Canadian Life and Health Insurance Association Inc.

The Vital Social and Economic Role of Canada's Life and Health Insurance Industry - A Keynote Address by George Mohasci, President and Chief Executive Officer, Foresters

Release Date: 09/07/2011
Staff Reference: Wendy Hope

Presented on September 7, 2011
The Economic Club of Canada

    Good afternoon ladies and gentlemen and thank you for inviting me to address the Economic Club of Canada today.
    I’m pleased to be here as Chairman of the Canadian Life and Health Insurance Association, and to have this opportunity to discuss the vital role of our industry to Canada and Canadians – both economically and socially.

    Reading the business section these days can certainly be a scary experience ─ given the roller-coaster ride international markets are taking. But I’m not here to scare you. Mine is a good news story about a successful Canadian industry and the partnership it is forging with government.

    In these uncertain times, Canadians are looking for security. And we’re very fortunate in this country to be blessed with one of the world’s strongest financial systems, with sound regulation and strong, conservatively managed financial institutions, including the Canadian life insurance companies I am representing today.

    I don’t plan to delve further into the current economic turmoil as I understand the Economic Club will be hosting a panel discussion by leading Canadian economists on this subject tomorrow. Being economists, I’m sure they will be in full agreement on what it all means.
      Today, I plan to focus on the life insurance industry’s impact on the Canadian economy, its role in providing financial security to Canadians and the leadership position the industry is taking as an advocate in promoting the social needs of Canadians, including in such crucial areas as health care and pensions.
        Since this is my first appearance as CLHIA Chairman, I’d like to start by providing background on the Association.
        The CLHIA is a voluntary trade association, established in 1894, that represents the collective interests of its member life and health insurers. The Association’s membership accounts for 99 per cent of the life and health insurance in force in Canada and administers about two-thirds of Canada’s employer pension plans. Our member companies protect Canadians and their families against financial risks associated with premature death, illness, and outliving their means in retirement.
          Our research tells us that many Canadians are unaware of the significant contributions made by the Canadian life insurance industry and that is why the CLHIA has introduced an Advocacy Campaign to inform Canadians about our industry. I welcome the opportunity today to tell our story to such a distinguished audience. So let me begin:
          Since this is the Economic Club, I will start from an economic perspective.
          Major Investor in the Canadian Economy
            Our industry holds assets worth more than one trillion dollars, fully half of which is invested in Canada. In fact, the industry is one of the largest investors in the Canadian economy with total assets of $514 billion invested in this country.

            Of that total, $94 billion is invested in Canadian government bonds (representing 10% of all federal, provincial and municipal bonds) and $89 billion is invested in Canadian corporate bonds (representing 15% of all corporate bonds in this country).

            These long-term capital investments in governments and private industry, combined with longer-term investments in infrastructure and private placements, support important large-scale projects such as “green tech”, infrastructure and agriculture, among others.

            Additionally, our industry is an important job creator, currently employing 135,000 Canadians – either directly, or as independent agents.

            Our industry is sound and well capitalized which is particularly important in the current economic environment. This financial strength is evidenced by the average Minimum Continuing Capital and Surplus Requirement Ratio (MCCSR) among Canadian life and health insurers which currently stands at 230% ─ significantly above the 150% requirement of our regulator, OSFI. The major rating agencies also attest to the financial strength of our member companies.

            Significantly, the core activities of insurers do not generate systemic risk, nor do traditional insurance products create the kind of risks that led to the Great Recession of 2008. And, despite this crisis, Canadian insurers have never needed, or asked for, government bailouts.
          International Success Story
            Our industry represents an international success story as well.

            Canadian insurers operate in more than 20 countries, serving over 40 million clients and generating $60 billion in total premiums from outside Canada. Of note, three Canadian insurers rank among the 15 largest insurance companies in the world.
            Clearly, we’re big, secure and successful, but what important social benefits do we offer Canadians?

            Providing Security for 26 Million Canadians
            Well, for starters, the industry provides security products to more than 26 million Canadians ─ paying more than $1 billion in benefits to Canadians every week! And, you may be surprised to learn that 90% of these benefits go to living policyholders, with the balance as death benefits.
              The industry plays a major role in helping Canadians save for retirement through insurance and pension products such as life annuities and segregated funds. We manage more than 70% of pension plans for Canada’s small and medium-sized businesses and the vast majority of group RRSPs.
                The industry provides support in times of greatest need such as the death of a loved one, in the event of disability or in the case of other health needs. Importantly, we provide supplementary health benefit coverage for items not covered by our public healthcare system such as prescription drugs, dental treatments and chiropractic visits.

                This supplementary health coverage helps 23 million Canadians annually. Of particular note, the insurance industry currently funds 12% of total health care costs in Canada and pays over 30% of all prescription drug costs in the country ─ and where would our health care system be without that?

                In my remarks today, I want to provide another perspective on the industry’s leadership in addressing social issues of importance to Canadians.

                Most of us will remember the not so distant past when governments attempted to be all things to all people – particularly in the area of social welfare; but times have certainly changed.
                Obviously, these social needs must be met. However, in these days of massive deficits and budget cutbacks, governments are looking for solutions to meet growing funding gaps. Increasingly, they are turning to partnerships with the private sector which achieve efficiencies and capitalize on industry expertise.

                That’s where our industry comes in.
                  Meeting social needs has always been an area of strength for the insurance industry. In addition to providing the life, health and retirement benefits I have discussed, individual Canadian insurance companies also play an important social role.
                    As President and CEO of Foresters, I would be remiss if I didn’t comment briefly on my organization’s mission in this area.

                    We are a purpose-driven organization.

                    As a fraternal benefit society operating in Canada, the United States and the U.K., our mission is to enhance the well-being of families and communities.

                    We do this through our insurance products, our member benefits, as well as through community activities including community playground builds and radiothons supporting children’s hospitals.

                    We are committed to contributing fully 2% of our surplus to the fulfillment of our mission annually. And we’ve been doing this for 135 years.
                    Foresters provides just one example ─ albeit a unique one ─ of the social responsibility exhibited by CLHIA member companies. Other Canadian insurers take a prominent role in supporting a wide range of charitable causes – from health causes to education, the arts and beyond.
                    The social contribution of our industry continues to evolve. Let me tell you about some important initiatives currently underway which illustrate our industry’s commitment to social issues affecting Canadians.

                  Pooled Registered Pension Plans
                    The first initiative relates to pension reform. As baby boomers reach retirement age, Canada’s aging population is putting a heavy strain on Canada’s social safety net. One of the biggest challenges facing our retirement income system today relates to Canadians who do not work for large companies and governments and cannot count on having an adequate pension plan.

                    To fill this need, our industry recommended to governments the introduction of Pooled Registered Pension Plans (PRPPs) ─ designed to offer employees of small and medium-sized businesses the opportunity to access low-cost pensions in the workplace.

                    PRPPs would be appealing to employers and employees for several reasons, chief among them that they would relieve employers from the administrative responsibilities that often deter them from offering pension plans, and by pooling many plans together, they would allow for economies of scale that are now available only to the largest of pension plans.

                    Eligible employees would be enrolled by their employer but would have the option to withdraw and the plan would be portable if the employee changed jobs.
                      The good news is that all ten provinces and three territories have expressed their intention of working towards making PRPPs available. This concept is a priority for the Canadian Federal Government and, in March, Quebec became the first government to propose concrete measures through the introduction of a "Voluntary Retirement Savings Plan" modeled on the PRPP design.

                      We applaud this initiative and look forward to other governments following suit.
                      Governments have an opportunity to make a fundamental difference through PRPPs. Structured properly, PRPPs could provide access to pension plans for three million Canadians who don't currently have such access!

                    Controlling Prescription Drug Costs
                      Another area of concern for our industry relates to the high cost of prescription drugs. Canadian generic drug costs are some of the highest in the world. Ontario has moved to change pricing, followed by B.C. As well, active discussions are under way with Quebec, Nova Scotia and Saskatchewan and this is good news.
                      Exacerbating this problem in recent years, has been a significant increase in the number of very high cost prescription drug therapies being prescribed to patients for genetic disorders, cancer and auto-immune disorders and this trend is expected to accelerate.

                      These prescription drugs have significant annual costs -- often well over $50,000 -- and some plans have at least one individual with drug claims over $1 million.

                      As well, there is a significant pipeline of new biologic and specialty prescription drugs that will be coming to market in the next couple of years. The disorders treated by these drugs are likely to be long-term in nature, resulting in very significant ongoing costs.
                      Based on research by Mercer Human Resources, this trend is likely to result in costs for private drug plans increasing by 2.5 to three times as early as the next three to four years. Obviously, this is a major concern for plan sponsors as group health insurance plans may become unaffordable for some companies.

                      The life and health insurance industry has been a major advocate for promoting lower cost drugs, particularly generics, with the provinces. Even more importantly our industry is currently developing an industry pooling-based proposal to help mitigate the implications of catastrophic drug costs. Our proposal will be of particular benefit to small and medium sized employers in Canada, to ensure that these firms can continue to offer supplementary health plans to their employees. We hope to be able to make a major announcement on this.
                    Protecting LTD Benefits
                      The next area I want to address relates to Long Term Disability. Ensuring that all Canadians continue to receive their benefits in the event of their plan sponsor’s bankruptcy is an important public policy issue. The best way to do this has been debated over the years but the issue has been brought to the forefront recently by a number of high-profile bankruptcies, including Nortel.

                      At the core, the concern relates to the different level of protection afforded disabled employees under plans that are insured by a third-party insurance company ─ vs. plans where the financial risk is borne by the plan sponsor and that are simply administered by an insurance company or other third-party administrator.

                      History has shown that when an employer becomes insolvent, and its LTD plan was self-insured, disabled employees can often lose their benefits. This creates a severe financial and emotional burden for them, since they have few, if any, prospects of returning to the workforce in the future.
                        The Canadian life and health insurance industry understands the critical importance of ensuring that employees on LTD are protected in the event of a plan sponsor’s financial stress or insolvency.

                        The industry believes that the most effective way to deal with the public policy objective of fully protecting individuals on LTD, with minimum administrative cost and complexity, is to require that LTD plans be offered on an insured basis only. Our position on this issue has been summarized in a white paper which has been put forward to, and is being discussed with, relevant government and regulatory authorities.
                      Access To Long-Term Care
                        Access to long term care is another challenging issue today. Accommodation in a long-term care facility can cost from $800 to over $5,000 per month, depending on the room type and the level of government funding available. Private home care service costs range from $12 to $22 an hour for homemaking and personal care to between $18 and $60 an hour for nursing care.

                        The collateral costs for those providing informal care in their own homes is much harder to tally. It is estimated that one-third of Canadians aged 45-64 are providing informal care to a family member or friend and are at the very least, incurring extra expenses as a result of their care giving duties.

                        As with institutionalized care, government plans do not cover all of the expenses associated with home care and subsidies and/or tax breaks given to care providers are a small percentage of the costs incurred by these individuals. While home care is viewed as the optimal choice for Canadians, the economic cost to the provider is sometimes staggering. Currently no specific federal/provincial fiscal arrangement for home care even exists.

                        The life and health insurance industry plays a critical, complementary role to the public system by providing long-term care protection to Canadians on an individual basis. Although the insurance industry has developed greater options for funding long-term care, the uptake among Canadians is still quite low.
                        Currently, there are 13 life and health insurers in Canada that offer individual Long Term Care Insurance. As of 2009, long-term care insurance providers covered roughly 400,000 Canadians and paid out $13.4 million in benefits under these plans during the year.

                        The CLHIA prepared a comprehensive report in June 2009, titled “CLHIA Report on Health Care Policy - Towards a Sustainable, Accessible, Quality Public Health Care System.”

                        In this report, we recommended that federal, provincial and territorial governments explore ways to provide to Canadians living with a chronic illness, health care services that are part of an integrated primary care system coordinated by their family physician or health clinic team.

                        The CLHIA also recommended that federal, provincial and territorial governments provide tax and financial incentives for Canadians to assist them in taking greater responsibility for the care of aging and/or ill family members at home through the purchase of private insurance.

                        Our association continues to provide support and consultation to all levels of government regarding sustainable strategies for future health care funding.

                        As Canada’s population ages, many more Canadians will require adequate retirement income, as well as protection against long-term disability and access to affordable prescription drugs and to long-term care, if required. It is clear that the public system will not be fully able to support those needs.

                        Life and health insurers will play an important role in helping Canadians anticipate and plan for their later years through various pension-related products as well as drug plans, long-term care and critical illness insurance. This will help take pressure off the public system and help Canadians to live longer and healthier lives.

                        To sum up, Canada’s life and health insurance industry is solid, secure and successful and we fulfill an important social role.
                        We look forward to continuing our leadership in advocating for the social needs of Canadians and to partnering with governments to develop innovative solutions to the social and financial challenges facing Canadians today and in the future.
                      Thank you.