Tapping the Middle Market

1. Tapping the Middle Market Rick Forchuk, MBA, CFP, CLU, CH.F.C. Associate Vice President, Individual Distribution Empire Life Insurance Company

2. What we perceive isn’t always what is real …. Flight Attendant: “Would you like to join us for dinner?” Passenger: “ What are my choices?” Flight Attendant: “Yes, or no!”

3. My Parents were in the iron and steel business … My Mother ironed and my Dad would steal!

4. Two shoe salesmen talking on the phone 1. “No business here …” 2. “Ship the shoes …”

5. More Canadians than ever before are saying … “I have Group Insurance, so I’m well looked after, thanks very much.” This is the first time since these stats have been kept (1982) that Canadians are more likely to be covered under Group policies than Individual policies.

6. LIMRA’s Canadian Life Ownership Study, 2006 - Surveyed 2,740 households comprising 6,507 people • The industry as been unable to maintain the proportion • of adults with individual life coverage over the past seven • years • Insured adults are more likely to depend only on their • group coverage for life, disability, and critical illness

7. Understanding the Middle Market in Canada* Middle Market: $25,000 – $75,000 of income Number of households: 12 million Number making up middle market: 6 million 50% of all Canadian Households make up the “Middle Market” … it is the most under-serviced segment of the marketplace in the country - *LIMRA Research, 2005

8. Understanding the Middle Market in Canada 25% of Canadian households fall below the $25,000 annual income. They are serviced largely by social service agencies and government programs such as social assistance, work-assist programs, and various other plans. They are not targeted by financial advisors. 25% of Canadian households make up the “high net worth” market. It is here that most advisors (84%) focus their time, energy, and resources. Why? - *LIMRA Research, 2005

9. Understanding the Middle Market in Canada 25% of Canadian households make up the “high net worth” market. It is here that most advisors (84%) focus their time, energy, and resources. Why? Perhaps it’s because of the old Irish proverb: “Rich people have more money than poor people.” - *LIMRA Research, 2005

10. Understanding the Middle Market in Canada • Do the math: • 84% of advisors are chasing 25% of the market. • 16% of advisors are chasing 50% of the market The result: The biggest under-served market in the Canadian economy* - *LIMRA’s Billion Dollar Baby, 2005

11. Understanding the Middle Market in Canada 82% (5 million) households say* • death or disability of a wage-earner would seriously • impair the family’s lifestyle and financial survival • 1 million households feel they will buy insurance in • the next 12 months - Fewer than 150,000 (15%) will actually buy insurance - *LIMRA’s Billion Dollar Baby, 2005

12. Understanding the Middle Market in Canada They don’t buy what they need because*: - 60% dread high-pressure sales tactics -73% felt they could not afford it - 60% feel the process is too difficult and too confusing • 76% say they have other financial priorities (mostly • lifestyle) - *LIMRA’s Billion Dollar Baby, 2005

13. Understanding the Middle Market in Canada What Does The Market Look Like?* • Far more likely to have dependent children • Most have two wage-earners per household • Debt-to-income ration is high at 50% • More concerned about sickness or injury than death • Unlikely to have any advisor relationship • Recognize a need for coverage of all types - *LIMRA’s Market Facts, Spring 2004

14. Understanding the Middle Market in Canada They Want To Buy From*: 1. Someone they trust – preferably referred to them 2. Someone who applies no high-pressure** 3. Someone who makes it simple and easy **In SYNOVET’s 2006 Consumer Opinion Poll, only 11% of non-buyers said there was any pressure used at all – and only 3% of buyers said there was pressure - *LIMRA’s Billion Dollar Baby, 2005

15. Understanding the Middle Market in Canada • The Situation: • There is a huge market in Canada virtually untapped • It has told us what it wants • It’s not getting what it wants because we aren’t calling • When we do call, we don’t offer what the market wants

16. The New Reality … “… a clear delineation between behaviour and life stage is becoming fuzzier.” - Journal of Database Marketing

17. Aspirational Segmentation: “Financial Planning based on the aspirations (the underlying beliefs, motivations, and attitudes that an individual carries through life.” Translation: Ask them what they want!!

18. Life Cycle Planning - Dinks: Dual Income, no kids - Sitcoms: Single Income, two kids … overwhelming mortgage - Empty Nesters

19. Shopping at The Brick …

20. Carolyn & Ward’s Story: • Age 63 and 65 respectively • She: retired business-owner (dry cleaners) • He: retired schoolteacher Family: She: father deceased, mother age 91, healthy (sort of) He: father deceased, mother age 92 (Alzheimer’s) Kids: four – two from each previous marriage Grandkids: four (all from her two kids)

21. Carolyn & Ward’s Story: • Lifecycle planning would indicate: • focus on preservation of capital • possible cash gifts for grandchildren • travel • recreation property • focus on health and well-being Advisor’s recommendation: laddering GICs, resource funds as hedge, annuitize as much as possible

22. Carolyn & Ward’s Story: -Retirement savings compromised by care needs of elderly parents • Savings further compromised by life issues of adult • children (one divorced, in need of mortgage help, • another in desperate need of cash to keep a small • business alive) - lawsuit threat from business sale

23. Wally’s Story … • age 64 • mortgage = $125,000 • widower • self-employed • divorced daughter with two kids living with him • struggling to survive financially – no retirement savings Advisor’s Recommendation: diversify into global funds

24. The Middle Market used to be served by: - Door-to-door sales: Fuller Brush, Watkins, the Milkman the Bread man, the Veggie man - Doctors who made house-calls - Small appliance repair shops - Neighbourhood gas station and mechanic

25. Today it’s being largely ignored by advisors … Yet another blow to this market that is being exploited in so many ways, but doesn’t realize it … - ATMs - Self-check-in at airports - Online reservations for hotels, travel, etc. Every one of these businesses is losing touch with its customers … is that what you want?

26. Understanding the Middle Market in Canada They don’t buy what they need because*: - 60% dread high-pressure sales tactics -73% felt they could not afford it - 60% feel the process is too difficult and too confusing • 76% say they have other financial priorities (mostly • lifestyle) - *LIMRA’s Billion Dollar Baby, 2005

27. A farmer had a donkey … and he also had a well that his wife had been after him to cover for many, many months … and one day …

28. The Moral of the Story? Life is going to shovel dirt on you … all kinds of dirt. The trick to keep from getting buried is to shake it off and take a step up. Each of our troubles is a stepping stone. We can get out of the deepest of wells by never giving up, by shaking it off, and by taking a step up. That would be the moral if that were the end of the story …

29. … the donkey came out of the well in a rage … it knocked the farmer over and bit him several times causing serious wounds, which later became infected and he died. The Moral: When you do something wrong, then try to cover your ass, it’s going to come back to bite you and you’re worse off than if you had just done the right thing at the outset!