Over the past few months, it’s been all hands on deck for many companies in the insurance industry as the COVID-19 outbreak cut off normal channels of applications, underwriting, and claims processing. And for the life insurance arm of one Big Six bank, recent activity numbers show how the pandemic hasn’t slowed things down.
“It’s quite interesting,” said Daniel Walsh, vice president, Business Development at BMO Life Assurance. “If you look at our recent third-quarter results, which include May, June, and July, we’ve been able to put up similar numbers to what we saw during the same period last year, despite being in a pandemic.”
According to Walsh, the number of life insurance policies put in place by the bank-owned insurer during those three months substantially overlapped with the number that was seen for the third quarter of 2019. The total premiums consumers have invested in their insurance products have also been fairly stable, inching up 1.5% compared to last year.
The number of life insurance applications received has also risen, with a modest bump of 7% over 2019, reflecting a steady and possibly even improved demand for life insurance products. That increase may lend itself to a further increase in new policies issued given the delay between application and approval – something that’s to be expected, but BMO and its partners are also working to shorten.
“The vast majority of our business is done through financial advisors, independent advisors, and managing general agencies,” Walsh said. “The big change we’ve seen during the COVID crisis is a substantial increase in the usage of electronic applications among our business partners. We’ve also been operating virtually for a number of months, so we’ve been forced to create new ways for Canadians and consumers to get their contracts.”
In the height of the COVID-19-imposed lockdowns, the paramedical companies that normally administer the tests and fluid collection necessary for most traditional life insurance policies were severely hamstrung. Because of that, Walsh said, BMO had to develop a more electronic approach, which included accommodating electronic signatures. And to cater to as many consumers as possible, he said numerous companies have raised their maximum coverage amounts and relaxed the eligibility requirements for no-medical life insurance.
“Because the COVID crisis started mid-March, it forced us to react quickly in order to be able to allow advisors and Canadians to put their policies in force,” Walsh said. “The insurance business as an industry has done quite a lot, I would say over recent months, to find ways to continue providing life insurance policies and ensuring their required coverage is in force.”
One segment of the Canadian population that’s been heavily impacted by the pandemic is business owners, particularly as a slowdown in sales, continued need to pay fixed costs, and rising expenses related to compliance with new health and safety requirements, to name a few, present challenges to their liquidity. The federal government has deployed a raft of financial lifelines to help entrepreneurs stay afloat, but not all of those have been helpful – and where government aid has failed, certain types of life insurance coverage may help.
“For those business owners who already had coverage and insurance contracts in force for some time, particularly through permanent products like universal life or whole life, the ability to access the policy’s cash value may be useful,” Walsh said. “If their policy carries a cash value, they may be able to access those funds through partial withdrawals or take a policy loan directly from their insurance contract. Another option is to go to an external lending facility and pledge the value of that contract as a guarantee for a loan.”
Life insurance, used properly, can also function to help the continuity of a small business. One common application is for loan balance protection, which would protect the business in case of a premature death. There’s also the use of key person insurance, which would protect the business against the financial risk of a key employee being lost.
For businesses that don’t operate as sole proprietorships, life insurance may also be used as a vehicle to fund buy-sell agreements. If one shareholder were to die prematurely, proceeds from a death-benefit payout would be used to fund the smooth transfer of their ownership interest to the surviving co-owners. In a similar fashion, a policy may be used to transfer the business’s assets to the next generation of owners in the most tax-efficient way.
“Entrepreneurs and small-business owners work very hard to preserve their businesses, and they’ve been fighting harder than ever in the context of COVID-19,” Walsh said. “From what we see, they realize more than ever the importance of being well covered by having insurance coverage in place. Even if they were not there anymore, at least insurance proceeds would be there to ensure some continuity in their business.”
In recognition of the struggles facing business owners and other in-force clients at the moment, he said the industry has provided premium-relief programs that allowed clients to defer the payment of their premiums, typically for up to 90 days. And as entrepreneurs tighten their belts and turn a more critical eye on costs, Walsh urged policyholders to pay attention to the overall premiums they pay and ensuring they have the proper coverage in place.
“As long as they provide good information at the time of their application and there’s no fraud at play – which is very rare, I must add – they’ll have a valuable financial safety net that they can access in case of an emergency,” he said. “As our CEO reminds us all the time, we’re in the business of paying claims. That’s what the policies are for.”