected by the policy holders.  In a l l cases a majority of the  directors in each class must be Canadian citizens, ordinarily resident in Canada.  No agent is eligible to be a director of a l i f e insurance  company and there are restrictions on the number of paid officers on the board of directors.  4  It is much easier to get persons to buy shares in a stock l i f e insurance company than to guarantee the purchase of l i f e insurance in a mutual company.  The reason is obvious.  i f the company is successful,  In a stock l i f e company,  then the shareholder w i l l not only  receive dividend income but also have the opportunity of realizing a capital gain on.the money he places into the stock, l i f e shares. So far as the operations of the two types of commercial l i f e insurance companies are concerned, there is l i t t l e difference between them, with the exception that in mutual companies the premiums are  Arthur Pedoe, Life Insurance, Annuities and Pensions, (Toronto: University of Toronto Press, 1970), p.96.  generally higher at the start of the policy.  This is because i t is  anticipated that the policyholder w i l l receive a refund in the form of a "dividend".  The stock company, on the other hand, offers the  advantage of a guaranteed rate per thousand which w i l l not change throughout the l i f e of the contract, although most stock l i f e companies also offer a line of "participating" policy forms. At the end of 1955, out of 32 Canadian l i f e insurance companies reporting to Ottawa, 25 were stock companies and 7 were mutual companies; but of these 7, over 95 percent of the combined assets were represented by those of Mutual of Canada and North American Life."' Thus, apart from these two companies,.Canadian l i f e insurance was predominantly represented by stock companies.  In comparison, in 1968,  107 stock companies received 42.3 percent of the premium income, in Canada, while 40 mutual companies received 57.7 percent.  Thus, a  new law permitting the mutualization of Canadian stock l i f e companies was enacted in 1957. Companies Act).  (Section 90A of the Canadian and British Insurance  Since this time there have been restrictions on  non-resident ownership of shares, and voting rights of non-residents. Importance of Marketing Having briefly discussed the size of the Canadian l i f e insurance industry and the two main types of firms, perhaps i t is necessary to indicate the importance of marketing to these firms.  5  I b i d . , p.98.  6 Estimates derived from Reports of the Superintendent of Insurance.  Indeed i t is possible to'state that the purpose of any business activity i s , in essence, that of meeting human needs and desires.  If  this is accepted, then the purpose of l i f e insurance is to meet the very human desire for personal, individual security, and to satisfy this need more efficiently and economically than could be accomplished in any other way, be i t voluntary or compulsory.  Thus, the marketing  of l i f e Insurance is a v i t a l function because i t deals with one of man's most innate desires - that for security.^ It might be argued that the marketing of l i f e insurance is different from other forms of marketing.  However, in a sense the  writer believes that there are more s i m i l a r i t i e s , differences.  than there are  If one applies the common definition of marketing, the  creation of time, place, and ownership u t i l i t y , then perhaps i t is quite obvious that l i f e insurance satisfies the concept of time utility.  Under certain circumstances one can borrow money immediately  or be paid a sum of money on the occurrence of a certain event-death. In terms of place u t i l i t i e s , while i t does not really create a problem of the storage of goods, i t must be available at a certain time and a certain place, to the buyer.  This i s , of course, . impli-  mented through the use of a distribution system of sales offices and a sales staff. In examining ownership u t i l i t i e s perhaps one touches on the real problem in marketing l i f e insurance.  8  For example, a buyer may  Dan McGill, Life Insurance Sales Management, (Homewood, 111.: Richard D. Irwin Inc., 1957), p.3. •  8  I b i d . , p.5.  recognize the need for food, clothing, and some form of sleeping facilities;  the buyer reacts almost automatically on this need and  attempts to satisfy i t .  However, with l i f e insurance, even i f a  person does recognize a need for l i f e insurance, he w i l l probably be reluctant to satisfy that heed.  Hence, when and i f , the person does  attempt to satisfy that need, poor health, advanced age, or some such reason, precludes him from purchasing l i f e insurance. Perhaps, i t is this intangible aspect of l i f e insurance which makes i t so d i f f i c u l t to market.  Of course, the men involved in the  management .of a company are more aware of the need for l i f e insurance. But what- about the ordinary man on the street? and desires?  What are his needs  Thus, i t is hopefully somewhat clearer as to the marketing  problems which l i f e insurance companies must overcome. In the early days of marketing l i f e insurance, the potential buyer merely called at an office and attempted to purchase l i f e insurance.  With the growth of the l i f e insurance companies, one  observes the beginnings of industrial l i f e insurance and the small sales force to assist in marketing the product.  It must be noted that  in these days the purchasers were usually the very wealthy.  In  general, the marketing policies of Canadian l i f e insurance companies lagged behind in company affairs.  With the success of the mutuals,  much of which was attributed to their aggressive marketing techniques, the stock companies eventually followed suit.  Over the past twenty years one may observe the rapid growth of marketing techniques in the area of distribution, promotion, and product mix. The Distribution System Basically l i f e insurance companies in North America make use of two forms of distribution: branch office system.  the general agency system and the  The general agency system w i l l not be examined  in this paper as i t applies mainly to the United States.  However, i t  should be noted that the system provides the general agent with much greater freedom in the internal management of the agency. Here, in Canada, the l i f e insurance companies make.use of the branch office system.  The majority of control of certain issues  remains at "home office" depending of course, on the particular company policies.  However, scattered across Canada there are small and medium  sized offices known as branch offices.  The particular branch office  is headed by a branch manager in charge of operations, and a branch secretary in charge of certain internal management problems such as staffing. branch.  In essence, the branch manager has a financial stake in the Sometimes i f the market potential is large enough, a company  may divide the branch offices  as to the types of l i f e insurance  marketed, such as an ordinary l i f e branch and a group branch office. In essence, the agency system is both the basic plan and the philosophy by which the plan operates.  The structure of a field organization  follows the traditional patternof industry with the l i f e insurance agent as the base of the structure.  Types of Agents  Perhaps the most common type of agent, the ordinary agent sells principally that type of insurance to which his designation refers. The ordinary l i f e agent is a f u l l time representative of the company. In most instances, i f the agents are selling ordinary whole l i f e insurance then.they are compensated by a commission.  If they are  specializing in group l i f e sales or estate planning, then the agent is usually paid a salary plus a commission i f a certain quota is sold. Many l i f e insurance companies require that an agent place.all business with that particular company.  Others permit the ordinary  agent to place so-called "excess" business., that i s , insurance in excess of the amount that the company is willing to write on one's l i f e , or insurance on an unacceptable risk, with other companies. S t i l l other companies allow the general agent to enter into a special contract with another company to cover an individual case. 2.  Combination Agent The combination agent represents a l i f e insurance company or  general insurance company, that sells a complete line of policies to the public; for example, weekly premium, monthly premium, ordinary l i f e , group l i f e , , accident and sickness.  It must also be noted that  the ordinary agent must build his own group of clients. tion agent inherits a business, an already going concern.  The combinaThis is  one of the features known as the debit system which is so privalent  in the United States.  The f i r s t meaning of this phrase i s the  geographical area of the community where the company's debit premium is concentrated.  The word i s also used interchangeably to r e f e r to  the t o t a l of the weekly and monthly premiums of the business currently i n force w i t h i n the confines of the agents t e r r i t o r y .  That i s , since  the agent receives weekly and monthly premiums from h i s p o l i c y holders, the agent has at a l l times a debit account  (as opposed to a c r e d i t )  with h i s company i n the amount of the t o t a l premium due and not yet remitted.  3.  The  Broker The broker i s not an agent of any one company, i n the usual  sense, but acts as an intermediary between the prospect and the company.  Perhaps i t may  even be stated  acts on behalf of the insured.  that, i n theory, the broker  A broker w i l l frequently handle a  multiple l i n e of insurance, s e l l i n g f i r e , casualty, property and other l i n e s of insurance along with l i f e , accident, and sickness. L i f e insurance companies vary widely, i n Canada, i n attitudes towards brokers. to  Almost a l l companies have brokers, today, i f only  the l i m i t e d degree of accepting group l i f e insurance from them.  Some companies a c t u a l l y s o l i c i t the brokerage business and i n doing so appoint brokerage supervisors whose p r i n c i p a l duties are to contact the brokers and encourage them to steer t h e i r business t h e i r way.  brokerage  The brokers do an extremely large percentage of  the group l i f e insurance business i n Canada.  In regards to group l i f e insurance, many l i f e insurance companies operate out of the general branch office. is sufficient  However, i f the sales volume  then separate branch offices may be formed.  The agents  are highly trained and compensated on a salary plus commission basis. It is estimated that in Canada, about 1/3 of a l l group l i f e cases and more than 1/2 of the total dollar volume is controlled by brokers.  This suggests that brokers handle the larger cases.  9  Having discussed the size of the Canadian l i f e insurance industry, types of l i f e companies, and a brief description of the distribution network for the products, we shall examine some of the marketing and market trends over the past twenty years.  Statement by Mr. D. Penn, National Life of Canada, Branch Manager, Vancouver, Personal interview.  PART I  THE FAMILY LIFE INSURANCE MARKET , CHAPTER III INTRODUCTION AND DEFINITIONS For the purpose of this paper, the family l i f e insurance  market has been classified as distinct from business l i f e insurance needs.  However, i t must be indicated that there is obviously a certain  amount of overlapping. Perhaps i t may be stated that the purpose of l i f e insurance is the protection of the family.  In essence every family is dependent  for subsistence upon an income which necessarily varies in amount and the source from which i t is derived.  However, in the majority of  cases this subsistence depends upon the current earnings' of the family head.  His l i f e has economic value to the dependent members of the  family, and i t is this value of one l i f e in relation to another that justifies the existence of l i f e insurance. Essentially, man possesses two estates, an acquired estate and a potential estate.  The former refers to what has been acquired,  while the latter refers to the monetary worth as an economic force, "existing in p o s s i b i l i t y " , his capacity of earning for others beyond the limits of his self maintenance, and, i f given time, his ability to accumulate surplus earnings into an acquired e s t a t e . ^  The insurable  value of man's economic possibilities may be defined as "the monetary  S.S. lluebner, Life Insurance, Crofts, Inc., 1958), p.13.  (New York:  Appleton-Century-  worth of the economic forces which are incorporated within his being, namely, his character, health, and his training.""'"'*" For the overwhelming mass of families the potential estate is substantially be placed.  the only kind of estate upon which real dependence can  The Canadian family of bare subsistence w i l l find solace  in industrial l i f e insurance, group l i f e , and in small ordinary l i f e policies.  But the large middle class of Canadian society is  absolutely  dependent upon l i f e insurance as a means of freeing the "potential value" in the family financial setup from economic gamble.  It appears  that for nearly eight to nine tenths of these families the substantial part of that which is left at the time of the death of the family provider consists of l i f e insurance. It is interesting to note that, in Canada, apart from the factual benefits or reasons why individuals purchase l i f e insurance, overwhelmingly, the main responsibility of Canadians l i e s in the direction of the family and its security.  Security seems to include  good health, an adequate home, education for the children, and an adequate means of employment.  12  Before discussing the family l i f e insurance market i t is necessary to indicate that ordinary l i f e , ordinary annuities, industrial l i f e , juvenile insurance, woman insurance, and family l i f e policies w i l l be examined as the basic products in the family l i f e insurance market. "^Ibid. , p. 13. 12  International Surveys Limited, A Study of the Attitudes of Canadians to Life Insurance, A Report Prepared for Maclaren Advertising Co. Limited (Toronto: International Surveys Limited, 1965), p.22.  Ordinary Life Ordinary l i f e needs l i t t l e definition as i t consists of policies of a face amount of $1,000 or more on which the premiums are usually payable annually.  It should also be indicated that single premium  policies may also be classed as ordinary l i f e .  For the convenience  of insurance purchasers, payments may be arranged on a quarterly or monthly basis, but a small charge w i l l be made to pay the added cost of handling more frequent premium payments and to offset investment income from the unpaid fractional premiums.  13  Ordinary l i f e policies may be divided into three basic l i f e insurance 1.  contracts;  Whole Life Insurance - Whole l i f e is payable to a beneficiary at the death of the insured, whenever this may occur.  The  premiums may be payable for a specified number of years 14 (limited pay life) or for life.(straight 2.  life) .  Endowment Life Insurance - Endowment insurance is payable to the insured i f l i v i n g at the date stated in the policy or to a beneficiary at the death, i f the insured dies prior to the 15 • maturity date.  3.  Term Life Insurance - Term insurance is payable to a beneficiary at the death of the insured, provided death occurs within a  specified period, such as five, ten, or fifteen years, or 13 Robert Mehr, and Emerson Cammack, Principles of Insurance (Homewood, 111.: Richard D. Irwin, Inc., 1969), p.522. 1A I b i d . , p.510. 15  I b i d . , p.509.  before a specified age."*"^ As indicated by Table I on Page (27), ordinary l i f e accounts for the largest segment of the Canadian family l i f e insurance market. In 1969, ordinary l i f e insurance s t i l l accounted for 52.79 percent of the total amount of l i f e insurance, family and business markets, in force, in Canada.  Ordinary l i f e accounted for 60.16 percent of  the new l i f e insurance purchased in Canada, in 1969.  Thus, i t is  easy to understand the immense importance ordinary l i f e insurancehas in the Canadian family l i f e insurance market.  Examining ordinary  l i f e , one finds that, in 1969, whole l i f e policies accounted for 52.79 percent, of the total amount of ordinary l i f e insurance in force.  It is interesting to note that, in 1969, whole l i f e accounted  for 39.79 percent, endowment 9.34 percent and term 50.85 percent of the total new ordinary l i f e policies purchased. In regards to the family l i f e insurance market, the 1965 survey, A Study of the Attitudes of Canadians to Life Insurance, also indicated relevant information on the family l i f e insurance market.  From a  sample of 3,088 Canadians, 20 years of age and over, who earned at least $3,000 annually, for respondents who owned l i f e insurance, the majority had purchased limited payment l i f e , followed by whole l i f e , endowment, term, family income policies, and ordinary annuities.  When  asked what kind of l i f e insurance policy they would buy i f they were  Ibid. , p.505.  going to purchase one shortly, the most frequently mentioned was whole l i f e , followed by term, endowment, and family income policies. Although the survey has obvious limitations, i t is interesting to note the discrepancy of their sample compared to actual statistics when i t was found that, in 1969, term insurance represented 50.85 percent of the new ordinary l i f e purchases.  (See Table I, page (27)  )•  This was followed by whole l i f e and endowment. Ordinary Annuities  (  Another large portion of the family l i f e insurance is the ordinary annuity business.  An annuity is a periodic payment to  commence at a stated or contingent date and to continue throughout a fixed period or for the duration of a designated l i f e or l i v e s . ^ Generally, annuities may be divided into ordinary annuities and group annuities.  Usually ordinary annuities may be purchased through a  l i f e insurance agent.  In one sense, the l i f e annuity may be described  as the opposite of insurance protection against death.  The annuity  has as its basic function the systematic liquidation of that which has been created.  However, despite the differences  in function,  sight should not be lost of the fact that annuities are based on the same fundamental actuarial principles. . For the Canadian family market, i t was found that new premium income for ordinary annuities, in 1969, accounted for $81,730,347. 17  Mehr, Cammack, o p . c i t . , p.538. See Table V, page 49 .  18  This figure represents 32.34 percent of the total net new premium income from annuities.  The remainder comes from the rapidly growing  group annuity market. JUVENILE INSURANCE Juvenile insurance is insurance written on the lives of children from age 1 day to 14 or 15 years of age issued on the application of a parent or other person responsible for the support of the child.  In the past most companies have attempted to limit the  amount of juvenile policies because of the limited insurable value of a child.  The companies have gradually relaxed the limitations, however,  and unless restricted by statute, w i l l write substantial amounts on juvenile l i v e s . In the Study of the Attitudes of Canadians to Life Insurance, i t was noted that three out of four respondents said that children should definitely be insured.  There was a tendency in Western Canada for a  larger number of respondents to feel that children should not be insured.  These seemed to involve upper income and higher education  groups.  The overwhelming reason why children should be insured was  for education followed by protection or security from accidents and sickness or loss, and this was followed by funeral expenses.  The  upper income groups are as aware as the lower income groups of the usefulness of l i f e insurance for a child's education.  In the main,  i t appeared that the lower income groups (under $7,500) are more concerned with accident, sickness and loss and funeral expenses than are the upper income groups.  Such results should have some relevant  information  for l i f e  agents s e l l i n g  to the f a m i l y l i f e  market.  WOMEN'S INSURANCE  A l t h o u g h a p a r t of the f a m i l y l i f e until on  the p a s t  the  few y e a r s , been r e l a t i v e l y  Canadian A t t i t u d e s , i t was  respondents d i d n o t life  insurance.  wives s h o u l d insurance this while that  a l s o have l i f e  policies.  insurance  Columbia was  assisting  even i f the husband had  most n e g a t i v e .  I t s h o u l d be  that  life to  noted  the b e t t e r p a i d groups were more  f o r wives' insurance  the husband i n c o v e r i n g expenses i n c u r r e d by  for  w i v e s , t h e main reason  to  possessed  to wives c a r r y i n g a d d i t i o n a l i n s u r a n c e .  looking after  and  the  French Quebec r e s p o n d e n t s were most f a v o r a b l e  and  to  Survey  out o f t h r e e respondents f e l t  In the main, the p r i m a r y reason to  From the  t h i n k t h a t the m a j o r i t y o f working-women  the b e t t e r educated and  resistent  untapped.  market i t has  i n d i c a t e d , i n general, that  A p p r o x i m a t e l y two  British  insurance  the c h i l d r e n .  look a f t e r h i s wife.  Among those who  revolved  The  husband's i n s u r a n c e  i f something s h o u l d happen to the w i f e , h a n d l e the f a m i l y  funerals  objected  around the husband's  related  to  insurance  responsibility  s h o u l d be  sufficient  the husband s h o u l d be  able  affairs.  SPECIAL CONTRACTS In r e c e n t y e a r s  a number o f s p e c i a l p o l i c i e s o r p o l i c y  t i o n s have been a p p l i e d to c o v e r insurance  market.  a r e l e v a n t p o r t i o n of the  A l t h o u g h t h e s e p o l i c i e s s h a l l not be  t h i s p a p e r , some examples would be maintenance p o l i c i e s ,  various  family  discussed  f a m i l y income p o l i c i e s ,  f a m i l y l i f e p o l i c i e s , and  combina-  family-  multiple  life in  protection p o l i c i e s .  A l l these p o l i c i e s are combinations of the  three basic types of l i f e insurance - whole l i f e , endowment and term.  INDUSTRIAL LIFE  B r i e f l y , this form of l i f e insurance  i s issued i n small  amounts, usually not over $500, with premiums payable on a weekly basis or a monthly b a s i s .  The premiums are generally c o l l e c t e d at  the home by an agent of the l i f e company.  Originally industrial  life  was developed i n order that the lowest paid wage-earner could make some provisions f o r meeting the expenses which i n e v i t a b l y follow a death i n the family.  In Canada, i n 1969, the percent  of the t o t a l amount of l i f e 19  insurance written accounted f o r by i n d u s t r i a l l i f e was .60 percent. The percent  of new l i f e insurance purchased accounted f o r by  i n d u s t r i a l l i f e was .045 percent.  Thus, i t now accounts f o r a  r e l a t i v e l y i n s i g n i f i c a n t amount of the t o t a l l i f e insurance both i n the family and business markets.  i n Canada,  The three firms, i n Canada,  that have been involved to a large extent i n this f i e l d have been Metropolitan  L i f e , London L i f e , and Prudential of America.  For the  most part, it- can be said that these firms are only now involved i n s e r v i c i n g outstanding  policies.  B r i e f l y , the p o l i c y holder receives a book, r e f e r r e d to as a premium receipt book, which may cover a l l of the p o l i c i e s the company  See Table- I, page 27 .  carries in that particular household.  The agent in turn, has a  collection book which is based on a " l i f e and lapse register" maintained at the home office.  The debit agent receives a basic salary  plus commission. DISTRIBUTION As was indicated earlier, the ordinary l i f e insurance agent accounts for the majority of the sales in the family l i f e insurance market.  The reason for the l i f e insurance agent is the presence of  three fundamental characteristics  of l i f e insurance; f i r s t l y , i t is  a complex financial instrument; secondly, the purposes served by l i f e insurance make necessary the discussion of such subjects as death, i l l health, and emergency needs for money; thirdly, the purchase of l i f e insurance necessarily involves the earmarking of current income for future consumption. The functions of a l i f e insurance agent to the family l i f e insurance market may be stated in terms of these fundamental characteristics: (1)  to persuade the prospective buyers to discuss and recognize the financial problems that the future holds.  (2)  to assist the prospective buyer to evaluate his needs for l i f e insurance protection..  Joseph M. Belth; "A Report on Life Insurance". (Research Report No. 4 Bureau of Business Research Graduate School of Business Indiana University, 1967), p.147  (3)  (4) (5)  to make sound recommendations to the prospective buyer in the light of the buyer's financial circumstances and objectives. to persuade the prospective buyer to purchase • the protection that is needed. to stay in contact with the policy holder so that the l i f e insurance program w i l l be reviewed frequently and kept up to date.  The performance of a l l five of these functions, and particularly the f i f t h , requires a high order of dedication and competence on the part of the l i f e insurance agent.  The dedication is needed because  many companies place overwhelming emphasis on the selling of l i f e insurance and provide l i t t l e attention to the important function of follow up after the sale.  21  In a recent survey, A Study of the Attitudes of Canadians to Life Insurance, several areas of improvement were indicated.  The  overall'impression of l i f e insurance agents was moderate - highly thought of for a few things and only moderately satisfactory on a number of key factors.  There is-a fair degree of feeling that  insurance agents are rather deficient in explaining thoroughly the insurance policies that are being sold and in keeping in contact, after the policy has been purchased. Whether a fundamental revision in agent compensation patterns would have a net beneficial result is pure speculation. perhaps several reasons account for the unsatisfactory policy holders.  However, service to old  The agent compensation system is characterized by a  Ibid., p.147.  substantial commission paid at the time the sale is made, followed by relatively small renewal commissions in subsequent years i f the policy remains in effect.  Thus, there is l i t t l e direct incentive to  service old policyholders, when the time spent on such service could be spent on sales a c t i v i t i e s .  Furthermore, each agent who gives up  selling insurance leaves a heritage of policyholder terminology, are sometimes called "orphans".  who, in industry  Also, there is a very 22  high rate of turnover among l i f e insurance agents. for unsatisfactory Canadian people.  Another reason  service could be the increasing mobility among the Even the conscientious agents are hard-pressed to  stay in contact with scattered policyholders. often resist offers of service from agents.  Finally, policy holders Such policyholders  may  be hesitant of being sold more l i f e insurance, or resist for other reasons, but the fact remains that some of the blame probably rests upon the policyholders. Assisting the family head to reach a r e a l i s t i c appraisal of family needs may be one of the most useful and profitable services an agent can render.  In terms of training this suggests increased  emphasis upon family finance in order that the salesman can focus upon 2 the prospect's general desire for protection upon specific objectives. It also suggests going beyond the traditional approach of breaking down "protection" into its components, such as clean-up fund, Statement by Mr. G. Telford, personal interview, Branch Manager, Vancouver, Mutual Life of Canada, 19 71. 23 Life Insurance Agency Management Association, Life Insurance In Focus, Research Report No. 5 (Hartford: Agency Management Assoc., 1960) p.3.  educational fund, mortgage fund, family income and so forth.  It  means equipping the agent to discuss in specific terms about specific 25 items of expense. up to date figures, and of rents.  For example, few agents are able to discuss, using the costs of b u r i a l , of probate fees, of college,  If the agent is to be versed in family finance, i t  means providing the agent with an awareness of costs, but also some understanding of how typical families and beneficiaries meet these costs.  With the obvious need for better training i t is ironical to  note the low proportion of agents with the Canadian Life Underwriters Certificate to total agents. Throughout the Canadian survey inability to pay emerged as a major factor in the household heads' thinking about l i f e insurance. It raises questions as to whether economic factors tend to be glossed over in agent training and whether sufficient imagination is being given to devising methods of making i t easier for the prospect to buy. The need to avoid annoying experiences is important as i t bears directly on sales.  It has also been suggested that being annoyed by  one agent may have an effect that cannot be completely overcome by exposure to good agents.  It was also found that those who reported  having been annoyed were significantly less likely to grant an interview and were less likely to cooperate with the salesman in 26 supplying him with referred leads.. 24T, . , _ Ibid., p.5. ^^Ibid., p.6. Ibid., p.5.  It would seem that i n both studies the p u b l i c believes that l i f e insurance agents may persevere i n c l o s i n g attempts i t i s obvious that no sale w i l l r e s u l t .  i n s i t u a t i o n s where  Of course, a l l agent  training  programs emphasize the problem of over-coming the customer's objections and pressing f o r the s a l e .  Perhaps the r e s u l t s i n d i c a t e some  a d d i t i o n a l emphasis should be placed on t r a i n i n g agents to recognize the hopeless s i t u a t i o n s and terminate the interviews before any i l l f e e l i n g begins.  In a further note, the data on the attitudes of the Canadian public to l i f e insurance agents should have obvious implications f o r the h i r i n g and t r a i n i n g s t a f f s of the Canadian l i f e insurance companies. The family l i f e insurance customer i s not h o s t i l e toward agents.  In  general, i t finds agents f r i e n d l y , b u s i n e s s l i k e , and usually w e l l trained.  It i s only a small segment that i s ready to denounce the 27  l i f e insurance agent as i n s i n c e r e , s e l f - c e n t e r e d , or a nuisance. Having discussed the types of products i n the family l i f e insurance market and the d i s t r i b u t i o n problems, the following chapter w i l l examine the major market and product trends over the past twenty years and some of the reasons behind such trends.  International Surveys Limited, o p . c i t . , p.303.  An Analysis of Life Insurance in Force and Net New Purchases in Canada 1950-1969*  Net New Amount Purchased ($000,000) 1950 1955 1960 1965 1969  Ordinary  Group  Industrial  1,345 2,451 4,188 5,930 7,904  243 597 1,486 3,031 5,234  74.76 77.68 73.56 66.13 60.16  13.50 18.92 26.10 33.80 39.83  11,625 17,634 29,293 41,256 53,991  2,583 6,123 14,403 27,643 48,173  1,538 ' . 1,694 953 757 621  73.82 69.28 65.50 59.22 52.79  16.40 24.05 32.25 39.68 47.10  9.76 6.65 2.13 1.08 .60  161 107 19 6 .6 .  Total 1,799 3,155 5,693 8,967 13,138  Percent of New Total Purchased 1950 1955 1960 1965 1969  8.94 3.39 0.33 0.06 0.045  100.0% 100.0 100.0 100.0 100.0  Total in Force ($ Millions) 1950 1955 1960 1965 1969  15,746 25,451 44,649 69,656 102,267  Percent of Total In Force 1950 1955 1960 1965 1969  100.0% 100.0 100.0 100.0 100.0  *Data from Reports of the Superintendent of Insurance of Canada and Canadian Life Insurance Facts (1950-1969).  MARKET AND PRODUCT TRENDS FOR FAMILY LIFE INSURANCE MARKET Ordinary and Industrial Life In examining Table I on page 27, and Figurel, on page 42, i t is possible to observe several important trends.  As explained earlier  ordinary and industrial l i f e are included in the family l i f e insurance market and w i l l be carefully examined in this chapter.  Group l i f e ,  although mentioned b r i e f l y , w i l l be discussed in f u l l in later chapters as a part of the business l i f e insurance market. In 1950, ordinary l i f e accounted for 73.82 percent of the total l i f e insurance in force in Canada.  Over the past twenty years this  figure has decreased until in 1969, ordinary l i f e insurance accounted for 52.79 percent of the total l i f e insurance. It i s , of course, expected that a large portion of this decrease has been reflected in the rapid growth in group l i f e insurance in force.  In 1950, group l i f e in force accounted for 16.40 percent of  total l i f e insurance in force.  From 1950 to 1969, this figure has  grown at an astounding rate until i t now accounts for 47.10 percent of l i f e insurance in force. discussed later.  The reasons for this growth w i l l be  Some insurance executives estimate that by the end  of 1971 group l i f e insurance w i l l account for 60 percent, while ordinary l i f e sales w i l l account for 40 percent of the total l i f e  insurance in force.  Of course, i t must be indicated that 1970  year end figures w i l l not be published by the Superintendent of Insurance until the last few months of 1971. If one examines the same figures for industrial l i f e insurance as a percentage of total l i f e in force, then one finds that in 1950, industrial l i f e accounted for 9.76 percent. this figure decreased to .60 percent.  Between 1950 and 1969  Thus, there has been an obvious  trend away from industrial l i f e insurance.  The decline in importance  of industrial l i f e , in Canada, as compared to such countries as the United States and Britain can be attributed to the following factors: (1)  The improvement in the standard of living of the industrial or hourly paid workers in recent years has been such that the need for weekly premium collection at the home of the insured has lost much of its importance.  These workers can now afford to purchase  l i f e insurance for larger amounts and thus obtain the benefit of a substantially lower rate of premium.  In  recent years, weekly premium collection was curtailed as i t became obvious that the cost of servicing and collecting the premiums every week became too expensive.  Statement by Mr. G. Telford, personal interview, Branch Manager, Vancouver, Mutual Life of Canada, 1970.  In the late 1950's, London L i f e , one of the largest l i f e insurance companies in the industrial l i f e market, reported a l l its new business under individual l i f e policies as ordinary business and a substantial part of its industrial business (for $500 and over) was transferred to and recorded as ordinary business.  Metropolitan  Life similarly reported a l l its new business on individual lives, in Canada in 1965, as ordinary business, but the trend in that company started some years earlier and this trend appears to be proceeding with the new business reported by the Prudential of America , in Canada.  Thus, the drop from 6.65 percent in 1955 to .60  percent in 1969, could partially reflect the reporting alterations of the companies.  Also, a proportion of the  increase in ordinary business in recent years is due to the increased purchases of ordinary policies by the hourly paid workers or "industrial workers" who gave the original name to "Industrial Life  Insurance".  The companies selling industrial business deliberately curtail the amount of industrial l i f e insurance which any one family can buy thus obliging them to purchase ordinary l i f e from the ordinary branch with lower rates. A part of the tremendous increase in group l i f e  insurance  has undoubtedly f i l l e d a need for l i f e insurance among the industrial workers which would otherwise have resulted  in greater industrial business sales.  Under the group  policy the employer pays a portion or a l l of the premium. (5)  The development of the Family Insurance Plan which covers particularly "industrial class" needs, when sold as an ordinary business policy.  Also the desire for policies  with a high investment element. Thus the need1 for weekly premium insurance is evidently diminishing and i t is being replaced to some extent by monthly debit business which has grown in recent years. A minor adjustment in social security benefits would remove the need for the smaller industrial insurance policy.  However, perhaps  something precious to human developemnt is lost i f everything is provided "automatically" and no personal choice is available in providing for death benefits, for small endowments, for education, retirement or just long-term saving.  29  As the Canadian society develops, a greater proportion of the disposable income of the country falls to the wage earning classes. The personal savings or lack of i t of this section of the population becomes of increasing importance to the economy of the country. A government scheme means merely a redistribution of taxes gathered. 29  30  Arthur A. Pedoe, Life Insurance, Annuities, and Pensions (Toronto: University of Toronto Press, 1970), p.447. 30 > I b i d . , p.435.  Through level premium l i f e insurance large policy reserves representing long-term savings of hundreds of millions of dollars can be obtained from this class which otherwise would have to be attracted from abroad. These savings are invested in wealth producing assets or in public services for the common good.  31  It may be felt that the figures for ordinary, industrial, and group l i f e as a percentage of total l i f e insurance in force do not accurately represent the market trends for new business.  If this is  true, then perhaps a more relevant indicator would be new l i f e insurance purchased as a percentage of total new l i f e insurance purchased in that year.  Thus, examining new industrial l i f e as a percentage of total  l i f e purchased, on Table I, one can observe that the trend has been l i t t l e more severe than using the " i n force" figures.  In 1950,  industrial l i f e was 8.94 percent while in 1969 i t accounted for only 0.045.percent. Similarly i f one examines new ordinary l i f e purchases as a percentage of total new l i f e purchases, then one finds the decline not as severe as using the "in force" figures.  In 1950, ordinary l i f e  accounted for 74.76 percent while in 1969, 60.16 percent.  The trends  in new l i f e insurance purchases are further.indicated in Figure page A3.  ,  on  Before continuing, however, i t is necessary to note that a portion of the enormous gains in group l i f e (13.50% to 39.83%) are deceiving.  Group l i f e is usually written for much larger amounts  than for the ordinary l i f e policy.  This w i l l tend to swell the  figures for group l i f e in Table I.  However, there has s t i l l been  an obvious trend to group l i f e . Examining Table II, on page 44 , one can observe the distinct trends in the classes of ordinary l i f e insurance; whole l i f e , term and temporary additions, and endowment.  However, figures prior to  1958 are not available from the Reports of the Superintendent of Insurance, or from the Canadian Life Insurance Association. only figures from 1958 to 1969 can be analyzed.  Hence,  Examining the more  reliable percentage of new ordinary purchased, sales of whole l i f e have decreased substantially to 39.79 percent.  in the 12 year  period from 47.99 percent  Sales of endowment have fallen off from 15.37 percent  in 1958 to 9.34 percent in 1969.  However, much of the decrease in  whole l i f e and endowment has been taken up by the increase in new sales of term and temporary additions from 36.62 percent in 1958, to 50.85 percent in 1969. examining Figures  3  The trends are visibly more obvious by and 4 on pages 45 and  46.  In Table II, the rapid growth in term insurance to 50.85 percent of the total new purchases, in 1969, is even more drastic when compared to 5 percent in 1925.  One notarary from Mutual Life of Canada, stated  "growth in purchases of term insurance perhaps reflect the Canadian consumers greater awareness of their need for insurance protection and  the development of family income, mortgage redemption, and other special policies which combine term with permanent forms of insurance." Another source states that the large growth in the popularity of term insurance may be due to today's buyers placing more importance on the rate of return on savings invested.  Since the rate of return on  savings invested in whole l i f e and endowment plans is not as high as would otherwise be needed to attract funds, insurance purchasers, who emphasize protection as the essential feature of the policy, are comparing the rates of return offered by l i f e insurance companies with the returns offered by other forms of investment, and investing their savings accordingly (for example, mutual funds).  The term  insurance is then acquired to provide the necessary protection. From Table II one can see that participating ordinary l i f e insurance policies have declined as a percentage of total ordinary l i f e sold.  A participating policy i s , as expected, one which "partici-  pates" in the earnings of the company.  Thus, such a l i f e policy would  receive periodically stipulated dividends.  In examining participating  '  policies i t is generally found that such policies usually carry higher premiums, but are refundable to the policy holder depending on the l i f e insurance company's mortality tables, investment y i e l d , and expense experience.  As a consequence, the l i f e companies claim that p a r t i c i -  pating policies ultimately prove to be cheaper for the insurer to purchase in spite of higher premiums. By law, only a minor portion of the profits earned and distributed on participating business can be credited to the shareholders account.  1 32 This percentage ranges between l-^- to 10 percent.  Perhaps the decline i n p a r t i c i p a t i n g p o l i c i e s , as evidenced from Table I I , r e s u l t s from the s u b s t a n t i a l increase i n the sale of non-participating term insurance.  This trend may  also be influenced  i n the future by the imposition of income tax on $10 or more of i n t e r e s t earned on dividends l e f t on deposit under the Dividend Accumulation option.  In any event, the movement away from p a r t i c i -  pating insurance w i l l probably continue i n the near future with the chance of b e t t e r investments elsewhere and the problems of dividend interest.  Net New  Premium Income  A f t e r c a r e f u l examination of the a v a i l a b l e information on which to most accurately analyze market trends and the factors a f f e c t i n g such trends, net new premium income was appropriate unit of measurement.  I t was  selected as the  thought that this unit of  measurement would serve as a better economic measure of the annual cash flows from the various forms' of l i f e insurance and give a more accurate i n s i g h t into t h e i r growth rates.  Unfortunately, such  information i s not published i n the Reports of the Superintendent of Insurance of Canada, at l e a s t to the extent that was needed. Therefore, i n many instances relevant approximations were necessary. To a r r i v e at the net new formula was  annual premium income figure the following  applied:  32 Canadian Research Department, The Canadian L i f e Insurance Industry, (Toronto: Nesbitt, Thomson and Company, 1969), p.8.  Total Premiums (1)  (3)  where:  Total Sums Assured  figures (1), (2) and (4) are available annually from 1950 to 1969 inclusive from the Reports of the Superintendent of Insurance. Figure (3) is the net new premium income that is being approximated. The above formula was applied where necessary and the appropriate  results and trends are indicated by Table III on page 47. and 6  on pages 50 and 51  further indicate such trends.  Figures 5 It is  interesting to note that although i t was found earlier that ordinary l i f e , either as " i n force" or as "new purchased", has somewhat declined in importance, net new premium income s t i l l accounts for 81.85 percent of the annual total net premium income.  However, i f annual net new  premium income had been available for term l i f e insurance the above figure would s t i l l be bias.  The reason is obvious when one notes that  term l i f e insurance is usually available at lower premiums and for larger amounts than other types of policies.  Thus, f i r s t year premiums  on term l i f e policies have not been rising as rapidly as the l i f e coverage.  Although, group l i f e insurance "in force" and "new purchased"  has grown at a startling rate, net new premium income s t i l l only accounts for 18.12 percent of the total.  Of course, as expected, even  this figure is somewhat biased as most group insurance written is for  a short period, such as one year.  Hence, one can see that the group  l i f e premium figures w i l l therefore be somewhat swollen. Ordinary Annuities It was found that ordinary annuities as a percentage of the total annuities has decreased from 20.14 percent, in 1950, to 9.59 percent in 1969.  Most of this decline can be attributed to the  growth in group annuities, known as group pension funds.  In 1950,  group annuities accounted for 74.65 percent while in 1969 this had grown to 88.26 percent.  This is evidenced by examining Table IV on  page 48 Net new premium income, Table V on page 49 indicates a similar trend.  In 1950, ordinary annuities accounted for 42.13 percent of net  new premium income. for 32.34 percent.  This has similarly decreased until i t now accounts The decline in ordinary annuity premium income has  been offset by the growth in net new premium income for group annuities from 57.86 percent, in 1950, to 67.75 percent in 1969. OTHER PRODUCT TRENDS IN FAMILY LIFE INSURANCE MARKET Monthly Premiums Another trend which has been clearly discernible over the past few years has been the increasing popularity of monthly premium payments.  This trend, of course, has been a part of the broader  phenomenon of the times:  every year, more people are buying more  kinds of goods and services under monthly budgeting schemes and i t is no surprise that l i f e insurance has fallen into the pattern.  The  monthly premium option has been available"as a standard feature of a contract, but only in the last few years has i t accounted for an increasing proportion of the business. The shift, however, is not entirely without its dangers.  High  lapse rates, which raise insurance costs for everyone and which often represent much needed protection lost almost, as soon as i t is gained, are a familiar part of monthly premium business. It is believed that the increasing proportion of monthly premium business since 1950 has come from those people who would once have been industrial l i f e insurance policyholders  and who now, with higher income  levels, are able to purchase ordinary l i f e insurance.  It may also  reflect a change in the point of view of many who find i t worthwhile to pay extra for the convenience of monthly payments even though a 33 quarterly, semi-annual or even annual premium would be within reach. If i t were not for some extra cost involved, i t is probable that a larger proportion of the l i f e insurance business would be written on a . . . 34 monthly premium basis. With the changes, l i f e insurance companies have examined administrative arrangements for monthly premium business.  New  33 Walter Klenn, Marketing Trends in Life Insurance (Philadelphia: University of Pennsylvania Press, 1959), p.274.. Ibid, p.274.  collection  arrangements have been d e v e l o p e d  o v e r t h e p a s t 20 y e a r s ,  such as t h e p r a c t i c e o f s e n d i n g a book o f r e m i t t a n c e coupons once a y e a r and e l i m i n a t i n g r e c e i p t s f o r m a i l r e m i t t a n c e s .  These changes  have a s s i s t e d i n r e d u c i n g u n a v o i d a b l e e x t r a h a n d l i n g c o s t s and make i t p o s s i b l e t o reduce  the d i f f e r e n t i a l i n cost which  the p o l i c y  h o l d e r must pay i n o r d e r t o a v a i l h i m s e l f o f t h e monthly premium p l a n . Some companies have f u r t h e r reduced  t h i s d i f f e r e n t i a l by p r o v i d i n g t h a t  a p r o - r a t a r e f u n d b e made upon t h e i n s u r e d ' s d e a t h i f an a n n u a l , semi-annual,  o r q u a r t e r l y premium h a s been p a i d , thus p l a c i n g a l l  methods o f payment on e s s e n t i a l l y  t h e same b a s i s i n so f a r as m o r t a -  35 lity  r i s k i s concerned.  An i n t e r e s t d i f f e r e n t i a l r e m a i n s and i t  i s d o u b t f u l w h e t h e r any m o n t h l y c o l l e c t i o n  system  w i l l be as e x p e n s i v e as t h e a n n u a l c o l l e c t i o n experimenting i s b e i n g undertaken p l a n t o meet modern b u d g e t i n g  t o reduce  can be d e v i s e d t h a t  method.  However, more  the disadvantages o f the  practices.  Women's I n s u r a n c e As e x p l a i n e d e a r l i e r , l i f e i n s u r a n c e f o r women i s n o t a new i d e a . However, as e x p r e s s e d i n t h e Survey  o f t h e A t t i t u d e s o f Canadians t o L i f e  I n s u r a n c e , women's i n s u r a n c e h a s n e v e r a c c o u n t e d the f a m i l y l i f e  i n s u r a n c e market.  f o r a large portion of  Any campaign t o - s e l l l i f e  insurance  to women, i n t h e p a s t , has c o n c e n t r a t e d on t h e s a l e o f " w i f e i n s u r a n c e " o r on a woman as a homemaker.  I b i d . , p.274.  Due to the changes in the Federal Estate Tax Act, one sees the wife receiving a larger portion of a l i f e interest in the husband.'s estate.  This is due to the low taxes on property passing from a  deceased husband to a wife.  However, when the wife dies the tax  impact on her estate has been increased.  The result has been the  recent growth in wife insurance and especially joint survivorship l i f e insurance.  Under the joint policy the husband and wife contribute  equally in the payments of premiums; no matter which person dies  first  the face value of the policy is then transferred to the living spouses property.  The impact of such a policy of l i f e insurance is to provide  more liquidity for the remaining spouse who w i l l have to bear the future brunt of estate taxes when that person dies. The expected growth in demand for women's insurance is due to the following reasons: (1)  Life expectancy of the American woman today is nearly 74 years, compared with 55 years in 1920, and 48 years in 1900.  (2)  more women complete high school, college and graduate courses than ever before.  (3)  higher costs and l i v i n g standards have led more and more women to seek employment to help increased financial burdens.  In addition, as the North American birth rate continues to decline and the feminine gender invades the labor market, the primary marketing strategy w i l l swing toward the young male and female college market.  It is interesting to note that women control much of the nation's purchasing power.  When i t comes to food, clothing and shelter, and even  what kind of car the family drives, the woman of the household often has the final word or makes the purchase.  This power in the marketplace  has been given significant influence in every field except l i f e insurance. According to the 1969, Statistical Abstract of the United States, the income level for women was 3 percent received $6,000 to $6,999, 2.8 percent received $7,000 to $9,999, and 1 percent received $10,00 and over.  It is expected that Canadian women have similar s t a t i s t i c s .  Furthermore of the top wealth holders in the United States, 38.6 percent are females.  In addition, according to the New York Stock Exchange  census of shareholders, women currently own 51 percent of a l l stock.  AN ANALYSIS OF ORDINARY LIFE INSURANCE IN FORCE AND NET NEWPURCHASES, IN CANADA, 1958 - 1969* Net New Purchases ($millions)  1  Whole Life  1958 1960 1965 . 1969  2,567 2,776 3,851 4,665  Endowment 822 792 . 973 1,096  Term 1,958 2,352 3,698 5,963  Total 5,348 5,920 8,523 11,725  Percent of Total Purchased 1958 1960 1965 1969  •  47.99 46.88 45.18 39.79  15.37 13.3.8 11.42 9.34  36.62 39.73 43.39 50.85  100.0% 100.0 100.0 100.0  82.37 .81:96 83.31 88.35  93.27 94.68 95.43 91.19  51.70 42.98 34.16 32.57  72.82 • 68.06 63.37 60.25  18,723 22 ,373 31,644 40,232  7,211 7,646 8,865 9,710  7,881 10,294 17,182 26,262  33,023 40,314 57,692 76,205  56.69 55.49 54.84 52.79  21.83 18.96 15.36 12.74  23.86 25.53 29.78 34.46  100.0% 100.0 100.0 100.0  Percent Purchased • Participating Insurance 1958 1960 1965 1969 In Force ($millions) 1958 1960 1965 1969 Percent of Total In Force, Participating 1958 1960 1965 1969 *Source:  Reports of the Superintendent of Insurance (1959-1970).  NET NEW PREMIUM INCOME RECEIVED BY FEDERALLY REGISTERED LIFE INSURANCE COMPANIES ON LIFE INSURANCE POLICIES IN CANADA, 1950 - 1969  Year  Ordinary  1950  Group  Industrial  Total  34,416,695  2,653,311  5,766,032  42,836,038  1955  56,147,380  5,201,649  3,966,064  65,315,094  1960  83,588,076  10,975,419  769,195  45,332,690  1965  109,229,280  18,987,065  235,762  128,452,107  1969  134,537,000  29,798,650  23,596  164,358,646  1950  80.34  6.19  13.46  1955  85.96  7.96  6.07  100.0  1960  87.68  11.51  • .80  100.0  1965  85.03  14.78  .18  100.0  1969  81.85  18.12  .01  100.0  Percent of New Total 100.0%  TABLE IV AN ANALYSIS OF AMOUNTS OF ANNUITIES OWNED BY CANADIANS, BY TYPE,  Year  (000's)  Ordinary  1950 - 1969*  Group  •  Settlement  Total  1950  40,892'  151,574  10,566  203,032  1955  51,177  317,475  13,672  382,324.  1960  60,688  658,420  17,046  736,134  1965  77,776  941,728  20,392  1,039,896  1969  108,524  998,313  24,211  1,131,048  1950  20.14  74.65  5.52  100.0%  1955  13.38,  83.03  3.57  100.0  1960  8.24  89.44  2.31  100.0  1965  7.47  90.63  1.96  100.0  1969  9.59  88.26  2.14  100.0  Percent of Total  *Source:  Canadian Life Insurance Facts 1955-1970  NET NEW PREMIUM INCOME RECEIVED BY FEDERALLY REGISTERED LIFE INSURANCE COMPANIES ON ANNUITIES OWNED IN CANADA, 1950 - 1969  Year  Ordinary  Group  1950  20,677,047  28,402,085  49,079,132  1955  26,228,320  79,441,416  105,669,736  1960  32,223,746  145,636,856  177,860,602  1965  62,249,376  216,557,529  279,248,438  1969  81,730,347  170,936,051  252,666,398  Percent of Total 1950 1955  . 42.13  '  Total  24.82  .  57.86  100.0%  75.17  100.0  1960  18.11  81.88  100.0  1965  22.29  77.70  100.0  1969  32.34  67.75  100.0  '  h3"  FIGUR  XX  ff OF-THE-T-TYPES-rJ-A - GROWTH-1 'COMPARISON nTfp-t? i T M C T T D A i a m r . .AND OE iLIi'E; INSURANCE lANNU.ITIEST  -BY N E J r J ^ N I ^ —t-t- -EE! TERED LIFELY • X -lB-tY-s W R l A M -1950 -19 69  X Gi'b i i pT* A n n u i j t i l .es  tr  -.Ordinary L i f e  p^rdjinary I X -'-iAnnui-ties-— •  IT'  -oup—Li-f e  filhdus trial" -r-f T T  ANALYSIS OF ORDINARY LIFE INSURANCE Introduction Analyzing the demands for certain products and the factors which influence these demands is an essential study for any industry. In this regard, the Canadian l i f e insurance industry is no exception. The more accurate the demand predictions for a l i f e insurance company or the entire l i f e insurance industry," the easier i t becomes to manage the firm more efficiently.  Although there has been much recent work  in econometric theory of demand, there seems to have been an absence in its application to  the Canadian l i f e insurance industry.  Of  course, the major problems have been that the number of factors which have influenced the past sales of l i f e insurance and which may influence future demand, are so large as to require extremely complex statistical  techniques.  In this regard, the author does not claim to  be able to use such complex techniques; however, i t is hoped that this chapter w i l l lend some relevant information on the various factors  that  have influenced the sale of different forms of l i f e insurance in the past and perhaps in the future.  This w i l l have important implications  on the marketing of l i f e insurance. Methodology It was necessary to obtain data and statistics on net new annual premium income for the period 1950 to 1969, for ordinary and group l i f e  as w e l l as ordinary annuities.  The reason f o r using net new premium  income and i t s computation was explained i n Chapter IV pages 35 to 36.  Although the variables used f o r group l i f e are expressed i n this  chapter, the actual r e s u l t s w i l l be indicated i n Chapter VII.  A f t e r having computed the relevant data the author attempted to l i s t , a p r i o r i , as many economic variables that may have had a relevant influence on the p a r t i c u l a r form of l i f e insurance product. For example, gross n a t i o n a l product, personal disposable income,  total  employment, marriages, long term i n t e r e s t rates and several others.  Treatment of Data Many s e r i e s were seasonally adjusted, such as t o t a l employment; however, f o r the other variables no adjustment was necessary because seasonality played such a minor r o l e .  Some data though seasonally  adjusted was only a v a i l a b l e on a monthly b a s i s .  Hence, i t was  necessary to make further adjustments by averaging or further de-seasonalizing. not  However, c a r e f u l attention had to be observed so as  to bias data through o v e r s o p h i s t i c a t i o n . A v a i l a b i l i t y o f Data Most of the variables were a v a i l a b l e through the University of  B r i t i s h Columbia, Dominion Bureau of S t a t i s t i c s D i v i s i o n .  Information  on the number of f e d e r a l l y registered l i f e insurance companies was a v a i l a b l e through the Reports of the Superintendent of Insurance.  The  number of f u l l time l i f e insurance agents, i n Canada, was obtained from the  Canadian L i f e Insurance Association.  Unquantifiable Variables It seems clear from the analysis of the raw data that there are considerable shifts in tastes in l i f e insurance.  Ordinary l i f e  insurance has grown more slowly than group l i f e insurance and indust r i a l l i f e sales have lagged behind even more.  Buyers are apparently  changing their product mix rather considerably.. The reasons for this shift apparently have l i t t l e to do with the variables used in this analysis.  Rather, these shifts  are  probably connected with the behavioral patterns of consumers.  It is  almost impossible to quantify such psychological shifts in any direct manner, although in the end these shifts may turn out to be the most important of a l l .  Other variables which were omitted due to the  difficulty in measurement were substitute products and l i f e insurance prices.  Price was omitted because no series on prices over a twenty  year time period was available.  In any event, one wonders i f the  product might possibly be price inelastic. Factors Influencing Ordinary Life Insurance It is necessary to indicate that the variables were chosen for three basic reasons: relevance.  general a v a i l a b i l i t y , easy predictability, and  Lacking very large financial resources to generate new  data made the f i r s t requirement a practical necessity.  The factors  that were postulated to have an influence on the demand for ordinary l i f e insurance were as follows:  1.  Personal Disposable Income. It was expected that the higher the aggregate level of disposable personal income, the more l i f e insurance that w i l l be purchased.  Total personal savings was  omitted because i t was felt that l i f e insurance is more than just a savings vehicle. 2.  Total Employment.  It was postulated that the larger the total  c i v i l i a n employment, the more l i f e insurance that w i l l be sold. Such a variable would be more relevant than the total labor force due to the fact that those civilians actually employed have the income available to spend on l i f e insurance. 3.  Number of Marriages.  Married men are supposedly better insurance  buying prospects than single men (or women), and as total marriages increase, ordinary l i f e insurance sales should also increase.  It was further suggested that there might be a  possible time lag involved between the time of marriage and the time of purchase. 4.  Number of Full Time Agents.  On the supply side of the model, i t  was postulated that as one increases the number of f u l l time agents, then the sales of l i f e insurance should also increase. Having postulated such variables, i t was thought necessary to conduct a preliminary screening by way of a correlation analysis. a test answers a less demanding question than regression.  Such  Correlation  treats variables symmetrically, analyzing whether two variables do or do not habitually move together.  Are the variables co-related? The  coefficient of correlation, r , is a pure number lying between plus and minus! Results of Preliminary Output The following were the preliminary results giving the coefficient of correlation: R  i_  (1) Personal Disposable Income:  (0.9941)  (0.8963)  (2) Total Employment:  (0.9739)  (0.9534)  (3) Number of Marriages:  (0.8349)  (0.7020)  (4) Number of Full Time Agents:  (0.9146)  (0.8414)  The results indicate that each of the above variables, separately, tend to move together with ordinary l i f e .  taken  It is also  suggested that the above correlations between variables are not spurious, that i s , the author believes the correlations are more than mere coincidence because of a p r i o r i reasoning which indicates a causal connection. Lagged Variables Total employment, number of marriages, and the number of f u l l time agents were then run separately against ordinary l i f e insurance, but lagged one year.  The results were as follows: R  2 R  (1)  Total Employment:  (0.9722)  (0.9501)  (2)  Number of Marriages:  (0.8148)  (0.6688)  (0.9045)  (0.8231)  (3) , Number of Full Time Agents:  As can be seen above, a l l the coefficients of correlation appeared to be lower when lagged one year.  The results indicate that the consumer  w i l l buy ordinary l i f e insurance within the same year of marriage. The marriage variable was also lagged two years to see i f the coefficients of correlation (0.8148) could be improved.  The result indicated a  coefficient of correlation of (0.7732) and an "R-squared" of (0.6028). Ordinary Life Insurance After having selected the four relevant variables and effecting a preliminary screening through the correlation analysis, the variables that could be expected to explain some of the variability in the sales of ordinary l i f e insurance were plotted and are shown in Figures 7-10, inclusive on pages 67-71.  In some cases the graphical representation  showed curvilinear relationships to exist and simple transformations of a logarithmic form were applied to the appropriate variables before establishing the "best-fit" linear relationships. Results of the Simple Regression In the case of the ordinary least squares analysis, the best f i t relationships were given in the simple form: y = a + b log x^ Equation 1  Ordinary l i f e = f (Personal Disposable Income) y  1  = - 16.386 + 0.717 log XML  where y^ = ordinary l i f e XML = personal disposable income  Independent Variables C XML  Estimated Coefficient  Standard Error  TStatistic  - 16.386  0.813  - 20.149  0.717  0.034  21.164  R-Squared = 0.9614; Durbin-Watson Statistic = 0.6158; Number of Observations = 20. As indicated from the data above, although the R-squared is high, the Durbin-Watson s t a t i s t i c at 0.6158, with 19 degrees of freedom, is low.  This can be observed by noting Figure 11, on page 43  The low s t a t i s t i c indicates a high degree of positive autocorrelation and is probably due to the fact that the economic time series used was fairly smooth.  It should also be noted that the coefficient  was estimated at -16.376 and (b) at 0.717.  (a)  The standard error of  these coefficients were found to be 0.813 and 0.034 respectively. These errors are small but the presence of autocorrelation tends to underestimate the standard errors of the coefficients.  Of course,  this downward bias in estimating the standard errors w i l l tend to give an upward bias to the t - s t a t i s t i c .  However, the very large volumes  of the t - s t a t i s t i c indicate that the variables are significant. Equation 2  Ordinary l i f e = f (Total Employment) = -3.476 + 2.278 log XKL  where  y^ = ordinary l i f e XKL = total employment  R-squared = 0.9633; Durbin-Watson Statistic = 0.3942; Number of Observations = 20;  Independent Variable  Estimated Coefficient  C  Standard Error  TStatistic  - 3.476  0.164  - 21.225  2.278  0.104  21.728  XKL  As indicated above, although R-squared is high, the DurbinWatson s t a t i s t i c at 0.3942, with 19 degrees of freedom, is low and also indicates positive autocorrelation. similar to equation 1. and (b) at 2.278.  The reason for this is  The coefficient (a) was estimated at - 3.476  The standard errors of these coefficients were  found to be 0.164 and 0.104 respectively.  Again these errors were  small but given the presence of autocorrelation, the standard errors of the coefficients are underestimated.  Again there is an.upward  bias on the coefficient's, indicated by the t - s t a t i s t i c , but they are s t i l l  significant.  Equation 3  Ordinary l i f e = f (Marriages) y  ±  where  = - 2.783 + 2.421 log XDL  y^ = ordinary l i f e XDL = marriages  Independent Variable  Estimated Coefficient  C XDL  Standard Error  TStatistic  - 2.783  0.426  - 6.533  2.421  0.359  6.726  R-Squared = 0.7154; Durbin-Watson Statistic = 0.1456; Number of Observations = 20.  As indicated above, R-squared was not as high as equations 1 and 2, but was s t i l l significant.  However, the Durbin-Watson Statistic  at 0.1456, with 19 degrees of freedom, is low and indicates positive autocorrelation for the reasons stated earlier. was estimated at - 2.783 and (b) at 2.421.  The coefficient  (a)  The standard errors of  these coefficients were found to be 0.426 and 0.359 respectively. The standard errors of the coefficients are small but are partly due to the presence of autocorrelation.  Both coefficients are very  significant as indicated by the t - s t a t i s t i c , but have an upward bias. Equation 4  Ordinary l i f e = f (Number of Full Time Life Agents) y  where  ±  = -1.696 + 1.866 log XFL  y^ = ordinary l i f e XFL = number of f u l l time l i f e agents  Independent Variable  Estimated Coefficient  Standard Errors  TStatistic  C  - 1.696  0.191  - 8.892  XFL  . 1.866  0.200  9.324  R-squared = 0.8285 Durbin-Watson Statistic = 0.1593 Number of Observations  =20.  It can be seen from the above data that the R-squared is high at 0.8285.  However, the Durbin-Watson Statistic is again low at  0.1593, with 19 degrees of freedom, and indicates positive autocorrelation. at 1.866.  The coefficient (a) was estimated at -1.696 and (b)  The standard errors of these coefficients were found to  be 0.191 and 0.200 respectively.  Again these errors are small but  given the presence of autocorrelation  are somewhat expected.  Both  coefficients are significantly different from zero as found from the t-statistic.  However, again the coefficients have an upward bias. Conclusion  The very close f i t between the variables in these four equations is clearly indicated with the graphical plots and the R-squared test. The standard error of the coefficients was found to be low and the coefficient highly significant at the 1 percent l e v e l .  However, there  is a high degree of positive serial correlation in these models as evidenced by the low Durbin-Watson Statistics.  This is probably due  to the fact that the economic time series used was fairly smooth.  If  you have positive auto or serial correlation, then the regression estimates of the standard errors are underestimated.  This may be a  reason for the very low standard errors obtained in our calculations. The f i r s t attack on the problem is to examine the functional relationships between variables.  This was done when we plotted the variables  and decided to f i t logrithmic functions. to find a missing variable.  The next approach is to try  If such a variable can be found then we  may also increase the R-squared as well as reducing serial correlation in the residuals. Multiple Regression The addition of a second variable means we have to introduce a multiple regression method. However, i t must be noted that care  should be taken that additional variables are independent, at least on a priori grounds.  The f i r s t equation that was analyzed consisted  of ordinary l i f e insurance as a function of personal disposable income and the number of f u l l time l i f e agents.  Another equation tested was  ordinary, l i f e insurance as a function of marriages and the number of f u l l time agents.  The regression models were established in the  following form: y = a + b where:  log. x]L + b 2 log x 2  x^ and x 2 are the independent variables; a is the estimated coefficient for G; b^ is the estimated coefficient for variable x^; b 2 is the estimated coefficient for variable x 2 .  The most satisfactory  variables on a priori grounds are marriages and  the number of f u l l time agents. Equation 5  Ordinary l i f e = f (Marriages and the Number of Full Time Life Agents)  y1 = - 2.819 + 1.401 log XOL + 1.304 log XFL where  y^ = ordinary l i f e XOL = marriages XFL = number of f u l l time l i f e agents  Independent Variables  Estimated Coefficient  Standard Error  - 2.819  0.069  - 40.445  XL  1.401  0.071  19.711  XFL  1.304  0.051  C  . TStatistics  •  25.611  R-squared = 0.9928; Durbin-Watson Statistic = 1.3623; Number of Observations  =20.  It would seem that the addition of another variable has improved the results as indicated above.  The R-squared was found to be high.  The Durbin-Watson Statistic at 1.3623, with 18 degrees of freedom, falls in the indeterminate zone as indicated in Figure 11 on page 43 However, the s t a t i s t i c is very close to the range indicating no serial correlation.  It should also be noted that the coefficient (a) was  estimated at - 2.819, b^ at 1.401 and  at 1.304.  The standard errors  of these coefficients were very low and found to be 0.069, 0.071, and 0.051 respectively.  The coefficients are highly significant as  indicated by the t - s t a t i s t i c .  It is also worth indicating the close-  ness of the f i t between the actual values and fitted values as shown in Table VI on page 72.  These figures are' plotted and are illustrated  in Figure 12. Equation 6  Ordinary Life = f (Personal Disposable Income and the Number of F u l l Time Life Agents) y  » - 1.764 + 0.547 log XML + 0.561 log XFL  where y  = ordinary l i f e  XML = personal disposable income XFL = number of f u l l time l i f e agents Independent Variables C  Estimated Coefficient  Standard Error  TStatistic  - 1.764.  0.064  27.541  XML  0.547  0.455  11.997  XFL  0.561  0.127  4.387  R-squared = 0.9819; Durbin-Watson S t a t i s t i c s 0.7697; Number of Observations  =20.  This equation is less efficient than the previous equation.  In  particular, the Durbin-Watson s t a t i s t i c of 0.76, with 18 degrees of freedom, indicates positive serial correlation in the residuals. with this dilemma we could add another variable.  Faced  If this is done a  further problem of multicollinearity is likely to arise and w i l l compound the problem, as there is some multicollinearity between the two independent variables we have used above.  Alternatively, an attempt  to reduce the serial correlation can be made by use of an autoregressive scheme.  However, this is considered an unnecessary refinement. Ordinary Annuities - A Simple Regression One further equation was tested to see i f a factor could be  found which tended to explain the changes in ordinary annuity sales.  Long term interest rates were plotted against ordinary annuity sales as indicated in Figure 13 on page 74. indicate a linear relationship.  The graphical plot seemed to  It should be noted that i t was  postulated that long term interest rates were likely to have had a strong impact on the sales of ordinary annuities; the higher the long term interest rates then the higher the sales of ordinary annuities. The resulting equation is written in the form: y3 =  - 2.095 + 1.279 (XE)  where y^ = sales of ordinary annuities XE = long term interest rates. Independent Variable C XE  Estimated Coefficient  Standard Error  TStatistic  - 2.095  0.831  - 2.521  0.164  7.798  1.279  R-squared = 0.7716; Durbin-Watson Statistic = 0.5694; Number of Observations  =20.  As indicated from the data above, although R-squared is high, the Durbin-Watson Statistic at 0.5694, with 19 degrees of freedom, is low.  The- low s t a t i s t i c indicates a high degree of positive auto-  correlation.  This is probably due to the fact that the economic time  series used was fairly smooth.  It should also be noted that the  coefficient (a) was estimated at - 2.095 and (b) at 1.279.  The  standard errors of these coefficients were found to be 0.831 and 0.164 respectively.  Both coefficients-are significantly different from zero  as found from the t - s t a t i s t i c s . In concluding i t may be said that we have not used these various models for prediction purposes, but have simply endeavoured to estimate functions which have tended to explain the changes in ordinary l i f e and annuity sales.  To use these models for prediction one would have to  make the further assumption that the environment within which l i f e companies operate is unlikely to change in the future.  At the present  time, the industry is undergoing significant product changes in both l i f e and equity products, which would make this assumption a l i t t l e tenuous.  _J.-.j_  ruin  ta  r;  111. ! t  i  i •  i . i 1  - -  --  n1;' i  -  -  —  --- -- ~r _._  -  -  »  -  -  ...-  -  -  ; 1. I 1 1I i  i i  —  -  --  -  —  —  -  -  -_  ...  --  -  -  ii  1  Ii  !  i  1  i  1  - i ...  ---  _--  -  -  -  -  I  1  -  1  | | i  .1  1  1 I  1  |  1  rf -  |  1  1  1 1 i  -  1 ! 11  i  1 1  _ j _  -  i  i..  i  -  -  -  -  -  -  -  --  --  _  —  — -  -  --  -  -  -  -  -  -  -  -  -  -  -  --  —  — _  -  -  - -  ii:"  -  ...  -  -  -  -  i  -  -  —  —  -  •- ...  - -  -  -  ...  -  -  -  —  ..  i  i1  -  -  _  ! 1  i  i  ..!... -  1  I i | -  --  -  -  --- -  -•-  -  -  1  -  -  -  - - --- -  1  -  -  -  -  - -  -  i  --  -  _  ...  J  ---  -  --- -  ...  -  -  --  -  ...  -  -  -  -  tiL 5 0 J__ i i: I J..I.L. : Ore 1 n'arv. 1 i fk. .Ins J: c e _r.sooc)iVL i I i  1  -  -  -- -  —i— ~r  + -  |  j  -  i  !  -  -  -  r1  -  -  _L. ..|..  -  -  I  -f~  — [ -  !i i ri i  ! !• I I i  l i  1  OKD LNAB Y ~L:[FE INSL IRANCI 2 _S A T T ~ i r r" iLJI'IT •L"T~ L : )-5Q in til )i t —  C I I 01 OF  -  -  —  .:  -1-  1  J  OTAL  i i  1  ]~ i i  i  1  1  I  i  ...  i i  _ i i  i  -  -  !i  ! i  ~: FIGURE  J _ i  -- _  j i  i  |  "\"  -  -rr  l  t  i  JiC 1 I  <  I  1 !  _ i  L  -  1  i  i i  -  i  !  — -  -  -  i  I  i  1  |  1 !  i  i  —  ...,L  1  |  -tfh  i  j i  i  j  -  -  -  -  >  -  1 ! 1  i  I  1  ffli  -  ---  -  i r  i  i  —  _  j 1 - ! 4-  1  - ..."  ! 1 i i  1  i  -  —  -4-  i  i  -  -  -  J  -  -  i  _ ! J  i  1  -  -  i  ~r ii -  !  -  "l"T'  I '  -  1  -  J UU  1 !  -  1  1  -  -  0  -- -  i i  I  1 -  —1" 1 1 1 t 1 1  ...  i  i  ip:  i  1  >  i  i  1  --  i | i  i  ;  1  -  - ,."L  -  -  -_ J  •-  -  * i  -  „  -  !  -  -  • i  -  -  -  -  -  -  -  ...  _  I  1  1  -  -- -  -  ! -  -  -  -  - - - -- -- _  -  -  _  -- zn  -  -  -  -  - --  1  1  i  | ~~I  ~|~  -  -  i  -  _  -  in  i  P  -  !  I  ! Ii 1  1  i' .' ij 1  ... -  i 1  1  I  |  1  -  —  ...  I 1 —t—  1  -  T  1  1  i  I  _ j _  -  _ -  i _  —  -  --  _.|_.  -  | 1 1  I 1 1 1 1 1  --  j i  -  --  !  1  -  -  _  _• -  i i  -  i  1  1  -  -  -  1  1  -  1  - -  " i  i i  -  -  -  1*  T  i  -  -  -- - ...  ... - - J._i.  "I ......  -  _L  -  j i i  ..... .  _  —-  t  i i |  :|:  -•  -  -  i i  : i  --  1  -  -- -  i i  -- ... - -  - --  l  -  -  -  -  -  _•_  —  -  -  -  -  --  -j_L  j  ..-.J — j —  .  -1  u L j _ „.....„.._ . , ........ -  —  1  :h :|:  .. L "i' 'i" Ill ILjI .......  _Jli_L J . L L  4_  ILILL ..L -  —  _LL  ...  -  'i"7~  —  _  -  -i t -  _U  II  -  -  -  -  --  -  - :ii - - -  - - 4-  -  - -  --  -  ...  -- —  —  —  ...  _  - -  -_  ...  -  - -  _  -  -  - - -- -  -  -  -  -  - --  -  -  -  —  _  —  I ...  - - - - - - - - --- <-- - - -...  -«  —  ...  -  ...  ...  -- . . .  -•- ---- --- - - - -- --  ...  -  -  ...  -  -  ---  ...  -  -  -  .....  i  --- - -  •:  —• _.  -  i ~i i  !  ...  -  —  •  ...  -  1 1  i  —  ...  _  _i~L  -- -  ...  - -  -  ...  _L  r  --  ...  - ----  P  I  -- _  -  -  --  -  --  --  --  -- - -  --  - - --_ )CI  _ .„  ... . . .  —  - •--- _  -  - _ L •-  -  ...  -  ...  -  —  —  -  — —  -  - - --- •- -  ...  -- -- - - -  —  1  -  --  ....  1  I-i  i-S  m cn  120  --  _l_  -  1  -  --  --  -  -- -  -  !  "h  - ...  -  V  i  ...  -1 -1- -  -4  —  1 _i_ -i i "T i  -  —  I  -  -  -  _i  •-  i 1  —  —  —  ....  if  - ........ - - ;:!::_ - - - - - ::|i. :|:: - --- - - rd iharv Lie ..(SC)00ft '1 - -- - - -- - - --- - -- - - _ ---- FIGURE - c - -- - -- •--- - - - - - - -- - „L  ...  -  ...  —  --  —  ...  -  —  *  ...  -  ...  ...  -t;S  I N 51  I IRDI!MARY N 0" m  -  ...  .-  -  ....  -  i —  03  -  -  I  i  ...  ...  ...  ...  -  -  -  -  -0  -  - ---- •-- - - --- - ---  _  -  1 1  —  -—  -  -  1 |  -  -  -  -  I  -  ...  I  -  -  4*  --  .1..  i 1 --1— i  li.  rr  d ft  ...  i i -  •i i i  -- -  »  1 j  160 .  ...  i  i  .....  i •  1  - - - - - -- --T- - -  •-  ...  ...  ...  a  -  "1  ...  -r  —  [  ...  !  -  -  —  1  ...  ...  1  -  --  —  •-  . . . ...  . . . ....  —  ...  --  —  ...  •-  -  _-  i  !  —  -  -  i -  -_  ...  - - - - - - -- - _ - - - - - - - - - - - - -- - - - - -•1 --- - - - •-- _- - •--- •- - •-- - - - - -- - - - - - - - - - --- - - -- - - - --- - - - - - - -- - - - - -- - - --- - - •- - - - - _ - •- - - - -- --- - - -  1  - -- - - - -  ...  1 :  " T _; - _ - -  --  —  -  -  t . I.  _0 u  k  d.iLU)N  ...  0F  —  ...  —  •-  1  rA G E S nr.C A N Si•)A. r ...  -  -t-  -  • i  -  --  -  1 1 1 j  i  1  1 i 1 1  •1  -  i  1  1  80  o o O  j *  I .j j  j 1" 1  i  I  ) 1  ..  !  tr  !  ••]"  -  "i '  _  i  —  —  "JI -• : u ; i . • ' 1 •I 1.1-! . .. 1...- - - . . . 1 T V " i . :L. ! i 1 ! !! ! L.!..l _ _!. --•- _.j...L ... --....)..  J  -  _ _  -  i  -  -  —  1  -- -  1  ii  1  i i  -  - --  i  i i  1  -  --  i  i  --  — —  --  -  --  - --- -  i1  -  ...  1  -  _  I --  —  —  !• i  !  1  1 1  i L. I  1  1 : i i  -  - -  -  - - -  -  :  -i  ...  -•  -- -  - - -1 1  i  -...  ...  —  -  ...  -  _—  -  - -  ...  --  ...  i  -  ~r1  --  ---  --  -  ...  1nn  T  ... ...  —  --  •-  --  —  ...  ...  —  —  —  —  -  --  ...  |  -~  -  1  rr  - -1  i  i  i i  I i i  1  i  L  -  -  j  _  ...  -  ...  -- --- L LI - - - -- - - -- T' - -h- _ - - - - - - -- - -- --- - - -- Jl _ - _!_ I. - - - - - - -- I i , 1  -r  1  -- -  -  •—  --  ...  ...  --  —  i  -  - .1  -  ...  ...  ...  —  —  --  ...  ....  i  1  -  --  1  1  - -V  -  -- - -  ..)_.  - -  -  —  - -  -  -  -- 1  ---  1  1 ;..!_. ...!_ 1  -  i  - -- -- - 1 - 1 1 - -• -- - - -- - ! - - -- - - I. -- _ - -- - -- - - - - -- - - i i  ...  -  .....  ...  ...  -  - - -- - -- --  ...  .ft  -  —  --  i  -  ...  I -I -  - - --- - ~1 -_ - - ...{_. - -- - - -  —  -  r  ...  ...  --  ...  i  —  - -  -  -  ...  !  i  —  --  -- -•-  ...  -  ...  - ... •  —  ...  - -  ...  -- -  I | i  1 1  1 -  —  ! i  _  1 1  i i  - -  --  --  ---  -  -  -  —  - ...  •-  —  ...  —  --  -  -  - - - - - -- -- - --- - -- - - - - i -- - 16,000 --- - -_ - -- - I.  —  !  —  ...  i  i  1  --  ...  _  -  t  —  -  -  ...  - -- - -  -I - -- --  - - •-  -  ...  !  -- - -  --  _ - - ...  _  .! _  !  -- -  - --  -  i  1  1  :t  1  --  -  •-  ...  _  -  ...  -- --- - - - - -- - _ - - -  i  1  ...  -  -- -  -  -  i  i  l 'i  i i  -  ...  j  i  -  —  -  -  -  -  - -  _ - - - ZL - - -- - - - - rr - - 1 i i 1  -  -j  - - --  —  -  1  -  ....  . . .  I  —  ...  _  —  ...  —  -  -  -- - - - - - - - -- - - - - - - - -- - --- - -- - - -- - - - - - - - - - - - - - - - - - -- - - - ...  i  ...  --  1  ...  ...  —  —  --  i  LI  - - - -- -  ...i..  I 1  i  i  -_L_ 1  • -- - --  ~F  |  _.  - - •- - - - - ---- - - -  --  p  —  --  "!"*!"  - - -- - - :ji - -- - - - - - - ----  -  --  —  ...  -  -  --  ...  *  ---- --- -  - -  --- —  ( Tx  OR1LNARY. I 1 1 OF 1 u  -  -  in ar.y L Xti T r I RE 10 F ji _j 7 H  Pr  ...  ...  - —  - -  --  - --  —  - - - -i  0 —  i 11 I z: HE.IT NS.URASCE_ i  1 ! I 1.11 3IM ZTLTE E  —-  /THE _NU>mFR pp LA. J?UNCTTONlOF_ 1 1 ! 1 l _ . 1 .. 1 L l l i i _ CMADA7 .950-1969 ! AGENT 1 i  I i  1 1  -  I  I r  10,500  EQUATION NO. 5 ESTIMATES: ACTUAL VERSUS FITTED VALUES Year  Actual Value  1950  34416688.0  33250624.0  1951  37406608.0  40067264.0  1952  43662400.0  43141744.0  1953  45346912.0  48468112.0  1954  48709552.0  47664848.0  1955  56147376.0  53320944.0  1956  68117296.0  67746976.0  1957  81945760.0  81496384.0  1958  82084800.0  . 81201616.0  1959  81456336.0  1960  -  ,  ,  Fitted Value  '  82028656.0  83588064.0  85626752.0  1961  86048544.0  89149216.0  1962  85850960.0  90883280.0  1963  93043760.0  90947472.0  1964  102118016.0  97393248.0  1965  109229280.0  1966  114778320.0  115063744.0  1967  123800000.0  125033872.0  1968  132988192.0  132097680.0  1969  134536992.0  136982000.0  "  103819696.0  -  -  1 -1  -  -  —  .J._  i1  -  -  -  -  --  -  --  - --  --  - --  --  -  ... -  -  —  - --  -  —  -  —  —  -  -  ...  ---  -  -- -  --  --  —  - ... _  -  ...  - oj crv  -  j  '1  . . i i . . ! ... -!rl.  - --- c 3  -  -  i  ST  - -  -I  ...  - U - ii i1  -  -  i  -  -  -  -  -- -  -  — •  -  -- -  -  —  -  .......  -  -  --  .  H- -  -  —  -  -  -  - —  i  - --  -  i  -  -  -  -  - -  __  —  —  -  --  -—  -  -  —  _  .....  •  -- -- -  -  —  —  ...  -  -  -  —  i  ••-  :::  -  1 1  ....  -  i ..  Lon 1.  -  . _j„  - -  --  i  --  ---  —  .......  1  -•  zr:  --  -  -  ;60-r- --  -  ;  -- - --  -  -  -  —  i  -  -  -rrt~ ii i  1  i  rf~ rr  i  - --  ...  i i i  -  --  -  -  -  --  -  -- -  ...  -  ...—  —  : —  ij::!:  ---  T  1 i ~ r - -- i T i - -J.. i ... - ._ r.r  -  ...j.  . r>  A M  'i A:T\'A  -  Li GN  fr  _j_i_  -  r  t-rr  -  --  i  i  T T T  Tii  _...  LU  ......... p. r -  i •"T  i ...  Fi i i i I i 1 "! [  ! 1  \J.Z 1" j  -  nil  1  i ! -.1..... 1 T - L -jI i~! ~i ..UJ..J.-L i i  •  l  i i! i i ! ; i 1 l "i " i .T.'L —  ... ! T I  -  !  L_  ~rl  ill! 1 i i i 1 i j 1 1 i I i i i  —  -  i  1  1  i  -  1  ! !  j  !  !-!-i - i -  rt"  I  i  1;  .-66-rr  -  1  1  1  1!  i ' j i  I  i  m  -  -  i  - -iti:  -  - - ! - ! - ( - -  - • FIGUR2-j-ii|-3;jNU'ITIES  -  —  ---  :i:  "T  :.piVIIM R.Y I A N r.Mm ERC O T _ r>!AfPT7C_ -L  --  --  -  > | i •< T T i !  -  r I  ...  -  --  e!_Term '.i Ln teres t Rates 1  -  -  i i !  |_|_ _P_ - Ii .f 1 ~ i 1i 1 J_ i i 1 1 1 i 1 i ! i I I! i !! l ~n r i i !1 — 1 ! 1 i 1 ! ! ! 1' 1-- ! ; i i i i i i i i !' 'f I i i i i i .._ " i 1 ! Pi ! | i i i 1 i i ii i I i ii i  1  -  -  4-  -.  -  —  i  --  -h  ZTZ  -  -  -  1  - - ----  _  --  - -" T  - -  -  <»  -  1  -  -  -  —  ....  —  i  -  --  —  -  -  -  1 i{ i 1 i i i 1 1 r _ i _ I_ ... 1 i i I i i i i 1 i 1L U! i 1 •- __ T ~ r | 1 i i i 1 i i i 1i T~ i --'  -  -  -  i  _  -  i  JO  ._.  >  --  ...  -  1  i —1  -  —  _  i  -  -  ... - ...  —  -  -  >  -  -  -  —  _  -  —  i  -  1  -  -  -  _  -  -  -- -  ...—  L  -  -  t  <  |  *•  -  -  - -  —  - --  -  -  --  -  —  I |  i  -  —  -•- - - -  -  1  - -  _.  --  -  1  ! i  —  —  -  1  1  i~  r  --  _  -  —  - --  .....  -  -  1 1  r ii  -  - -  -  —  —  -  i  -  -  --  -  - --  -  i  t  —  -  -  i  i  — • -  -  -  ...  ! 1  «  -  -  -  ...  -  —  —  1-  1 1 r  -  -  -  -  -  -  ...  -  --  __. -  —  r  ...  -i-  -  ...  -  i i •  - - •-•. . .  —  T  -  -  -  ...  —  -...  -  -  -  1  4  ....  —  -  -  -  __  I  1  ii> - - ...i. i  -  -  -  -~-  ....  -~ -  1  -  -  ...  •  --  -  -  - -  -  --  -  ...  - ...  -  1  -- -  --  -- -  -  -- ..._ ...  -  ...  ...—  -  -  1  - -  - '--........  —  i ! i I 1 4- - •°! '• - r i — — ! 1 ! i .II !1 !i !. 1 -I -!1 | !i i 1 ! i 11" 1 _ 1 J I M I 1 1 1 -P"1 1 i 1  --  --  ....  1i i !  XT  W  -  -- -  ...  —  —  -  !  -  1  -  -  _ i * i L -•! !-«u1 i  -  ...  -  -  -- -  - - --  --  —  -  •-  --  -  —  ....  - - --  -•  --  -  -  - - --  -  -  -  6C  -c ... -  - ... i  --  ....  ...  -~  ....  -1- 1 -  -  -  -  -  -  -  -  -  ---  •-  ...  ....  .....  -  ~  ...L — -• -  -  -  --  —  ...  -  -  —  --  - ...  -  —  - ...  —  -  --  -  -  -  —  —  90  . ir  - --  -  .....  -  ... --  1  1 i i i i  -  !  --- -  1 i | 1 1 1 1  i  L L L II  1  • rrr  i l l !  TTTT:  : J i I 1 1 1 I' r . ! : i iJ..J..I.J_ 1 ! j i •  1 1 1 ! !.i'T L  11 i t-]i 1 69 t --T-rr - ...Lr IT • |i — - -j- — P _ L r-f1 p1 i - i 1 1 ! ii P T T M T -rr c  J..L  r  PART II  THE BUSINESS LIFE INSURANCE MARKET CHAPTER VI INTRODUCTION AND DEFINITIONS Perhaps i t can be said that the distinction between the 'family  l i f e insurance market' and the 'business l i f e insurance market' essentially one of convenience.  is  A l l l i f e insurance is essentially  business l i f e insurance; however, the expression 'family l i f e  insurance'  is used, as the name implies, when the insurance relates more directly to the family, and 'business l i f e insurance' when insurance is concerned more directly with the protection of the insured's business 36 or vocation.  Thus, protection of the business assets is the object  of business l i f e insurance. Indeed over the past twenty years business l i f e insurance has grown at a dramatic rate in Canada,  wherever the primary purpose of  family l i f e insurance is to protect the family against the loss of the income producing capacity of the family provider, so to do business firms attempt to find protection from the loss of lives that have assisted in their operation and p r o f i t a b i l i t y .  In recent years business  firms have become increasingly aware of these facts and the result has been a huge growth in business l i f e insurance in the form of key man insurance, group l i f e and disability insurance, group annuities, and  Huebner,I'.loc. c i t . , p.33.  other business uses of l i f e insurance.  So large is the volume of  business becoming and so rapid its increase that there is good reason to believe that the time is approaching when the l i f e insurance policy w i l l be almost as integral a part of the corporate and copartnership structure as are the charter, the bond, the stock certificate, and the partnership agreement. Group Life Insurance Briefly, group l i f e insurance is usually issued without a medical examination, covering the lives of a number of persons,, as employees of one employer, by a single master policy. Perhaps i t may be safely stated that in the past 20 years, the growth of l i f e insurance in Canada has been outstanding, but the growth of group l i f e insurance has been spectacular.  Ordinary new l i f e  purchased increased 5.5 times in the 20 year period while group l i f e 37 increased approximately 21.5 times.  Although figures are not avail-  able, i t is estimated that the majority of group l i f e has been in the form of group term l i f e insurance. From the Study of the Attitudes of Canadians to Life Insurance, i t was found that group l i f e insurance was owned by the largest number of the sample selected, particularly in British Columbia, Manitoba, and Saskatchewan, followed by French Quebec and Alberta.  See Table I, page 27 and Figure 2, page 4 3 .  More specifically  among those who stated l i f e insurance ownership, 43 percent unaided mentioned group l i f e as one of the policies held.  Upon later  questioning i t was found that this figure represented only two-thirds of those who actually were insured under group l i f e plans. At the end of 1966, 66 percent of the total group l i f e insurance in force, in Canada, was from employer-employee contracts, while 22 percent was from creditor group l i f e insurance, and 12 percent being 38 from members of trade unions and other associations.  It should be  noted that group credit l i f e insurance is a special form of group term insurance issued to a creditor covering the lives of his debtors in the amount of their outstanding loans.  The insurance is payable  to the creditor should they die before,the loans are repaid. As stated earlier, the lives of a number of persons are insured severally under a single contract between an insurer and an employer or other person, known as the master policy.  Under the Uniform Life  Insurance Act every group l i f e insured under a group insurance contract must have delivered to him a. certificate setting forth the following particulars: (1)  Identifying the master policy and the name of the insurance company.  (2)  Specifying the amount of the insurance on the group l i f e insured and on the dependents or relations i f covered under the contract.  Pedoe, l o c . c i t . , p.321.  (3)  Stating the circumstances in which the insurance terminates and the conversion privileges are quite important.  Due to the fact that employer-employee groups account for 66 percent of the total group l i f e insurance in force, in Canada, the characteri s t i c s , operation and its marketing w i l l be discussed. In regards to the number and e l i g i b i l i t y under a group l i f e plan, i t was found that in earlier years the minimum number of employees to be accepted without medical examination or evidence of insurability was 100.  Over the years this has been progressively  reduced as experience accumulated.  It became successively 50, 25,  and is now 10 which may include executive officers, partners, or proprietors.  However, i t should be noted that there have been  special cases where the number of employees was only two.  At present,  90 percent of the companies insured have 10 or more employees.  39  In regards to required participation, i f the employer pays the whole premium (non-contributory), 100 percent of the eligible employees must be included in the group.  If the employees pay part  of the cost (contributory) and the number of eligible employees is 50 or more, one company insists that at least 75 percent of the eligible employees come into the plan and that proportion remain in i t . 39  Personal estimate by Mr. D. Penn, Branch Manager, National Life of Canada, Vancouver, 1970; approximation also verified by Mr. G. Telford, Branch Manager, Mutual Life of Canada, Vancouver, 1971; personal interviews.  With smaller groups this company requires a higher minimum percentage participation rising to 100 percent participation for the smallest groups. In examining the maximum cover, each company, may have a different formula for the maximum amounts acceptable, but i t usually varies with particular size of the case.  Thus, the larger the case, then the  greater maximum amount acceptable on any one l i f e .  This is because as  the size of the cases increase the less likelihood there is for any one employee's claim affecting significantly the over-all experience.  It  was found that for many years the limit on any one l i f e was held at approximately $20,000. United States.  This was replaced by the "20-40 rule" in the  Under this rule there is a'maximum of $40,000 on any  one l i f e provided any insurance in excess of $20,000 does not exceed 150 percent of the employee's annual salary.  However, in Canada, there  is no legal limit and some companies w i l l go above the $40,000 level i f the case is large enough.  It should also be indicated that at present  group l i f e companies require a minimum of $500 to $1,000 of insurance on any individual l i f e in a group depending on the firm's expectations. Group Life Marketing Having discussed very briefly the operation and characteristics of a group l i f e plan, i t is necessary to analyze how i t is marketed. The general motives for entering this growing market may be summarized as follows:  (1)  to provide additional earnings and prestige for the company's agency force through direct group commissions and by-product sales of individual insurance.  (2)  to provide group f a c i l i t i e s for the company's agents so they w i l l not take group prospects to other insurance companies. ' i  (3)  to maintain or increase the growth and prestige of the company and its position in the industry.  (A), to contribute further to the profit or surplus of the company, thereby benefiting stockholders and/or policy holders. (5)  to f u l f i l l . f u r t h e r the insurance industry's social responsibility to the insuring public.  Group l i f e insurance marketing is challenging, often ting^ usually rewarding, and always changing.  frustra-  It demands of its  successful practitioners a high degree of intelligence, continuous training in both technical and sales areas, ingenuity and integrity. Briefly, its growth pattern is explosive, its pattern of change dramatic, and the competition is relentless. In examining,the nature of the buyer i t was found that the buyer may have from ten to thousands of employees.  Typically, the  buyer is more sophisticated, buys less on emotion and more on price and service than the individual buyer.  While the family l i f e  insurance buyers frequently purchases only because of a motivating sales agent, the group l i f e buyer is usually under internal or external company pressure, and so may purchase in any event. Many l i f e insurance companies operate group l i f e from the general branch offices.  However, more recently with increased sales  volumes, especially in the larger Canadian c i t i e s , separate group branch offices have been formed.  Both group l i f e and family l i f e  insurance are marketed through commissioned agents and brokers. group marketing, however, the broker is much more important.  In  Although  the majority of group cases is sold through agents and brokers, who tend to be more successful in the smaller case f i e l d , by far the largest percentage of the total group premium income is produced by brokers. It is estimated that about one-third of a l l group l i f e cases, in Canada, and more than 1/2 of the total 'dollar volume is controlled 40 by brokers.  Two main reasons for the broker's important role in  the marketing of group l i f e are that brokerage firms control the property insurance accounts of many of the large corporations and this gives them a natural advantage; brokerage firms have specialized organizations for selling and developing their programs. Although the broker is very powerful, there is s t i l l room in the future for the well-informed group.life agent.  Reduction in the  minimum size requirement of group plans possibly w i l l give the l i f e agent an opportunity. In terms of compensation, agents and brokers are compensated by means of commissions for both group and family l i f e insurance sales.  However, group commissions generally grade downward as the  Personal estimate by Mr. D. Penn, National Life of Canada, Branch Manager, Vancouver, 1970.  size of the annual premium increases.  Furthermore, in the group field  some specialized brokers and consultants  charge their clients on a  fee basis and either do not accept commissions or request nominal commissions. Group l i f e insurance marketing is extremely competitive in the area of cost.  For example the group buyer in contrast to the  family l i f e buyer, usually receives proposals from a number of insurance companies before buying and places heavy emphasis on comparative costs in selecting an insurance company.  The established  buying pattern of competitive bidding in the group field greatly intensifies competition.  Group insurance pricing is usually based  on the concept of the one-year term insurance, so rates are usually guaranteed for only one year.  Premium rates come from age,  sex,  occupation income levels, geographical location and experience rating. Other Business Enterprise Life Insurance Uses Business enterprizes usually f a l l into one of three categories - corporations owned by the stockholders, partnerships owned by operating partners, and sole proprietorships owned substantially by an individual operator.  In such organizations protection against  the death of an individual may be needed by the employer, i f he is an employee, by his co-owners and by his employees i f he is a stockholder or partner, as well as outside parties dependent upon his business capability.  Partnerships It is important to understand that each partner is responsible for the business acts and debts of a l l others.  fully If one  partner withdraws from the firm, the partnership is terminated. However, the insurable problems of a partnership are the same as those of the individuals who make i t up, d i s a b i l i t y , death and old age. The simplest illustration is that of a business partnership owned jointly and equally by two individuals.  If one partner should .  die, the heirs, who are usually his wife and/or children, w i l l become entitled to an estate which includes one-half or some smaller or larger portion of the partnership.. If the partnership were no more than a nominal one, with each individual operating separately from his own home, with no employees and with income arising only as work is done for clients or customers, the only problem might be one of small goodwill which the surviving partner might acquire.  But  usually a partnership involves office accommodation, equipment and furniture, and employees who help to create income.• The appropriate share of a l l this is due to the estate of the deceased partner and must be paid, either by liquidating the business or by the surviving partner paying to the estate of the deceased partner, a sum which f a i r l y represents the share of the deceased.  Life insurance may assist in satisfying some of these problems. Each partner therefore requires to purchase and own l i f e insurance on the l i f e of the other, the amount of insurance owned by each being sufficient to buy the partner's share of the business.  There should  also be a written buy-and-sell agreement providing for the survivor to buy the deceased's share when the f i r s t death occurs.  At least  once every three years the l i f e insurance must be increased i f the business grows and its value increases,  for the sum paid by the  survivor must be a proper purchase price represented by the value of the share which is being acquired on the death of the partner. If, instead of being a partnership the business is incorporated, exactly the same requirements exist with shareholders, in place of partners, and shareholding in place of a partner's share. Key-Man Insurance Key-man insurance is designed to protect the business against the financial loss that occurs when a key employee is lost by disability or death.  It is also designed to help attract and retain key-men.  Under key-man idemnification insurance the l i f e policy.is taken out by the company, owned by the company, and the premiums paid by the company.  The proceeds are made payable to the company.  Key-man insurance may be used other than for idemnification of the employer in the event of death.  It may be used to offer key  employees an incentive to remain with the company by the use of l i f e  insurance in salary continuation plans, split-rdollar plans, and deferred compensation plans. Group Annuities Although group pension plans w i l l not be discussed at length in this paper, the close connection with l i f e insurance makes i t necessary to briefly discuss the insured plans. . Group annuities are usually sold on a group basis as insured pension funds set up by employers.  However, one must note that a  pension is an annuity, but an annuity is not necessarily a pension. In an insured pension plan, the employer turns over his contributions (and those of his employees in contributory plans) to a l i f e insurance . company which invests the funds and pays the benefits.  The l i f e  insurance company, unlike a trusted or noninsured pension plan w i l l make certain guarantees with respect to the plan.  Of course, the  nature of the guarantee w i l l depend upon the type of insurance contract selected.  -  There are several ways in which Canadian l i f e insurance companies have extended their services to pendsion funds.  Some of these include  individual policy plans, group permanent l i f e insurance plans, group deferred annuity plans, and deposit administration plans. •Individual Policy Plans Under this plan the funding is through the use of individual l i f e insurance policies, special "pension series" retirement income,  41 for a small number of employees.  (Approximately 10 to 20 persons).  Group Permanent Life Insurance Here group permanent l i f e insurance is used to provide retirement income benefits for employees.  For example, a typical  retirement income policy could pay $10 monthly income at retirement for each $1,000 of policy face.  Premiums are paid to the l i f e  insurance company, which pays the benefits when employees reach 42 retirement age.  Group Deferred Annuities  This plan provides for the purchase of specified amounts of fully paid deferred annuity units each year for eligible employees These units are single-premium deferred annuities.  Some companies  w i l l write group annuities for as few as 10 employees but the usual minimum is 25 persons.  43  1  Deposit Administration Plans Here, units of an annuity are not purchased immediately with each contribution.  The insurance company accumulates the deposits,  41  ' J.J. Melone, Everett T. Allen, Pension Planning, 111.: Richard D. Irwin, Inc., 1966), p.88. . 42 • I b i d . , p.90. Ibid. , p.92.  (Homewood  87.  to be used to buy annuities for employees at the time of retirement.  44  Marketing The Plans While the two main funding agencies are the banks and the l i f e insurance companies, the actual sales are handled by agents, brokers, consultants, and actuaries.  Any one of these middlemen who approach  the prospective buyer may offer a complete standardized plan to meet the general objectives of the prospect.  However, the sales representa-  tive may offer the services of actuaries and consultants.to develop a plan to meet the special needs of the prospect. If the proposal, which is being conducted on behalf of a l i f e insurance company, is not accepted then the cost of its preparation are charged to the general operating expenses of the l i f e insurance company.  If the proposal is accepted then the l i f e insurance company  w i l l recover its costs out of the premiums received.  The agent or  broker who made the i n i t i a l contact w i l l be compensated in the form of a commission. Consulting firms with a special sales staff and not representing any particular l i f e insurance company, w i l l generally charge the employer a specific fee for developing the plan. Having briefly explained how the various products under the business l i f e insurance market are distributed, i t is necessary to •describe the market trends in the .following chapter. 44  MARKET AND PRODUCT TRENDS FOR THE BUSINESS LIFE INSURANCE MARKET .  Group Life Insurance As stated earlier, the growth of group l i f e insurance i n Canada in the past few decades has been spectacular.  In 1950, group l i f e  insurance in force accounted for only 16.A percent of the total amount of l i f e insurance in force.  (See Table I,page 27).  In the 20 year '  period this has grown to account for 47.10 percent in 1969.  It should  also be noted that preliminary figures already indicate that group l i f e in force accounts for over 50 percent of the total.  Examining the  figures more carefully, i t can be seen that in 1950 net new purchases of group l i f e accounted for only 13.5 percent of the total. this figure had swelled to 39.83 percent of the total.  In 1969,  A portion of  the increase i n group l i f e , as stated earlier, is reflected in the marked decline in ordinary l i f e insurance " i n force" and in net new purchases.  However, as indicated previously, the figures for group  l i f e may be partially fictious.  Group l i f e is usually written for  larger amounts than ordinary l i f e . small bias to the figures.  This may have a tendency to add a  However, regardless of this fact the trend  has been to group l i f e insurance and is expected to continue in the near future. trends.  ;  The graphs on pages 42  and 43 further i l l u s t r a t e these  Examining annual net new premium income from Table III, on page 47, which is considered the best indication of actual market trends, i t is interesting to observe the strong position which ordinary l i f e insurance s t i l l maintains.  In 1950, i t accounted for approximately 80 percent  of total net new premium income. 81.85 percent.  In 1969, i t s t i l l accounted for  In that same period, net new premium income for.  industrial l i f e dropped from 13.46 percent to .01 percent.  Group Life  in 1950 accounted for only 6.19 percent of the annual total net new premium income, but by 1969 had grown to 18.12 percent.  Thus, i t  would seem that much of the growth in group l i f e which earlier was thought to have been at the expense of ordinary l i f e insurance, obviously was at the expense of industrial l i f e .  As industrial l i f e  has declined in importance for the lower income masses, group l i f e insurance has taken its place.  Perhaps a portion of the increase in  group l i f e has been the huge growth in the number of federally regis45 tered l i f e companies from 55 in 1950 to 151 in 1969. of this increase was from United States l i f e companies.  The majority Such companies  could have been expected to write increased amounts of group l i f e insurance on their numerous subsidiaries in Canada. The tremendous growth and popularity of group term l i f e insurance undoubtedly has been due to its ability to provide employers, unions, trustees, associations and certain creditors with needed low cost "death benefits" for the protection of their employees, members, or debtors.  This low cost appeal has resulted from the use of one year  ^ L o c . c i t . , Superintendent of Insurance, 1950-1964.  renewable term insurance, which by its very nature does not require the element of cash or paid-up values found in level premium l i f e insurance.  The growth in 'group l i f e has also been the result of  pressure on corporations' by unions and government to supply fringe benefits.  Group term l i f e insurance also offers a number of tax  advantages to both the employer and employee which have assisted in marketing the product more easily.  The employer's expenditures for  group term l i f e insurance normally are deductible as a business expense for federal tax purposes.  Under usual circumstances, the  employer's contributions toward the cost of group l i f e need not be reported as taxable income to the insured employee.  Sections 76A  and 79B of the Federal Income Tax'Act have tended to be somewhat lenient in their affect on group l i f e insurance.  Such leniency has  obviously assisted in the marketing of group l i f e insurance.  The  author believes that perhaps the Canadian government fears that without a lessening of tax laws on group l i f e , too large a proportion of the population would become a ward of the state. Further Product Trends The very success of one year term group l i f e insurance should in the future encourage attempts to use the mass merchandising techniques of group l i f e insurance for permanent plans of insurance. The increasing standards of l i v i n g among many classes of working.men has made new prospects for ordinary insurance and, as a group of  employees, can be canvassed readily by agerits of a l l l i f e insurance companies.  Further, there is the contribution by. the employer for  group one-year term insurance which can be applied towards the premium for the permanent insurance plan,  i t is a way of building  up a cash value which is.lacking in group term insurance. Originally group l i f e insurance was conceived as a form of term insurance which expired when the employee retired or otherwise left his employer's service.  Although the employee had certain  contractual rights to convert the term insurance without medical examination, the premium for an. individual policy at an advanced attained age is naturally high.  By the age of retirement i t is  generally regarded as prohibitive and consequently only a relatively small number continue their protection in this way. A plan to provide some measure of group insurance after retirement without burdening the plan for active employees has been developed. Under the plan a definite amount of paid-up l i f e insurance is purchased annually in respect, of each employee covered.  The difference, between  the amount of insurance each employee should receive according to the group insurance schedule and the amount of*paid-up l i f e insurance, is purchased on the one year term basis as under the usual group plan. Note that year by year the amount required to be purchased on the one-year term plan diminishes. tend to stabilize costs.  Such a plan, although more costly, does  When the employee then leaves the employer,  by withdrawal or retirement, he becomes entitled to the amount of  paid-up l i f e insurance purchased on his behalf and may convert the balance; or, the paid-up policy may be surrendered for cash. Medical  Expense  Insurance  Over the past few years Canadian l i f e insurance companies have played a prominent role in furnishing accident and sickness of a l l kinds through their writing of group contracts.  coverage  Some l i f e  companies have also been prominent in the individual accident and sickness  field.  There is a continuing upward trend in both claim and administrative costs in group health insurance.  Health claim costs are estimated to be  increasing due to improvement in medical services and an increase in the u t i l i z a t i o n of health care f a c i l i t i e s , as well as the general rise in wage levels.  This latter factor'adversely affects insurance company  administrative costs as well.  Because of the intense price competition  in the group market, insurance companies explore every possible method of meeting rising costs other than by increasing rates.  The influence  of increasing costs is manifested in one noticeable trend. To offset increasing costs, there has been a tendency for insurance companies to combine diverse group coverages such as l i f e , disability income, medical expense coverage and dental plans under one group master contract, rather than to issue a separate group contract for each coverage.  This not only reduces the cost of issuing  and administering the coverages, but reduces commissions as well.  It  also provides for more stabilized claim costs and reduces risk charges.  In the field of group hospital, surgical, and medical expense insurance there has been a growing trend for continuance after retirement, although not to the extent as in the group l i f e coverage.  Also,  when coverage has been continued, i t has often been for less than the f u l l scale of benefits.  Nevertheless, the present trend toward  continuance of at least a portion of the coverage is considered significant. It should be indicated that the immediate financial effect of extending group coverage to retirement years can almost be negligible i f the extension is not made applicable to employees that have previously retired, or i f the company is too young to have a mature 46 work force.  However, as the number of pensioners continues to  increase then the term premiums w i l l reflect the steeply increasing cost of providing death benefits or health care benefits at the older ages. "This is partly the reason why many of the extensions for group 47 l i f e and group medical plans are for a reduced scale of benefits. In order to meet this desire for.advance funding of insurance after retirement several approaches have been tested: (1)  group permanent insurance is issued on a level premium.  (2)  group term and "employee paid-up insurance, which involves the purchase of a single premium whole l i f e insurance with each monthly contribution of the employee, and the  46 Klem, l o c . c i t . , p.279. 4 7  Ibid.,  p.280.  purchase of decreasing term insurance with the employer's contributions to round out the schedule of total death benefits payable during the working years. (3)  In regards to both death benefits and health care benefits the plan involves the accumulation of periodic advance payments in a fund that is drawn upon to meet the term premiums as they become due ih respect of retired employees. Further Business Uses of Life Insurance  Although figures on key man insurance and l i f e insurance for partnerships and proprietorships are not available, i t does seem evident that "as group l i f e coverages, group health coverages and group annuities continue to increase at a rapid rate so to w i l l these other forms of the business l i f e insurance.market.  Small businesses are a potential  opportunity for the alert, knowledgeable l i f e insurance agent. An increasing number of small business concerns are u t i l i z i n g management techniques involving computers, market planning and long range forecasts.  Small business are able to compete for and  retain good employees through the use of attractive health, death benefits, and retirement plans.' Top business schools such as Harvard and Stanford have increasing demands for graduates from small businesses Improved business knowledge may account for the declining rate of failures in small businesses. Many of these factors create opportunities for the l i f e insurance agent who wishes to expand to the role of a financial counsellor.  Of  the millions of businesses in Canada, perhaps 85 to 95 percent could 48 be defined as "small".  Of course, the size of a small business w i l l  48 Personal estimate by Mr. D. Penn, National Life of Canada, Branch Manager, Vancouver, 1970; personal interview.  vary from industry to industry, according to varying guides. In terms of the.buy and s e l l agreements discussed in Chapter VI i t may be appropriate to indicate one problem area frequently encountered where one partner or stockholder has suffered a breakdown in health and has become uninsurable.  While even today i t would not be possible to  provide buy-and-sell l i f e insurance for every partnership, there has been an innovation designed to avoid the situation where the partners were in good health i n i t i a l l y but the health of one subsequently deteriorates  as the business grows and more l i f e insurance is needed.  Thus, there is now available a supplementary benefit which guarantees the provision of future insurance at standard rates i f the partners were healthy when the f i r s t policies were effected;  this is a benefit  specifically designed to implement buy-and-sell agreements, and the guarantee applies to the amount of insurance needed in respect to growth of the business, up to a maximum of a quarter million dollars on the l i f e of each partner or stockholder. Group Annuities  By examining Table VII, on page 98, i t is interesting to note the huge growth over the last 20 years of group annuities.  The  number of individual plans owned by Canadians has grown approximately 1.5 times while the total annual payment has grown 2.7 times.  The  number of group annuities, usually sold as insured pension plans, has  •increased 4.A times while the total annual payment has increased by approximately 6.5 times. Some of the reasons for the growth of the insured pension plans has been due to union demands.  Since the end of W.W. II employers  have had a legal obligation to bargain over the terms of pension plans. Hence, the employer cannot i n s t a l l or terminate or alter the terms of a pension plan covering organized workers without the consent of the authorized bargaining agent for the employees. Another factor which may have assisted in the growth of the pension plans has been tax considerations. to both the employer and employees.  The tax advantages accrue  A further reason for the growth  could be that pension plans have become almost a business necessity. As the number of plans increase, employees'have come to expect pension benefits as a part of the employment bond.  Employers lacking  such a plan have been at a competitive disadvantage in attracting and holding personnel. Perhaps some of the growth has been a reflection on the honest, sincere desire to reward employees who have served the firm well over a long period.  Finally, the sales efforts of the insurance companies  through agents, brokers, and salaried representatives may also have assisted in creating a demand for insured pension plans.  Segregated Funds In 1961, the federal insurance laws were modified to allow l i f e insurance companies in Canada to issue contracts where the policy reserves could be invested in equities.  This was done to  permit companies to circumvent the 15 percent limits on equity investment at this date.  Hence a separate fund, a segregated fund,  was now required to separate i t from the regular l i f e insurance and annuity business.  It should be explained that the policy-reserves  covered by the segregated fund are expressed in units.  Each unit's  value depends upon the market value of the assets, in the fund. In essence, there are two methods of pension payment under segregated funds.  In the f i r s t method, the policy-reserve of the  pension from the segregated fund continues to form part of the segregated fund and the amount of the pension varies from year to year with the value of the assets. annuities.  These are known as variable  Under the second method, on the retirement of an  individual the dollar value of his assets in the segregated fund, are used to purchase an immediate annuity for a fixed dollar amount. As may be seen from Table VIII, on page 99, the annuity premiums for variable annuities have increased since 1961 by approximately 12 times while the growth of guaranteed annuities has been much slower.  The fear of inflation and the belief that equities w i l l  increase in value corresponding to increased inflation have been the reason for this recent product trend.  The trend has been  applicable to both individuals and group plans.  ($millions) Year • . Individual Annuities Annual Numb er Payment($)  Group Annuities A l l Annuities Annual Annual Number Payment ($) Numb er Payment (,$)  1950  41  159  152  279  203  51  285  317  426  382  ".- •  96  1955  113  1960  120  60  498  658  649  676  1965  125  -78  632  942  790  1039  1969  147  109  692  998  874  1131  *Source:  •  Canadian Life Insurance Facts, 1955-19 70.  AN ANALYSIS OF GUARANTEED AND VARIABLE ANNUITY PREMIUMS RECEIVED IN CANADA BY FEDERALLY REGISTERED LIFE INSURANCE COMPANIES, 1962 - 1968*  ($ millions) Year  Guaranteed  Variable  Total  1962  227  . 5  232  1963  244  15  259  1964  277  32  309  1965  256  35  291  1966  243  44  287  1967  258  49  307  1968  288  60  348  *Source:  Canadian Life Insurance Facts, 1955-19 70.  This chapter is devoted to the study of the demand for group l i f e insurance and the factors which have had a significant influence on its sales.  The format as to methodology, availability and treat-  ment of the data and the problem of unquantifiable variables pertains to this chapter in similar fashion as i t did to Chapter V, an analysis of ordinary l i f e insurance. Factors Influencing Group Life Sales Again the basic reasons for the choice of the basic variables were general a v a i l a b i l i t y , easy predictability and relevance.  In effect  one hypothesizes that the given independent variables are the important ones in determining demand for group l i f e insurance.  Thus, group l i f e  insurance was postulated to be influenced to a large extent by the economic success of the business community.  The variables that were  chosen for the simple regression were gross national product, total employment, and the number of federally registered l i f e insurance companies.  The time series for these independent variables was only  20 years due to the unavailabiltiy of essential data past 1950. Total Employment It was postulated that the larger the total c i v i l i a n employment the more group l i f e insurance that w i l l be sold.  It is also a measure  of the success of the business community.  Total labor force was omitted  as a variable as actual employment would seem to be a more reliable indicator of the number of employees available for group l i f e . Number of Federally Registered Life Insurance Companies On the supply side of the model, i t was postulated that as one increases the number of federally registered l i f e insurance companies, then the more group l i f e insurance that w i l l be sold, at least termporarily.  The sudden growth of l i f e insurance companies over the past • .  20 years was thought to have also indicated .that several of these firms were establishing group l i f e branches. Of course, i t is believed that perhaps a more reliable indicator of the group l i f e sales growth would have been the growth in the number of group l i f e branch offices in Canada.  Furthermore, the number of f u l l  time agents specifically selling group l i f e may also have been a s i g n i f i cant variable. available.  Unfortunately, a relevant 20 year, time series was not  It was also postulated, a p r i o r i , that union activity in the  number of negotiated contracts would also be a significant variable. Group l i f e insurance has become one of the many "fringe benefits" which unions now may legally (at least in the U.S.) bargain for.  Again a  relevant time series was not available. Having postulated such variables, i t was now necessary to do a preliminary screening by way of the correlation analysis.  Results of Preliminary Correlation Analysis The following were the preliminary results giving the coefficient of correlation and R-squared terms: -  1.  •  .  *  R_  Gross National Product  (0.9828)  (0.9 708)  2.  Number of Federally Registered Companies  (0.9685)  (0.9929)  3.  Total Employment  (0.9755)  (0.9566)  The results indicate that each of the above variables, taken separately,  tend to habitually move together with group l i f e insurance.  It is also suggested that the above correlations between variables are most spurious, that i s , the author believes that the correlations are more than coincidence. . Lagged Variables Total employment and the number of federally registered l i f e insurance companies were now separately run against group l i f e insurance, but lagged one year.  The results were as follows: 2  1. 2.  Number of Federally Registered Life Insurance Companies Total Employment  R  EL  (0.9683) (0.9733)  (0.9926) (0.9523)  A l l the coefficients of correlation proved to be lower when lagged by one year. of lagged variables.  Thus, the previous results were applied instead  Graphs In order to arrive at some preliminary ideas as to the shape of the curves, group l i f e insurance was plotted separately against the number of federally registered l i f e insurance companies, total employment, and gross national product. and (16) on pages 106-108 relationships to exist.  As illustrated by figures  (14),  (15),  the graphical representation showed linear Hence., simple linear forms were applied to the  appropriate variables for the ordinary least squares analysis. Results of Simple Regression In the case of the ordinary least squares analysis, the best f i t relationships were given in the simple form: y = a + bx. Equation 1 ' Group l i f e = f (Gross National Product) y 2 = - 5.518 where  +  4.304xA  y^ = group l i f e xA = G.N.P.  Independent Variables  Estimated Coefficient  Standard Error  TStatistic  C  - 5.618  0.823  - 6.704  xA  4.304  0.191  22.586  R-squared = 0.9659 ; Durbin-Watson Statistic = 1.9296; Number of Observations = 20.-  Equation 2  Group l i f e = f (Number of Federally Registered Life Insurance Companies) y 2 = -10.542  where  +  2.41 xG  y^ = group l i f e sales xG = number of federally registered l i f e companies  Independent Variable  Estimated Coefficient  Standard Error  C  - 10.592  0.141  - 7>476  xG  2.408  0.146  16.509  "  TStatistic  R-squared =0.9381; Durbin-Watson Statistic = 1.6179; Number of Observations Equation 3  =20.  Group l i f e = f (Total Employment) yQ = - 4.090  + 8.619 xK  where y^ = group l i f e insurance xK = total employment Independent Variable  Estimated Coefficient  Standard Error  TStatistic  C  - 4.090  -0.281  -14.515  xK  8.619  0.458  18.819  R-squared = 0.9516; Durbin-Watson Statistic = 1.4621; Number of Observations = 20. As indicated by the preceding data, the R-squared statistics for the three equations of 0.9659, 0.9381,.and 0.9516 were very high.  The  Durbin-Watson s t a t i s t i c s , with 19 degrees of freedom, were 1.9296, 1.6179,  and 1.4621 respectively.  If one examines Figure 11, on page 71 , i t  is observed that these statistics f a l l into the zone indicating no serial correlation.  The coefficient (a) for equation 1 was estimated  at -5.518 and (b) at 4.303.  The coefficient (a) for equation 2 was  estimated at -10.542 and (b) at 2.408.  Finally, for equation 3, the  coefficient (a) was -4.090 while (b) was 8.619.  The standard errors  of the coefficients for equation 1 were 0.823 and 0.919;.for equation 2, 0.141 and 0.146; for equation' 3, 0.281 and 0.458 respectively. The t-statistics for each of the three equations indicated that the coefficients were significant. It would seem that each of the three equations, taken separately, provides a meaningful model for a factor that has had a significant influence on the growth of group l i f e insurance sales over the past 20 years.  It should also be indicated that one might expect an  improvement in the equations by the formation of a multiple regression model including the variables gross national product, total employment, and the number of federally registered l i f e insurance.companies. However, the correlation between each of these variables is very high. Hence, such a model could possibly result in a high degree of multicollinearity.  --  - - - ~irl  -  -  - -  -  -  --  -  _  -  -  -  —  - -  E  - -  -c o  _  - -—  •©</>  4lrisuraric  cU  --  T  -  .Jl . tr • _l_  -  -  —  -  -  i  -  1  -  --  L  -  . 1  --  -  _1.  _L - -  - -- _ j _ -  --  -- -  : .._  I  i  -J_  —  !  -  --  —  -  --  -  -  -  -  -- - -  -  --  —  .-- - -- - -  --  -  -  -  - --  - •-  --  -- -  -  -  —  -  —  -  -  —  IL  j -  i  2  -  --  •  -  *  0  -i  -  -  Pi  --  --  -  --  --  ...  --  -—  -  -  ...  -  —  --  ...  -  -  4  -  -  — —  ... --  --  -  --  --  -  -  _j_  —  —  i  i  —  E  --  —  -  -  i !  -  -  -  --  -- - -  -  -•-  1 —  -  1  .  L  -  4 ona-  -  T  ij  1  -  _  -  -- - ...  -  -  --  --  --  »i  •-...  -- -  -  -  -  -  --  - - - -• ---  --  ...  -  1  -J__  -  --  --  -  i:  1; 1•  ~ 1r |r r i -OF  --  -  -  -  --  -  --  ...  _,_  - - i  -  (  1 - 1 !  "  i  -  -  1  i  -  ...  Tj  1 1  i  i". . .  T  - ... -- i  —  1i  I ii "TTT ! 11 1 i •1' i1  •  1  i  i i I ;| 1  ! I  !  ZUJ- -r r t -1  i  r  i .... _L{_ i  1 1 i  f  ' . X; L - 4 1 ! • ! "T - ~  R  -  |  i  —  ...LL.!._}_ '1 i ' lTl  _  •i i i I i i !  i  i 1 I i 1  R  i  i i  j !  -  i  j i_  " TT  '  411f f f  -  i i  . 1 i- i ! i i i  4  i  1—  1 1 1  1i  1  i i  i  —  C ...  - ...  -  ...  -  -  -  i !  i  -- _  T T  - ._  -  -  |  r  "TT"  4  _!_  r' r "  -  ! i  I  !  ....  1  i i i i M M  i ! ] i  ! 1 1  !_i ri T i 1  m T I il i  i i i i  ! I  ._!...  1  1i i' i !  , !  1  111 'I ii  r  -1  i "i  1  ! r ! I  1  i_  ...j... _ r  1  1  x\ .1.  '  i i 1  1  1 '!  IT •{ :  i  t1  ! :  , ! i ~ii r r  --  !  -- -  i i "J—I  Is  -  - -  -- -  EEJE.  i |T : | ! i l l !  . i  - --  1  -4- JI  T  -  -  i  ff  -iT8b* "> r X i - i - i . - ~r T i II r 1 ! 000 > nnn\ T [ : i 1 r - r r r i iri ; X r 1 LL i l 1 1 '•I  J .  -  ;  r  EHE  - -  1 1 |1 I ... ....  E  -  JJ_I..L.  -  r  !  !  ----- -  Ti-  [.J  :  1 1 ! L. 1.1  —  I  --1 ! _  -  -  i  1  - •- ,-  ...  -- - -  ..[.. J.i...  O A O ._ i - •a.<.rY_.ii p i i 1  --  ...  1  -f  1  1  --  - --  7F -  --  i  1  i ' E I  i  J.J_1_ ....  :  1  i'  -  1 1""l T 1i 1 ! i 1 1 !1  r n  ...  1  1  i  1  i  !j  i i i i i • I i  i1  :  -  i  -  'I I  ! I •  : T  —  1 1 ! 1- 4  1  ...  -  i  ...  4~  ---  _  _!_.!.,L  1  L  -- - ---  E  - -4 f hi  -  i  --  i -I_  i  -  - - --  ...  - —r - -  --  i  sj-  i  : _  - - ...  --  ; 40l ± h i ±  -  -:  -  -  -  1 -  -  *  1 "!~ i-j—  s  - T- - - -  i [  - ---  i  -  o  --  •-  l  _  -  -  —  1 1 -  _...  -—  -  !  74- II  i  r  - --j—  ! I  4~T ii.  -  - 1 ...  _  —  i1  - --  - - - --  1  - --- -- - - - 4  -  -  ....  1  -  -  -  i  —  -  —  . . . . . . . . ...  - ---  -  --  ...  —  ij  --  —  1  -  1 _L I i  1  -. . . ....  i  r  _L  —  -  —  I  i  i  1  -  -  1  -  -- -  - - --  E  -  ---- -----  -  -  T  -  -  -  i  --  --  -- -  ...  rn _L  1  -  -  I  -- -  -  —  --  -  -  -  •- - -...  -  --  -  -  -  - -- -- - -  i  ^  --- --  --  --  -  -- f H - •- - -- .J_i 1 - i uttuur - -- _ .PuhnT-ftfT.  ±  —  ...  i  ...  -  -  -  --  --  ...  —  -  -  -  --  -  u  -  -  ...  - - --  —  i ...  —  --  i  i  —  ...  —  —  --  -•  ... ... ...  i  L _  _  -  -  —  -  -- ---  -  i_  --  --  ...  i  -  - ll:  -  -  - -  _. ... ...  --  _».L  -  - - -..L - - - i: - - •- - -  —  - - ... _  —  I •  ti-  ---  1  -  ...  -- -  -  -  -  - --  _  --  -- -  i  :- E- - --  -  j! - -  i -  --  -- -  -  i  — | —  i - J_ -- -f  _  I  -  -  4  -  -  -1-1  --  —  -  -i  I  l  ; i  0_ 15- 4  - -  -  —  —  ' 1  i  T  -  -  -  -- - - --- - - -  -  I  -- -  -  -- - -  —  i  1  -  -  -  -  i  I  —  --  i i i 1i  i ;  ! 1  - -  iT  i  III i  —  - - - - -- --  -  _  -  i  --  _  —  *  -H-f  -- _  •-—  •-•  r  Km  _  -  - - -- -- ... --  ---  -  -  -  -  -  --  -  —  E--• ---  - -  -  —  E  -  —  -  -  —M  -  _ -  -  ---  --  \3 _< 4 t-i  -  --  --  •r-1 ' i1 (4-  —  -  —  -  -  ---  - -- -  —  --  -  -- -  - -  it-1 -!—  -  —  - --- - - -  -  _  --  --  —  - - --  -  --_ -  —  _  —  —  -  1 - ... 4- - -  IIEJE-JEEL  IlEE.  —— i I—— f "f  i1'  1 1 _x_"t-  _  i  1  i  i  ~  -  i!  1  i  I  1  1  ~  1 1  i r  i  ! 1  i i _  i  I  1  !  I  —TTV 1 i _]_ i _ r  !  -1-  _  —  I  40 1  i  i  ...  _  •I-  H  1 1  1  1  c u  -i-irt  ! ...  tan1  _  ZU  1 i  —1— .1.  1  \  ~r~ i  1 1  i  l j  {  i  i*  i  I  I i  *.*  1 i  c 0  *_  •i  n  .Numb 3.":1 of.  1 1  -  ...  1-  - -...  --  -  --  il  -  -  - -  -  l  -  1  1  i Ll  I  lv JR Federal i ! r i.  - - ... - -  !  -g istered r  e  >  .. - IFI r  i  !....!_"..!'  JNC ( TIC  _i_ i i  w  Jk !  is s  l e n t ;ANAIM .... r" .1  1  i  "Ei fe  T _ 01 -  I  . i.H -  —  i I  ...  —f—  • 1 i i i I  _ L  i 1i ! i 11 ! ' I.. i ! i i i- i i " 'T 1i! 1 1 ill! ITi 1 ! '1 1 ! 1 1 I 1i 1 i 1 1 r i i i i ; i i • i •1 1 • i i I i ' ! 1 1 i i i 1 1 i 1i r _ ! • ! I i  T  i i i i i L€ _ •S i Coir p'al 1 ! ! i  i 1! i i ii ; •  > l 1  ! !i !1 I 1 1 i  i L-j ! ! i 1i i 1 L_ _Li_ i1 I - •- - - L ... i i LJ_ ! i i rr i E .01L.E SDEE A LTLTY_ i j -- i_ ; F i~ i L9 69 n I 1 ! 1 1 i i i 1 ! I ' i i i 1 — 1 — i \ 1 1i i i 1 1 1 \ 1 !_ 1 i i i !_ i r i I_ 1 P T" P i J.. iI— L1 j i i r r i ! 1 , 1 i n t~" 1 r 1 PP 1i 1 i j . 1 ' I' i _ ) _ i T 1 r T. r  - -  - -  -  i  1i i i i ... . ! 1 ; |- P  i  tt  !  1 i. I  1  4  i .i  1 1. 1 i 1  |  1  i  i l | |  I  1  1  i . . L L _.|._ J _ 1 jj i ! ...|_. 'F|IjG LJII E -  "11 1.IiEE 1 JGR0UPAS. ! 1 1 JLSJ J PL t 11 _ 1  ]  (  '  i i i  !  - -  i  i  ~i  j  -  i  \  1  i  •1 1 !  _ 1  1  1 •  i .J_  1 i I  i r  i  r  1  _.|_ 1  1  !  !•  ]  --  i1 : Ti i 01  1  1 i i  i  i-i ...  "  —  1  i cu...  _1_  ~  1 -  o ;ci. —  -  ...1. _L i  i  1 1 i j 1 1 i1 i 1 ..  1  i  i i  1  i_  -  1  -  --  1  1  1  1  " P i 1  * i  J . ! . i-L. i _ _.L ±1 L. JJ. JJ. 4-LL T 1 ! ..L  j  M  M  |_..._.._. ri — ........ _ _i_u_ ... J...LL i i i ... r _Li_i_ ......j.. ( 1 ! ' 1P ; T T I "I" I j i ...LL i i _; ; i i Ti 1 1j ;M i l T - ! i i ~p 1 1 - i ... _  :  -!ziz  -  i'T  -  j  --  _._  —  ;' i  ---  -  :  -  I  6"  - ri !'f ...  ...  |  -  --  f  o-  I  1  -  i ;  1  -  _  1 1 ! 1 1 i 1 1 j  1  i  1 i  !  1 1 1  1 1 1 1 1 i 1 1 1 I1 1 I t 1  i  X  I  | i  I ! i i j  —i_  —  —• —  -  -- -  -• t  Cu 3  -  O .ca i i T20_  -  —  1  ...  -  -  -  -  0 i  ---  -- -  _  0"  -  --- -  —  —  -  —  —  1  —  ....  ...  —  —  --  -  -  •  z  6  -  —  i  pi  --  1  1  1 _ L - ...j...  - I  1  --  1  P  -  i  1  - ...  7-  |  +  i  i  - -  I  Emp loymenit •i  r  I  i i i l1 u XT C. AS r u ss MAT IAL y I  -- -  li6 i  i  ,AJ  --  -  i i i r r  - - - - - - -- - -  -r  ...  p-  •P 1  T  1  - --- -  1  —  1  ...  1  1 1  - - -h --  i.  11 i 1 !  —  —  ...  I  |  -U  1  1  i i 1 i ... ! Q i i 0 I 1 !.. p OOOiY  1 I --  1  -- -  1  1  1  ;  i i 1 ! ! i  1  1 1 1 1  *  I  1  i  1  :  i1  1  i 1  —i—  pt  P  1  ' .1 1 1  i  I I I .  i  r  1  ! • 1 i  -i  ...  1 1 t 1 1  i i1 1M  1  -  -  1  1  l  |  -TO QfiQ  r  .4.  !  I  - -  1  —  ...  -- _  I  ...  1  -  —  T—  -  1 1  1 !... 1 ...... 1  -  LGURE  -  ...  i  -  i  -  :  i  1.  i  _ 1.. - ... -- Tot --  -  I  i i  Hi i-  -  -  i  -  j  j  i i r j  -  1  1  1  — i —  ...  » 1 • 1  -  ...j...  I  i  —  *  —  - -- 1- - - - - - -- P~ - - 1 i 1 - -i ! i I 1  —  --- --- *  1  9 *  5  --  ...  —  j  C  1  -- -  1 1  I  ... 1.1.  -  ...  ...  ±-  r1 •- -  111  —  -  _L  1  -j_ :H: ~z - - - - -^ j j _ - It  --  i  -- - - -  _ J _  _j_  i  —  1  I  1  -  -!-  [1  _l_  i  T  I  ~t~ Ti  •  - --  i  —  -- -  e  • i'  1 - -i  1  e  --  -  ---  --  —  ...  -  1  i  ...  •-  —  --  t  —  --  ...  —  -  - -  I  -  —  —  i  --  —  -  -  ---  -  - J "  --- - - --• - -_ - - - - -i - -- - - -- -- - - - -- - - It - - -1 j --- •- - - -- •- - - - - 1-  - - ---- ... r30. - - ... - - - _  - h •1 ... -i ! | I i i 1 > i i 1 i - - 1 1 1 1 1 i ! i 1 1 i 1 i !j 1 ! i 10 i I ! 1 I i i i — 1 i 1 ii i i i i  1 i1  -• -  -  !  p  -- -  --  '  1  1  _  -... _  - - _L.  _  !  •• 1 i  --  i  ...  !  1  _|...  i  —  i —  —  -- - -  1  —  ...  —  - -- --  i  -- -- - - •- - - - - - - -- i 1 ... _ _ - - ---- _.!...  —  "I  -1- ...I...  ....  -  1  - --  —  i.  I1 1  -  -  _ ...  ...  —  -  i  - --  -  - i " i'  —  i  —  |  1  —  -  I  -  -  i . ....  ••  —  I  - - -...  i i  1 -- _  i i i  - -  -  1  -  --  -- - -- 1 i 1 i _ -- - -- ~ T -- - - - - - - ...L '_L - - -. J_  —  i  -  -  J_  --  —  -  ..L.  i ...L ""!" i i i Zi_ 'i  -- - -  -- -  —  > —  —  ^ t  --  -  i  T. ...  - -- -- P! 1---... -... _ L L - - -- - - - -- - -- - - - - ~ - 1- ! --- - - - - - ... --i - - J._ -- - -- - i -- - - -- - - - - - ... - - - ... - ... ... - - -- - - - - - -... - - -- - - - -- -  -  —  - -  - -_JL —  - : I ± L :...LH ±  -  1  1  INI  ... ... - --  -  -  -  -  -  -  --  CONCLUSIONS General Summary of Sales Growth of Life Insurance Policies  The results of this study indicate that ordinary l i f e insurance "in force" accounted for 73.82 percent of the total l i f e insurance in Canada in 1950. percent.  However, by 1969 this figure had decreased to 52.79  Group l i f e insurance 'in force' in 1950 accounted for 16.40  percent of the total l i f e insurance in force. had soared to 47.10 percent.  By 1969 this figure  Industrial l i f e insurance in force in  1950 accounted for 9.76 percent of total l i f e insurance in force. By 1969 this figure had decreased to 0.60 percent of the total l i f e insurance in force. In examining "net new purchases" of l i f e insurance i t was found that ordinary l i f e in 1950 accounted for 74.76 percent of total new l i f e insurance purchases, and by 1969 this figure had decreased to 60.16 percent.  Net new purchases of group l i f e insurance in 1950  accounted for only 13.50 percent of a l l new l i f e insurance purchases. This figure swelled to 39.83 percent in 1969.  Net new purchases of  industrial l i f e accounted for 8.94 percent of a l l new purchases in 1950.  By 1969 this figure had fallen to 0*045 percent. It is believed that s t r i c t adherence to the figures for " i n  force" and "net new purchases" has a tendency to bias the growth statistics for these three classes of l i f e insurance.  Thus, group  l i f e insurance statistics have been overestimated due to the fact that group l i f e policies are usually written for.larger amounts than ordinary l i f e policies. In Chapter IV, i t was explained that net new premium income was a more reliable unit of measurement in examining the sales growth in ordinary, industrial, and group l i f e insurance than the "in force" or "net new purchases" units. By examining net new premium income i t was found that in 1950, ordinary l i f e insurance accounted for 80.34 percent of the total premium income.  However, by 1969, ordinary l i f e insurance s t i l l  accounted for 81.85 percent of the total premium income.  Net new  premium income for group life-insurance accounted for 6.19 percent in 1950, but swelled to 18.12 percent in 1969.  Thus, some of the  decrease in sales of ordinary l i f e policies expressed by the "in force" and "net new purchases", obviously had not affected the premium income to this sector.  Of course, a portion of the increase in net  new premium income for group l i f e was a reflection of the significant decrease in net new premium income for industrial l i f e . ' Of course, i t must be noted that even the net new premium income growth statistics have differences;  for example, the premium income  statistics used in this study were only reasonable approximations. Also, as indicated earlier, group l i f e policies have lower premiums than ordinary l i f e policies.  Finally, i t was expected that the reason for  the small increase in net new premium income for ordinary l i f e , instead of the expected decrease, was a reflection of the change in the product  growth in the three basic ordinary l i f e policies: endowment, and term.  whole l i f e ,  Although net new premium income for these three  policies was not available, i t was expected that the growth in the purchases of term insurance offset the decline in whole l i f e and endowment purchases. Again a problem in information was encountered when the sales figures on whole l i f e , endowment, and term policies were only available from 1958 to 1969.  However, i t was found that in the 12 year period  sales of whole l i f e decreased from 47.99 to 39.79 percent of total net new purchases.  Sales of endowment policies f e l l off from 15.37 percent  in 1958 to 9.34 percent in 1969.  New sales of term and temporary  additions increased from 36.62 percent, in 1958, to 50.85 percent in 1969. It is expected that the growth in the purchases of term insurance is a reflection of the Canadian consumer's greater awareness of the need for insurance protection and the development of family income, mortgage redemption, and other special policies combining term with permanent forms of protection. . Furthermore, the rate of return on savings invested in whole l i f e and endowment policies is not as high as would otherwise be needed to attract funds.  Hence, insurance  purchasers who emphasize protection are acquiring term insurance.  The  consumers are prepared to assume a greater investment risk and are placing their savings in other forms of. investment where the rates of return are higher.  The decline in Industrial l i f e insurance has been a reflection of the improvement in the standard of l i v i n g of the industrial or "blue-collar workers" in recent years.  These workers can now afford  to purchase larger amounts in the form of ordinary l i f e insurance and obtain the benefit of a substantially lower premium rate.  Furthermore,  the cost of servicing and collecting the weekly premiums for industrial l i f e policies has become too prohibitive in recent years. It was also found that the large l i f e insurance companies engaged in the industrial l i f e insurance market converted a part of their industrial business and a l l new business to ordinary business in the late 1950,'s and the early 1960's.  Finally, group l i f e insurance  policies have undoubtedly f i l l e d a need for l i f e insurance policies among the industrial workers which would otherwise have resulted in greater industrial l i f e sales. The tremendous growth and popularity of group term l i f e  insurance  undoubtedly has been due to its ability to provide employers, unions, trustees, associations, and certain creditors with needed low cost "death benefits" for the protection of employees, members, or debtors. The growth in group l i f e has also been the result of pressure on corporations by unions and governments to supply fringe benefits.  Group  term l i f e insurance also offers a number of tax advantages to both the employer and employee which have assisted in its sales growth.  Finally,  a portion of the growth in group l i f e insurance sales has been due to the movement from industrial policies to group l i f e coverages.  Results and Implications of Correlation and Regression Analysis In Chapter V and Chapter VIII an attempt was made to examine several economic factors that have had a significant  influence on. the  aggregate sales of ordinary l i f e , ordinary annuities, and group l i f e over the past 20 years.  Equations 1 - 4 ,  inclusive, in Chapter V,  examined ordinary l i f e insurance as a function of personal disposable income, total employment, the number of marriages, and the number of f u l l time l i f e insurance agents.  High positive serial correlation  was evident in each of these models. To overcome this problem of serial correlation and to increase the overall f i t of the-model, i t was decided necessary to run multiple, regression models.  In Equation 5 we examined ordinary l i f e  insurance  as a function of marriages and the number of f u l l time l i f e insurance agents.  This equation resulted in a reasonably efficient model in  terms of its s t a t i s t i c a l properties;  the results indicated that these  two variables have had a very significant impact on the aggregate sales of ordinary l i f e insurance policies over the past 20 years. Equation 6, examined ordinary l i f e insurance as a function of personal disposable income and the number of f u l l time l i f e agents.  insurance  This equation displayed positive serial correlation of the  residuals and was considered less efficient  than Equation 5.  A model examining ordinary annuities as a function of long term interest rates also appeared in Chapter V.  It was postulated that high  long term interest rates would mean an increase in the sales of ordinary annuities.  From a s t a t i s t i c a l basis the model also has  positive serial correlation of the residuals. Chapter VIII provided an analysis of the economic factors  that  have affected group l i f e insurance sales over the past 20 years.  In  Equation 7, group l i f e insurance was examined as a function of gross national product.  Statistically the model proved reasonably  successful.  Equation 8, examined group l i f e insurance sales as a function of the number of federally registered life-insurance companies.  Statistically,  this model also proved significant. Equation 9 examined group l i f e insurance sales as a function of total employment.  Statistically the equation was meaningful.  However,  one would expect that total employment and gross national product would tend to have similar explanatory power as they are economically so interrelated.  Furthermore, given the close relationships found and  the absence of autocorrelation in the residuals of the models, i t was felt unnecessary to postulate multiple regression models. The results of Equation 5, ordinary l i f e as a function of marriages and agents, would seem to indicate the need for a detailed examination of future marriage trends in the areas of age, social class and geographical location, by the marketing departments of Canadian l i f e insurance companies in order to provide information on which to base marketing strategy.  It would also indicate that the husband and  wife tend to purchase ordinary l i f e insurance in their f i r s t year of marriage.  In any event i t is'not surprising that as the number of  marriages increase so too w i l l the sales of ordinary insurance.  The  number of f u l l time l i f e agents, the supply variable in the model, has been a significant determinant in the growth in aggregate sales of ordinary l i f e policies.  Perhaps the increase in the number of l i f e  insurance agents has been the result of an aggressive recruiting program by the marketing departments of the l i f e insurance companies. In any event, this model is important to marketing personnel as i t indicates the significance of the agent in the growth rate of ordinary l i f e insurance over the 1950 to 1969 period.  One could postulate  that not only w i l l the number of l i f e agents affect aggregate sales of ordinary l i f e policies in the future but also the agent's knowledge of products, consumer needs, and buying habits.  This would suggest  that i t w i l l be necessary for an agent to be trained as a specialist in his product field in order to accept the role as a financial counsellor to the consumer. Before concluding, i t is necessary to indicate that there is not a one-way causal relationship between the number of l i f e insurance agents and ordinary l i f e insurance sales.  That is to say, i t is  impossible to decide, a p r i o r i , whether the large growth in ordinary l i f e sales and a concommitant prosperous Canadian economy has caused the changes in agency representation, or whether the changes in agency representation have caused the growth of ordinary l i f e sales.  This,  of course, introduces some bias into our model but this is not a serious problem as we do not intend to use the model for prediction  purposes.  Finally, i t is necessary for the marketing departments to  consider the profitability of their agents; that is to say, the growth in agents has assisted in the growth rates of ordinary l i f e insurance according to the model, but i t does not explain i f the agents have adversely affected the costs of the marketing departments, and resulted in lower profits. Equation 6, which examined ordinary l i f e as a function of long term interest rates, indicated that interest rates have been a s i g n i f i cant factor, but not highly significant, annuities..  in the growth rate of ordinary  One would have been surprised to discover a very high  correlation between the level of interest rates and sales for two reasons; f i r s t l y , individuals are unlikely to be able to forecast future interest rate levels with any accuracy, secondly, consumers tend to purchase an ordinary annuity only when the need arises or as a result of the sales effort of the l i f e insurance agent. From Equation 7, group l i f e insurance as a function of gross national product, i t would seem that sales of group l i f e insurance are strongly affected by the Canadian economy.  A strong Canadian economy  means money is available to employers to i n s t a l l group l i f e plans. Furthermore, union pressure for improved fringe benefits the Canadian economy is prosperous.  increases.when  In any event, the v o l i t i l i t y of  group l i f e insurance to the gross national product should be significant for the marketing strategy of the l i f e insurance companies in the areas of promotion.  From Equation 8, group l i f e insurance as a function of the number of federally registered l i f e insurance companies, i t would appear that some of the increase in group l i f e insurance sales has been the result of the increase in the number of l i f e insurance companies.  Perhaps some of the new l i f e insurance companies have  been American owned companies that have been formed to provide group l i f e policies for the subsidiaries of their United States customers in Canada.  Unfortunately information on the number of group branch  offices in Canada was not available. It is necessary to indicate that we have not used these various models for prediction purposes, but simply attempted to estimate functions which have tended to explain the changes in ordinary l i f e , group l i f e , and ordinary annuity sales.  To use the models for  prediction purposes i t would be necessary to assume that the environment within which l i f e insurance companies operate is unlikely to change in the future.  At the present time the industry is undergoing  significant product changes, in both l i f e and equity products, which limit the acceptance of such an assumption.  Furthermore, to use the  models for prediction purposes would mean - the use of lagged variables, which was used as a preliminary screening, indicated lower coefficients of correlation. A further problem that affects a study of this nature is that of unquantifiable variables.  There have been considerable shifts in the  tastes of l i f e insurance in the last 20,years.  Ordinary l i f e insurance  sales have grown more slowly than group l i f e and i n d u s t r i a l  life  sales have f a l l e n o f f even more.  The reasons f o r these s h i f t s apparently has had l i t t l e to dp with the variables used i n this study.  Rather, the s h i f t s are probably  connected with the behavioral patterns of consumers.  I t i s almost  impossible to quantify such p s y c h o l o g i c a l s h i f t s i n any d i r e c t manner, although i n the end these s h i f t s may of  all.  turn.out to be the most important  As indicated e a r l i e r , s u b s t i t u t e products and l i f e insurance  prices were other variables omitted due to the d i f f i c u l t y i n measurement.  F i n a l l y , a complete  analysis of ordinary l i f e insurance and the  economic factors a f f e c t i n g i t s growth was not possible due to the absence of net new insurance.  premium income f o r whole l i f e , endowment, and  term  Such a u n i t of measurement could possibly have provided a  more meaningful a n a l y s i s .  Due to the absence of such data i t was  necessary to use the major macro-economic variables with the aggregate l i f e insurance sales s t a t i s t i c s ; that i s to say, macro-economic variables could not be applied i n an attempt  to explain the micro or  inter-product trends.  It would seem that t r a d i t i o n a l l y Canadian l i f e insurance companieshave been f i n a n c i a l s e r v i c e merchandisers  of a l i m i t e d product l i n e ,  mainly a combination of f i x e d income d o l l a r s savings and death b e n e f i t s . S i g n i f i c a n t changes have taken place i n recent years brought about by a new  and powerful force - today's consumer.  The consumer has n e i t h e r  the time nor desire to v i s i t a mutual fund o f f i c e f o r equity purchases,  an independent agent f o r p r o p e r t y and i n s u r a n c e agent f o r l i f e  liability  i n s u r a n c e , and  or health p r o t e c t i o n .  wants o n e - s t o p f i n a n c i a l s e r v i c e , j u s t  an  Today's consumer  as the same consumer wanted  a supermarket.  The  trend of i n f l a t i o n  l a t e 1950's and  early  equity - linked  investments,  life  1960's has such  as the v a r i a b l e a n n u i t y  dollar  The  and v a r i a b l e  r e l a t i v e decline of  g o i n g to l i f e  insurance  t r e n d s have been f a c i l i t a t e d  The h o l d i n g company concept  through  G e n e r a l , and  Lincoln National.  I n v e s t o r s S y n d i c a t e which c o n t r o l s 50.1 the l a r g e s t Canadian s t o c k l i f e West L i f e A s s u r a n c e Company, has  Canadian l i f e movements due e s t a t e and t i o n s on  the amount of funds  have i n  another.  Federated  companies, b u t  North  Fund.  companies can  i n these control  real  there are s t a t u t o r y l i m i t a -  t h a t an i n s u r a n c e  the p e r c e n t a g e  Life,  A n o t h e r l a r g e company,  t h a t Canadian l i f e  general insurance  common s t o c k and  of Great-West  i n s u r a n c e companies have been l i m i t e d  to the f a c t  Life,  In Canada, t h e r e i s  percent  company.  concept.  the f o u r l a r g e s t  s t o c k l i f e , companies i n the U n i t e d S t a t e s ; T r a v e l e r s , Aetna Connecticut  A l l of  the holding-company  has been adopted by  the  companies  l e d i n s u r e r s to market t h e s e e q u i t y - l i n k e d p r o d u c t s .  these  the  promoted the p u b l i c ' s i n t e r e s t i n  i n s u r a n c e , as an i n f l a t i o n hedge.  p r o p o r t i o n o f the s a v i n g s has  t h a t has become so p r e v a l e n t d u r i n g  company may  c o n t r o l t h a t one  have i n  i n s u r a n c e company  may  Combined with this trend toward equity linked products many l i f e company executives have intimated a move to acquisition of mutual fund companies.  However, at present, l i f e companies cannot now  directly engage in non-insurance activities and hence must await the passage of new legislation to allow them to move directly into the mutual fund area.  It should also be noted that, as stated earlier,  the right to s e l l variable contracts in Canada was added to the Federal Insurance Act in 1961.  In any event the movement into the  mutual fund business, i f taken, w i l l not be without its problems. The problem of dual-licensing of agents is such an example. Finally, i t would seem that some of the reaon for the relatively slow movement to satisfy consumer needs could have been the result of the apprehension by the l i f e insurance companies to market products with a low savings element.  Canadian l i f e insurance companies  traditionally have given more emphasis to products with a high premium and savings element in order to reinvest these funds into investments with high returns.  Consumers have tended to place their  savings in other investments where the rates of return are higher. Hence, l i f e companies have been forced to offer the public equity linked products.  Thus, i t would seem that in the short run the marketing  departments of l i f e companies have been stressing endowment and whole l i f e policies at a time when the consumer has only wanted protection with term insurance.  In the future, i t w i l l ' b e necessary for the  marketing personnel to promote the products demanded by the consumer. At the same time, i t is easy to visualize the problems created by  this d i v e r s i f i c a t i o n i n terms of agent t r a i n i n g , education, and remuneration.  F i n a l l y , there has been a rapid movement away from the ordinary l i f e p o l i c i e s , such as whole l i f e and endowment, towards group l i f e insurance.  Group l i f e p o l i c i e s now provide the needed protection to  the workers that was once given by i n d u s t r i a l l i f e p o l i c i e s .  The  movement to group p o l i c i e s has been astounding and has recently e n t a i l e d complete group packages of l i f e insurance, pensions, health insurance, and dental plans.  I t i s expected that this movement w i l l  continue as unions continue to include such group plans i n contract negotiations, governments allow tax concessions, and companies become greater aware of t h e i r s o c i a l  responsibility.  Christ, Carl F. • Econometric Models and Methods. New York: Inc., 1966. Huebner, S.S. Life Insurance. Inc., 1958. . Johnston, John. 1960.  New York:  Econometric Methods.  John Wiley  Appleton-Cehtury Crofts,  New York:  McGraw-Hill, Inc.,  Kane, Edward J. Econometric Statistics and Economics; An Introduction to Quantitative Economics. New York: Harper and Row, Publishers, Inc. , 1968. McGill, Dan. Fundamentals of Private Pensions. Pennsylvania: of Pennsylvania Press, Richard D. Irwin, 1964. McGill, Dan. Life Insurance Sales Management. D. Irwin, Inc., 1957.  Homewood, 111.:  Mehr, Robert and Cammack, Emerson. Principles of Insurance. 111.: Richard D. Irwin, Inc., 1969. Melone, J.J. and Allen, Everett,. T. Pension Planning. Richard D. Irwin, Inc., 1966.  University Richard  Homewood.,  Homewood, 111.:  Pedoe, Arthur. Life Insurance, Annuities, and Pensions. University of Toronto Press, 1970.  Toronto:  Publications of the Government, Learned Societies, and Other Organizations Canada, Department of Insurance, Report of the Superintendent of Insurance for Canada. Ottawa: Queen's Printer, 1951-1969, Vol. I. The Canadian Life Insurance Association. Canadian Life Insurance Facts. Toronto: Canadian Life Insurance Association, 1955-1970. International Surveys Limited, A Study of the Attitude of Canadian's to Life Insurance. A Report Prepared for Maclaren Advertising Co. Ltd. Toronto: International Surveys Limited, 1965. Life Insurance Agency Management Association. Life Insurance In Focus. Research Report No. 5. Hartford: Agency Management Association, 1960. Canadian Research Department. The Canadian Life Insurance Toronto: Nesbitt, Thompson and Company, 1969.  Industry.  Essays and Articles Belth, Joseph M. A Report on Life Insurance. Research Report No. 4. Indiana: Bureau of Business's Research, Graduate School of Business, Indiana University, 1967. Klemm, Walter. Marketing Trends in Life Insurance. University of Pennsylvania Press, 1959.  Philadelphia:  Periodicals Andrbs, Helen. "Women Insurance - Untapped Market", National Underwriter. June 21, 1969 , p.18. Popp, John, W. "Industrial Life Insurance", National Underwriter. 16, 1969, p.15.  August  Popp, John, W. "Leap Into Group Life Insurance", National Underwriter. August 30, 1969, p.4. Scott, Gordon. "Mass Merchandising and Equities", National Underwriter. September 16, 1969, p.5. Popp, John, W. "Holding Companies", National Underwriter. 1969, p.20.  December 13,  Foari, Roy, A. "Major Trends in Life Insurance for Decade of the 70's", National Underwriter, January 24, 1970, p.16. Beck, Robert, A. "A Perspective on Variable L i f e " , National Underwriter. April 17, 1971, p.20. Personal Interviews Argue, Gordon. Group Life Insurance Agent, London Life Insurance Company, Vancouver, B . C . , October 1970. Crawford, William. Ordinary Life Insurance Agent, The Mutual Life Assurance Company of Canada, Vancouver, B . C . , October 1970; January, March 19 71. Laing, Crawford. President, Crawford Laing L t d . , Consulting actuaries,, West Vancouver, B . C . , February 1971. Penn, Richard. Branch Manager, The National Life Assurance Company of Canada, Vancouver, B . C . , December 1970.  Skelton, James A. Ordinary Life Insurance Agent, London Life Insurance Company, Vancouver, B . C . , November 1970; February, March 1971. Sweet, David G. Partner, Estate Planning, Riddel, Stead and Company, Vancouver, B . C . , January 1971.  

Cite

Citation Scheme:

        

Citations by CSL (citeproc-js)

Usage Statistics

Share

Embed

Customize your widget with the following options, then copy and paste the code below into the HTML of your page to embed this item in your website.
                        
                            <div id="ubcOpenCollectionsWidgetDisplay">
                            <script id="ubcOpenCollectionsWidget"
                            src="{[{embed.src}]}"
                            data-item="{[{embed.item}]}"
                            data-collection="{[{embed.collection}]}"
                            data-metadata="{[{embed.showMetadata}]}"
                            data-width="{[{embed.width}]}"
                            async >
                            </script>
                            </div>
                        
                    
IIIF logo Our image viewer uses the IIIF 2.0 standard. To load this item in other compatible viewers, use this url:
http://iiif.library.ubc.ca/presentation/dsp.831.1-0101873/manifest

Comment

Related Items