April 9, 2008
Canada’s Life and Health Insurance
PETER C. MCCARTHY
Chairman, Canadian Life and Health Insurance Association, and President and CEO, AIG Life Insurance Company of Canada Industry
Chairman: Jo-Ann McArthur
First Vice-President and President-Elect, The Empire Club of Canada
Head Table Guests:
David Goodwin: Insurance Representative, Ontario East Insurance Agency Ltd., Representative, Partners in Planning Financial Services Ltd., and Director, The Empire Club of Canada
Sara Butt: Grade 12 Student, Bloor Collegiate Institute
Grant Kerr: Associate Pastor, St. Paul’s United Church, Brampton
Gary MacMillan: Resident Vice-President and CEO, American International Companies, Property and Casualty Division
Dr. Rueben Devlin: President and CEO, Humber River Regional Hospital
Gareth S. Seltzer: President, TWS Management Group, and Past President, The Empire Club of Canada
Terry Zive: Second Vice-Chair, ADVOCIS, and President, Zive Financial
Crawford Spratt: Senior Partner, Blaney McMurtry LLP.
Introduction by Jo-Ann McArthur:
I have no background in the life and health insurance industry other than as a customer, but I do recognize the significant challenges facing the industry these days—financial market instability, risk management, privacy issues—just to name a few. The industry also has a new product opportunity with the federal budget announcement of the new Tax-Free Savings Account to help Canadians invest in their future.
In the face of these challenges (and opportunities) under Mr. McCarthy’s leadership, AIG Canada has not only become a leading provider of investment-focused universal life, but has launched new products like single premium life annuities and a bundled mortgage protection plan that combines preferred term life insurance with critical illness coverage.
He continues to search for new innovative products through AIG’s relationship with 15,000 producers, representing a strategic shift in the industry—and it seems to be paying off.
Mr. McCarthy was appointed President and Chief Executive Officer of AIG Life of Canada in February 2000. Previously he served as the National Sales Director upon joining AIG in May 1999.
Mr. McCarthy began his insurance career in the Halifax, Nova Scotia head office of Maritime Life in 1986 and worked in a number of capacities in administration, management and sales management throughout all lines, including employee benefits, segregated funds, and individual life insurance. He has also worked on the ground as an independent insurance broker.
Mr. McCarthy is married with three children and currently resides in Montreal.
He is also a member of a number of related organizations, most notably serving as Chairman of the Board of Directors for the Canadian Life and Health Insurance Association.
Please join me in welcoming Peter McCarthy.
Thank you very much Madam President. Honoured guests and the head table and all of you who have taken the time to come here for lunch today, thank you.
Before I start my main comments I wanted to talk about another issue. Today was designated Vimy Ridge Day by the federal government of Canada in 2003. It marks the anniversary of the start of the Battle of Vimy Ridge. The Battle lasted until April 14, 1917. Three thousand five hundred and ninety-eight Canadian soldiers were killed in the battle and over 7,000 were injured. For many historians the Battle of Vimy Ridge was the defining moment in our great country’s history. I think we would be remiss not to reflect upon the sacrifices our soldiers made 91 years ago today and we should all be thankful for their efforts on our country’s behalf.
Now on to my main comments.
Thank you for the opportunity to join you here today at the Empire Club to talk about the life and health insurance industry and the Canadian Life and Health Insurance Association. I am pleased to have the opportunity to share some of my thoughts on where this industry is situated on Canada’s current economic landscape, as well as on the world stage, and to describe the increasingly important role the industry can play in improving Canadians’ health and lives.
As the markets quiver with every bit of bad news and so many other usually rock-solid sectors face unexpected losses, life and health insurance companies have provided a welcome sense of financial security for investors and a true level of comfort for the people we serve. In other words, for an industry that was once looked upon as a bit bland, we now seem pretty appealing. A quote from Woody Allen sums up the old image: “There are worse things in life than death. Have you ever spent an evening with an insurance salesman?” I know that Woody made his living coming up with those kinds of quips, but I have to admit that that one hurt. However, I think that times have definitely changed and the Canadian life and health insurance industry has made great strides over the years in what it actually means to its customers and to our country. Perhaps what we need to do more of is to let people know what we’re all about—and I look upon today as a great opportunity to share some of my own sentiments with you.
What does the life and health insurance industry do for Canadians? Well, we are no longer a one-trick pony. What we do is provide financial security to Canadians—we insure people; we manage their retirement and savings needs; and we cover supplementary health expenses that many working Canadians benefit from every day.
Before I go any further, I do want to take the opportunity to address another common misconception. Although the word “insurance” is generally understood by most Canadians to be a bit of a catch-all term, our industry does not insure homes, offices or cars. That important job belongs to our colleagues in the property and casualty side of the business.
Now that we’ve cleared that up, let me provide you with a snapshot of the industry.
I won’t burden you with a long list of numbers but I think you would be surprised at the industry’s profile. For instance, we provide a wide range of financial security products to about 24 million Canadians from all walks of life and age groups. These products include life insurance, annuities and supplementary health insurance. There are 106 life and health insurers in Canada and the vast majority of these companies, which account for over 99 per cent of the business in force, belong to my association.
You may think that we simply collect premiums, but in fact more than $1 billion a week is paid out in benefits. The vast majority receiving these benefits are living policyholders who receive annuities, disability payments and supplementary health benefits.
Our asset base is more than $400 billion and we employ 120,000 people, either directly or as independent agents.
I can also tell you that the industry is generally pleased with the extent to which Canada’s public policy framework supports its international competitiveness. An important ingredient that has contributed to our industry’s success is Canada’s strong regulatory and supervisory framework. We are blessed with experienced and dedicated regulators who promote sound legislation while seeking to reduce regulatory burden.
Because of this strong domestic base I just described, Canadian life and health insurance companies have been able to expand worldwide and have already established a long and successful history of operating internationally.
Today the industry provides one of Canada’s most important exports with Canadian life and health insurance companies operating branches and subsidiaries in more than 20 countries around the world, providing financial security to millions more people. Over 56 per cent of the industry’s premiums are generated abroad and the three-largest Canadian life and health insurers are now in the Top 12 in the world, measured by market capitalization.
The high degree of international competitiveness of Canada’s life and health insurance industry also brings a number of important benefits to the Canadian economy:
• The creation of jobs—many functions in the head offices of Canadian insurers with foreign operations relate in whole or in part to their foreign business;
• Contribution to the continued financial strength of the industry;
• Technological innovation;
• The fostering of Canada’s good name and image abroad; and
• Assistance in paving the way for other industries and other sectors seeking to break into those markets where Canadian life and health insurers already have a stronghold.
Finally, we are innovative, responding to the changing needs and expectations of our customers. For instance, in recent years some of our members introduced “index-linked” life insurance policies, flexible retirement options and expanded health insurance products covering travel, critical illness and long-term care.
So you can quickly see, we are not your grandfather’s or even your father’s insurance company. We are a vital player in the Canadian economy that provides financial security over the long term to clients and investors right across the country.
Insurance by its nature is prudent and so are our members. We have an excellent working relationship with regulators. The federal oversight body (OSFI, the Office of the Superintendent of Financial Institutions) publicly states that the life insurance industry in this country is well capitalized with capital ratios greatly above target levels. The major rating agencies also attest to the strength of our members. With all of the trouble we read about in the daily business pages, this strong, stable report card is a very good thing—for our companies and for you who all rely to some extent on our services. The cost of complying with this oversight creates quite a burden and if there was one change we would like to see it would be the harmonization of provincial and federal regulators to allow us to grow and to be more efficient.
In a recent submission on competition policy review, my association made some specific recommendations in this area to reduce regulatory burden, eliminate internal trade barriers, reduce taxation, ensure a skilled work force and not grant patents that cover business methods.
In today’s climate that solid picture should be welcome news to many. The recent commercial paper—ABCP or Asset-Backed Commercial Paper—crisis quite rightly has made many Canadians nervous. Let me assure you today that the Canadian life insurance industry has minimal exposure to this type of short-term paper. In fact most member companies have no exposure whatsoever. By its very nature, life insurance is by and large a long-term business and related investments are correspondingly long-term.
Earlier I touched on innovation as a modern driving force in the life and health insurance industry. I would like to expand a bit on that topic as it relates to the ongoing Canadian health-care debate.
For a long time there seemed to be two competing camps between those clinging to a strictly publicly funded health-care system and those who saw a role for the private sector. Even today, “no two-tier health” is a common slogan as the debate rages on. We prefer to call private health benefit coverage a “complementary” service. I believe our industry can play an increasingly important role in providing the kinds of services that could never be economically feasible for the public system.
Already about 22 million Canadians are protected by some form of private coverage. Payments to Canadians in private health and disability insurance benefits amounted to $18.6 billion in 2006. Without this extensive array of private coverage, pressures on already scarce public resources would be even more significant than they are today.
I guess we often take this private coverage for granted, but think about how many of the following services you already receive through your employer or pay-as-you-go premiums—dental care, prescription drugs, paramedic care, prosthetics, ambulance charges, private or semi-private hospital beds and out-of-country travel insurance.
Today there are a number of initiatives being considered that could impact on supplementary health plans. One of them is the recognition of mental health care. Another key example is the national pharmaceuticals strategy that includes the treatment of generic drugs and a catastrophic drug policy, among others. While considering these worthwhile initiatives, every attempt should be made to take a national approach so that costly inefficiencies between provinces are avoided.
I believe the life and health insurance industry can play an expanded role in this current health-care climate. It’s clear the current model is not sustainable and access to new funding on the private coverage is the way to go. We are not the only ones saying this as you know.
Recently an important report was released in Quebec, written by Claude Castonguay, who is recognized as the father of the province’s public health-care system. His task force recommended that the scope for private insurance should be expanded to include other services in addition to knee, hip and cataract surgery and that home-care coverage should be expanded for the elderly. We welcome this report as it recognizes the industry’s major contribution to the well-being of Canadians and explores real opportunities for expanding services covered by the private sector.
Another misconception that continues to be played out in the media is that, if Canada permits further incursions into the public system by private insurance, we will be heading down the slippery slope to an American-style health-care system. That is simply not the case! The Canadian life and health insurance industry strongly supports a system that has the public system as its underpinnings. However, Canadians continue to pay millions of dollars for the health-care services they and their families need out of their own pockets—in fact some 15 per cent of today’s overall health costs are not covered by either public or private plans. There is plenty of room for the life and health insurance industry to provide further financial assistance and security to Canadians by helping them to pay for these important services.
For example, as Canada’s population ages, many more Canadians will need to access long-term care facilities and services than ever before. It is highly unlikely that the public system will be fully able to support these needs. Life and health insurers can assist by helping Canadians to anticipate and plan for their later years through long-term care and critical illness insurance, while at the same time taking some of the pressure off the public system.
To sum up, Canada’s life and health insurance industry is solid, secure and successful. We provide stability for investors and beneficiaries. We are a major employer. We have been around about as long as this country and intend to be around even longer into the future. Far from being static, we are looking at new ways to improve the well-being of Canadians to provide them with good health and a long life. Moreover, as the public policy debate on health care and other important areas evolve, we will want to find ways to contribute and be part of the “solution” to the challenges that face this country now and into the future.
The appreciation of the meeting was expressed by David Goodwin, Insurance Representative, Ontario East Insurance Agency Ltd., Representative, Partners in Planning Financial Services Ltd., and Director, The Empire Club of Canada.