Can a 179-year-old solution help with contemporary volatility?

When volatility arises, everyone’s got a pitch. Gold, private assets, real estate, fixed income, there are a host of solutions for advisors to consider, many of them extremely novel. Vikram Malik believes that there could be value in looking at something with a longer-term history. Malik is SVP of Product Strategy & Solutions at Canada Life. He argues that participating life insurance could serve to help clients and advisors manage volatility, through dividends and as a reminder of the long-term focus of their plan.

Malik explains that participating life insurance (par) can offer a set of stability mechanisms, including inherent smoothing of investment performance within the policy, guaranteed benefits, and a longstanding history of dividend payment. He argues that advisors can lean on these benefits and use these products as a reminder of their client’s long-term goals when volatility does arise.

“Par’s been in the Canadian market since 1847,” Malik says. “If you go back over periods of time, through the great depression, two world wars, COVID, and the recent tariffs and geopolitical uncertainty, par has paid dividends every year and delivered on that stability for policyholders. It’s a tried and tested proposition for times of volatility.”

Participating life insurance, Malik says, should be integrated within a client’s specific plan, goals, and risk tolerances. He believes that these products are innately built for those clients with long-term objectives due to their stability mechanisms and benefits guarantees. He notes that despite the long history of these strategies in the insurance market, his firm is working to make sure they stay suited to the needs of contemporary clients.

Canada Life recently relaunched and refreshed their suite of par products. They’ve begun to offer more specific and niche solutions for different clients in different situations and at different wealth levels. Perhaps most notably, they’ve adapted the compensation structure in these products to better incentivize long-term participation.

Under the old compensation models for par products, advisors would be paid a heaped commission, compensation for the upfront planning work required in setting up a client with a par product, with compensation trailing off through the life of the product. While Malik says Canada Life still wants to compensate advisors for that upfront work, they believe the incentive structure could be better shifted towards a long-term focus. Rather than a structure that would potentially incentivize an advisor to use one of these products over a short-term period, they’re increasing some of the long-term compensation in their par products to align advisor incentives with their view of these as long-term products.

In addition to helping offset volatility and manage client behaviours, Malik argues that there are other long-term benefits to be found in par products for contemporary clients. He notes that long-term tax and estate planning has become a growing area of focus for the industry, especially amid the ongoing intergenerational wealth transfer. Participating life insurance offers a highly tax efficient means of facilitating some of that transfer. In addition to tax benefits, he notes that the innate stability of these products can allow for more fulsome plans for the next generation of a family, who can largely predict what their benefit will be. He also adds that the new flexibility offered by their more diverse suite of par products can allow advisors to better tailor solutions to the needs of a particular client’s family or planned legacy transfers.

Throughout his explanation of these new products, Malik stressed their long-term intent. He argues that the greatest mistakes that advisors and clients can make around par products is in viewing them as short-term solutions. He notes, too, that sometimes clients can pick a product based on dividend scale interest rate. While that factor is important in par products, Malik notes that contracts get reviewed annually and that dividend rate is subject to change. He suggests that advisors can add value by looking at the investment philosophy of a particular par product and assessing the likelihood of its capacity to pay dividends at that rate long-term.

The insurance industry, he explains, has par products with investment approaches ranging from 70 per cent fixed income to 50 per cent fixed income, the lower the fixed income allocation, the more volatility the product may see in the short-term, which can change that dividend amount. He believes that context and underlying knowledge are key to providing clients with value here.

“Insurance provides a very strong diversification or stabilization mechanism. As you think about broader portfolios and different asset classes there’s the element of par that’s built on a chassis of guarantees and then overlaid with a stability mechanism in terms of how it performs and participates in asset classes and investment returns,” Malik says. “PAR is not about displacing portfolios or replacing core asset strategies. It’s about augmenting and complementing them.”