In a closed-door meeting this summer, executives at one of Canada's best-known life insurance companies gathered at its headquarters to plot the latest moves in their industry's secret war.
It's a war fought with weapons that look harmless on the surface: deluxe trips to sunny destinations, offered to the independent brokers on whom the insurers rely to sell their life policies.
The executives knew they would have to spend at least $8,000 to $12,000 per broker to be competitive. And the trip had to be enticing - something on the order of a Brazilian beach getaway or a luxury trek through Asia.
At a time when low interest rates have squeezed the insurance industry's profit margins, the company knew that if the brokers weren't kept happy, they could easily shift their business to a competitor offering better compensation and perks.
Two key parameters had to be kept in mind. First, a few hours during the week-long trip had to be set aside for a seminar, so that the company could deem the excursion an educational conference. And second, the budget had to include a guest for each broker - even though this doubled the cost.
Buttering up each broker's better half was all part of the strategy. "We say, 'If you want to come here again as a guest, you better tell your guy to sell our stuff,'" said a senior executive present at the meeting.
Although the battle to win brokers' affections has become a defining characteristic of Canada's life insurance industry, it's kept well out of the sight of the consumers, businesses and corporations who are buying policies - and who, the insurers admit, are paying for the trips, too.
Regulators and the industry examined the issue six years ago, and publicly acknowledged that some practices - including how brokers are compensated - weren't in alignment with the customers' best interests. But the brokers pushed back, and little changed.
An investigation by The Globe and Mail has found that attempts to improve transparency in Canada have been thwarted by the industry's successful efforts to water down proposed reforms. Yet at the same time the industry has kept compensation details under wraps, many of its products have evolved into complex financial instruments that are hard for average consumers to comprehend.
When Canadians purchase life insurance now, their broker typically hands them an industry form letter promising that "any insurance product I recommend will be the one I deem to be best suited to meet your needs, without regard to the compensation practices of any one company."
But the promise does not reflect the reality of the business for the big underwriters, such as Manulife Financial Corp., Sun Life Financial Inc., Great-West Lifeco Inc., Standard Life Assurance Co. of Canada, and Industrial Alliance Insurance and Financial Services Inc., and the thousands of brokers across the country.
Rather than scouring the market to find the best coverage, and the best price, for the clients sitting across from them, many independent agents and brokers steer all their business to just one or two insurers, according to a number of high-ranking insurance executives interviewed by The Globe. They favour the ones that reimburse them most generously in commissions, bonuses and perks, such as those all-expenses-paid trips to break up the monotony of a long Canadian winter.
The incentives have distorted the sales process for a sophisticated product and broken the bonds of trust that the insurance industry was built on. The problem, these executives say, is becoming more acute: The industry is locked in a kind of compensation race as brokers push for ever-richer incentives and insurers know they must match or better their rivals' offerings.
Insurance broker representatives don't agree there is a problem. "I don't see consumers worried about compensation in the industry," said Greg Pollock, the head of Advocis, a Canadian association that represents advisers and agents in the financial services industry. "I don't see that there's an issue that needs to be addressed."
Authorities on compensation rules in Ontario told The Globe and Mail they have decided that consumers are better off without the details of trips, commissions and bonuses clouding their decision. And the industry has worked hard to keep it that way.