Insurance agents seeking

(April 28, 2005) Insurance specialists are branching out — seeking a broader selection of investment products for their clients. That’s creating an opportunity for third-party fund providers in the insurance channel, but only top performers should apply, a study from Credo Consulting suggests.

Credo polled executives at a number of Canada’s largest insurers for insights into current trends. They found that investment products are growing at the expense of traditional insurance products, and that’s expected to continue with the vast majority of Canadians focused on retirement planning.

“Few people, on the other hand, are comfortable talking about their own deaths and other reasons for buying insurance,” the study says.

The insurance channel also has the advantage of having “stickier” assets, compared to retail mutual funds, Credo points out. “The guarantee in segregated funds acts as an anchor in keeping the assets and reducing churn as does the fact that insurance clients have been sold on the concept of both the guarantee and other benefits.”

A number of insurance firms also have affiliates in the mutual fund world, such as Manulife and Sun Life, but that doesn’t mean there’s not a place for third-party funds, Credo says.

“While there is an obvious preference to use proprietary product when an in-house and external fund are similar in mandate and performance, insurance companies are more than willing to use third-party funds if they meet their selection criteria,” the study says, such as top performers or those that fill a gap in the company’s line-up.

“Consolidation in the insurance industry means the opportunity for third-party fund sales in the insurance channel will be largely limited to the best performers and managers.”

The most successful fund firms in the insurance world are those with recognizable brand names, such as Fidelity, AIM Trimark, Mackenzie, CI and AGF, Credo says. “Brand also helps the sales process for insurance agents when investors recognize the mutual fund company.”

However, once in the insurance door, mutual fund firms can’t let their guard down, Credo warns, noting that insurance companies have shown a willingness to remove underperforming funds from their shelves. For example, Manulife recently dropped eight AGF fund mandates worth nearly $900 million.

Insurers might also be wary of the four fundcos caught up in the Ontario Securities Commission’s recent investigation into market timing, Credo says. Damage is expected to be limited, but insurers with significant assets in AIC, Investors Group, CI and AGF might be concerned about how such holdings might undermine their credibility.

Filed by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com