Govt of Canada - Real Return Bond - Long Term

It is a weird time for Life Insurance company financials. On one hand you have MASSIVE corporate profits

Manulife $1.2 Billion in Q1 2012

Great West Life $451Million in Q1 2012

Sun Life $686 Million in Q1 2012

And yet, insurance companies are all terrified of the current prolonged low interest rate environment.

Manulife just increased their Universal Life and Term 100 rates again, this is the third or fourth time in a year or two. And earlier today RBC Insurance announced that they had just pulled the plug on all of their long term insurance products.

RBC today announced they will suspend sales of:

• RBC Universal Life
• Term 100
• Long Term Care Insurance
• Critical Illness T100
• Critical Illness term 75 paid up at 65
• Critical Illness Return of Premium on surrender riders
• Quantum Disability Insurance

What do these policies all have in common? A long term horizon of age 65, 75 or 100. 

Why are many companies raising their rates or as RBC has just done pull products from shelves?

Simply because with the current low interest rates they can't make a profit on these long term policies.

The way insurance companies finance these long term policies is they buy long bonds, usually 10-30 year maturities. Since these long bonds are paying so little interest (Govt. of Canada Real Return Long Bond is yielding 0.38% as of June 13, 2012) they need to put aside a lot more capital in reserve to pay out future claims. These higher capital reserve requirements mean they either have to increase rates to consumers, or simply say enough is enough and pull the products with long horizons as they simply can't make money off them.

Short term, insurance companies are posting huge profits, long term the future looks shaky especially if interest rates stay low.

*Edit - I also just got a notice from Industrial Alliance Pacific that they too are increasing rate on July 3 2012.
rates are increasing by 3-10% for long term products such as Universal Life, term 100, Term to 65, Critical Illness and otehr similar long term policies. Something interesting to note, the increase for those age 60+ is only about 3% in most cases, if you are under 60 your increases are 7-10%. Why the difference? Well if you are 60+ you are going to die sooner...  

--
Robert Reynolds, GBA
Certified Group Benefits Advisor
Hendry McKenzie Reynolds Employee Benefits Ltd.

Toll Free: 1-888-592-4614
rob@hmrinsurance.ca
www.hmrinsurance.ca

E.O. E.

Insurance Journal is a industry magaize that I subscribe too. On occasion they put out internesting comparisons of products or insurance companies.This month they have an interesting comparison of Living Benefits products from various insurer. 

Below you will find a comparison of the Critical Illness coverage provided by insurance companies across Canada. Not all products are created equal. This list shows the different conditions that are covered or not covered as the case may be. 

I have highlighted the products I tend to use in green. You will notice they are the most comprehensive of the bunch.

Click to enlarge

They also had a good comparison of Non-Cancelable (good quality) Disability insurance. Manulife has a couple good DI policies, but they aren't included.  I don't personally use Manulife's DI policies, but only for the reason that I know RBC and Canada Life better and I have not yet found a situation where Manulife is the better option.

Click to enlarge

For very high incomes and very skilled professions, Lawyers, Doctors, white collar business owners etc. I much prefer the RBC Professional contract. The wording is from an older DI policy from decades ago and you can actually read it! a 5 year old could read it and understand it. Most newer policies, not so much. It is my opinion that the RBC Professional policy is probably the strongest policy available today, but it is hard to get and is expensive as you might expect.

For Blue Collar business owners, and employees who want a high quality Disability Insurance plan I like Canada Life as their plan is more customizable and you can mix and match options to make a more affordable plan for those that don't need all the bells and whistles built into the RBC plan.

--

Robert Reynolds, GBA

Certified Group Benefits Advisor

Hendry McKenzie Reynolds Employee Benefits Ltd.

Toll Free: 1-888-592-4614

rob@hmrinsurance.ca

www.hmrinsurance.ca

E.O. E.

Pharmacy Dispensing Fee Update

The last time I saw a survey on Pharmacy Dispensing Fees in BC was in June 2009, I posted about it here.
Since it has been nearly 3 years since that data was collected I decided to make a few phone calls to local pharmacies in Victoria BC. I have compiled the current dispensing fees in the table below

The blank spaces are pharmacies which are not present in Victoria BC, so I did not call them. Keep in mind that these numbers are from a single location of each company. The location closest to you may very well charge a different rate.

One neat "secret" I discovered is that you do not need to be a member of Costco to use their pharmacy. Drug costs are also often tied closely to the dispensing fees charged. So it is a safe bet the same drug will cost less at Costco, than at other pharmacies.

Your mileage may vary.
--
Robert Reynolds, GBA
Certified Group Benefits Advisor
Hendry McKenzie Reynolds Employee Benefits Ltd.

Toll Free: 1-888-592-4614
rob@hmrinsurance.ca
www.hmrinsurance.ca

E.O. E.

Pooled Registered Pension Plan (PRPP)

The Federal Government recently passed Bill C-25 also referred to as the Pooled Registered Pension Plan Act. while still in its infancy, and with many details still to be drawn up, this plan provides yet another method for Canadians to save for their retirement. Standard Life has put out a good summary of what we know thus far. I have linked it below. I have also summarized what I feel are the most important parts.

Rob's Summary

• All employers will be required to offer the plan to all employees working for at least 24 months.
• Employees will be "auto-enrolled" and can opt out.
• Employees can voluntarily contribute a percentage of their earnings to the PRPP by payroll deductions.
• The employer is NOT required to match or contribute (at this time, this could change)
• The suppliers of these plans will largely be existing financial institutions such as banks and insurance companies
• Investment fees are to be kept to a minimum <1%
• Since fees are to be kept so low there will be a very low level of service, there is no overhead to pay for extra service or pay advisors commissions.
• All contributions are LOCKED IN
• Access to the Home Buyers Plan and Lifelong Learning Plan tax free withdrawals/loans are not allowed
• Investments will presumably be a list of funds similar to today, but likely focusing more on Asset Allocation and Target Date/Retirement Date Funds
• There is currently no default fund selected but it is expected to be a Retirement Date fund targeting retirement at age 65.
• This is likely a good thing for Canadian, as our savings rate is abysmally low, however, as this is currently voluntary, it is doubtful that many employees will participate in the PRPP if employers don't match, and even then there are drawbacks to the PRPP such as the locking in provision and loss of Home Buyers Plan and Life Long Learning Plan when compared to the also voluntary RRSP.
• Broker are going to hate the PRPPs. They will pay little or no commissions. Pension managers with large blocks of business are already terrified that their commission stream is going to dry up. There will certainly be a shift in how we as advisors market and sell group savings plans. Many will switch to a fee for service model, provide little or no service, or exit the market all together. It will be interesting to see how the industry reacts to this new plan and its implications on our bottom line.
• Similar plans have recently been launched in Australia and the UK. in those countries the employer must match employee contributions, which some expect may come to the PRPP if adoption rates are low.

Everything listed above is correct to the best of my knowledge at the time of writing, as many details have still yet to be finalized they may change in the future. That being said take everything above with a grain of salt, as very little is concrete at this point in time.

Standard Life Summary


*edit; Spelling


--
Robert Reynolds, GBA
Certified Group Benefits Advisor
Hendry McKenzie Reynolds Employee Benefits Ltd.

Toll Free: 1-888-592-4614
rob@hmrinsurance.ca
www.hmrinsurance.ca

E.O. E.

Long time no post, here is some marketing jargon I put together recently

A more affordable Health and Dental plan 

where you control the rates!

You may have heard of the recent bankruptcy of Nortel which left thousands of employees without benefits or pensions. This is because Nortel used a “Defined Benefit” plan. A Defined Benefit plan means essentially “you get this benefit, no matter the cost”. That’s how bankruptcy happens.

While the world of Pensions have long since made the switch away from Defined Benefit, and towards Defined Contribution plans. The land of Health and Dental insurance has stayed firmly in the world of Defined Benefit. A Defined Contribution plan is just that, a plan where you can control exactly how much you as an employer contribute.

Do you provide the same benefits as 10 years ago? But the price has doubled or even tripled? Double digit increases each year are becoming unsustainable for many businesses’. We have a way to put the control firmly back into your hands.

Health Care Spending Accounts  (HCSA) are the “Defined Contribution” plan of the Health Insurance world. Each employee receives a defined amount of benefit dollars each year, say $1000 or 3% of salary. The employee can spend these funds on healthcare, dental care, glasses, massage etc. There is no plan design, so the benefits are entirely flexible for the employee, no more “one size fits all” insurance plans.

While employees love the flexibility HCSA’s provide, employers love the ability to budget and control costs. Since the amount of benefit is not tied to an insurance policy, there is no insurance company to raise the rates year after year. If you have 10 employees and they each get $1,000 per year, you know your budget is $10,000 year after year. No surprises at renewal time. You can increase benefits to fight off the effects of inflation or decrease the benefits to keep in sync with the profitability of your business. You are in the driver’s seat.

Health Care Spending Accounts are low cost, and low administration. Administration fees are typically 10-15% of paid claims; rather than the 30-40% overhead build into the rates of most group insurance plans. Affordable stop loss policies are also and attractive option to reduce risk in event of a catastrophic claim.

If you would like more information on how a Health Care Spending Account might be right for your business, please contact me

Robert Reynolds, Certified Group Benefits Advisor

Hendry Swinton McKenzie Insurance Services Ltd.

Toll Free: 1-888-592-4614 or rob@hmrinsurance.ca

--
Robert Reynolds, GBA
Certified Group Benefits Advisor
Hendry McKenzie Reynolds Employee Benefits Ltd.

Toll Free: 1-888-592-4614
rob@hmrinsurance.ca
www.hmrinsurance.ca

E.O. E.

Lower EHC trend factor used for pricing

Sun Life has announced today that they are joining the party started by Great West Life recently of lowering their health care trend factors. Recently GWL dropped their health care trends from 15.5% per year to about 12% per year. Sun Life has just done the same and dropped their trends a similar amount. I fully expect the other carriers to follow suit quickly.

A refresher on what is a trend factor can be found here

Sun Life Press Release

---

Sun Life is pleased to announce that we are lowering our Extended Health Care (EHC) trend factor used for pricing.

New Trend Factors

Our new trend factors vary based on the plan design, as indicated in this table:

	Annual Trend factor for EHC plans
No Deductible	11.5%
With Deductible	13%

Why are we making these changes?

Sun Life continually reviews our financial experience and emerging practices in the marketplace to ensure our products are priced competitively. We’ve identified a lowering of our actual experience of the EHC benefit as a whole – mainly due to reduced drug spending. The reduction in drug cost is primarily a result of two factors:

1. Market changes: As patents on ‘blockbuster’ drugs expire, generic drugs (made with the same active ingredient) replace them at a lower cost. Simultaneously, most provincial governments have legislated lower prices on generic drugs. Together this results in a reduction in overall drug pricing.
2. Cost management solutions: In January 2011 Sun Life launched our Provincial Integration program, to ensure that, on a systematic basis, sponsors do not pay for specialty drugs in circumstances where the provinces have created specialty funding opportunities. Additionally, our in-house pharmaceutical team has several new initiatives in development to help sponsors manage their drug spending more pro-actively going forward. Stay tuned for details.

Timing

These new trend factors are applicable to all renewals using an experience period ending on August 31, 2011 or later. Due to the renewal cycle process, these renewals have a renewal notice date on October 31, 2011 or later, and rate effective date on December 1, 2011 or later, depending on the renewal notice period. We are using these new trend factors in our quotes effective immediately.

Questions?

For more information, please contact your Sun Life Financial group benefits representative.

---

As I mentioned, here, the province of BC has recently struck a new deal on generic drug pricing, this is finally starting to kick in and impact rates. Furthermore, many of the mentioned "blockbuster" drugs are coming off patent, which means generics will soon be available. This is huge news for drugs the likes of Lipitor, the best selling drug ever, which brings in over $11 Billion in revenue per year. Lipitor's patent expired July 19th, 2010 in Canada. A month's supply of "brand name" Lipitor costs about $150, and generics cost about $10 per month.

TL;DR You should start to see health care rates stabilize or at least not increase quite so fast.

--
Robert Reynolds, GBA
Certified Group Benefits Advisor
Hendry McKenzie Reynolds Employee Benefits Ltd.

Toll Free: 1-888-592-4614
rob@hmrinsurance.ca
www.hmrinsurance.ca

E.O. E.

Worst Acting Ever

bring on the hate mail

Please forgive the wooden acting, there is obviously a good reason why these folks are in the insurance biz and not Hollywood.

Sun Life has started putting up some little videos on Group Benefits. There are two up so far, the first is mostly just an introduction to the video series, don't bother watching it. The second video actually has some substance to it.

Link to Video 2's Page - Plan sustainability – Series 2

Sun Life is surveying their plan members and seeing how they would react to changes aimed to reduce costs on their plan.

The main result were as follows.

1. Young people 18-34 just don't care.
2. Everyone else is in favor of managed plans (drug pre-authorization, generic substitution, maximum drug cost limits) but very unfavorable to reductions in co-insurance, lower dispensing fee maximums and raising premiums.

Makes sense, the only question it raises for me is the level of understanding on the behalf of plan members. Especially with drug pre-approval, as I have found any time this is used it drives employees crazy. I think they simply stated they prefer pre-approval, because they don't grasp how it works as well as something simple like a lower co-insurance. Prior pre-approval has led to some of the ugliest situations I have run into with drug plans. Green Shield has a program called a Conditional Formulary, where expensive drugs need to be pre-approved. The Dr. would write a prescription, the employee goes to the pharmacy to fill it, and the computer tells the pharmacist that the drug needs pre-approval, or the plan won't pay for it. I then get angry phone calls from the employee, HR and owners. 

Overall I have noticed similar reactions with my own clients, and have been recommending similar changes to help curb rate increases while keeping employees happy. My observations weren't scientific or by survey but it is nice to see them validated.

--
Robert Reynolds, GBA
Certified Group Benefits Advisor
Hendry McKenzie Reynolds Employee Benefits Ltd.

Toll Free: 1-888-592-4614
rob@hmrinsurance.ca
www.hmrinsurance.ca

E.O. E.