Creditor insurance threatens term-life market

Manulife’s move to originate mortgages through the mortgage broker channel could put advisors on the outside looking in

Manulife Bank’s expected entry into the mortgage broker channel early in 2016 is great news for mortgage brokers but not nearly as positive for insurance advisors who face a possible loss in term life business as a result.
Traditionally, consumers have bought mortgage insurance through the banks while many mortgage brokers have preferred to refer clients to advisors for term life. That referral relationship was borne out of broker concerns about the quality and cost of creditor insurance, something that has helped advisor take bank business as well.
“I think there’s been a lot of negative media with the bank product so a lot of people are turning towards individual advisors for policies directly from insurance companies,” Chris Dewdney, an advisor with DWL Financial Services Inc., told LHP earlier this year. “The bank product is inferior. You’re paying for a declining benefit.”
However, with Manulife Bank moving into the mortgage broker channel it’s possible that more brokers will opt to promote creditor insurance offered by Benesure, which is a wholly-owned subsidiary of Manulife, rather than look to independent insurance advisors for a term-life solution. That’s too bad because it’s become a lucrative market for advisors, argues Dewdney.
“With the housing boom, I’m writing a lot more term policies for mortgage insurance,” Dewdney said. “That’s a neat little trend that we’re seeing. And the policies are actually getting larger.”
If enough Manulife mortgages are sold through the mortgage broker channel, the tap Dewdney has eluded to could get turned off in a hurry.  
That’s the bad news.
The good news for advisors is that Manulife Bank initially is making its Manulife One and Manulife Select mortgages available on a limited basis to mortgage brokers.
“We want to make it a bit more of an exclusive club to deal with Manulife,” Jeff Spencer, vice president, retail sales, Manulife Bank and Trust, told Canadian Mortgage Trends.
In addition, the public has become better educated in recent years about mortgage insurance.
“What the banks don't tell you is that you may be far better off taking that leap of faith and signing away that mortgage insurance,” WealthBar CEO Tea Nicola wrote in a September blog for the Huffington Post. “Let's get one thing perfectly clear: this isn't to say you don't need to insure your mortgage, but in most circumstances, an ordinary term life policy will do far better.”