Global scale

As the first non-actuary appointed to head Standard Life, Joseph Iannicelli, chief executive officer of The Standard Life Assurance Company of Canada, is confident his company can compete, both in the Canadian and in the International market. Considered a large global company, Iannicelli wants to put Standard Life front and centre in Canada. Reporter Mark

Q: Do you think that Canadians recognize that you are part of a larger global player that has a market cap to go toe to toe with the larger insurers in Canada?

A: I think the answer is no. Eighty per cent of people that know us think that we are a stand-alone head office here in Canada. They say, “you are a good-size company and you are just about the same size of this other company.” And we say no, we are a subsidiary of Standard Life that happens to be located here in Canada. Standard Life as a global entity is big, we are 10,000 strong. We happen to have just under 2,000 people here in Canada, but we are 10,000 strong globally. But they don’t think of us as a global company.

The other side says “As a foreign subsidiary how can you possibly exist in a market dominated at least from the insurance company side, by three major players?”

Q: Do you have greater penetration in the Quebec market than in the English-Canadian market?

A: Historically we did, because it’s our home province. Standard Life is pretty clear with my appointment that the focus has changed. I’m the first non-actuary appointed to head the company. I don’t view myself as a French-Canadian or an English-Canadian. I am a Canadian, period.

Quebec on average either has or controlled 23% of the market in Canada. Ontario I believe has 50% to 52% of business but controls 55% of the total market in Canada.

Most of our new business is being driven from Ontario in the past few years. I made that a priority of focus. Western Canada we believe needs to be penetrated too. Toronto and Ontario are key markets for us. We are also looking to increase our presence on the corporate social responsibility front.

Q: Where are your investment managers located?

A: In Canada, they are in Montreal. We have an operation in Boston and one in Hong Kong; the biggest one is in Edinburgh. That’s part of being a global company – we are pushing our global expertise because, as a fund manager, globally we are huge. We are beginning to bring in products from Standard Life Investments outside of Canada into Canada. The most recent product we brought was the India Focus Fund managed by Standard Life people in Edinburgh.

Q: Where do the majority of assets lie, is it with group pensions or with retail mutual funds?

A: I would say it was both, but I would say it is almost an even split between the two [57.5% group, 42.5% retail]. Our retail operation has been doing very well. But from a sales point of view it is roughly half and half.

We’ve added over 30 people in retail sales starting in November of 07 because not enough people know what the heck we do. We believe that we need more people on the street explaining what we do in terms of some of the products and so forth.

Q: What about insurance products?

A: In 2005, we merged our sales portion distribution. We had a mutual fund-only sales force, and then we had a sales force that sold everything else but that everything else was mostly life insurance.

We had what we call a “toxic” universal life level cost of insurance product that was very capital- intensive, very costly as a lead product. When I came on board we looked at how this did not make sense, it is not our strength. We will never be a life insurance carrier. I mean we have been known for pensions for 175 years, and all of a sudden we are switching gears.

We had what we call a “toxic” universal life level cost of insurance product that was very capital- intensive, very costly as a lead product. When I came on board we looked at how this did not make sense, it is not our strength. We will never be a life insurance carrier. I mean we have been known for pensions for 175 years, and all of a sudden we are switching gears.

We had to add internal wholesalers. At the same time our external distribution, represented by brokers and advisors, knew us for mutual funds and life insurance, and now we were saying life insurance is going to be a very small part of our business. When we move forward we want to sell segregated funds and mutual funds.

And they said wait a minute, we’ve had this relationship for life insurance, and now you are saying you really don’t want life insurance. So we had to cultivate a new set of brokers. So while these dynamics were in play – by the way, we were demutualizing at the time – we didn’t realize how long it would actually take to rebuild an internal sales force, and rebuild an external distribution force.

Now we are beginning to see some of the benefits. The market, to be frank, has not helped us this year; people are parking their money still. They are waiting to buy something. The retail consumer is scared. They are parking their money and usually when they park their money in the money market, the banks control that segment.

Once the money flows back into longer term funds we think we will capture that, and we need to be ready for it. Right now it is tough. Our main fund is a tremendous fund; our Canadian Dividend Growth fund has been lumpy because of the nature of the fund – we invest in mostly the financial services industry – that sector has taken a bit of a beating and therefore the funds have taken a bit of a beating.

We are pretty comfortable with some of the stuff that we have, and what we have been bringing in from the UK will cater to the market.

Q: What is your strategy for Canada’s retail advisors?

A: One thing we are not doing is going to build our own captive agency. It’s too capital-intensive and time-consuming. If you buy a mature one that is producing – maybe – but we got out of that in 1999.

We have an education program for our advisors where we help them manage their business. Many advisors are tremendous sales people but they lack some experience in managing a business. We help them with that, we help them with lead generation, customer satisfaction, customer retention, information gathering, legislation issues that they may or may not need to know.

So we believe that if we have enough solid relationships with advisors and have a consistent stream of activity in our target market, we will be fine. There are thousands and thousands of agents out there; we don’t need to have solid relationships with thousands and thousands to make our numbers.

They can maintain their independence but benefit from our size and our expertise. Having said that, we are looking at alternate forms of distribution. We have been approached by some companies who like our products, and they want to sell some of our products, we are looking to see if it makes sense. We are looking at introducing products that are critical to the market. So our distribution strategy is still to the MGA and GA network – brokers – that’s for the short term. Over the medium to long term we believe that we have to increase our penetration to get our products out in different ways to make sure that we grow organically.

Q: On the insurance side what products are you focusing on?

A: From a group perspective we have a full suite of group insurance offerings so that would be group insurance, group life, group ADD, health, dental, short-term and long-term disability. Our main focus there is disability. We believe that there is a void in the market for disability.

Companies that specialized in disability in the past no longer are here; many of them were American. Yet, there is still a desire for a better disability product to carve it out.

The health and dental coverage is strictly transactional. All of us use the same two companies, so you are not going to get any better service. It comes down to cost and it’s all commoditized, the margins are relatively thin, there is no real value-add left in it for the customer.

On the retail side, pure life insurance is a very small product line for us; it represents less than 10% of the premium sector for that line. It is a capital-intensive product, and we don’t believe it is our strength.

Q: What about variable annuities?

A: Manulife’s IncomePlus product is a brilliant product. You have to commend them for bringing it into the market. It meets the demographics needs for a secure income. The timing was probably good because the market has been a roller coaster and this product guarantees it will beat it.

There are advantages and disadvantages to being late to the party. I think we are later to the party for sure. But if you can use that to help build a better mousetrap I think you should. When we do come out with a variable annuity product, you can probably be very comfortable that it will not be the same. You can probably be very comfortable that we have studied all of the competition, we have talked to the advisors, talked to customers and we are developing something that will be very unique.

Q: Haven’t you had a similar product for a number of years now?

A: We had something called the Performance Annuity, which is similar but a lot more complicated. It was not selling very well and I ask the question: “If it is not selling very well, why are we focusing on it?”

People kept saying this is a much better product. When I asked why it wasn’t selling I was told it was a very complicated product and it is difficult to explain to our distribution, and in turn it was difficult to explain it to our customers.

What we want to do is either simplify it or develop a core niche of distributors that understand it well and have some customers where it fits their needs.

If it is something that is very good, someone will develop it very quickly. It’s true.

Q: In a “me too” industry, how do you compete?

A: I get asked often, how can you compete in a market dominated by three big carriers who are dominant in every sector of the marketplace?

You are a certain size and you have three lines of business at various stages of maturity, our group pensions are the most mature 15% market share, group insurance at 5% market share, and retail is less than 2% market share in a multitrillion- dollar marketplace.

So they say, well, how do you compete? I got back to business basics I guess. I take the car industry as an example of time. When I was a kid, North American car industry was four major car companies, American Motors, GM, Chrysler, and Ford. Someone in the mid- to late-1960’s Japan said ‘I want to sell cars in North America.’ And someone must have said, ‘you are crazy.’

The other person countered, ‘I see a change. I see the auto industry in North America as probably a little lazy and a little slow.’

The first Civic was like a roller skate. For less than $5,000 you got a brand-new car. It was horrible quality but it fit the need for the marketplace and look what happened to Toyota and Honda.

To me, no matter how flooded the market is, if you focus on your strengths and you do what you do best and make sure what you don’t do best doesn’t hurt you, there is always room for good companies with good products. That is how Standard Life is.

Q: How do you differentiate your company from your competitors when it comes to treating advisors?

A: From a product perspective, our seg funds are very competively priced and lower than the average of our competition set. For example, for our Back-end load option we have MERs of 1.08% on our Ideal Money Market Funds and 2.84% for the Ideal Global Equity funds.

Another strategy we identified is talent management.

We can have the same product. We can have the same job descriptions for similar roles. What you can’t duplicate is the attitude of how somebody behaves on the phone. You can’t duplicate the caring nature of a sales rep who will say I will sit here for half a day and help you.

If advisors start thinking about the individual people they like to work with rather than the company, we are going to be tremendously successful.

When you simply don’t have the scale to get into price wars, and you don’t have the brand recognition, of say Manulife, finding strategies to differientiate, is essential.

Q: Some of your smaller competitors are concerned their distribution network of advisors is fast approaching retirement?

A: We used to have a natural system where kids were recruited into the industry by companies like London Life. Some of those advisors were successful, some were not, so we have this boat of mature broker/advisors who have big books of business that don’t have succession plans.

For some, their kids get into it, but from my experience, most don’t have a succession plan. I expect there will be greater consolidation of books of business amongst advisors.

I think companies will have a challenge in distribution if they don’t look for alternative distribution venues. If companies continue to rely on the current mode of distribution – I think they are right to be worried.