Flash Boys in life insurance

Flash Boys pbk mech.indd“It would have been difficult to find anyone, circa 2009, able to give you an honest account of the inner workings of the American stock market … complicated beyond belief by possibly well-intentioned regulators and less well-intentioned insiders. That the American stock market had become a mystery struck me as interesting. How does that happen? And who benefits?” – Michael Lewis, April 2015

 

I recently read Michael Lewis’s bestselling book, Flash Boys, and was struck – amazed – at how common the Wall Street themes and conditions were to the life insurance industry, and what I encountered before writing my book, Why Are Canadian Seniors Worth More Dead Than Alive? Paraphrasing and changing slightly what Lewis said above, I would say:

“It would have been difficult to find anyone, circa 2009, able to give you an honest account of the inner workings of the Canadian life insurance industry … complicated beyond belief by possibly well-intentioned regulators and less well-intentioned insiders. That the Canadian life insurance industry has maintained and promoted a false premise and used false indicators to protect their financial position and erode Canadian seniors’ financial position has become too egregious for me. How does that happen? And who benefits? That’s why I wrote my book.” – Leonard H. Goodman, October, 2015

 

LG book image 5x6 copyMy purpose parallels Michael Lewis’s in many ways. Primarily, to expose practices (for Lewis, it’s high frequency trading) that amount to the the theft of the public’s invested money and retirement assets, which has continued unabated for decades, mainly because the public does not know and the insiders influence governments, insidiously. As Lewis claims, this injustice is sanctioned by government regulators. For example, in the case of life settlements in Ontario, the Financial Services Commission of Ontario (FSCO), a government agency, which is currently under review by the Ministry of Finance, has ignored for two decades the potential for a well-regulated life settlement industry.

 

Canadian seniors have invested for decades in their life insurance (an asset they own) and yet, they have no access to a secondary market where they could receive fair market value for their policy through a life settlement. As in Flash Boys, it is those with the power and money that control and manipulate the system – and governments – to their advantage. As Lewis states, “people are getting screwed …” because of injustice perpetrated against unknowing investors (substitute: policy owners) by the greed of large Wall Street banks (substitute: Canadian life insurance firms).

 

Goldman Sachs’s Manhattan headquarters (photo by Justin Bishop)

Goldman Sachs’s Manhattan headquarters (photo by Justin Bishop)

As Lewis said, “The Flash Boys story put in jeopardy billions of dollars of Wall Street profits and a way of financial life … It became inevitable that Flash Boys would seriously piss off a few important people: anyone in an established industry who stands up and says “The way things are being done here is totally insane; here is why it is insane; and here is a better way to do them” is bound to incur the wrath of established insiders, who now stand accused of creating the insanity.” – Michale Lewis, April 2015

 

Canadian life insurance companies face somewhat the same jeopardy because a secondary market for life settlements would move billions of dollars from their pockets into the pockets of seniors. Even though it is the right thing to do, they have resisted it for decades. They are not interested in what is good for their customers, Canadian seniors, government healthcare costs or our country, they are only focused on their bottom line. It’s a travesty of justice and moral values.

 

Like Lewis, I want to open up a closed window and expose the egregiously entrenched greed that’s rooted in the self-interests of the Canadian life insurance industry, all of which is to the detriment of 5.6 million Canadian seniors, not to mention all taxpayers.

“If this story (Flash Boys) has a soul, it is in the decisions made by its principal characters to resist the temptation of easy money and to pay special attention to the spirit in which they live their working lives. I didn’t write about them because they were controversial. I wrote about them because they were admirable. That some minority on Wall Street is getting rich by exploiting a screwed-up financial system is no longer news. That is the story of the last financial crisis, and probably the next one, too. What comes as news is that there is now a minority on Wall Street trying to fix the system … All they need is a little help from the silent majority.” – Michael Lewis, April 2015.

Michael Lewis’s book changed the stock market landscape forever, and I believe we can do the same in the Canadian life insurance industry.

Never doubt that a small thoughtful group of people can change the world. Indeed, it is all that ever has. – Margaret Mead, anthropologist.

Regulation and life settlements are on the table at Queen’s Park

Queens-ctvnews.ca

FSCO Panel hears about life settlement issue

An “Expert Advisory Panel” appointed by the Honourable Charles Sousa, Minister of Finance, is reviewing the mandate of the Financial Services Commission of Ontario (FSCO) and on July 30th the Panel held a two-hour consultation meeting at Queen’s Park with members of the life & health insurance sector. I attended with two colleagues.

 

The advisory panel’s members are:

  • George Cooke – former president and CEO of The Dominion of Canada General Insurance Company, and current chair of the board of directors of OMERS Administration Corp.
  • James Daw – former Toronto Star personal finance columnist who has written extensively about all facets of Ontario’s financial system.
  • Lawrence Ritchie – Osler, Hoskin & Harcourt LLP partner and former vice-chair of the Ontario Securities Commission.

 

LISAC logo stack-smallest copyParticipating groups included: Life Insurance Settlement Association of Canada (LISAC); Canadian Life and Health Insurance Association (CLHIA); Financial Advisors Association of Canada (Advocis); Canadian Association of Financial Institutions in Insurance (CAFII); Independent Financial Brokers of Canada; and Sun Life. I was there as President of LISAC, along with David Hughes, Executive Director and Andrew Roman, legal counsel.

The Panel held a broad ranging discussion and explored many issues, from FSCO’s resources and regulatory requirements to “rule making power” and fraud. There was much debate over the pros and cons of “harmonization” and “self-regulation” by industry groups, as well as the merits of rule making versus guidelines such as those practiced by the Ontario Superintendent of Financial Institutions. Throughout, the Panel reiterated that the overriding goal was that their recommendations must support and reflect what is in the best interests of the consumer.

 

fraud-2Fraud

James Daw was particularly interested in the issue of fraud and whether a fraud compensation fund might be advantageous. I listened with interest as I believe this question is very relevant to the overarching issue of regulations – particularly in conjunction with the insurance industry’s statements and hyperbole about “serious risks” of fraud related to life settlements.

I listened … and listened. Waited. After two hours of open discussion, nobody – not one representative of the life insurance industry – had anything to say about their longstanding allegations of serious risks with life settlements. It was as if they were avoiding opening up a discussion. So in the end, I raised the issue.

I told the Panel that LISAC’s primary focus was the subject of life settlements and that we believe FSCO has failed the people of Ontario, especially seniors, for more than 15 years. I said any discussion of regulations must include what is conspicuously absent in Ontario’s financial services sector – a well-regulated secondary market for life settlements. It deprives the owners of life insurance from receiving fair market value for their policies. I reiterated the significant benefit life settlements are providing for seniors in the US, and other countries around the world, and how Ontario was perpetuating an egregious disservice to its more than two million seniors.

I referenced a letter dated July 13, 2001, written by then CEO of FSCO, Dina Palozzi, which concluded, in part, “there is a consumer demand for viatical settlements and that this demand will grow with the demands of an aging population.” The letter further stated, “The Red Tape Reduction Act, 2000, Schedule G, included amendments to section 115 and 121 of the Insurance Act … and the amendments open the way for viatical settlement companies to operate in Ontario.” I pointed out to the Panel that the glaring 15 year gap between political intent and no action has meant that billions of dollars rightfully belonging to seniors have continued to flow to insurance companies. I also emphasized that opposition to life settlements rests squarely with the insurance companies, not the qualified life underwriters, brokers and financial planners.

The panel listened. And if note taking is any indication of interest then I believe they understood, not only the magnitude of the issue but also the ramifications of FSCO’s neglect to follow through.

Serious risk?

true-or-false-question-blackboard-picture-87287848Insurance companies have been propagating the myth of “serious risk” for at least two decades. And it is a myth. Back on November 1, 2000, Mark Daniels, representing the CLHIA, went before a legislative committee addressing Bill 119, the Red Tape Reduction Act and claimed the viatical and life settlements market “has been characterized by widespread fraud and abuse…” It was an irresponsible, misleading, false statement. And yet, it  delayed action for 15 years. Worse, today Canadian insurance representatives continue to provide false witness to the truth. The truth is, life settlements are good for everyone, except life insurance companies.

The US has a thriving, well-regulated life settlement industry that they have developed over the last two decades, while Ontario has done nothing, even though the Province’s political will and legislative action has recommended establishing a life settlement industry.

In the US, on May 4, 2015, the newly appointed Massachusetts Insurance Commissioner, Dan Judson, stated:

“there are no records of consumer complaints against anyone associated with a life settlement transaction in the commonwealth of Massachusetts.”

Also, according to the National Association of Insurance Commissioners (NAIC):

“there have been only two closed consumer complaints nationwide involving life settlements since 2012. This is in stark contrast to the more than 8,000 complaints against insurance carriers in 2014 alone for delays in paying claims.”

False statements by Canadian insurance companies should not distract from the greater benefit of a well-regulated life settlement market for all Ontarians.

Are we regulating trafficking or theft?

fox.henhouse.1I suggested that in the Panel’s deliberations of FSCO’s “new” mandate regarding regulations that they ensure FSCO oversees and supports a well-regulated, secondary market for life settlements. FSCO should not relinquish its regulatory role to a “self-regulation organization” (SRO), particularly with the insurance companies or surrogates having a prominent role. As I have said before, that is akin to letting the fox regulate the hen house.

I reminded the Panel that for decades insurers have opposed the repeal of section 115 of the Ontario Insurance Act, which uses the pejorative term “trafficking” in reference to the sale and purchase of an in force policy. I consider the much bigger fraud in Ontario to be the practice of insurance companies, through the contractual agreement of a life policy, restricting policyholders to a buy back option (cash surrender value) that is far below the fair market value of the asset, at least four times lower (based on a study of 9,002 policies).

Self-interest vs consumers’ interest?

weights-4-as1108Ontario seniors have been deprived of their rightful access to the fair market value in their life insurance policies for decades and today we have an opportunity to rectify this wrong. And based on my observations at the Expert Advisory Panel session, I am optimistic that the panel understands and that they will address this issue in their report to the Minister of Finance.

FSCO’s past failure to deal with this obvious void in Ontario’s financial services must not be allowed to continue. FSCO’s regulatory mandate should not, in any way, be based on insurance industry innuendo nor should the panel consider a self-regulation organization (SRO) that can can be controlled or influenced by the same people who have shown the enormity of their self-interest over the best interests of the consumer – and the Government of Ontario.

Seniors get the math

 

Amid the complexity only a few numbers matter

 15 + (119-115) + FSCO = 0.   It’s inept bureaucratic math

Fifteen years ago the Government of Ontario passed Bill 119, the Red Tape Reduction Act, which included the repeal of Section 115 of the Ontario Insurance Act, the egregious regulation that prevents seniors from accessing the fair market value in their life insurance policies. The Financial Services Commission of Ontario (FSCO) is responsible for promulgating what the “Harris Government” directed back then. Today, 15 years later FSCO’s action adds up to 0 – zip, nada. The June 5, 2015 submission to FSCO by the Life Insurance Settlement Association of Canada (LISAC) covers this flagrant lack of service to the Ontario public (download .pdf).

 

Opened Antique iron safe isolated on white backgroundHere lies your money

And the money that could have been available to Ontario seniors during that period would add up to billions – that’s with a “B.” Instead, with a little, old-math tutoring (lobbying) of the government by the life insurance industry, all those billions are still in the pockets of the insurance companies.

 

For the last two decades, the political intent, interest and will has been evident. The Government of Ontario wants to establish a well-regulated life settlement industry in Ontario and yet, the elected official’s voices – seen in many transcripts and bills – have fallen on the deaf ears of bureaucracy. What politicians want the public does not necessarily get – due to lobbying and bureaucratic sclerosis.

 

Last week, I spoke to over a hundred members of the Northumberland Probus Club in the beautiful town of Cobourg, an hour east of Toronto. I informed them that their rights and their net worth were being undermined by bureaucratic ineptness and I also suggested it was time for their voice to be heard. (Read article – at site, search “Anytime,” insert “insurance professional”).

Newspaper article

Newspaper article

 

What happened to Bill 119 in 2000 should not happen to Bill 70

Lou Rinaldi, MPP Northumberland-Quinte West

Lou Rinaldi, MPP Northumberland-Quinte West introduced Bill 70

Northumberland County, represented by MPP Lou Rinadli (Liberal), is home to more than 20,000 seniors, which represents 27% of Northumberland’s population. This compares to 15.6% of the population across the province. It’s a beautiful community with many retirees and it probably has more than its share of seniors struggling financially in so-called retirement.

 

In fact, this financial concern for seniors is reflected in MPP Rinaldi’s introduction of Bill 70 (March 2015) to protect registered retirement savings plans and registered retirement income funds, as well as deferred profit sharing plans, from most creditors. Bill 70 is an important issue for the higher-then-average, aging population in his riding and it has passed second reading. But beware, sometimes “political will” cannot overcome the barrier of big-money lobbying and bureaucratic denial.  Back in 2000, Bill 119 passed the Legislature and yet, its repeal of Section 115 has never happened. If it had, Ontario seniors would have a well-regulated life settlement industry today. That is one of the reasons I met with the Northumberland Probus Club.

 

Probus logoProbus cares about seniors, CARP cares about CARP

I want to thank Lynn Ramsay, President of Northumberland Probus, and Harry Nash, Speaker Coordinator, for inviting me to speak to their members. I came away with a clear impression that Probus members care about the issue of life settlements and the fact that government bureaucracy has prevented them from having access to the hidden value in their life insurance – for at least 15 years.

 

 

Leonard H. Goodman (photo courtesy Northumberland Today
Leonard H. Goodman
(photo courtesy: Northumberland Today)

After just this first event, I saw a distinct difference between Probus and CARP, two organizations advocating for Canadian seniors. For months I have tried to open up a conversation with CARP, particularly with their VP of Advocacy, Susan Eng, to discuss the merits of life settlements. Nothing. Like FSCO, they appear to be stuck in the past. Or stuck in the pockets of life insurance companies. In contrast, Probus invited me to speak to them and from this one meeting more than 70% of the attendees sent a postcard to their MPP stating they wanted action on Section 115. I’ve coined what I consider an apt phrase: Probus cares about seniors, CARP cares about CARP.

 

Don’t get me wrong, I am open to changing my mind. All it requires is for CARP to open up their mind to a full and open discussion on the merits of life settlements for thousands of their members – most importantly, open up their communications to their members. It’s a crucial conversation that all seniors should be having. It’s going to happen sooner or later, and in the interests of tens-of-thousands of CARP and Probus members, it can’t be soon enough.

 

Probus is doing something about it. CARP isn’t.

Crossing the street is a risk

 LG-schoolcrossingguards_fullsize_story1

 Is the Canadian Life and Health Insurance Association uncomfortable with risk?

The Canadian Life and Health Insurance Association

The Canadian Life and Health Insurance Association

In a reply to my January letter to Donald Gulioen, Chair of CLHIA, their lawyer, Mr. Zinatelli  stated, “There are serious risks associated with life settlements …” (see March 20, 2015 post below). This seems to me just a way of avoiding my questions.

So I have sent another letter to Mr. Zinatelli (see below) in an effort to open up a well-reasoned conversation with CLHIA. I have questions, they – supposedly – have answers. I am proposing that we meet and have a full and honest discussion about life settlements and what they mean to seniors around the world and could mean to Canada’s aging population.

The life insurance industry is all about risk so I assume the CLHIA has an abundance of evidence to support Mr. Zinatelli’s claim that life settlements are a “serious risk,” and that they can compare such risk to the risk in sectors such as medical, financial, pharmaceutical and technology.

Crossing the street is a risk but we do it all the time. We put in place the proper rules, regulations and protections to mitigate the risk. So for CLHIA to simply claim that life settlements are a serious risk without supporting evidence and cross-industry comparisons is a vacuous statement aimed at avoidance.

Survival by taxpayer bailout

Survival by taxpayer bailout

Avoidance is a cover

When an industry or business avoids tough questions you can be sure they’re avoiding change. Or worse, covering something up. It’s axiomatic that asking the right questions uncovers old baggage and fosters new ideas and drives innovation and change. Most businesses know they must change to grow and survive. But not all – Arthur Anderson, Enron, Worldcom, Lehman Brothers, Target, et al. Of course some, like AIG, avoid answering to anyone because they are “too big to fail.”

So where are the answers – for Canadian seniors?

On behalf of the Life Settlement Association of Canada (LISAC), I am advocating for Canadian seniors and the questions I pose deserve answers not only for seniors but for all Canadians who own, or will buy, life insurance.

 

Although Messers Gulioen and Zinatelli have not yet answered my questions, Mr. Zinatelli did pick up on my suggestion to Mr. Gullioen that I would “welcome” a discussion on these important matters. So I propose that we do exactly that.

 

Let’s begin the conversation

Through Mr. Zinatelli, I request that the CLHIA and the Life Settlement Association of Canada (LISAC), which I represent, meet and begin an open dialogue about the merits of changing provincial legislation so that a well-regulated life settlement industry can be established and offer a valid, financial alternative for Canadian seniors.

 

I sent this email to Mr. Zinatelli on April 13, 2015 and I await his reply.

Mr. Zinatelli,

I must confess that both the brevity of your response and comments on behalf of Mr Gulioen do not surprise me. As I mentioned in my blog of March 20, 2015 (http://hereliesyourmoney.com/blog/ ), the CLHIA “ducked my questions.” Of all my questions, you answered none.
You said in your letter, “There are serious risks associated with life settlements.” Well that just raises more questions. What risks? Can you be specific? Can you provide factual, supportable evidence? How extensive are such risks?

Of course there are risks; life is fraught with risks. Crossing the street is a risk. People buy life insurance because of risk. But people measure risk and decide on the best course of action. So I ask: Regarding life settlements, has CLHIA measured the “serious risks” they refer to and compared those risks to the benefits – benefits to policyholders, not the insurers? And how do such risks compare to other consumer risks in the financial, medical, pharmaceutical, technology sectors? Risks are mitigated by well-regulated industries.

Also, let me be clear. I do not suggest that life settlements be “promoted” in Canada (your word), rather that life settlements through a well-regulated, secondary market be an option provided to Canadians, just as they are in other jurisdictions around the world.

As per your suggestion, I would welcome, at a mutually convenient time and date, a full and open discussion on these matters that are, indeed, most important to Canadians.

I look forward to hearing from you.

Yours truly,

 

Leonard H. Goodman

Canadian Life and Health Insurance Association responds … sort of

The Canadian Life and Health Insurance Association

The Canadian Life and Health Insurance Association

Donald Guloien, Chair CLHIA, ducked my questions

You may recall, I wrote an open letter to Donald Guloien on January 28, 2015 in response to remarks he made on Nov 18, 2014 at the CLHIA Annual “Advocacy Day.” (see letter and Guloien speech in my Jan. 27 post).

 

Well, on March 10, 2015, I received a response letter. To say it is a minimal, nominal, token response would be an under statement.

 

Mr. Guloien’s speech to his Ottawa audience was twenty minutes, I wrote a three page, 700 word letter asking six serious questions regarding life settlements and he responds by having someone else write a letter with just three sentences about my book.

 

Dear Mr. Goodman,

Your letter dated January 28, 2015 to Mr. Donald Guloien, Chair of the Candian Life and Health Insurance Association (CLHIA), has been referred to me for response.

Thank you for enclosing your book, “Why are Canadian Seniors worth more dead than alive? I have perused the book and must say that I cannot agree with many of the assertions contained in it. There are serious risks associated with life settlements and i disagree with the general thesis of the book that they should be promoted in Canada.

Perhaps we can have a discussion about this matter at some point. I can be reached at (416) 359-2044 or at fzinatelli@clhia.ca.

Yours very truly,

Frank Zinatelli, Vice President and General Counsel.

 

Chair, Canadian Life and Health Insurance Association and President and Chief Executive Officer, Manulife Financial Corporation   photo courtesy: 123.ca

Donald Guloien, Chair, Canadian Life and Health Insurance Association and President and Chief Executive Officer, Manulife Financial Corporation (photo courtesy: 123.ca)

Where to begin?

Invariably, a non-answer is often the most revealing and in this case it’s not what they said, it’s what they didn’t say. Basically nothing.

 

First, let me be clear. I am advocating for Canada’s aging population and I believe that a well-regulated life settlement industry can significantly benefit seniors in retirement (see a few facts below), and millions of Canadians could benefit from life settlements.

I have been associated with the life insurance industry for more than fifty years and in my January 28th letter, I told Mr. Guloien that I would welcome an open conversation related to my questions about life settlements. Instead, what did I get? A letter from a lawyer.

This is a critical issue. It is about what is best for Canadians, especially the more than five million seniors, many of whom are struggling financially in retirement.

 

The well being of millions of seniors and billions of dollars are at stake

First, the issue of life settlements and life insurance is about money and doing what is right for policy owners. It is about 21 million Canadians and millions of seniors who have invested in life insurance but cannot access the fair market value in their life insurance policies if they want to cash in their policy before they die.

A study by the London Business School looked at 9,002 policies transacted for life settlements and found that policy owners received, on average, more than four times the cash surrender value that they would have received from insurance companies. This is what a free market system is for and how it should operate. And this is why the CLHIA is opposed to life settlements and why they have no answers to my questions.

 

questionmarkConsider these non-answers:

Mr. Guloien, Chair of CLHIA, an association that purports, “To promote, on behalf of its members, public policies that contribute to the betterment of the Canadian economy and society,” (my italics), does not respond to me when I raise valid questions about an important public issue. Instead, he has the association’s lawyer reply, and even then there are no answers to my questions.

 

  1. Mr. Zinatelli in his letter says, “There are serious risks associated with life settlements.” Well, that just raises more questions: Can he be specific? Can he provide factual, supportable evidence? How extensive are such risks?

Of course there are risks, life is fraught with risks. Crossing the street is a risk. People buy life insurance because of risk. But people measure risk and decide on the best course of action. So I ask: Regarding life settlements, has CLHIA measured the “serious risks” they refer to and compared those risks to the benefits – benefits to policyholders, not the insurers? And how do such risks compare to other consumer risks in the financial, medical, pharmaceutical, technology sectors?

Risks in life settlements are mitigated by a well-regulated industry – as is done in other jurisdictions around the world. And as is done in the financial, medical and technology sectors.

 

2. Mr. Zinatelli also says, “i [sic] disagree with the general thesis of the book that they [life settlements] should be promoted in Canada.” He misses the point, and the thesis. I am not “promoting” life settlements – like some new hair cream – I am advocating for Canadian seniors and addressing why and how life settlements can, and should, be a fundamental part of the Canadian free market system and economy. It is about providing a well-regulated secondary market that allows policy owners, if they so choose, to receive fair market value for an asset that they own. That’s it. It is not “promoting,” it is advocating for the public interest. And the public interest trumps the insurance companies’ self-interests. I suggest that CLHIA is “promoting” its self-interests when it, as Mr. Zinatelli does, generalizes and by innuendo engages in promotional scare tactics, disinformation and public confusion.

 

A few facts

arrow-005Mr. Guloien, Mr. Zinatelli and everyone in the life insurance industry need to address the facts. If – and it’s a big if – there are “serious risks” then they need to quantify them and compare them against the benefits.

 

Here are a few facts that do quantify the need, and they are sourced and cited in our document, The Case for Life Settlements

  • The growing need for additional financial support for Canadian seniors is indisputable
  • RRSPs, annuities and more savings are not enough when people do not have extra money to save
  • Only 24 per cent of eligible tax filers contributed to an RRSP in 2011, depositing less than five per cent of what they were allowed to contribute. In 2011, just over six million Canadians belonged to a registered pension plan.
  • Household personal savings have been falling — from a high of 20.2 per cent in the early 1980s to a low of 2.1 per cent in 2005. Savings have rebounded slightly since then (3.9 per cent in the third quarter of 2012) but are still, on average, “woefully inadequate” to finance retirement
  • Most workers – a whopping 76 percent – have no pension plan at all, and that number has been steadily rising for years
  • The increase in debt among seniors was the biggest year-over-year of all age groups in the second quarter of 2013, at 6.5%
  • 600,000 or more Canadian seniors are living in poverty
  • 600,000 or more Canadians over age 65 are still in the workforce
  • By next year, 1 out of every 5 Canadian adults will be 65 or over. And a decade from now, one-third of Canadian households will be in retirement
  • 51% of Canadians over 65 own life insurance policies, which as an asset class they cannot access a fair market value for, which could be worth at least four times as much as the cash surrender value. And if, in many cases, there is no cash surrender value the additional proceeds could be many times greater
  • The growing cost of government healthcare, pensions and long-term care is undeniable and life settlements can help alleviate some of that burden
  • Life settlements are an established, well-regulated and effective asset class in jurisdictions around the world and they provide substantial benefits for seniors, governments, financial advisors, brokers and investors
  • In the USA, the Life Insurance Settlement Association (LISA) states that American policy owners are paid more than $7 million/day in life settlements
  • Canadian seniors are unaware of the hidden value that they could access in their life insurance through life settlements and this ignorance is a serious barrier to changing legislation and allowing them open market access to an asset that is rightfully theirs.
  • 80%-90% of life insurance policies are cancelled or lapse, which means the insurers never have to pay the full death benefit. Life settlements change this.

 

canada-leaf_v_e_cmyk.254133203These are but a few facts that demonstrate the real need for Canadian seniors to be able to access their life insurance asset through life settlements, if and when they want or need to. It is not about “promoting” or vague risk innuendo, it is about doing what is right.

 

A well-regulated life settlement industry will put more money in Canadian policy owners’ pockets (often more than four times as much) rather than leaving that money in the life insurance companies’ pockets. It’s time for Mr. Guloien, not his lawyer, to join the conversation about how best to do this for Canadians.

Taking on the life insurance companies

 Someone has to advocate for Canadian seniors

5

Advocacy is not a top priority for mainstream media because their mandate is first and foremost what they call “hard news.” Obviously, they have lots of “soft” content, from entertainment and travel to personal advice but their bread and butter is news. Of course, when an advocacy movement is big enough, important enough and loud enough, then there’s chance the media will pick up on it – at least for a day or two. Beyond that, it’s dependent on good investigative journalists. Or an organized group advocating in the best interests of the public. Or both.

 

Never doubt that a small, thoughtful group of people can change the world. Indeed, it is all that ever has. – Margaret Mead

 

Canadian seniors have many advocacy groups and yet, there is not one group that I know of advocating for them regarding the indisputable benefits life settlements can bring to their lives. The selfish motivation behind life insurance companies’ opposition (billions of dollars) is unacceptable, and I question the integrity of organizations like CARP (Canadian Association of Retired People) and Advocis, (Financial Advisors Association of Canada), who purport to work on seniors’ behalf while remaining silent on the veracity and proven value that life settlements can bring to Canadians. It is not the rank and file membership of such organizations that are culpable, it is the leadership. There are many members of Advocis (financial advisors and brokers), who support life settlements but cannot push for them due to the threat from life insurers who can cancel their licensing agreements. It’s intimidation that is in the insurers’ interest, not in the best interests of the advisors’ clients. And very few of CARP’s 300,000-plus, aging members know about the value life settlements could provide because CARP isn’t telling them. Every member of Advocis and CARP should ask their executive where they stand on establishing a well regulated life settlement industry in Canada.

 

Anyone who doesn’t see the problem – and the obvious solution – or chooses to ignore it, either has their head in the sand or their hand in their own pocket.

 

David&GoliathBuilding a coalition

Grassroots movements form around a few principles and if the fundamentals are right, the movement always wins. As in the story of David and Goliath, right, not might, prevails. And I believe the battle to bring a well regulated life settlement industry to Canada – as exists in the US, England, Europe and Australia – is right. And the might of the life insurance companies’ opposition will not prevail.

A few principles:

  1. The cause must be right for the majority of people (over 5 million Canadian seniors).
  2. To fuel a movement there needs to be an oppressor using their size and clout to protect their self-interest (Canadian life insurance companies) at the cost of the majority’s interest.
  3. An effective coalition must unite behind the cause and engage the majority.
  4. The politics will move if the public move.

The life settlement issue in Canada meets these criteria and a coalition has formed and momentum is building.

 

LG-IE Screen shotRecently, I wrote a column for Investment Executive magazine (Feb. 1, 2015 issue) and covered the essence of the issue in about 700 words. I make the entire case in my book, Why Are Canadian Seniors Worth More Dead Than Alive? The book, the articles (more to come) and the current supporters are just the catalyst and the beginning of a growing advocacy that will ensure that what is right will be done for the millions of Canadians with life insurance.

 

I pose another question: Was Donald Gulioen, CEO of Manulife and Chair of the Canadian Life and Health Insurance Association (CLHIA) sincere when he said in his Nov. 18, 2014 speech (see previous blog below), “We’re deeply involved in … and committed to … the health care and financial well-being of Canadians, and Canada’s economy.”? If he was, then he and his colleagues need to walk the talk and do what the rest of the world is doing and support life settlements. Canada deserves it. And every owner of a life insurance policy in Canada deserves it, and is entitled to it.

An open letter to Donald A. Guloien

Chair, Canadian Life and Health Insurance Association and President and Chief Executive Officer, Manulife Financial Corporation   photo courtesy: 123.ca

Donald A. Guloien is Chair, Canadian Life and Health Insurance Association and President and Chief Executive Officer, Manulife Financial Corporation (photo: 123people.ca)

I recently read the transcript of a speech by Don Guloien delivered at the Canadian Life and Health Insurance Association’s “Advocacy Day,” on November 18, 2014, in Ottawa. The theme of the meeting was, “Investing in Canada’s Health and Prosperity.” In keeping with that theme, I posed several questions in a letter to Mr. Guloien.  I raised the following questions based on direct excerpts from the speech. I have also posted the full transcript of Mr. Guloien’s speech at the end of this blog.

 

My open letter:

I read with interest your speech at the Canadian Life and Health Insurance Association’s “Advocacy Day,” and following from the theme of the meeting, “Investing in Canada’s Health and Prosperity,” I would like to address a few questions.

My wish is to open a dialogue with you and the CLHIA – as I have with a number of elected and government officials – regarding what I consider a critical issue for Canadians and the burgeoning cost of health care, pensions and retirement support for our aging population.

 

You state:
“We’re deeply involved in … and committed to … the health care and financial well-being of Canadians, and Canada’s economy.”

Question:
If this is true, why do life insurance companies in Canada continue to oppose the implementation of a well regulated and fiscally controlled life settlements industry in Canada? Particularly when life settlements are a well regulated industry that helps millions of citizens in the United States and other countries around the world.

 

You state:
“From our vantage point, it is evident that Canada’s social programs, such as pension plans and universal health care, are under enormous pressure.

“The life and health insurance industry has the capacity and the expertise to be a strong partner with government and other stakeholders to explore new ways of providing and financing these critical programs. Programs that help make Canada such a compassionate and wonderful place to live.”

Comment: This is an excellent principle, one that is being followed in the United States. For example, in Texas there are bills such as the first Medicaid life settlement law, which allow for proceeds of a life settlement to help fund long-term healthcare needs without barring individuals from enrolling in Medicaid. This helps take the burden off of government funded programs.

Question:
Do you not consider Canadian seniors who are struggling financially, and who own life insurance policies, to be “stakeholders” who need the industry “to explore new ways of providing” help?  And if laws in the USA allow for proceeds from life settlements to help long-term healthcare needs then why not in Canada?

 

You state:
“We are blessed in Canada with a strong, principles-based regulator in the Office of the Superintendent of Financial Institutions. Canada is well respected in international financial circles and is playing a leadership role in developing sensible regulation. As international financial regulators contemplate new rules governing areas such as capital and accounting, Canada must continue to be at the forefront.”

Comment: Regarding “regulators contemplating new rules,” Canada is not at the forefront in key areas that can financially benefit seniors rather we are trailing the rest of the world by a wide margin.

Question:
Why would the life insurance industry not support “a strong, principles-based regulator … playing a leadership role in developing sensible regulation …” that would allow Canadian seniors to access their life insurance asset through a life settlement?

 

You state:
“Our industry is a participant in public infrastructure and has the ability to do more. We have the funds to invest here at home and we are interested in increasing our stake substantially in this important sector. But our involvement in these projects has to make good business sense.”

Question:
Does “good business sense” preclude good social sense? To your earlier point regarding “Canada’s economy,” does not the financial well being of a growing senior population have serious, government cost implications that can be eased through public-private efforts like life settlements? (See Texas example referred to above).

 

Near the end of your speech you state:
“Our industry has the capacity and expertise to play an important role in these areas. In partnership with governments and businesses, we can contribute to effective long-term solutions.”

Question:
Why do you not consider well regulated life settlements as a valid, practical and beneficial way of helping Canadians in retirement; thereby, alleviating dependency on social welfare programs?

 

You state:
As one of three key points near the end you say: “We can and want to do more to help Canadians save for retirement.”

Question:
Why not assist Canada’s aging population to access what is recognized in most jurisdictions as the accepted, fair market value of their life insurance policies by way of a well regulated, life settlement industry?

 

It is respectfully hoped that you will accept these comments in a constructive and well-intentioned manner.

 

I take the liberty of enclosing a copy of my recently published book, Why Are Canadian Seniors Worth More Dead Than Alive? which addresses the subject of life settlements – as does my website www.hereliesyourmoney.com. I trust you will find them of interest.

Indeed, I would welcome an opportunity to have further discussions with you on these matters that are so important to Canadians.

 

Yours truly,

Leonard H. Goodman

 

Transcript of Mr Guloien’s speech

(see link to CLHIA site and a 17 minute video of the speech)

http://www.clhia.ca/domino/html/clhia/clhia_lp4w_lnd_webstation.nsf/page/79937503945A160F85257D93007305E0

 

Innovation and Collaboration: The future direction
of Canada’s life and health insurance industry

Remarks by
Donald A. Guloien

Chair, Canadian Life and Health Insurance Association
and President and Chief Executive Officer, Manulife Financial Corporation

November 18, 2014
Fairmont Château Laurier
Ottawa, Ontario

Thank you for your kind introduction, Peter [Braid].
Honourable Members of Parliament, Minister Holder and distinguished guests, I want to welcome everyone on behalf of the Canadian Life and Health Insurance Association. We are delighted that you could join us this morning.

Over the years, our industry’s Advocacy Day has become a highlight of our ongoing dialogue with federal policymakers. CEOs from several CLHIA member companies are here today as part of the 5th Annual Advocacy Day:

    • Yvon Charest, President and CEO of Industrial Alliance
    • Kevin Dougherty, President of Sun Life Canada
    • Douglas Baker, President and CEO, Teachers Life
    • Doug Brooks, President and CEO, Transamerica Life Canada
    • Rino D’Onofrio, President and CEO, RBC Insurance
    • Dave Johnston, President and COO, Great-West Life/London Life/Canada Life
    • And Alka Guatam, COO and CFO, RGA Canada

This year’s theme is Investing in Canada’s Health and Prosperity.

We will be talking with Parliamentarians and officials about what we see as the challenges facing Canada and Canadians in areas such as:

    • saving for retirement
    • health care, and
    • funding and sustaining the public infrastructure that will ensure Canada’s future development.

The life and health insurance industry is involved in all these areas. We believe we are making a significant contribution toward finding solutions to these challenges. But more can and needs to be done.

How our country addresses these challenges will help determine Canada’s continued success.

That’s why we are taking an active role in public policy discussions on these issues … and that is why we are here today.

Although our roots are in life insurance, innovation is very much part of our industry’s DNA. As a result, we have been successful in adapting to the changing financial landscape, both at home and abroad.

Today, Canada’s life and health insurers:

    • provide financial security and supplementary health care products to more than 28 million Canadians,
    • manage about two-thirds of Canada’s private retirement savings plans,
    • pay out over $1.5 billion in benefits to Canadians … every single week, and
    • employ more than 150,000 Canadians, including close to 97,000 agents and advisors.

The industry is also:

    • one of the largest investors in the Canadian economy, with $650 billion in domestic assets, and
    • active in over 20 countries worldwide, where we hold assets of another $658 billion.

We’re deeply involved in … and committed to … the health care and financial well-being of Canadians, and Canada’s economy.

From our vantage point, it is evident that Canada’s social programs, such as pension plans and universal health care, are under enormous pressure.

Canadians … from all walks of life …. are rightly concerned about the future well-being of these programs.

The life and health insurance industry has the capacity and the expertise to be a strong partner with government and other stakeholders to explore new ways of providing and financing these critical programs. Programs that help make Canada such a compassionate and wonderful place to live.

The life and health insurance industry already plays a role in two important areas that touch the lives of millions of Canadians:

  • The first is workplace retirement savings plans. These include:

– defined-contribution pensions,
– group RRSPs, and
– Pooled Registered Pension Plans, or PRPPs, that will increase access to workplace retirement plans for millions of working Canadians.
– Overall, our industry administers over 70% of all pension plans and over 90% of group RRSPs.

  • The second area is workplace health benefit plans. These help employees and their families with medical costs not covered by provincial plans. They include:

– dental care
– vision care, and
– prescription drugs

For many businesses, extended health benefit plans are effective tools to attract and retain high-quality employees.

Yet employers who offer fully insured benefit plans may face some difficult decisions. For instance, one of their employees could be diagnosed with a rare disease requiring a drug treatment costing thousands per month. This alone could make an employer’s health benefit coverage unaffordable, and that may force them to reduce or completely drop drug coverage.

To help these employers hold on to their plans … especially small- and medium-size businesses … our industry took action. On January 1st last year, all life and health insurers worked together to launch the Canadian Drug Insurance Pooling Corporation.

Through this pooling arrangement, participating insurers share the costs of very expensive and recurring drug treatment claims. This innovative approach is keeping plan costs affordable for employers. At the same time, it shelters their employees from the full financial burden of the prescription drug treatments they may require.
In 2013, the new pooling mechanism paid more than 4,000 prescription drug claims of over $25,000. Several individual claims exceeded $500,000. One was over $1.2-million.

Another area where we see a much greater role for our industry is ensuring Canada has the public infrastructure in place so Canadians can continue to enjoy a high performing economy and a high standard of living. I’m talking about infrastructure such as:

    • hospitals,
    • transportation networks,
    • bridges
    • schools, and
    • green energy

Canada, like so many other countries, has financial challenges when developing and maintaining public infrastructure projects. In fact, estimates suggest we currently have an infrastructure deficit of more than $350 billion.

This infrastructure deficit must be addressed if Canada is to realize its full growth potential in the coming decades.

Sustained long-term growth needs predictable long-term investment. The long-term nature of the insurance business is well suited to this type of investing as our obligations to policyholders often span several decades.

The importance of encouraging long-term investment in public infrastructure has also been recognized internationally by the G20 and the OECD.
The G20 Finance Ministers called for the creation of a Global Infrastructure Initiative to increase quality investment, especially in infrastructure. The CLHIA strongly supports this international initiative and Canada’s role in it.

These countries, Canada among them, are looking closely at how they can encourage Public Private Partnerships, or P3s, and better ways to engage the private sector in these projects.

P3s, for their part, have been effective in delivering infrastructure projects on time and within budget.

The Canadian government has played a very proactive role in promoting P3s across Canada through the creation and funding of a Crown Corporation called P3 Canada. We applaud the government for this, but believe more can be done.

Our industry is a participant in public infrastructure and has the ability to do more. We have the funds to invest here at home and we are interested in increasing our stake substantially in this important sector. But our involvement in these projects has to make good business sense.

We invest in infrastructure to support our liabilities on long-term products. Therefore, we should ensure that changes to financial and capital standards do not constrain our ability to offer long-term products, as otherwise our need for infrastructure investments could see a dramatic decrease.

We must continue to ensure that accounting and capital rules do not penalize investments in infrastructure assets that typically provide stable cash flows to support our liabilities.

In such projects, as in all our activities, the future direction of Canada’s life and health insurance industry will depend in no small measure on the regulatory environment in which we operate.

As financial institutions emerged from the 2008-2009 financial crisis, there’s been an unprecedented leap in the level of regulation.

We understand … and fully support … the role of regulators in protecting the public interest and ensuring the conditions that led to the financial crisis do not occur again.

We are blessed in Canada with a strong, principles-based regulator in the Office of the Superintendent of Financial Institutions. Canada is well respected in international financial circles and is playing a leadership role in developing sensible regulation. As international financial regulators contemplate new rules governing areas such as capital and accounting, Canada must continue to be at the forefront.

Our industry requires a regulatory environment that does not substantially increase the cost of financial services to Canadians or stifle innovation, growth and competitiveness.

Canada has a very bright future. And it boasts a vibrant life and health insurance sector that remains at the economic forefront internationally and domestically.

Our industry will continue to innovate by building on the solid foundation we have developed over more than 150 years.

1) We can and want to do more to help Canadians save for retirement.
2) We can and want to help sustain Canada’s healthcare system.
3) We can and want to invest more in public infrastructure at home.

Our industry has the capacity and expertise to play an important role in these areas. In partnership with governments and businesses, we can contribute to effective long-term solutions.

We look forward to continue working on these with governments and other organizations, such as those represented in this room.

I am confident that, together, we can create the innovative solutions essential to making Canada even more healthy and prosperous.

Thank you.