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UBC Theses and Dissertations

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

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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 t h i s t h e s i s i n p a r t i a l f u l f i l m e n t o f t h e r e q u i r e m e n t s f o r an advanced d e g r e e a t the U n i v e r s i t y o f B r i t i s h C o l u m b i a , I a g r e e t h a t t h e L i b r a r y s h a l l make i t f r e e l y a v a i l a b l e f o r . r e f e r e n c e and St u d y . I f u r t h e r a g r e e t h a t p e r m i s s i o n . f o r e x t e n s i v e c o p y i n g o f t h i s t h e s i s f o r s c h o l a r l y p u r p o s e s may be g r a n t e d by the Head o f my Department o r by h i s r e p r e s e n t a t i v e s . I t i s u n d e r s t o o d t h a t c o p y i n g o r pub 1 i c a t i o n o f t h i s t h e s i s f o r f i n a n c i a l g a i n s h a l l n o t be a l l o w e d w i t h o u t my w r i t t e n p e r m i s s i o n . Department o f COMMERCE AND BUSINESS ADMINISTRATION The U n i v e r s i t y o f B r i t i s h C o l u m b i a V a n c o u v e r 8, Canada Date Utfifarwiher 2.Q /97/. The Canadian l i fe 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 fe 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 fe insurance companies. Many factors have been isolated as having a significant impact on the sales of the various forms of l i fe 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 fe 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 fe 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 fe increased from 80.34 percent in 1950 to 81.85 percent in 1969. It was also found that marriages and the number of fu l l time l i fe insurance agents have had a significant impact on ordinary l i fe sales over the past 20 years. Industrial l i fe sales in force declined from 9.76 percent in 1950 to 0.60 percent in 1969. Net new purchases of industrial l i fe 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 fe policies, and the increased affluence of the blue collar worker who can now afford ordinary l i fe policies. Group l i fe insurance sales have grown at an astonishing rate. In 1950 group l i fe insurance in force accounted for 16.40 percent of the total l i fe 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 fe 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 fe insurance companies have each had . a significant impact on the aggregates sales of group l i fe over the past 20 years. Chapter Page I INTRODUCTION. 1 Purpose of the Study . ... 1 Importance of the Study ' 1 Limitations of the Study 2 Data Collection 3 Chapter Organization.... 3 II INTRODUCTION TO THE LIFE INSURANCE INDUSTRY 5 Types of Life Insurance Companies.......... 5 Importance of Marketing..... 7 The Distribution System " 10 Types of Agents... ' 11 1. Ordinary Agent.... • 11 2. Combination Agent 11 3. The Broker 12 PART I THE FAMILY LIFE INSURANCE MARKET III INTRODUCTION AND DEFINITIONS • . 14 Ordinary Life : 16 1. Whole Life Insurance 16 2. Endowment Life Insurance 16 3. Term Li f e Insurance 16 Ordinary Annuities 18 Juvenile Insurance / 19 Women's Insurance.... 20 Special Contracts.. 20 Industrial Life 21 Distribution 22 C h a p t e r Page IV MARKET AND PRODUCT TRENDS FOR FAMILY L I F E INSURANCE MARKET . 28 O r d i n a r y and I n d u s t r i a l L i f e 28 Net New Premium Income 35 O r d i n a r y A n n u i t i e s . ... 37 OTHER PRODUCT TRENDS IN 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 . 39 V ANALYSIS OF ORDINARY L I F E INSURANCE. . 52 I n t r o d u c t i o n : • .. 52 M e t h o d o l o g y 52 Tr e a t m e n t o f D a t a .... 53 A v a i l a b i l i t y o f D a t a 53 U n q u a n t i f i a b l e V a r i a b l e s 54 F a c t o r s I n f l u e n c i n g O r d i n a r y L i f e I n s u r a n c e 54 1. P e r s o n a l D i s p o s a b l e Income . . 55 2. T o t a l Employment 55 3. Number o f M a r r i a g e s .. 55 4. Number o f F u l l Time A g e n t s . . . . . . 55 • R e s u l t s o f P r e l i m i n a r y O u t p u t . . . . 56 Lagged V a r i a b l e s 56 O r d i n a r y L i f e I n s u r a n c e 57 R e s u l t s o f t h e S i m p l e R e g r e s s i o n 57 C o n c l u s i o n s v..' '.. •• 61 M u l t i p l e R e g r e s s i o n . .. . 61 O r d i n a r y A n n u i t i e s - A S i m p l e R e g r e s s i o n 64 Chapter Page . PART I I THE BUSINESS LIFE INSURANCE MARKET VI INTRODUCTION AND DEFINITIONS ' . 75 Group L i f e Insurance...... . 76 Group L i f e Marketing 79 Other Business Enterprise L i f e . Insurance Uses.. . 82 Partnerships ............................ 83 . Key-Man Insurance. . . . . . 84 Group. Annuities . ... 85 Group Permanent L i f e Insurance . .... 86 Group Deferred Annuities... ........ 86 Deposit Administration Plans . . 86 Marketing the Plans '. 87 VII MARKET AND PRODUCT TRENDS FOR-THE BUSINESS LIFE INSURANCE MARKET ........ 89 Group L i f e Insurance 89 Medical Expense Insurance 92 Further Business Uses of L i f e Insurance ... 94 Group Annuities .'. ............ 95 VIII ANALYSIS OF GROUP LIFE INSURANCE..' . 100 Factors Influencing Group L i f e Sales 100 Results of Simple Regression ,.. • 103 IX CONCLUSIONS , .• . . . ..' . .. . 109 General Summary of Sales Growth of L i f e Insurance P o l i c i e s • 109 Results and Implications of C o r r e l a t i o n and Regression Analysis 113 BIBLIOGRAPHY... ... ' 123 LIST OF TABLES TABLE ' PAGE I. An Analysis of Life Insurance In force and Net New Purchases, in Canada, 1950-1969.' 27 I I . An Analysis of Ordinary Life Insurance In Force and Net New Purchases, in Canada, 1958-1969 44 I I I . Net New Premium Income Received by Federally Registered. Life Insurance Companies on Life Insurance Policies in Canada, 1950-1969 47 IV. An Analysis of Amounts of Annuities Owned by Canadians By Type, 1950-1969 48 V. Net New Premium Income Received by Federally Registered Life Insurance Companies on Annuities Owned in Canada, 1950-1969 49 VI. Equation No. 5 Estimates; Actual versus Fitted Values.. 72 • V I I . Number and Amount of Annuities Owned by Canadians by Canadians, by Type, 1950-1969 98 VIII. An Analysis of Guaranteed and Variable Annuity Premiums Received in Canada by Federally Registered Life Insur-ance Companies, 1962-1968 99 FIGURE • PAGE 1. 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. 6. 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. 10. Ordinary Life Insurance as a Function of the Number of Full Time Life Agents in Canada, 1950-1969 70. 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 fe 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 fe 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 fe insurance. Ordinary l i fe insurance wi l l be broken down into whole l i f e , term, and endowment; participating and non-participating plans wi l l also be examined. In order to assist in determining those factors influencing the l i fe insurance market some correlation and regression analysis wi 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 fe insuarnce. It is there-fore hoped that this study wi 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 fe insurance. Limitations of the Study This study has been limited to the l i fe 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 wi 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 fe 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 statistical trends for ordinary l i fe (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 fe 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 fe 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 fe 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 fe insurance market. Chapter III examines the make-up of the family market and the size of the market. Ordinary l i fe insurance is defined as to whole l i f e , term and endowment. Ordinary annuities, juvenile insurance, women's insurance, and industrial l i fe 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 fe 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 fe insurance. A correlation and regression analysis are applied to the data to ascertain the degree of relationship with ordinary l i fe 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 fe 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 fe insurance through the use of a correlation and regression analysis. Chapter IX examines the recent general industry trends in the Canadian l i fe 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 fe analysis and the marketing implications. If one examines the Canadian l i fe insurance industry, i t is not difficult 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 bi l l ion dollars and insurance in force of 110 bi l l ion dollars.''" This was more than six times the amount owned in 1950. In the last 20 years, l i fe insurance ownership has grown more than twice as quickly as income after taxes. Examining the longer perspective, since the mid-1920's l i fe insurance ownership has increased 22 times; 2 in comparison, after tax income of Canadians only increased 12 times. It is estimated that at the end of 1969, there were more than eleven million l i fe 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 fe 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 its board of directors who are elected by the shareholders. However, a stock l i fe 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 ly , the shareholders and secondly, participating policyholders; the latter, the policy holder directors, must number at least one-third of the total number of directors. In a mutual l i fe insurance company there is no capital stock and hence no share-holders, 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 fe insurance company and there are restrictions on the number of paid officers on 4 the board of directors. It is much easier to get persons to buy shares in a stock l i fe insurance company than to guarantee the purchase of l i fe insurance in a mutual company. The reason is obvious. In a stock l i f e company, i f the company is successful, then the shareholder wi 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 fe shares. So far as the operations of the two types of commercial l i fe 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 wi 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 wi l l not change throughout the l i fe of the contract, although most stock l i fe companies also offer a line of "participating" policy forms. At the end of 1955, out of 32 Canadian l i fe 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 fe 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. (Section 90A of the Canadian and British Insurance Companies Act). 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 fe insurance industry and the two main types of firms, perhaps i t is necessary to indicate the importance of marketing to these firms. 5 Ib id . , 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 fe 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 fe Insurance is a vi ta l function because it deals with one of man's most innate desires - that for security.^ It might be argued that the marketing of l i fe insurance is different from other forms of marketing. However, in a sense the writer believes that there are more similarities, than there are differences. If one applies the common definition of marketing, the creation of time, place, and ownership u t i l i ty , then perhaps i t is quite obvious that l i f e insurance satisfies the concept of time ut i l i ty . 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 ut i l i t ies perhaps one touches on the 8 real problem in marketing l i fe insurance. For example, a buyer may Dan McGill, Life Insurance Sales Management, (Homewood, 111.: Richard D. Irwin Inc., 1957), p.3. 8 • Ibid., p.5. recognize the need for food, clothing, and some form of sleeping faci l i t ies ; the buyer reacts almost automatically on this need and attempts to satisfy i t . However, with l i fe insurance, even i f a person does recognize a need for l i f e insurance, he wi 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 fe insurance. Perhaps, i t is this intangible aspect of l i fe insurance which makes i t so difficult to market. Of course, the men involved in the management .of a company are more aware of the need for l i fe insurance. But what- about the ordinary man on the street? What are his needs and desires? Thus, i t is hopefully somewhat clearer as to the marketing problems which l i fe insurance companies must overcome. In the early days of marketing l i fe 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 fe insurance companies, one observes the beginnings of industrial l i fe 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 fe 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: the general agency system and the branch office system. The general agency system wi 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 fe 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. In essence, the branch manager has a financial stake in the branch. Sometimes i f the market potential is large enough, a company may divide the branch offices as to the types of l i fe 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 fe 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 fu l l time representative of the company. In most instances, i f the agents are selling ordinary whole l i fe insurance then.they are compensated by a commission. If they are specializing in group l i fe 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 fe 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 fe 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 fe , , accident and sickness. It must also be noted that the ordinary agent must build his own group of clients. The combina-tion agent inherits a business, an already going concern. This 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 is the geographical area of the community where the company's debit premium is concentrated. The word i s also used interchangeably to refer to the total of the weekly and monthly premiums of the business currently in force within the confines of the agents territory. That i s , since the agent receives weekly and monthly premiums from his policy holders, the agent has at a l l times a debit account (as opposed to a credit) with his company in the amount of the total premium due and not yet remitted. 3. The Broker The broker is not an agent of any one company, in the usual sense, but acts as an intermediary between the prospect and the company. Perhaps i t may even be stated that, i n theory, the broker acts on behalf of the insured. A broker w i l l frequently handle a multiple line of insurance, s e l l i n g f i r e , casualty, property and other lines of insurance along with l i f e , accident, and sickness. Li f e insurance companies vary widely, in Canada, in attitudes towards brokers. Almost a l l companies have brokers, today, i f only to the limited degree of accepting group l i f e insurance from them. Some companies actually s o l i c i t the brokerage business and in doing so appoint brokerage supervisors whose principal duties are to contact the brokers and encourage them to steer their brokerage business their way. The brokers do an extremely large percentage of the group l i f e insurance business in Canada. In regards to group l i fe insurance, many l i fe insurance companies operate out of the general branch office. However, i f the sales volume is sufficient 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 9 brokers. This suggests that brokers handle the larger cases. Having discussed the size of the Canadian l i fe insurance industry, types of l i fe 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 fe 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 fe 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 fe 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 possibility", 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 estate.^ The insurable value of man's economic possibilities may be defined as "the monetary S.S. lluebner, Life Insurance, (New York: Appleton-Century-Crofts, Inc., 1958), p.13. 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 the only kind of estate upon which real dependence can be placed. The Canadian family of bare subsistence wil l find solace in industrial l i fe 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 fe 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 fe insurance, overwhelmingly, the main responsibility of Canadians lies in the direction of the family and its security. Security seems to include good health, an adequate home, education for the children, and an 12 adequate means of employment. 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 wi l l be examined as the basic products in the family l i fe 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 fe 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 wi l l be made to pay the added cost of handling more frequent premium payments and to offset investment 13 income from the unpaid fractional premiums. Ordinary l i f e policies may be divided into three basic l i fe insurance contracts; 1. Whole Life Insurance - Whole l i fe 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 life) . 2. Endowment Life Insurance - Endowment insurance is payable to the insured i f l iving 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. 1 A Ib id . , p.510. 1 5 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 fe 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 fe accounted for 60.16 percent of the new l i fe insurance purchased in Canada, in 1969. Thus, i t is easy to understand the immense importance ordinary l i f e insurance-has in the Canadian family l i f e insurance market. Examining ordinary l i f e , one finds that, in 1969, whole l i fe policies accounted for 52.79 percent, of the total amount of ordinary l i fe 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 fe 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 fe 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 fe 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 fe insurance agent. In one sense, the l i fe 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 18 income for ordinary annuities, in 1969, accounted for $81,730,347. 17 Mehr, Cammack, op.ci t . , p.538. See Table V, page 49 . 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, wi l l write substantial amounts on juvenile lives. 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 fe 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 f o r l i f e agents s e l l i n g to the family l i f e market. WOMEN'S INSURANCE Although a part of the family l i f e insurance market i t has u n t i l the past few years, been r e l a t i v e l y untapped. From the Survey  on the Canadian A t t i t u d e s , i t was i n d i c a t e d , i n general, that the respondents d i d not think that the majority of working-women possessed l i f e insurance. Approximately two out of three respondents f e l t that wives should also have l i f e insurance even i f the husband had l i f e insurance p o l i c i e s . French Quebec respondents were most favorable to t h i s while B r i t i s h Columbia was most negative. It should be noted that the b e t t e r educated and the b e t t e r paid groups were more r e s i s t e n t to wives c a r r y i n g a d d i t i o n a l insurance. In the main, the primary reason f o r wives' insurance r e l a t e d to a s s i s t i n g the husband i n covering expenses incurred by funerals and l o o k i n g a f t e r the c h i l d r e n . Among those who objected to insurance f o r wives, the main reason revolved around the husband's r e s p o n s i b i l i t y to look a f t e r h i s wife. The husband's insurance should be s u f f i c i e n t and i f something should happen to the wife, the husband should be able to handle the family a f f a i r s . SPECIAL CONTRACTS In recent years a number of s p e c i a l p o l i c i e s or p o l i c y combina-tions have been applied to cover a relevant portion of the family l i f e insurance market. Although these p o l i c i e s s h a l l not be discussed i n t h i s paper, some examples would be family income p o l i c i e s , f amily-maintenance p o l i c i e s , family l i f e p o l i c i e s , and various m u l t i p l e protection po l i c i e s . A l l these policies are combinations of the three basic types of l i f e insurance - whole l i f e , endowment and term. INDUSTRIAL LIFE Brief l y , this form of l i f e insurance i s issued in small amounts, usually not over $500, with premiums payable on a weekly basis or a monthly basis. The premiums are generally collected at the home by an agent of the l i f e company. Originally industrial l i f e was developed in order that the lowest paid wage-earner could make some provisions for meeting the expenses which inevitably follow a death in the family. In Canada, in 1969, the percent of the total amount of l i f e 19 insurance written accounted for by industrial l i f e was .60 percent. The percent of new l i f e insurance purchased accounted for by industrial l i f e was .045 percent. Thus, i t now accounts for a relatively insignificant amount of the total l i f e insurance in Canada, both in the family and business markets. The three firms, in Canada, that have been involved to a large extent in 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 in servicing outstanding policies. B r i e f l y , the policy holder receives a book, referred to as a premium receipt book, which may cover a l l of the policies 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 fe and lapse register" main-tained 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 fe insurance; f i r s t ly , i t is a complex financial instrument; secondly, the purposes served by l i fe 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 fe 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 fe 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) to make sound recommendations to the prospective buyer in the light of the buyer's financial circumstances and objectives. (4) to persuade the prospective buyer to purchase • the protection that is needed. (5) to stay in contact with the policy holder so that the l i fe insurance program wi 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 th, requires a high order of dedication and competence on the part of the l i fe insurance agent. The dedication is needed because many companies place overwhelming emphasis on the selling of l i fe insurance and provide l i t t l e attention to the important function of 21 follow up after the sale. 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. However, perhaps several reasons account for the unsatisfactory service to old policy holders. 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 activities. Furthermore, each agent who gives up selling insurance leaves a heritage of policyholder who, in industry terminology, are sometimes called "orphans". Also, there is a very 22 high rate of turnover among l i fe insurance agents. Another reason for unsatisfactory service could be the increasing mobility among the Canadian people. Even the conscientious agents are hard-pressed to stay in contact with scattered policyholders. Finally, policy holders often resist offers of service from agents. 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 realistic 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. For example, few agents are able to discuss, using up to date figures, the costs of burial, of probate fees, of college, and of rents. 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 fe 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 in both studies the public believes that l i f e insurance agents may persevere in closing attempts in situations where i t is obvious that no sale w i l l result. Of course, a l l agent training programs emphasize the problem of over-coming the customer's objections and pressing for the sale. Perhaps the results indicate some additional emphasis should be placed on training agents to recognize the hopeless situations and terminate the interviews before any i l l feeling 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 for the hiring and training staffs of the Canadian l i f e insurance companies. The family l i f e insurance customer is not hostile toward agents. In general, i t finds agents friendly, businesslike, and usually well-trained. It i s only a small segment that i s ready to denounce the 27 l i f e insurance agent as insincere, self-centered, or a nuisance. Having discussed the types of products in the family l i f e insurance market and the distribution 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, op.cit., p.303. An Analysis of Life Insurance in Force and Net New Purchases in Canada 1950-1969* Net New Amount Purchased ($000,000) Ordinary 1950 1,345 1955 2,451 1960 4,188 1965 5,930 1969 7,904 Percent of New Total Purchased Group Industrial Total 243 161 1,799 597 107 3,155 1,486 19 5,693 3,031 6 8,967 5,234 .6 . 13,138 1950 74.76 13.50 8.94 100.0% 1955 77.68 18.92 3.39 100.0 1960 73.56 26.10 0.33 100.0 1965 66.13 33.80 0.06 100.0 1969 60.16 39.83 0.045 100.0 Total in Force ($ Millions) 1950 11,625 2,583 1,538 15,746 1955 17,634 6,123 ' . 1,694 25,451 1960 29,293 14,403 953 44,649 1965 41,256 27,643 757 69,656 1969 53,991 48,173 621 102,267 Percent of Total  In Force 1950 73.82 16.40 9.76 100.0% 1955 69.28 24.05 6.65 100.0 1960 65.50 32.25 2.13 100.0 1965 59.22 39.68 1.08 100.0 1969 52.79 47.10 .60 100.0 *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 fe are included in the family l i fe insurance market and wi l l be carefully examined in this chapter. Group l i f e , although mentioned briefly, wi l l be discussed in ful 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 fe insurance in force in Canada. Over the past twenty years this figure has decreased until in 1969, ordinary l i fe insurance accounted for 52.79 percent of the total l i fe 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 fe insurance in force. In 1950, group l i f e in force accounted for 16.40 percent of total l i fe 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 fe insurance in force. The reasons for this growth w i l l be discussed later. Some insurance executives estimate that by the end of 1971 group l i f e insurance wi l l account for 60 percent, while ordinary l i fe sales w i l l account for 40 percent of the total l i fe insurance in force. Of course, i t must be indicated that 1970 year end figures wi 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 fe insurance as a percentage of total l i fe in force, then one finds that in 1950, industrial l i fe accounted for 9.76 percent. Between 1950 and 1969 this figure decreased to .60 percent. Thus, there has been an obvious trend away from industrial l i fe 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 fe 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 Life, one of the largest l i fe insurance companies in the industrial l i fe market, reported a l l its new business under individual l i fe policies as ordinary business and a substantial part of its industrial business (for $500 and over) was trans-ferred 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 fe 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 led a need for l i fe 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 29 just long-term saving. 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 30 government scheme means merely a redistribution of taxes gathered. 29 Arthur A. Pedoe, Life Insurance, Annuities, and Pensions (Toronto: University of Toronto Press, 1970), p.447. 30 > Ibid., p.435. Through level premium l i fe 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 31 services for the common good. It may be felt that the figures for ordinary, industrial, and group l i fe as a percentage of total l i fe 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 fe insurance purchased as a percentage of total new l i fe insurance purchased in that year. Thus, examining new industrial l i f e as a percentage of total l i fe purchased, on Table I, one can observe that the trend has been l i t t l e more severe than using the "in force" figures. In 1950, industrial l i fe 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 fe 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 fe insurance purchases are further.indicated in Figure on page A3. , Before continuing, however, i t is necessary to note that a portion of the enormous gains in group l i fe (13.50% to 39.83%) are deceiving. Group l i fe is usually written for much larger amounts than for the ordinary l i f e policy. This wi l l tend to swell the figures for group l i fe 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. Hence, only figures from 1958 to 1969 can be analyzed. Examining the more reliable percentage of new ordinary purchased, sales of whole l i fe have decreased substantially in the 12 year period from 47.99 percent to 39.79 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. The trends are visibly more obvious by examining Figures 3 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 fe 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 fe 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 yield, and expense experience. As a consequence, the l i fe companies claim that partici-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 in participating policies, as evidenced from Table II, results from the substantial increase in the sale of non-participating term insurance. This trend may also be influenced in the future by the imposition of income tax on $10 or more of interest 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 in the near future with the chance of better investments elsewhere and the problems of dividend interest. Net New Premium Income After careful examination of the available information on which to most accurately analyze market trends and the factors affecting such trends, net new premium income was selected as the appropriate unit of measurement. It was 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 insight into their growth rates. Unfortunately, such information is not published i n the Reports of the Superintendent  of Insurance of Canada, at least to the extent that was needed. Therefore, in many instances relevant approximations were necessary. To arrive at the net new annual premium income figure the following formula was applied: 32 Canadian Research Department, The Canadian Life Insurance  Industry, (Toronto: Nesbitt, Thomson and Company, 1969), p.8. Total Premiums (3) (1) Total Sums Assured where: 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. Figures 5 and 6 on pages 50 and 51 further indicate such trends. It is interesting to note that although i t was found earlier that ordinary l i f e , either as " in 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 fe insurance is usually available at lower premiums and for larger amounts than other types of policies. Thus, first year premiums on term l i fe 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 fe premium figures wi 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. This has similarly decreased until i t now accounts for 32.34 percent. 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 fe 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 fe insurance policyholders and who now, with higher income levels, are able to purchase ordinary l i fe 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 fe 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. c o l l e c t i o n arrangements have been developed over the past 20 y e a r s , such as the p r a c t i c e of sending a book of remittance coupons once a year 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 reducing unavoidable 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 to 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 order to a v a i l h i m s e l f of the 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 refund be made upon the insured's death i f an annual, semi-annual, or q u a r t e r l y premium has been p a i d , thus p l a c i n g a l l methods of payment on e s s e n t i a l l y the same b a s i s i n so f a r as morta-35 l i t y 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 remains and i t i s d o u b t f u l whether any monthly c o l l e c t i o n system can be devised that w i l l be as expensive as the annual c o l l e c t i o n method. However, more experimenting i s being undertaken to reduce the disadvantages of the pla n to meet modern budgeting p r a c t i c e s . Women's Insurance As e x p l a i n e d e a r l i e r , l i f e i nsurance f o r women i s not a new i d e a . However, as expressed i n the Survey of the A t t i t u d e s of Canadians to L i f e  Insurance, women's insurance has never accounted f o r a l a r g e p o r t i o n of the f a m i l y l i f e insurance market. Any campaign to - s e l l l i f e i nsurance to women, i n the p a s t , has concentrated on the s a l e o f " w i f e i n s u r a n c e " or 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 fe 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 fe 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 wi 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 living 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 wi 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 fe 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 $10,00 and over. It is expected that Canadian women have similar statistics. Furthermore of the top wealth holders in the United States, 38.6 percent are females. In addition, according to the New York Stock Exchange census of shareholders, women currently own 51 percent of a l l stock. AN ANALYSIS OF ORDINARY LIFE INSURANCE IN FORCE AND NET NEW PURCHASES, IN CANADA, 1958 - 1969* Net New Purchases 1 Whole Life Endowment Term Total ($millions) 1958 2,567 822 1,958 5,348 1960 2,776 792 . 2,352 5,920 1965 . 3,851 973 3,698 8,523 1969 4,665 1,096 5,963 11,725 Percent of Total Purchased • 1958 47.99 15.37 36.62 100.0% 1960 46.88 13.3.8 39.73 100.0 1965 45.18 11.42 43.39 100.0 1969 39.79 9.34 50.85 100.0 Percent Purchased • Participating Insurance 1958 82.37 93.27 51.70 72.82 • 1960 .81:96 94.68 42.98 68.06 1965 83.31 95.43 34.16 63.37 1969 88.35 91.19 32.57 60.25 In Force ($millions) 1958 18,723 7,211 7,881 33,023 1960 22 ,373 7,646 10,294 40,314 1965 31,644 8,865 17,182 57,692 1969 40,232 9,710 26,262 76,205 Percent of Total In Force, Participating 1958 56.69 21.83 23.86 100.0% 1960 55.49 18.96 25.53 100.0 1965 54.84 15.36 29.78 100.0 1969 52.79 12.74 34.46 100.0 *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 1950 1955 1960 1965 1969 Ordinary 34,416,695 56,147,380 83,588,076 109,229,280 134,537,000 Group 2,653,311 5,201,649 10,975,419 18,987,065 29,798,650 Industrial Total 5,766,032 3,966,064 769,195 42,836,038 65,315,094 45,332,690 235,762 128,452,107 23,596 164,358,646 Percent of New Total 1950 1955 1960 1965 1969 80.34 85.96 87.68 85.03 81.85 6.19 7.96 11.51 14.78 18.12 13.46 6.07 • .80 .18 .01 100.0% 100.0 100.0 100.0 100.0 TABLE IV AN ANALYSIS OF AMOUNTS OF ANNUITIES OWNED BY CANADIANS, BY TYPE, 1950 - 1969* (000's) Year 1950 1955 1960 1965 1969 Ordinary 40,892' 51,177 60,688 77,776 108,524 Group • 151,574 317,475 658,420 941,728 998,313 Settlement 10,566 13,672 17,046 20,392 24,211 Total 203,032 382,324. 736,134 1,039,896 1,131,048 Percent of Total 1950 1955 1960 1965 1969 20.14 13.38, 8.24 7.47 9.59 74.65 83.03 89.44 90.63 88.26 5.52 3.57 2.31 1.96 2.14 100.0% 100.0 100.0 100.0 100.0 *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 Total 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 42.13 57.86 100.0% 1955 ' 24.82 . 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 -BY —t-t--B-Y-FIGUR h3" XX -A - GROWTH-1 'COMPARISON nTfp-t? i T M C T T D A i a m r . ff OF-THE-T-TYPES-rJ-OE iLIi'E; INSURANCE .AND lANNU.ITIEST N E J r J ^ N I ^ -EE! LY • XltsWRlAM TERED -1950 -19 69 LIFE- X Gi'b i i pT* A n n u i j t i l . es -.Ordinary t r L i f e p^rdjinary I X -'-iAnnui-ties-— • I T ' -oup—Li-f e f i l h d u s t r i a l " - 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 fe insurance industry is no exception. The more accurate the demand predictions for a l i fe insurance company or the entire l i fe 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 wi l l lend some relevant information on the various factors that have influenced the sale of different forms of l i fe insurance in the past and perhaps in the future. This w i l l have important implications on the marketing of l i fe 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 fe as well as ordinary annuities. The reason for using net new premium income and i t s computation was explained in Chapter IV pages 35 to 36. Although the variables used for group l i f e are expressed in this chapter, the actual results w i l l be indicated in Chapter VII. After 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 particular form of l i f e insurance product. For example, gross national product, personal disposable income, total employment, marriages, long term interest rates and several others. Treatment of Data Many series were seasonally adjusted, such as total employment; however, for the other variables no adjustment was necessary because seasonality played such a minor role. Some data though seasonally adjusted was only available on a monthly basis. Hence, i t was necessary to make further adjustments by averaging or further de-seasonalizing. However, careful attention had to be observed so as not to bias data through oversophistication. Availa b i l i t y o f Data Most of the variables were available through the University of British Columbia, Dominion Bureau of Statistics Division. Information on the number of federally registered l i f e insurance companies was available through the Reports of the Superintendent of Insurance. The number of f u l l time l i f e insurance agents, in Canada, was obtained from the Canadian Life Insurance Association. Unquantifiable Variables It seems clear from the analysis of the raw data that there are considerable shifts in tastes in l i fe insurance. Ordinary l i f e insurance has grown more slowly than group l i f e insurance and indus-tr ia l l i fe 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: general availability, easy predictability, and relevance. Lacking very large financial resources to generate new data made the first requirement a practical necessity. The factors that were postulated to have an influence on the demand for ordinary l i fe 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 fe insurance that w i l l be purchased. Total personal savings was omitted because i t was felt that l i fe insurance is more than just a savings vehicle. 2. Total Employment. It was postulated that the larger the total civil ian employment, the more l i f e insurance that wi 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 fe 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 ful 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. Such a test answers a less demanding question than regression. 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, taken separately, tend to move together with ordinary l i f e . 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 priori reasoning which indicates a causal connection. Lagged Variables Total employment, number of marriages, and the number of fu l l time agents were then run separately against ordinary l i fe insurance, but lagged one year. The results were as follows: 2 R R (1) Total Employment: (0.9722) (0.9501) (2) Number of Marriages: (0.8148) (0.6688) (3) , Number of Full Time Agents: (0.9045) (0.8231) 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 wi 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 fe 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 fe = f (Personal Disposable Income) y1 = - 16.386 + 0.717 log XML where y^ = ordinary l i f e XML = personal disposable income Independent Variables Estimated Coefficient Standard Error T-Statistic C - 16.386 0.813 - 20.149 XML 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 statistic at 0.6158, with 19 degrees of freedom, is low. This can be observed by noting Figure 11, on page 43 The low statistic 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 (a) was estimated at -16.376 and (b) at 0.717. 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 wi l l tend to give an upward bias to the t-statistic. However, the very large volumes of the t-statistic indicate that the variables are significant. Equation 2 Ordinary l i f e = f (Total Employment) where y^ = ordinary l i f e XKL = total employment R-squared = 0.9633; Durbin-Watson Statistic = 0.3942; Number of Observations = 20; = -3.476 + 2.278 log XKL Independent Estimated Standard T-Variable Coefficient Error Statistic C - 3.476 0.164 - 21.225 XKL 2.278 0.104 21.728 As indicated above, although R-squared is high, the Durbin-Watson statistic at 0.3942, with 19 degrees of freedom, is low and also indicates positive autocorrelation. The reason for this is similar to equation 1. The coefficient (a) was estimated at - 3.476 and (b) at 2.278. 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-statistic, but they are s t i l l significant. Equation 3 Ordinary l i fe = f (Marriages) y± = - 2.783 + 2.421 log XDL where y^ = ordinary l i f e XDL = marriages Independent Estimated Standard T-Variable Coefficient Error Statistic C - 2.783 0.426 - 6.533 XDL 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. The coefficient (a) was estimated at - 2.783 and (b) at 2.421. 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-statistic, but have an upward bias. Equation 4 Ordinary l i fe = f (Number of Full Time Life Agents) y± = -1.696 + 1.866 log XFL where y^ = ordinary l i fe XFL = number of fu l l time l i f e agents Independent Estimated Standard T-Variable Coefficient Errors Statistic 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 auto-correlation. The coefficient (a) was estimated at -1.696 and (b) at 1.866. 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 level. 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 first attack on the problem is to examine the functional relation-ships between variables. This was done when we plotted the variables and decided to f i t logrithmic functions. The next approach is to try to find a missing variable. 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 first equation that was analyzed consisted of ordinary l i f e insurance as a function of personal disposable income and the number of fu l l time l i fe agents. Another equation tested was ordinary, l i fe insurance as a function of marriages and the number of ful l time agents. The regression models were established in the following form: y = a + b log. x]L + b 2 log x 2 where: x^ and x2 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 fu 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 fu l l time l i f e agents Independent Estimated Standard . T-Variables Coefficient Error Statistics C - 2.819 0.069 - 40.445 XL 1.401 0.071 19.711 XFL 1.304 0.051 • 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 statistic 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-statistic. 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 Full Time Life Agents) y » - 1.764 + 0.547 log XML + 0.561 log XFL where y = ordinary l i fe XML = personal disposable income XFL = number of ful l time l i fe agents Independent Variables Estimated Coefficient Standard Error T-Statistic C - 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 Stat i s t ics 0.7697; Number of Observations =20. This equation is less efficient than the previous equation. In particular, the Durbin-Watson statistic of 0.76, with 18 degrees of freedom, indicates positive serial correlation in the residuals. Faced with this dilemma we could add another variable. If this is done a further problem of multicollinearity is likely to arise and wi 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. The graphical plot seemed to indicate a linear relationship. 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: y 3 = - 2.095 + 1.279 (XE) where y^ = sales of ordinary annuities XE = long term interest rates. Independent Estimated Standard T-Variable Coefficient Error Statistic C - 2.095 0.831 - 2.521 XE 1.279 0.164 7.798 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 statistic 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-statistics. 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. ta r; _J.-.j_ 111. ! t ruin i i . i : h :|: 1 j -j_L ..-.J — j — -- - - -1 "I ...... 1 * - -... 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I 1 . 1 1 E _ 1 1 ! 1 l_ CMADA7 . 1 . i i OF 1 u 3IM ZTLTE — - AGENT .950-1969 ! i 1 1 i 1 --I r I 16,000 10,500 EQUATION NO. 5 ESTIMATES: ACTUAL VERSUS FITTED VALUES Year Actual Value , Fitted 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 ' 82028656.0 1960 - , 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 " 103819696.0 1966 114778320.0 115063744.0 1967 123800000.0 125033872.0 1968 132988192.0 132097680.0 1969 134536992.0 136982000.0 - - — - -1 -1 ... ..... — - - ...L — - - - - - - -1-1 _ _ ! -- - - - - _ — 90 . r i -- - -• -- -.J._ i -- - - - 1 — -- -- -- - ..... - - - -1 - - - - -- - -- - -- - ... — - -- - - ~ -- .... - -- - ----- - -... -..... — — - — - - ... -- - - -- - ---— - — - — --- .... - - - ... - ... -— - - - - --- ... — -• - - - -- — - -- - - _ - — — _ -- - h ZTZ i - ~ - - - -- ... - - - - -... --- -- - — - - — - -- — - - — - - — — -- ... - -•-- — --- - - -- — _ — — -- -- — - — -- -... _ ... ---. 4-i i - — - - -- --- -- -- - - - --- ! - r I I ... ... i - •- - - - -JO i — - -... 1 - - - .... ... -- .... -- i i { 1 - - — - ... _ - ... 6C ... --.... - - '--..... ... ... ... - - i r i i i 1 1 - - - - - - -- _ i _ I I_ - ... 1 - -- i - - o - ... — ... -- - - - - i i c -c j i i 1 - ... i - rv - •- .... -~- ... - - i i 1 ! i - - __ L U - --... 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L i • j i 1 1 i -T-rr - - ---L — - - — - - -r -f r t - -1 - - - _ _ --- - ... L T i — - -j- —P i _ L r-f p - _j_i_ t-rr r I • | 1 1 --i - M 1 T i - i 1 - r r ! i P T T 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 fe insurance market' and the 'business l i fe insurance market' is essentially one of convenience. A l l l i fe insurance is essentially business l i fe 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 fe 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 fe insurance has grown at a dramatic rate in Canada, wherever the primary purpose of family l i fe 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 profitability. 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 fe 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 fe insurance policy wi l l be almost as integral a part of the corporate and copart-nership structure as are the charter, the bond, the stock certificate, and the partnership agreement. Group Life Insurance Briefly, group l i fe 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 fe insurance in Canada has been outstanding, but the growth of group l i fe insurance has been spectacular. Ordinary new l i fe purchased increased 5.5 times in the 20 year period while group l i fe 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 fe 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. More specifically See Table I, page 27 and Figure 2, page 4 3 . among those who stated l i fe 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 fe plans. At the end of 1966, 66 percent of the total group l i fe 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 3 8 from members of trade unions and other associations. It should be noted that group credit l i fe 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 fe 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 fe insurance in force, in Canada, the character-i s t ics , operation and its marketing w i l l be discussed. In regards to the number and e l ig ibi l i ty 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, 39 90 percent of the companies insured have 10 or more employees. 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. This was replaced by the "20-40 rule" in the United States. Under this rule there is a'maximum of $40,000 on any one l i fe 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 wi 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 fe 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 facil it ies 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 fulfi l l . further the insurance industry's social responsibility to the insuring public. Group l i fe insurance marketing is challenging, often frustra-ting^ usually rewarding, and always changing. 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 fe 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 cities, separate group branch offices have been formed. Both group l i fe and family l i f e insurance are marketed through commissioned agents and brokers. In group marketing, however, the broker is much more important. Although the majority of group cases is sold through agents and brokers, who tend to be more successful in the smaller case f ield, 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 wi l l give the l i fe 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 fe 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 fa 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 stock-holder or partner, as well as outside parties dependent upon his business capability. Partnerships It is important to understand that each partner is fully responsible for the business acts and debts of a l l others. 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, disability, 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, wi 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 fairly 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 fe insurance on the l i fe 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 first death occurs. At least once every three years the l i fe 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 fe 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 fe insurance in salary continuation plans, split-rdollar plans, and deferred compensation plans. Group Annuities Although group pension plans wi 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 wi l l make certain guarantees with respect to the plan. Of course, the nature of the guarantee wi l l depend upon the type of insurance contract selected. -There are several ways in which Canadian l i fe insurance companies have extended their services to pendsion funds. Some of these include individual policy plans, group permanent l i fe 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 fe 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 wi l l write group annuities for as few as 10 employees but the usual 43 1 minimum is 25 persons. 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, (Homewood 111.: Richard D. Irwin, Inc., 1966), p.88. . 42 • Ibid., p.90. Ibid. , p.92. 87. 44 to be used to buy annuities for employees at the time of retirement. 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 fe insurance company wi 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 wi 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, wi 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 fe insurance in 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 fe 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 fe accounted for only 13.5 percent of the total. In 1969, this figure had swelled to 39.83 percent of the total. A portion of the increase in group l i f e , as stated earlier, is reflected in the marked decline in ordinary l i f e insurance "in force" and in net new purchases. However, as indicated previously, the figures for group l i fe may be partially fictious. Group l i fe is usually written for larger amounts than ordinary l i f e . This may have a tendency to add a small bias to the figures. However, regardless of this fact the trend has been to group l i fe insurance and is expected to continue in the near future. The graphs on pages 42 and 43 further illustrate these trends. ; 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 fe insurance s t i l l maintains. In 1950, i t accounted for approximately 80 percent of total net new premium income. In 1969, i t s t i l l accounted for 81.85 percent. In that same period, net new premium income for. industrial l i fe 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 fe which earlier was thought to have been at the expense of ordinary l i fe insurance, obviously was at the expense of industrial l i f e . As industrial l i fe 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 fe has been the huge growth in the number of federally regis-45 tered l i f e companies from 55 in 1950 to 151 in 1969. The majority of this increase was from United States l i fe companies. 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 fe 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 ^Loc. 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 fe 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 fe 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 fe 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 fe 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 fe 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 fe 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 iving 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 fe 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 retire-ment without burdening the plan for active employees has been developed. Under the plan a definite amount of paid-up l i fe 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 fe 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. Such a plan, although more costly, does tend to stabilize costs. When the employee then leaves the employer, by withdrawal or retirement, he becomes entitled to the amount of paid-up l i fe 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 coverage of a l l kinds through their writing of group contracts. Some l i fe companies have also been prominent in the individual accident and sickness f ield. 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 utilization of health care faci l i t ies , 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 retire-ment, 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 ful 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 wi 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 fe insurance with each monthly contribution of the employee, and the 46 Klem, l o c . c i t . , p.279. 4 7 I b i d . , 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 fe insurance for partnerships and proprietorships are not available, i t does seem evident that "as group l i fe coverages, group health coverages and group annuities continue to increase at a rapid rate so to wi 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 fe insurance agent. An increasing number of small business concerns are uti l izing 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 fe 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 wi 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 se l l agreements discussed in Chapter VI it 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 fe insurance for every partnership, there has been an innovation designed to avoid the situation where the partners were in good health in i t i a l ly but the health of one subsequently deteriorates as the business grows and more l i fe 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 first 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 fe 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 instal 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. The tax advantages accrue to both the employer and employees. 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 fe 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 fe 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 first 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. These are known as variable annuities. 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 wi 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($) 1950 ".- • 96 41 1955 113 • 51 1960 120 60 1965 125 -78 1969 147 109 Group Annuities A l l Annuities Annual Annual Number Payment ($) Numb er Payment (,$) 159 152 279 203 285 317 426 382 498 658 649 676 632 942 790 1039 692 998 874 1131 *Source: Canadian Life Insurance Facts, 1955-19 70. AN ANALYSIS OF GUARANTEED AND VARIABLE ANNUITY PREMIUMS RECEIVED IN CANADA BY FEDERALLY REGISTERED LIFE INSURANCE COMPANIES, 1962 - 1968* ($ millions) Year 1962 1963 1964 1965 1966 1967 1968 Guaranteed 227 244 277 256 243 258 288 Variable . 5 15 32 35 44 49 60 Total 232 259 309 291 287 307 348 *Source: Canadian Life Insurance Facts, 1955-19 70. This chapter is devoted to the study of the demand for group l i fe 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 fe insurance. Factors Influencing Group Life Sales Again the basic reasons for the choice of the basic variables were general availability, easy predictability and relevance. In effect one hypothesizes that the given independent variables are the important ones in determining demand for group l i fe 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 civi l ian employment the more group l i fe insurance that wi 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 fe insurance companies, then the more group l i f e insurance that wi l l be sold, at least termpo-rarily. 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 fe branches. Of course, i t is believed that perhaps a more reliable indicator of the group l i fe sales growth would have been the growth in the number of group l i fe branch offices in Canada. Furthermore, the number of fu l l time agents specifically selling group l i fe may also have been a s ignif i-cant variable. Unfortunately, a relevant 20 year, time series was not available. It was also postulated, a pr ior i , that union activity in the number of negotiated contracts would also be a significant variable. Group l i fe 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: - . * R_ 1. • 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 fe 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 fe insurance companies were now separately run against group l i fe insurance, but lagged one year. The results were as follows: 2 R EL 1. Number of Federally Registered Life Insurance Companies (0.9683) (0.9926) 2. Total Employment (0.9733) (0.9523) A l l the coefficients of correlation proved to be lower when lagged by one year. Thus, the previous results were applied instead of lagged variables. Graphs In order to arrive at some preliminary ideas as to the shape of the curves, group l i fe insurance was plotted separately against the number of federally registered l i fe insurance companies, total employ-ment, and gross national product. As illustrated by figures (14), (15), and (16) on pages 106-108 the graphical representation showed linear relationships to exist. 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 fe = f (Gross National Product) y 2 = - 5.518 + 4.304xA where y^ = group l i fe xA = G.N.P. Independent Estimated Standard T-Variables Coefficient Error Statistic 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 fe = f (Number of Federally Registered Life Insurance Companies) y 2 = -10.542 + 2.41 xG where y^ = group l i f e sales xG = number of federally registered l i f e companies Independent Estimated Standard T-Variable Coefficient Error " Statistic C - 10.592 0.141 - 7>476 xG 2.408 0.146 16.509 R-squared =0.9381; Durbin-Watson Statistic = 1.6179; Number of Observations =20. Equation 3 Group l i fe = f (Total Employment) yQ = - 4.090 + 8.619 xK where y^ = group l i f e insurance xK = total employment Independent Estimated Standard T-Variable Coefficient Error Statistic 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 statistics, 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 fa 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 fe 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 fe insurance.companies. However, the correlation between each of these variables is very high. 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MAT r u IAL ss INI -1 y QfiQ I --- -- - - - - - - -- - - -- -- --- - - - - -... ... --- ... - - ---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 fe insurance in Canada in 1950. However, by 1969 this figure had decreased to 52.79 percent. Group l i fe insurance 'in force' in 1950 accounted for 16.40 percent of the total l i fe insurance in force. By 1969 this figure had soared to 47.10 percent. Industrial l i fe insurance in force in 1950 accounted for 9.76 percent of total l i fe insurance in force. By 1969 this figure had decreased to 0.60 percent of the total l i fe insurance in force. In examining "net new purchases" of l i fe insurance i t was found that ordinary l i fe in 1950 accounted for 74.76 percent of total new l i fe 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 fe insurance purchases. This figure swelled to 39.83 percent in 1969. Net new purchases of industrial l i fe 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 strict adherence to the figures for "in force" and "net new purchases" has a tendency to bias the growth statistics for these three classes of l i fe insurance. Thus, group l i fe insurance statistics have been overestimated due to the fact that group l i fe 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 fe 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 fe 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 fe . ' 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 fe 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: whole l i f e , endowment, and term. 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 fe 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 fe insurance has been a reflection of the improvement in the standard of l iving 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 fe 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 fe 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 fe 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 fe insurance policies have undoubtedly f i l led a need for l i fe insurance policies among the industrial workers which would otherwise have resulted in greater industrial l i fe 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 fe has also been the result of pressure on corporations by unions and governments to supply fringe benefits. Group term l i fe 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 fe 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 fe over the past 20 years. Equations 1 - 4 , inclusive, in Chapter V, examined ordinary l i fe insurance as a function of personal disposable income, total employment, the number of marriages, and the number of fu 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 fe insurance as a function of marriages and the number of ful l time l i f e insurance agents. This equation resulted in a reasonably efficient model in terms of its statistical properties; the results indicated that these two variables have had a very significant impact on the aggregate sales of ordinary l i fe 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 ful l time l i f e insurance agents. 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 statistical 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 fe 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 fe insurance in their f irst year of marriage. In any event i t is'not surprising that as the number of marriages increase so too wi l l the sales of ordinary insurance. The number of ful l time l i fe agents, the supply variable in the model, has been a significant determinant in the growth in aggregate sales of ordinary l i fe policies. Perhaps the increase in the number of l i fe 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 fe insurance over the 1950 to 1969 period. One could postulate that not only wi l l the number of l i f e agents affect aggregate sales of ordinary l i fe policies in the future but also the agent's knowledge of products, consumer needs, and buying habits. This would suggest that i t wi 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 fe insurance sales. That is to say, i t is impossible to decide, a pr ior 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 fe 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 fe as a function of long term interest rates, indicated that interest rates have been a s ignif i-cant factor, but not highly significant, in the growth rate of ordinary annuities.. 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 ly , 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 fe 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 instal l group l i fe plans. Furthermore, union pressure for improved fringe benefits increases.when the Canadian economy is prosperous. 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 fe insurance companies, it would appear that some of the increase in group l i fe 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 fe insurance companies have been American owned companies that have been formed to provide group l i fe 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 environ-ment within which l i fe 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 fe insurance in the last 20,years. Ordinary l i f e insurance sales have grown more slowly than group l i f e and industrial l i f e sales have fallen off even more. The reasons for these shifts apparently has had l i t t l e to dp with the variables used in this study. Rather, the shifts are probably connected with the behavioral patterns of consumers. It is almost impossible to quantify such psychological shifts i n any direct manner, although in the end these shifts may turn.out to be the most important of a l l . As indicated e a r l i e r , substitute 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 in measurement. Finally, a complete analysis of ordinary l i f e insurance and the economic factors affecting i t s growth was not possible due to the absence of net new premium income for whole l i f e , endowment, and term insurance. Such a unit of measurement could possibly have provided a more meaningful analysis. 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 is to say, macro-economic variables could not be applied in an attempt to explain the micro or inter-product trends. It would seem that traditionally Canadian l i f e insurance companies-have been financial service merchandisers of a limited product l i n e , mainly a combination of fixed income dollars savings and death benefits. Significant changes have taken place in recent years brought about by a new and powerful force - today's consumer. The consumer has neither the time nor desire to v i s i t a mutual fund o f f i c e for equity purchases, an independent agent for property and l i a b i l i t y insurance, and an insurance agent f o r l i f e or health p r o t e c t i o n . Today's consumer wants one-stop f i n a n c i a l s e r v i c e , j u s t as the same consumer wanted a supermarket. The trend of i n f l a t i o n that has become so prevalent during the l a t e 1950's and e a r l y 1960's has promoted the p u b l i c ' s i n t e r e s t i n equity - l i n k e d investments, such as the v a r i a b l e annuity and v a r i a b l e l i f e insurance, as an i n f l a t i o n hedge. The r e l a t i v e d e c l i n e of the proportion of the savings d o l l a r going to l i f e insurance companies has l e d insurers to market these equity - l i n k e d products. A l l of these trends have been f a c i l i t a t e d through the holding-company concept. The h o l d i n g company concept has been adopted by the four l a r g e s t stock l i f e , companies i n the United States; T r a v e l e r s , Aetna L i f e , Connecticut General, and L i n c o l n National. In Canada, there i s Investors Syndicate which controls 50.1 percent of Great-West L i f e , the l a r g e s t Canadian stock l i f e company. Another l a r g e company, North West L i f e Assurance Company, has Federated Fund. Canadian l i f e insurance companies have been l i m i t e d i n these movements due to the f a c t that Canadian l i f e companies can c o n t r o l r e a l estate and general insurance companies, but there are s t a t u t o r y l i m i t a -tions on the amount of funds that an insurance company may have i n common stock and the percentage c o n t r o l that one insurance company may have i n another. Combined with this trend toward equity linked products many l i fe company executives have intimated a move to acquisition of mutual fund companies. However, at present, l i fe 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 se 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, wi 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 fe insurance companies to market products with a low savings element. Canadian l i fe 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 fe 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 fe companies have been stressing endowment and whole l i fe policies at a time when the consumer has only wanted protection with term insurance. In the future, i t will 'be 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 diversification in terms of agent training, education, and remuneration. Finally, 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 policies now provide the needed protection to the workers that was once given by industrial l i f e policies. The movement to group policies has been astounding and has recently entailed complete group packages of l i f e insurance, pensions, health insurance, and dental plans. It 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 their social responsibility. Christ, Carl F. • Econometric Models and Methods. New York: John Wiley Inc., 1966. Huebner, S.S. Life Insurance. New York: Appleton-Cehtury Crofts, Inc., 1958. . Johnston, John. Econometric Methods. New York: McGraw-Hill, Inc., 1960. 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: University of Pennsylvania Press, Richard D. Irwin, 1964. McGill, Dan. Life Insurance Sales Management. Homewood, 111.: Richard D. Irwin, Inc., 1957. Mehr, Robert and Cammack, Emerson. Principles of Insurance. Homewood., 111.: Richard D. Irwin, Inc., 1969. Melone, J.J. and Allen, Everett,. T. Pension Planning. Homewood, 111.: Richard D. Irwin, Inc., 1966. Pedoe, Arthur. Life Insurance, Annuities, and Pensions. Toronto: University of Toronto Press, 1970. 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 Industry. Toronto: Nesbitt, Thompson and Company, 1969. 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. Philadelphia: University of Pennsylvania Press, 1959. Periodicals Andrbs, Helen. "Women Insurance - Untapped Market", National Underwriter. June 21, 1969 , p.18. Popp, John, W. "Industrial Life Insurance", National Underwriter. August 16, 1969, p.15. 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. December 13, 1969, p.20. 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 Life" , 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 Ltd. , 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. 

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