Public petition for the first insurance company.
People’s desire to form a firm to reduce poverty.
Protection of income in case of disease of breadwinner.
Form life insurance companies for families to buy policies.
2013: motivation to buy life insurance hasn’t changed much (financially protect
Three main concerns of Canadians
1. Living too long (depletion of savings): pension
2. Dying too soon (sudden loss of income): permanent life insurance
3. Illness, accident and disease (temporary loss of productivity): health insurance
First life insurance policy
Richard Martin estimated the cost of the loss of his company’s manager ($383).
(cost of death: train new person, business drop down, loyal customers turn to
Friends in country club waged against the manager’s death (Richard Martin pays 8%
(if the manager dies in 12 months, the country club guys pay 383.)(manager dies,
Martin gets paid.)
Insurer: country club guys
Insured: Richard Martin (policy holder)
Life insured: the manager
(usu. Life insured = policy holder)
Premium: 8% of 383
1583-1757 long time no development of insurance
1. people were not clear between gambling and insurance, and superstition and
2. Lack of knowledge on death rate (age increase, death rate increase), mortality
tables/rates were not accurate (price of premium could not be set)
3. Epidemics/plague increased death rate, wiped out 2/3 European.
1757 death rate stabilized and petition to establish insurance company arouse but
not enough votes. First life insurance company
1762 The Old Equitable legislation formed
1. policy never expires, enforced whole of life (vs 12 months for Richard Martin)
2. based on level(annual) premiums (same price throughout life)
3. premiums vary based on age of entry (lower age means lower premium)
Most important assets of insurance company
1. reputation (promises)
2. cash reserve (investment): flexibility in times of calamity
when sth. goes wrong(plague/calamity):
(1). reduce payment temporarily and substantially
(2). Raise future premiums
Defn of insurance:
An arrangement that protects individuals from financial loss by covering the losses.
Defn of gambling:
Deliberate wager of money with the goal of winning money (no social benefit)
1847 first Canadian insurance company (Canadian Life)
1871: Sunlife Confederationlife Londonlife
1870-1880 huge growth
Advantages of life insurance:
1. guarantee that a large sum of money is paid upon the loss of life
(avoid additional money for the paying process)
2. pays directly and immediately to beneficiaries (save time)
4. protected from creditors
5. level of security/borrowing against policy (vs borrowings denied by banks)
6. tax free
7. unparalleled safe
Disadvantages of life insurance:
1. not all people can have life insurance (not available to people in poor health) 2. the complex products and contracts are too hard for normal people to
3. cost of premiums reduces the amount of money for customary consumption
Snapshot of the life insurance industry in 2013 Canada.
1. Provides a wide range of financial products.
Death benefit products(pay beneficiary):
Living benefit products(reimburse policy holder/insured):
Health (dental, prescriptive dugs, outside travel)
New products (less than 20 years):
2. Size of industry:
Protects 26 million Canadians
Pays out 1.1 billion CAD per WEEK
90% of payment made to living policy holders, 10% to death
3. Important role of life insurance: meet financial needs of all levels of
government.(federal, provincial, municipal)
Revenues come from personal and cooperate income taxes, which are not
enough to cover the expense of the government-run hospitals, schools, military
Government creates bonds and sells bonds to raise money. (typical federal gov.
bonds: 100000 dollars, 1.8% interest rate with high credit, maturity 20 years ).
Main buyers of government bonds are other countries, institutional investors
(pension funds), banks and life and health insurance company.
20% of insurance industry assets are invested in government bonds
40% in corporate bonds and stock
20% in mutual funds
15% in mortgage
5% in others
4. Financially strong industry
Most capitalized, secure industry in Canada. 5. Internationally successful
50% premiums/revenues from overseas, 50% domestic
Highly competitive domestically (100+ companies)
6. Largest market share among all other industries (cars, smartphones, groceries,
87% of policies bought in Canada offered by Canadian insurance companies
7. Support small business
Finance small business (financing mortgage, insurance products)
Employment benefits (pensions, plans, health insurance, etc.)
Provide consulting services
8. Two sides of insurance industry:
Provide compensation to maintain people’s lifestyle
Calculation, analytical industry
9. Market share by premium of Canadian insurers:
Great-west group 23.5%:
(Great West Life 10.81%
Canada Life: 7.38%
London Life: 5.27%)
Industrial Alliance: 7.5%
Desjardins Financial Security: 6.1%
Standard Life: 3%
Features of a life insurance policy:
Third party contract
Insurer, insured (policy holder), life insured
(beneficiaries have no rights and can change)
One party/policy holder can get out of the deal at any time, not the insurer.
Differences between individual and group insurance policies: Individual insurance policy Group insurance policy
55% coverage 45% coverage
Average of 165000$ per person Averages at 49000$ per person
Types of coverage: Bought by:
1. Term Employers 62%
2. Permanent Creditors 31%
Price similar to group insurance Associates (e.g. union) 7%
Personally insured (vs a company being Underwriting done ate death, not at the
the insured under the group policies) purchase of policy.
Guarantee payout Chances of being not eligible for claiming
benefits (death due to criminal activities,
drunk, car crash…)
Banks in the insurance industry (in Canada):
Some insurance companies are purchased by banks. (e.g. BMO)
Most companies owned by banks are of very small scale.
Government policy regarding banks in the life insurance industry:
Banks are allowed to purchase life insurance companies.
Banks are not allowed to sell insurance policies in their branches.
Banks cannot use their databases to find potential customers (banks have almost all
records of purchases, payments, etc.).
Obstacles between people and financial independence:
1. Lack of planning and review of financial goals
2. Lack of SMART goals(specific, measurable, attainable, realis