Royal Bank of Canada’s U.S. insurance unit is hoping to gain ground on its rivals with the help of new life insurance and annuity products, even as it hews largely to the middle-tier customers that are its bread and butter.
“We are committed to both [product] markets,” said David Black, head of U.S. insurance for RBC.
Mr. Black said RBC Insurance, which is based in Greenville, S.C., is striving to move up several notches in the ranks over the next three to five years for annuity and life insurance sales. Though it counts five million insurance customers in North America, the company is not one of the dominant players in the United States.
The business ranked 77th in life insurance issued during 2004, according to A.M. Best Co. It had $250 million of annual life insurance premiums in force as well as $400 million of annuity deposits in 2005.
Mr. Black said he would like to move the company’s annuity business, currently a “top-50 player,” into the ranks of the top 40 or even top 30 within a few years.
New products are part of the plan, Mr. Black said. RBC Insurance is testing a mortgage insurance product with streamlined underwriting. For loans of less than $300,000, applicants need only answer two questions rather than the usual 20 or so, and a medical exam is not required. The insurance also is portable, meaning that customers can retain it even after refinancing their loans.
“Basically, we’re trying to take the pain out of the process from the customer standpoint,” Mr. Black said.
The product mirrors the simplicity of the three-year-old RBC Express term life product, he said. Express, which is aimed at customers 60 or younger, does not require a medical exam, involves just a few questions, and can give a customer up to $250,000 of coverage 15 minutes after the application is filed.
“We really try to differentiate ourselves with these simple processes,” he said.
Though many insurers tout fast application processes, RBC stands out because it approves the policy quickly, said Michael White, a consultant at Michael White Associates, a bank insurance firm in Radnor, Pa.
“Most everybody else is still taking 30 days,” Mr. White said. “They may have an online application that goes to the office, but then it takes 30 days to underwrite.”
RBC Insurance’s annuity deposit growth is being powered by its equity index and fixed annuities. This fall, it plans to roll out versions of the products for distribution through its network of independent and captive agents. The annuities will be built to withstand changes in interest rates, for example, through a rate guarantee, Mr. Black said.
“We’re building products that will work in a fluctuating interest rate environment,” he said. “They will have a longer shelf life.”
But the business is stopping short of the more complex and expensive annuity lines that offer features like guaranteed minimum withdrawals and guaranteed benefits, he said.
“We’re not chasing those guarantees,” he said. “We’re trying to meet the needs of the middle market and the mass affluent.”
This market is underserved, he said, because the ranks of life insurance agents have undergone a long decline and because Americans’ personal savings rates for the past 20 years have been shrinking.
But the growing concern about the long-term viability of Social Security and the decline of employer-sponsored defined benefit plans is fostering interest in saving and accumulating wealth. This bodes well for products like annuities and whole life policies, he said.
“I’m optimistic that the pendulum has swung as far as it’s going to go,” he said. “People realize that they’ve got to protect and accumulate.”
RBC’s foray into the mass-affluent market — which Mr. Black defines as people with about $500,000 of investable assets — began three years ago with its purchase of Business Men’s Assurance Company of America.
RBC merged Business Men’s last week with its Liberty Life Insurance Co. unit, which itself was bought in 2000. The new legal entity will be called Liberty Life Insurance Co. but will operate under the RBC Insurance brand name. In addition to creating a single national brand, the move strengthened the company’s balance sheet and will create efficiencies, Mr. Black said.
RBC Insurance distributes its products through 21,000 producers — captive and independent agents and bankers — including those at its sister company, RBC Centura Bank in Raleigh, N.C.
Brokerage fees from life insurance sales at the bank totaled $2 million in 2005, according to Michael White Associates’ Fee Income Ratings Report. That ranked it 56th among the 69 banks with at least $10 billion of assets.
