July 2008

Life enhancing product

What current market trends led to the development of your enhanced annuity?

There have been a couple of trends that led us to go in this direction. First of all, the overall annuity market is growing very strongly with forecasts showing a huge amount of money due to come into the annuity market in the coming years. We wanted to take advantage of this growth as much as possible and in particular we've seen the enhanced annuity market grow strongly over the past five years. Enhanced annuities currently take up 20% of the open market and it is our belief that this will grow going forward.

Tell me about the product?

At the moment the market seems to be split in two with the lifestyle enhanced section being served by companies who are able to offer quotes quickly, often using simple online tools. We also have the section of the market that deals with more severe illnesses and these products tend to have manual underwriting processes. Our product spans both sections of the market by having an automatic underwriting system that asks more complex questions and is able to generate an automatic quote. As long as the IFA is able to put the right information into the system then they should get a good value quote from us. Many IFAs may well choose to continue to submit business through common application forms which will still give a quote that day but at least they have the choice. We are hitting all our service standards for cases so far and some of the quotes we are issuing are 15-20% ahead of the nearest competitor.

How are you able to offer an improved underwriting system?

All of the medical expertise behind the system is from reinsurers but we also needed to ensure that all systems talk to each other so that the IFA can get the best quote possible.

How do you see the enhanced annuity market developing over time? Do you see much in the way of product development?

We believe that one of the most direct results of growth in the enhanced annuity market will be that the lives in the conventional annuity market will be better and this has certainly affected rates.

However, I don't think there will be much movement. I also think we will continue to see more development in the annuity market with the postcode annuity model for instance becoming more refined as there is a move towards increased segmentation. You could see annuity rates being calculated using a whole series of ratings factors similar to the way the car insurance market works for instance. As a result we think that there wouldn't be any such thing as a standard annuity as each quote would be dependent on factors surrounding who the client is and where they live. There will certainly be more developments along this vein.

Canada Life also recently started offering value protection - both to its standard and enhanced annuity offerings - what prompted you to start doing this?

The only reason we hadn't offered it before was because IFAs hadn't seen it as something they could offer to clients.

However given the fact that we were developing an enhanced annuity product we decided to offer it on both enhanced and standard and advisers can choose to use it if they wish. We've certainly had some interesting feedback on it. Some advisers still aren't very keen on the idea while others think it is great and the cost of it is certainly less than people expect. We do think that people will get real benefits from using the service.

John Occleshaw
Executive Director, Life & Pensions Business
Canada Life