1. Putting Market Segmentation to Work In the Middle Market Walter H. Zultowski, Ph.D. WZ Research + Consulting, LLC SOA Life & Annuity Symposium May 6, 2013

2. Demonstration Project Segmenting the Middle Market Supported by the Marketing and Distribution, Product Development, and Reinsurance Sections, and the Committee on Life Insurance Research Completed in Second Half, 2012 Detailed reports available on the SOA website 2

3. Different from most middle market segmentation approaches Attitudinal/behavioral vs. demographic/lifestage segmentation Goes beyond needs identification to what and how the middle market wants to buy when it comes to life insurance 3

4. Middle Market Definition: “Young Families” Age: 25-40 Household Income: $35,000 - $125,000 At least one dependent in the household 4

5. 35% 39% 26% Segmentation Results 5

6. Understanding the Segments Not a strong belief in life insurance Buy because it was made available to them Have less coverage; less confident in adequacy of coverage Least likely to be planning for the future Least likely to seek advice of an agent or advisor Less likely to have children Often buy at their place of work 6 Opportunistic Buyers (39%)

7. Understanding the Segments (cont’d) Most likely to appreciate the lifetime value of life insurance More likely to buy as a part of a financial plan More likely to buy for “general peace of mind,” or because it’s the “right thing to do” Value the role of the agent Somewhat more likely to be female 7 Planners (35%)

8. Understanding the Segments (cont’d) Buy based on a need rather than a strong belief in the product Purchases typically life event driven, most likely the birth of a child Need for life insurance is temporary, rather than a part of a lifelong plan More likely to buy term More likely to buy based on affordability Somewhat more likely to be male 8 Protectors (26%)

9. Understanding the Segments (cont’d) Income, education, employment status Health status and mortality expectations Perceptions of adequacy of life insurance coverage General views of agent 9 The segments are similar in terms of: Somewhat older More likely to be married/in a civil union More likely to have children More likely to describe themselves as “upper middle class” Protectors:

10. Putting This Segmentation Approach to Work: Categorize prospects into three segments based on answers to 9 questions (can be found on the SOA website) Accomplished by: –Agents asking questions in a fact finder –Call center reps asking the questions –Prospects answering the questions on a website 10

11. Putting This Segmentation Approach to Work Develop different marketing approaches for different segments. Can extend to: –Different website “landing pages” based on one’s segment –Different sales presentations by agents –Different scripts used by call center reps –Different direct mail letters –Different products emphasized with different segments 11

12. Putting This Segmentation Approach to Work (cont’d) The fundamental concept: –To use this information to improve the efficiency and effectiveness of one’s marketing efforts –Applications will vary depending on a company’s target market(s), product set, and overall marketing strategy 12

13. Examples “Opportunistic Buyers” Emphasize general education about the value of/need for life insurance Promote price and value instead of conducting a needs analysis Encourage workplace buying, disturb them about its “portability” Don’t view workplace purchase as an end in itself, seek opportunities to make additional sales to workplace buyers over time Attempt to identify future major life events, at which time they may “morph” into another segment In developing leads for agents, leave them off the list 13

14. Examples (cont’d) “Planners” Don’t emphasize the purchase of life insurance in response to major life events, instead emphasize the role life insurance can play over one’s lifetime Emphasize the emotional side of the sale – e.g., “peace of mind” and the “right thing to do” Use needs analysis tools, and sell life insurance within the context of one’s total financial picture Discuss a program of planned term conversions as their incomes and assets grow Reinvigorate product concepts – e.g., graded premium life and guaranteed insurability options Given no additional information about a female prospect, assume she is a “Planner” 14

15. “Protectors” Don’t discuss needs analysis and the value of life insurance over one’s lifetime Emphasize the value of life insurance in providing income protection in response to major life events Be vigilant for future “non-traditional” life events -- e.g., divorce, job change, death of a parent Disturb them with the idea that many in their ‘50’s and’60’s today are finding their life insurance coverage expiring before their need for income protection has passed Consider new product designs – e.g., “term to age X” with an option to renew for X number of years on a guaranteed issue basis Given no additional information about a male prospect, assume he is a “Protector” 15 Examples (cont’d)

16. Next Stage: Use “big data” analytics to predict membership in the segments Avoids the need to ask the 9 questions 16

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