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ETFs Is life insurance the next frontier for robo-advisers?

Although much of the recent innovation in financial services has occurred in the banking and payments sector, Canada’s life insurers could also face greater competition.

Technology and regulatory changes are causing Canadian life insurance companies to reconsider the way they currently do business with consumers and look to include more digital offerings –such as robo-adviser platforms, according to an Ernst and Young report.

Robo-advisers – which provide investors with online portfolio management for a fraction of the price of a financial adviser – are growing in popularity in the wealth-management industry. The addition of a similar platform for insurance products could offer insurers a way to reach the underserved "mass-affluent" market (typically clients who have investable assets between $100,000 and $1-million) as well as millennial clients, according to the 2016 EY Canadian Life Insurance Outlook report released Monday.

"Both millennials and mass-affluent consumers, in particular, are seeking the latest digital tools, such as on-demand insurance apps and robo-advisers for automated, algorithm-based financial advice," the report says.

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The report states that life insurers have so far made little progress in selling through digital channels and suggests that over the next year life insurance companies (particularly those focusing on retirement services) will need to consider the best way to incorporate robo-advisers into their current distribution channels. The online platform could be achieved through internal development, a partnership or the acquisition of an existing platform.

"We see this as the key time for innovation among insurers in Canada. … We tend to lag a bit behind other global markets when it comes to fintech," says Janice Deganis, insurance leader for EY, a global advisory organization.

"Life insurers need to make innovation a priority not just in their business plans, but on the ground.

To create a culture that encourages new thinking, life insurers will need to experiment, allow their employees to fail, develop innovation labs and attract new talent."

And new talent is beginning to emerge more rapidly as digital startup companies are spreading across the entire financial services sector.

Although much of the recent innovation in financial services has occurred in the banking and payments sector, Canada's life insurers could also face greater competition.

Already there are several online providers – including two global players – looking to launch insurance services within Canada, says Joe Canavan, former CEO of Assante Wealth Management Ltd. and investor in robo-adviser Wealthsimple.

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"The incumbents are going to struggle with their legacy platforms and will have difficulty adopting a new philosophy that targets the consumer versus the adviser because many of them are still focused on selling through the adviser channel," Mr. Canavan says.

"It's going to be really hard to make that transition to the future model of insurance – which will be completely consumer-centric."

There have not been any specific announcements on whether any Canadian insurers plan to launch a robo-type offering in the near future. Financial behemoth Power Financial – parent company to insurers Great-West Life and London Life – has already invested with three of Canada's fintech providers in the investing, lending and financial mobile application industries, while Don Guloien, president and CEO of Manulife Financial Corp., has kept tabs on the fintech movement, which included a trip to Silicon Valley.

But a digital offering may not be the best route for the life insurance sector as products are generally not sought out by mass-affluent consumers, says Jim Ruta, president of AdvisorCraft media and consulting. "Life insurance – unlike property and casualty insurance like home or auto insurance – is not a demand product.

"There are no regulations requiring that consumers own a certain amount or even that they must purchase these policies," Mr. Ruta says.

"The problem for life insurers when it comes to mass-affluent clients is not about access. Those clients are not routinely seeking out life insurance online and not finding it.

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"They are not seeking it out, period. It is not on the radar for most people, including millennials and the mass affluent as a product they want to buy until its considerable benefits are introduced to them – most often by a financial adviser."

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