Working with New Life Distribution Channels

1. Working with New Life Distribution Channels Steve Parrish, JD,CLU,ChFC,RHU National Advanced Solutions Consultant February 23, 2007

2. Before • The market: • “The right thing to do” • Vertically integrated • Money • Savings regulated; no money market • Mutual funds limited • Life Insurance • Rate book whole life • Term

3. Before • Distribution: • Debit • Career • Other: multiline, Fraternals, and brokerage • Commissions: • 50%; 12%; 5% renewals • Limited Bonuses

4. Events Reflective of Trends in the Life Insurance Industry

5. Now • Underinsured middle class • Open investment markets • Policies • UL, VUL, Private Placement • Traditional • Term • Hybrids

6. Now - Distribution • Career • Brokerage • Rollups • IMOs • Other • Banks • Wirehouses • Worksite • Financial Planners

7. Trend: Sales Through Independent ChannelsGrowing Faster • Traditional channels account for nearly 90 percent of life sales. • 2004 was a record year for life sales through stockbrokers and banks. Source: LIMRA International, Inc

8. Key Trend: Recruiting inexperienced agents continues to be critical to the sale of insurance products. And if recent trends continue the industry is heading into a very challenging period. • More than four out of five independent agents started their career as an affiliated agent (career or multi-line). • More than half of independent agents are age 54 or older. • Career agents on average broker 24 percent of their business. Source: LIMRA International, Inc

9. Home Office / Manufacturing • Varied Integration (product, distribution, processing) • Stock versus Mutual • Regulation (State, NY, OFC, NASD) • Accounting (Stat, GAAP, RBC, etc) • Distribution (owned, separated, mixed)

10. Independent Channels Key Trends: • Independent channels (independent agents, wirehouses, regional BDs, IBDs, IFAs/IFPs, bank reps) are growing faster than career channels and taking share. • Intermediaries (e.g., BGAs) consolidating market power and displacing carriers from large parts of the value chain by offering value-added services to third party reps. • Independent channels forcing carriers to compete for shelf space and sales with more attractive commissions, pricing, and product features. • Independent channels generally offer lower quality business (e.g., persistency, non-taken rates) and are quick to exploit errors in product design (e.g., mispricing, product features.) Key Imperatives: • Align incentives to carrier profitability. • Tier service and wholesaling support. • Find ways to add distinctive value to channels. Source: LIMRA International, Inc

11. Independent Channels: Growing Faster Variable cost structure and faster sales growth are two of the major reasons carriers have shifted to independent distribution. Source: LIMRA International, Inc

12. Independent Channels: But, Affiliated Agent Channels Still Considered More Profitable Competition in the independent channels is very keen and, hence, profitability of new business through these channels is strained. Source: LIMRA International, Inc

13. Life in the Field • Field Management • Owned versus managed • Wholesaling • Agents and Brokers • Compensation • Office • Internet

14. Marketing • To the Producer • The wholesaling revolution • To the Advisor • To the Consumer • Producer versus institutional marketing • Advertising • Other: geodemographics, cobranding

15. NEEDS Death benefit versus living benefits Taxes Gimmicks and garbage SALES PROCESS Location Submission, underwriting, delivery, etc Compliance Sales

16. Some Thoughts : Primary Challenges in the Marketplace • Delivery (particularly middle markets) • Process • Training • Regulatory

17. Some Thoughts : What’s Your Model? • Who is your primary Customer? • Productivity (primarily Career) • Shelf-space (primarily Brokerage) • Training, Promotion, Support services

18. Some Thoughts : Common Myths • Agents are dumb • Agents are rich • Agents are unethical • Agents don’t work hard

19. Some Thoughts : Working with Producers • Remember how they are paid!!!! • Yes • No • Maybe

20. Some Thoughts : How to Learn More • Shadowing • Interviewing • Buy something

21. From Theory to Practice Source: LIMRA International, Inc

22. Point-of-sale Support: Align Services With Agent Needs “Provide best offering by excelling in a specific value… and maintain threshold standards on other aspects of value.”“Discipline of Market Leaders”, Michael Treacy and Fred Wiersema Source: LIMRA International, Inc

23. Point-of-sale Support: Align Services With Agent Needs (cont.) • Advanced sales support in specific areas such as tax advice, estate planning • Administrative support to help you with processing sales • Administrative support to help you with servicing your clients • Consolidated statement reporting for each of your clients • Contact management software or systems • Electronic submission of applications (other than fax or e-mail) • Lead generation support • On-line access to client records • On-line or automated access to application status • On-line access to commission reporting • Product training • Practice management training • Sales training • Support in leading client seminars • Sales and marketing material Source: LIMRA International, Inc

24. “Tune” the service and support offering based on channel needs. Third-Party Channels: Imperatives Consolidated statement reporting for each of your clients Online access to client records Sales and marketing material Online access to commission reporting Advanced sales support in specific areas such as tax advice, estate planning Admin support to help you with servicing your clients High Online or automated access to application status Product training Admin support to help you with processing sales Electronic submission of applications (other than fax or email) Maintain to Retain Diminishing Returns Support product specialists to close sale Contact management software or systems Satisfaction with Service Received Sales training Practice management training Distraction Differentiator Support in leading client seminars Low Lead generation support High Low Source: LIMRA International, Inc Criticality

25. Thank you Questions?