Federal Insurance Office

ASISA Assembly 2014Robert A. KerznerPresident and CEOLIMRA, LOMA, LL Global LL Global, Inc.SMThe Trusted Source for Industry KnowledgeResearch Learning & DevelopmentResearchLearning & DevelopmentProfessional Networking

2 LL Global, Inc.SM3Nearly 100 Years of Providing Industry Research and Knowledge to:

LL Global, Inc.SMLIMRA ResearchA Catalyst for New Ideas

LIMRA employs 80 researchers to provide this research to our members. LL Global, Inc.SMLife insurers infused R176 billion into the South African economy through death benefits paid to beneficiaries in 2013. 5Source: ASISA Annual Report, 2013The financial services industry makes up 20 percent of South Africas GDP.6Source: ASISA Annual Report, 2013LIMRAs Market Maturity Model7

China I LL Global, Inc.SM

8

The Dichotomy of the South African Population LL Global, Inc.SM9DemographicsRegulation &LegislationTechnologyExternal ForcesMajor Driver of Growth/ChangeUnknownThe Change AgentPossible DisruptorsFocus on Retirement RiskLegislative Changes Create New MarketsRules/Regs Make It Hard to Do BusinessHow We EngageHow We Become More EffectiveInterest Rates & Investment ClimateGlobalizationORForces of the Future LL Global, Inc.SMBob this is very busy and hard to follow9South Africa Has a Young PopulationSouth Africa - 2050Source: U.S. Census Bureaus International Data Base LL Global, Inc.SM

Advice Model UnderScrutiny LL Global, Inc.SM

NorwayFinland

Commission Advice Under PressureCommissions Banned in 2007 and 2008:United Kingdom

Netherlands

AustraliaCountries Where Commissions Were Banned in 2013: LL Global, Inc.SMRegulators 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.SMConsumers Say They Prefer Flat FeesCommissionsFlat FeeAnnual FeeDevelop and implement a plan for retirement income 9% 55% 13%Develop and maintain a financial plan 105513Advice on insurance type, amount, and options9588Advice on which types of investments to buy or sell115411Source: Bye-Bye Commissions, LIMRA 2012 LL Global, Inc.SM141 in 5Consumers are willing to pay more than $100 for advice Consumers are willing to pay far less than the cost of providing advice. Source: Bye-Bye Commissions, LIMRA 2012 LL Global, Inc.SMIn UK, Consumers Wont Pay for AdviceHalf of consumers are not willing to pay more than 50 ($80) for an hour of professional adviceSource: Bye-Bye Commissions, LIMRA 2012 LL Global, Inc.SMConsumers in UK84%not aware of RDR or that they will have to pay for financial advice54%said they would refuse advice rather than pay a feeSource: Deloitte, 2012

LL Global, Inc.SMImpact of Retail Distribution Review (RDR) in United Kingdom18 LL Global, Inc.SMNew IRDA Rules Resulted in 20% Drop in Agents19Source: IDRA Annual Reports, 2011, 2012, 2013 LL Global, Inc.SMRegulation in China2010 reg. # 90 banned insurance advisors from selling in bank branches Limits banks to selling no more than three of a given insurers productsUnit linked products can only be sold through wealth management centersSales staff must hold specific designations and experience to sell investment and UL products

20Source: interviews with Chinese members

LL Global, Inc.SM20New Regulations Dampen Bancassurance Sales21Bancassurance Market Share20102011China Life50%46%Ping An Life11%13%New China Life67%60%China Pacific Life55%48%Taiking Life74%68%In 2011, CIRC and CBRC released new rules to impose stricter control.Source: 2012 Special Report: Asia-Pacific Life Review & Preview. Growth Pausesin Asia-Pacific Life Markets as Insurers Seek New Routes to Expansion (2012), AM Best,Shanghai Securities NewsA 2014 regulation resulted in a 60% decline in bancassurance policy sales by eight major life insurance companies in China LL Global, Inc.SMWith the implementation of new policies on bancassurance in April, the market showed significant slowdown. The bancassurance new orders of the eight major life insurance companies in China slumped by over 60% in April, Shanghai Securities News reported

21227 in 10 Canadians Prefer to Purchase Life Insurance Face-to-Face

Source: 2013 Canadian and 2010 U.S. Life Ownership StudiesFuture Preference For Buying Life Insurance LL Global, Inc.SMIn general, consumers dont trust life insurance agents or advisors23Source: Advisor For Life, LIMRA 2009 LL Global, Inc.SM[More interested in fees & commissions = NOT Benevolence]

[Can assist with wide range of products = Competence]

[Provide clear explanations = Benevolence and Integrity]

Producer23But when it comes to their advisor2483%Source: Finding the Right Mix: Retirement Income Attitudes and Preferences, LIMRA Secure Retirement Institute, 2014 (in progress).

of consumers who work with a financial advisors, trust them LL Global, Inc.SMAdvice Matters LL Global, Inc.SMAdvisors Make a DifferenceContribute to a Retirement PlanWith AdvisorWithout AdvisorSource: Use of and Impact of Advisors, LIMRA, 2012

LL Global, Inc.SM27Consumers Who Use Advisors Also Save MorePercent of consumers who defer more than 7% of their income into employers defined contribution retirement savings plan. Source: Use of and Impact of Advisors, LIMRA, 2012

LL Global, Inc.SMAdvisor use in not only related to whether or not people save, but also to how much they save. Those who work with an advisor are more likely to be saving at higher rates. For example, fully 61% of those saving for retirement are saving at higher rates in their employer sponsored DC plans. 27Pre-retirees who worked with advisors feel more prepared for retirement

Source: Retirement Income Reference Book, LIMRA Secure Retirement Institute (2012) LL Global, Inc.SMRetirees working with advisors are more confident

Source: Retirement Income Reference Book, LIMRA Secure Retirement Institute (2012) LL Global, Inc.SMPre-retirees who have advisors have done more planning than those without an advisor

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

LL Global, Inc.SM31Three in 10 U.S. Households Have No Life Insurance32Source: LIMRA Household Trends in U.S. Life Insurance Ownership, 2010 LL Global, Inc.SM32Producer AAmericans Households Owning Individual Life Insurance33Source: LIMRA Household Trends in U.S. Life Insurance Ownership, 2010 LL Global, Inc.SM33Producer A34Canadian Household Life Insurance Ownership at Record LowsSource: Canadian Life Ownership Studies LL Global, Inc.SMAmerican Households That Say They Need More Life Insurance

2004 44%2010 50%Source: LIMRA Household Trends in U.S. Life Insurance Ownership, 2010 LL Global, Inc.SMCanadian Households Needing More Life Insurance at All-time High36Sources: Canadian Life Ownership Studies (LIMRA) and Statistics Canada 2013 LL Global, Inc.SM Good News They realize that they are underinsured. Half of U.S. households readily admit that they need more life insurance.

Bad News Likelihood to buy life insurance is no greater a priority than in the past.

43% of Americans say a major reason they have not bought more life insurance is because they have other financial priorities such as paying off debt and saving for retirement.3637Americans Top Financial Concerns Source: 2013 Insurance Barometer Study, LIMRA & LIFE LL Global, Inc.SM3738Living Expenses Have IncreasedSource: Consumer Price Index, Bureau of Labor Statistics

Peanut ButterAverage Price2002 - $1.962012 - $2.7540%Electricity kw/hrAverage Price2002 - $0.0912012 - $0.13042%

Orange JuiceAverage Price2002 - $1.842012 - $2.6946%

GasolineAverage Price2002 - $1.442012 - $3.73158%

CoffeeAverage Price2002 - $2.922012 - $5.9890% LL Global, Inc.SMhttp://www.theblaze.com/stories/2012/10/17/not-just-gas-check-out-the-drastic-price-increases-on-these-21-everyday-items/#

3839Every day expenses limit achieving financial goals61% 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 costs43% taxes (income, sales, property)

Source: 2008 Middle Market Study

What limits your ability to save for goals or for discretionary items.

LL Global, Inc.SM39Middle Market

Americans Disposable Income Has Been Dropping for 30 Years LL Global, Inc.SMSouth Africans Have Other Priorities

LL Global, Inc.SM

Behavioral Economics

Helping us understand the seeminglyirrational decisions of consumers about investments, savings and insurance. LL Global, Inc.SMBehavioral economics has won 2 Nobel prizes. Financial services companies have begun to use it more to understand why consumers do what they do.

42Which Would You Choose?70%Consumers who chose chocolate

Source: Presentation by Dr. Barbara Fasolo, Senior Lecturer in Behavioral Sciences, London School of Economics LL Global, Inc.SMBuild43

44Self-control is not a problem in the future

I start my diet on Monday.

Solution: Commit to save laterOffer programs that allow employees to commit future income to retirement planSource: Presentation by Dr. Barbara Fasolo, Senior Lecturer in Behavioral Sciences, London School of Economics LL Global, Inc.SMSource: Barbara Fasolo, senior lecturer in Behavioral Sciences, LSE44We liveNOW45Thinking about future self elicits neural activation patterns that are similar to neural activation patterns elicited by thinking about a stranger.

Source: Presentation by Dr. Barbara Fasolo, Senior Lecturer in Behavioral Sciences, London School of Economics LL Global, Inc.SMThinking about future self elicits neural activation patterns that are similar to neural activation patterns elicited by thinking about a stranger.

4546Age Progression

Age 10

Age 70 LL Global, Inc.SMUsing Virtual Games to Show People their Future Selves47Source: Increasing Saving Behavior Through Age-Progressed Renderings of the Future SelfJeremy Bailenson, Stanford UniversityIn 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.

LL Global, Inc.SMhttp://www.marketingpower.com/aboutama/documents/jmr_forthcoming/increasing_saving_behavior.pdf47 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 WeberColumbia University LL Global, Inc.SM49Why dont they buy?Think they cant afford it 74% Cant decide on amount 52% Havent gotten around to it 50% Worry about wrong decisions 43% Put money in other financial products 40% Have never been approached to buy 29% Dont want to think about dying 20% LL Global, Inc.SM49Producer50BenefitsSource: Improving Sales Presentations: Using Choice Architecture to Influence Buying Decisions, LIMRA (2009) LL Global, Inc.SMLikelihood of Buying51Definitely Would BuyUncertainDefinitely Would Not Buy29% increaseSource: Increase Sales Through Behavioral Economics, LIMRA (2005) LL Global, Inc.SM51

LL Global, Inc.SM52

Sales Reps Connecting with Consumers Directly

Immediately

When Consumers Want LL Global, Inc.SM

MetLife Partners With Walmart to Sell Life Insurance in Stores LL Global, Inc.SMDiversifying into sales of financial service products55

LL Global, Inc.SM

Bradesco using POS machines to sell life insurance LL Global, Inc.SMMobile technology is changing how people want to buy57

South Africa ranks 5th in mobile data usage (U.S. ranks 7th)

80% of South Africans who use the Internet use only their mobile devicesSource: Neilson 2014 Survey LL Global, Inc.SM

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