1. Independent or company advisors? The future of insurance distribution in Central Europe 15 November 2010 Karel Veselý

2. 2 © 2010 Deloitte Česká republika What I will be covering today The current state and the future of insurance distribution in CE Focus on face-to-face advice Will independent advice prevail? Will insurers manage to keep own distribution channels? The current state in one country may be the gospel of the future in another

3. UK

4. 4 © 2010 Deloitte Česká republika UK – decline of the direct sales force Until 1990s, for a long time the dominant sales channel A sharp decline in the 1990s A number of insurers completely disbandoned their DSF

5. 5 © 2010 Deloitte Česká republika Example – Prudential UK 1991 - 2001: Gradual decline in size 13 Feb 2001: DSF ‘restructuring’ announced Just a small specialist force of qualified advisers to be retained (target size 250) Source: Prudential UK

6. 6 © 2010 Deloitte Česká republika IFAs – the new dominant UK sales channel IFA = independent financial adviser Started after 1988 Since 2001-2, they deliver 50 – 80 % of total new business Typicallly small, however often members of larger IFA networks (regulatory/compliance reasons)

7. 7 © 2010 Deloitte Česká republika Why? Will we face this in Central Europe? Specific development of UK regulation: 1986 Financial Markets Act 1995 commission disclosure 2004 depolarisation 2013 Retail Distribution Review (Advisor Charging) Impacts often dramatically different than expected Decline of the UK direct sales force – reasons?

8. Western Europe

9. 9 © 2010 Deloitte Česká republika Germany Life Non-life: car insurance Zdroj: CEA Statistics N°39, Insurance Distribution Channels in Europe, March 2010

10. 10 © 2010 Deloitte Česká republika France

11. 11 © 2010 Deloitte Česká republika Italy Nadpis prezentace

12. 12 © 2010 Deloitte Česká republika Switzerland Nadpis prezentace

13. 13 © 2010 Deloitte Česká republika Insurance distribution trends (Western Europe) Distribution channels vary country by country Case for independent channels (brokers): People like to receive independent face-to-face advice Advisors like to give best advice to their clients More dynamic and attractive for those looking for quick career Negotiating power towards insurers (example: product area) Case against independent channels (brokers): Commission bias, no real independence (UK – Retail Distribution Review) DSF decline leads to lower access to financial advice (UK … 3m) Insurers lose link to their customers Insurers become dependent on external distributors Internal channels: Often lower growth BUT Decline of internal channels does seem to be a general rule

14. Central Europe

15. 15 © 2010 Deloitte Česká republika CE insurance markets – size and dynamics Life premium volume (in millions USD)Non-life premium volume (in millions USD) Useful Tools Source: sigma, Swiss Re

16. 16 © 2010 Deloitte Česká republika Poland – insurance distribution Nadpis prezentace

17. 17 © 2010 Deloitte Česká republika Czech Republic – life insurance distribution No real statistics available Internal channels – tied agents / employees (40% ?) Still significant Insurers with large portfolios like to use for campaigns Often low dynamics, „stagnation“ Brokers (40% ?) A very dynamic channel Dominated by a few large MLMs strong negotiating power Bancassurance (20 % ?) Dominated by 3 big banks Single premium, highly volatile (product campaigns)

18. 18 © 2010 Deloitte Česká republika Insurance distribution trends (Central Europe) Distribution channels also vary country by country Pressure on internal channels Alternative channels (brokers, bancassurance) grow faster Commission rates go up every year (200 % +) Product and distribution innovations impact market dynamics

19. 19 © 2010 Deloitte Česká republika Internal sales force effectiveness Emerging markets model: Large networks, high recruitment Low investment in new recruits / the network (short training, no licensing) Low productivity (monthly sales cases) Low agent retention (most drop out soon) Developed markets model: Recruitment lower, selection Higher investment in new recruits / the network (training, licensing, IT sales tools…) Higher productivity Higher retention

20. 20 © 2010 Deloitte Česká republika Internal sales force - the challenging transition Emerging markets model Developed markets model ?

21. 21 © 2010 Deloitte Česká republika Conclusions and recommendations Multi-distribution is or will be reality Brokers and/or bancassurance likely to grow faster than internal channels A threat or an opportunity for you? Internal sales channel Important for you if you want to avoid dependency on third parties Must be efficient Start making it efficient today

22. 22 © 2010 Deloitte Česká republika Contact Karel Veselý Deloitte Central Europe E-mail: kvesely@deloitteCE.com

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