Federal Insurance Office

ASISA Assembly 2014 Robert A. Kerzner President and CEO LIMRA, LOMA, LL Global

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Research

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Nearly 100 Years of Providing Industry Research and Knowledge to: More than 800 member companies in 65 countries worldwide

Leading Media Outlets • Wall Street Journal • Bloomberg • CNN

Policy-makers/regulators/legislators • Treasury Department • Insurance Commissioners • GAO © LL Global, Inc.SM

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LIMRA Research—A Catalyst for New Ideas Benchmarking and Sales Trends Research Distribution Research Consumer/Customer Engagement Research Technology Research Custom Research International Research The LIMRA Secure Retirement Institute

LIMRA employs 80 researchers to provide this research to our members. © LL Global, Inc.SM

Life insurers infused

R176 billion into the South African economy through death benefits paid to beneficiaries in 2013.

Source: ASISA Annual Report, 2013 5

The financial services industry makes up

20 percent of South Africa’s GDP.

Source: ASISA Annual Report, 2013 6

LIMRA’s Market Maturity Model China I

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The Dichotomy of the South African Population

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Forces of the Future Demographics

Major Driver of Growth/Change

Focus on Retirement Risk

Regulation & Legislation

Technology

Unknown

Legislative Changes Create New Markets

External Forces

The Change Agent

Possible Disruptors

How We Engage

Interest Rates & Investment Climate

How We Become More Effective

Globalization

OR Rules/Regs Make It Hard to Do Business

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South Africa Has a Young Population South Africa - 2050

Male Population

100+ 90-94 80-84 70-74 60-64 50-54 40-44 30-34 20-24 10-14 0-4

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Source: U.S. Census Bureau’s International Data Base

Female Population

Advice Model Under Scrutiny © LL Global, Inc.SM

Commission Advice Under Pressure Commissions Banned in 2007 and 2008:

Finland

Norway

Countries Where Commissions Were Banned in 2013:

United Kingdom

Australia

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Netherlands

Regulators Believe: Commission sales are inherently “conflicting” — lead to lack of objectivity.

Fee-based sales remove all bias. Consumers are willing to negotiate & pay for advice. Low-cost, free advice will be more available. © LL Global, Inc.SM

Consumers Say They Prefer Flat Fees

Commissions

Develop and implement a plan for retirement income

9%

Flat Fee

Annual Fee

55%

13%

Develop and maintain a financial plan Advice on insurance type, amount, and options

10

55

13

9

58

8

Advice on which types of investments to buy or sell

11

54

11

Source: Bye-Bye Commissions, LIMRA 2012

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1 in 5 Consumers are willing to pay more than $100 for advice

80 percent of U.S. consumers will pay less than $100

Consumers are willing to pay far less than the cost of providing advice.

Source: Bye-Bye Commissions, LIMRA 2012

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In UK, Consumers Won’t Pay for Advice

Half of consumers are not willing to pay more than £50 ($80) for an hour of professional advice

Source: Bye-Bye Commissions, LIMRA 2012

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Consumers in UK

84%

not aware of RDR or that they will have to pay for financial advice

54%

Source: Deloitte, 2012

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said they would refuse advice rather than pay a fee

Impact of Retail Distribution Review (RDR) in United Kingdom Number of IFAs and tied-agents

40,566 31,312

Pre-RDR

Post RDR

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New IRDA Rules Resulted in 20% Drop in Agents Number of Agents (millions)

2.6

2.4

2011

2012

Source: IDRA Annual Reports, 2011, 2012, 2013

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2.1

2013

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Regulation in China •

2010 reg. # 90 banned insurance advisors from selling in bank branches

•

Limits banks to selling no more than three of a given insurers’ products

•

Unit linked products can only be sold through wealth management centers

•

Sales staff must hold specific designations and experience to sell investment and UL products

Source: interviews with Chinese members

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New Regulations Dampen Bancassurance Sales In 2011, CIRC and CBRC released new rules to impose stricter control. Bancassurance Market Share 2010

2011

China Life

50%

46%

Ping An Life

11%

13%

New China Life

67%

60%

China Pacific Life

55%

48%

Taiking Life

74%

68%

A 2014 regulation resulted in a 60% decline in bancassurance policy sales by eight major life insurance companies in China Source: 2012 Special Report: Asia-Pacific Life – Review & Preview. Growth Pauses in Asia-Pacific Life Markets as Insurers Seek New Routes to Expansion (2012), AM Best, © LL Global, Inc.SM Shanghai Securities News

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7 in 10 Canadians Prefer to Purchase Life Insurance Face-to-Face Future Preference For Buying Life Insurance

Canada

U.S.

6%

9%

Face-to-face

11% Worksite

16%

7% 76%

18%

57%

Internet Direct by mail or phone

Source: 2013 Canadian and 2010 U.S. Life Ownership Studies © LL Global, Inc.SM

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In general, consumers don’t trust life insurance agents or advisors 64%

41% 32% 25%

More interested in fees & commissions than what's right for you

Can assist with wide range of products

Provide clear explanations of policies

Are trustworthy

Source: Advisor For Life, LIMRA 2009 © LL Global, Inc.SM

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But when it comes to their advisor…

83% of consumers who work with a financial advisors, trust them

Source: Finding the Right Mix: Retirement Income Attitudes and Preferences, LIMRA Secure Retirement Institute, 2014 (in progress). © LL Global, Inc.SM

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Advisors Make a Difference Contribute to a Retirement Plan

78%

43%

With Advisor Source: Use of and Impact of Advisors, LIMRA, 2012

Without Advisor © LL Global, Inc.

SM

Consumers Who Use Advisors Also Save More Percent of consumers who defer more than 7% of their income into employer’s defined contribution retirement savings plan.

61% 38%

With Advisor

Source: Use of and Impact of Advisors, LIMRA, 2012

Without Advisor

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Pre-retirees who worked with advisors feel more prepared for retirement Pre-retirees (age 55 or more) Preparedness for Retirement 40%

39%

34% 31%

19%

18%

16%

3% Well Prepared

Moderately Prepared

Work with an advisor

Poorly Prepared

Not Prepared

Do not work with an advisor

Source: Retirement Income Reference Book, LIMRA Secure Retirement Institute (2012) © LL Global, Inc.SM

Retirees working with advisors are more confident 60%

60%

56%

52%

46% 38%

37% 28%

32%

36% 29%

33%

Currently very involved Periodically I spend time Pay attention to the More willing to take an Investing in the stock Confident that I'll be in monitoring and investigating and financial ratings and investment risk in my market is appropriate for able to live the managing my savings deciding whether to buy stability of companies I DC plan than with other me retirement lifestyle I a specific financial invest with investments want product

Work with advisor

Do not work with Advisor

Source: Retirement Income Reference Book, LIMRA Secure Retirement Institute (2012) © LL Global, Inc.SM

Pre-retirees who have advisors have done more planning than those without an advisor Pre-retiree Retirement Planning Activities Completed 58%

56%

52%

50% 42%

39%

40%

32%

30%

23%

24% 18%

Calculated the Determined what Determined what Estimated how Identified the None of the above amount of assets your income will your expenses will many years your activities you plan you will have be in retirement be in retirement assets will last in to engage in and available for retirement their likely costs retirement Work with an advisor

Do not work with an advisor

Source: Retirement Income Reference Book, LIMRA Secure Retirement Institute (2012) © LL Global, Inc.SM

Three in 10 U.S. Households Have No Life Insurance 83%

83%

81%

78%

76%

78%

72%

70% 65%

62% 55%

54% 46%

53%

52%

52%

50%

50%

49% 44%

1960

1976

1984 Total

1992 Group

Source: LIMRA Household Trends in U.S. Life Insurance Ownership, 2010

1998

2004

2010

Individual

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Americans Households Owning Individual Life Insurance 72% 65%

62% 55% 50%

50%

44%

1960

1976

1984

Source: LIMRA Household Trends in U.S. Life Insurance Ownership, 2010

1992

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1998

2004

2010

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Canadian Household Life Insurance Ownership at Record Lows 78%

79%

75%

68% 59% 56%

60%

54%

50% 55%

52%

43%

1982

1999 Total

2006 Group

2013

Individual

Source: Canadian Life Ownership Studies © LL Global, Inc.SM

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American Households That Say They Need More Life Insurance

Source: LIMRA Household Trends in U.S. Life Insurance Ownership, 2010

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Canadian Households Needing More Life Insurance at All-time High 2013

2006

1999

6.1 million

45%

38%

4.7 million

3.6 million

Sources: Canadian Life Ownership Studies (LIMRA) and Statistics Canada © LL Global, Inc.SM

33%

36

Americans’ Top Financial Concerns Extremely concerned

Very concerned

Concerned 67%

Money for a comfortable retirement

58%

Paying for long-term care services Supporting self if disabled

57%

Paying for medical expenses

57%

48%

Paying monthly bills

43%

Losing money on investments Reducing credit card debt

42%

Paying my mortgage or rent

42%

Burdening dependents financially if I die prematurely

39%

37%

Burdening others with final expenses

33%

Leaving an inheritance Paying for a child's schooling/college Source: 2013 Insurance Barometer Study, LIMRA & LIFE

29%

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Living Expenses Have Increased Peanut Butter Average Price 2002 - $1.96 2012 - $2.75

Coffee Average Price 2002 - $2.92 2012 - $5.98

↑40%

↑90% Orange Juice Average Price 2002 - $1.84 2012 - $2.69

↑46% Gasoline Average Price 2002 - $1.44 2012 - $3.73

Electricity – kw/hr Average Price 2002 - $0.091 2012 - $0.130

↑158%

↑42% Source: Consumer Price Index, Bureau of Labor Statistics

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Every day expenses limit achieving financial goals  61% energy costs (oil, gas, electric)  58% every day living expenses (food, clothing, transportation)

 50% debt payment (credit card balances, loans, equity lines of credit)

 46% housing costs  43% taxes (income, sales, property) What limits your ability to save for goals or for discretionary items. Source: 2008 Middle Market Study © LL Global, Inc.SM

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Americans’ Disposable Income Has Been Dropping for 30 Years

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South Africans Have Other Priorities

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Behavioral Economics

Helping us understand the seemingly irrational decisions of consumers about investments, savings and insurance. © LL Global, Inc.SM

Which Would You Choose?

70% Consumers who chose chocolate © LL Global, Inc.SM

Source: Presentation by Dr. Barbara Fasolo, Senior Lecturer in Behavioral Sciences, London School of Economics

Self-control is not a problem in the future I start my diet on Monday….

Solution: Commit to save later Offer programs that allow employees to commit future income to retirement plan

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Source: Presentation by Dr. Barbara Fasolo, Senior Lecturer in Behavioral Sciences, London School of Economics

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We live…NOW Thinking about “future self” elicits neural activation patterns that are similar to neural activation patterns elicited by thinking about a stranger.

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Source: Presentation by Dr. Barbara Fasolo, Senior Lecturer in Behavioral Sciences, London School of Economics

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Age Progression

Age 70

Age 10 © LL Global, Inc.

SM

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Using Virtual Games to Show People their “Future Selves”

In a 2011 paper, Professor Jeremy Bailenson reported that those who had seen their future selves in the virtual mirror subsequently put twice as much money into a savings account as those who hadn't.

Source: Increasing Saving Behavior Through Age-Progressed©Renderings LL Global, Inc.SM of the Future Self Jeremy Bailenson, Stanford University

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Visceral Reaction: “A visceral perception of some risk is a necessary condition for any action taken to manage the risk. Putting it negatively, a purely analytic judgment of risk will have little or no affect on the behavior.” Elke Weber Columbia University

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Why don’t they buy? • • • • • • •

Think they can’t afford it — 74% Can’t decide on amount — 52% Haven’t gotten around to it — 50%

Worry about wrong decisions — 43% Put money in other financial products — 40% Have never been approached to buy — 29% Don’t want to think about dying — 20%

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Benefits Traditional Version

Behavioral Version

Behavioral Economics Tactics

Go over financial needs and ways life insurance can help a family

RealLife story about financial needs and how life insurance helped a specific person

Concrete instances overcome optimism that the client will not die prematurely. .

“Mark died of pancreatic cancer.”

Vivid and personal information is more effective than statistical information.

“You could come

down with cancer.”

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Source: Improving Sales Presentations: Using Choice Architecture to Influence Buying Decisions, LIMRA (2009)

50

Likelihood of Buying Definitely Would Buy

29% increase

7 6

4.56

5 Uncertain

4

3.54

3 2 Definitely Would Not Buy

1 0

Traditional © LL Global, Inc.SM

Source: Increase Sales Through Behavioral Economics, LIMRA (2005)

Behavioral 51

Sales Reps Connecting with Consumers

Directly Immediately When Consumers Want © LL Global, Inc.SM

MetLife Partners With Walmart to Sell Life Insurance in Stores

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Diversifying into sales of financial service products

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Bradesco using POS machines to sell life insurance © LL Global, Inc.SM

Mobile technology is changing how people want to buy… South Africa ranks 5th in mobile data usage (U.S. ranks 7th) 80% of South Africans who use the Internet use only their mobile devices

Source: Neilson 2014 Survey

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