CIA Annual Meeting Session 1101: Non-Traditional Distribution LOOKING BACK…focused on the future Non-Traditional Distribution Through The Eyes of a Direct Writer Geoff Clarke VP Direct Marketing AIG Assurance Canada Non-Traditional Distribution Through The Eyes of a Direct Writer Geoff Clarke VP Direct Marketing AIG Assurance Canada

CIA Annual Meeting Session 1101: Non-Traditional Distribution LOOKING BACK…focused on the future Topics to cover: What do we mean by non-traditional distribution? How does it differ from traditional distribution? How are products distributed? Which product features work? What do actuaries have to consider? How can we manage the risk? Topics to cover: What do we mean by non-traditional distribution? How does it differ from traditional distribution? How are products distributed? Which product features work? What do actuaries have to consider? How can we manage the risk?

CIA Annual Meeting Session 1101: Non-Traditional Distribution LOOKING BACK…focused on the future What is Direct Marketing? A system of marketing designed to solicit a direct and measurable response from a consumer using one or more media. It is a marketing and distribution channel in one What is Direct Marketing? A system of marketing designed to solicit a direct and measurable response from a consumer using one or more media. It is a marketing and distribution channel in one

CIA Annual Meeting Session 1101: Non-Traditional Distribution LOOKING BACK…focused on the future Why do people buy Direct? Personal preference Small/Simple policies Medical reasons No intermediary Cost Why do people buy Direct? Personal preference Small/Simple policies Medical reasons No intermediary Cost

CIA Annual Meeting Session 1101: Non-Traditional Distribution LOOKING BACK…focused on the future Broad Market Direct to the Canadian public No broker involvement Affinity or Sponsored Market Direct to customers of affinity partner Compensation to partner in return for access to customer base improved response Broad Market Direct to the Canadian public No broker involvement Affinity or Sponsored Market Direct to customers of affinity partner Compensation to partner in return for access to customer base improved response

CIA Annual Meeting Session 1101: Non-Traditional Distribution LOOKING BACK…focused on the future Key Differences: TraditionalNon-Traditional DistributionBrokerVarious ProductsComplexSimple UnderwritingFullGuaranteed or Simplified issue Acquisition CostsLinkedNon-linked

CIA Annual Meeting Session 1101: Non-Traditional Distribution LOOKING BACK…focused on the future Distribution Insurance has to be sold Direct Marketing promotion: Media – method of distribution and target market Offer – Value proposition and positioning Creative – presentation of the offer Relative split: 50% Media / 35% Offer / 15% Creative Distribution Insurance has to be sold Direct Marketing promotion: Media – method of distribution and target market Offer – Value proposition and positioning Creative – presentation of the offer Relative split: 50% Media / 35% Offer / 15% Creative

CIA Annual Meeting Session 1101: Non-Traditional Distribution LOOKING BACK…focused on the future Distribution techniques DRTV Direct Mail Telemarketing Print Internet Distribution techniques DRTV Direct Mail Telemarketing Print Internet

CIA Annual Meeting Session 1101: Non-Traditional Distribution LOOKING BACK…focused on the future DRTV: Hard costs: DRTV production Variable costs Media Talent costs Key metrics: Cost per lead Cost per dollar of premium DRTV: Hard costs: DRTV production Variable costs Media Talent costs Key metrics: Cost per lead Cost per dollar of premium

CIA Annual Meeting Session 1101: Non-Traditional Distribution LOOKING BACK…focused on the future Telemarketing Hard costs: TSR / agent training Script development Statement inserts Variable costs Telemarketing costs Key metrics: Sales per hour Cost per dollar of premium Telemarketing Hard costs: TSR / agent training Script development Statement inserts Variable costs Telemarketing costs Key metrics: Sales per hour Cost per dollar of premium

CIA Annual Meeting Session 1101: Non-Traditional Distribution LOOKING BACK…focused on the future Direct Mail Hard costs: Creative development Variable costs Printing List rental Postage Key metrics: Response rate Cost per dollar of premium Direct Mail Hard costs: Creative development Variable costs Printing List rental Postage Key metrics: Response rate Cost per dollar of premium

CIA Annual Meeting Session 1101: Non-Traditional Distribution LOOKING BACK…focused on the future Successful direct marketing products are: Simple and easily understood Easy to obtain Affordable Provide supplementary coverage Cover specific circumstances Provide high perceived value

CIA Annual Meeting Session 1101: Non-Traditional Distribution LOOKING BACK…focused on the future Product Features that Work: Wow factor - big numbers impress! Common Carrier - $1 million PTD - $100, or 60 day complimentary coverage Thank You benefits Risk free: Free look Money back guarantee Premium guarantees

CIA Annual Meeting Session 1101: Non-Traditional Distribution LOOKING BACK…focused on the future Actuarial Considerations General Affinity Underwriting Lapses Expenses: maintenance acquisition Actuarial Considerations General Affinity Underwriting Lapses Expenses: maintenance acquisition

CIA Annual Meeting Session 1101: Non-Traditional Distribution LOOKING BACK…focused on the future Actuarial Considerations - General Age: Definition – last birthday Banding Issue & Termination ages Price Points Price vs Benefit Premium guarantees Individual / spouse / family Actuarial Considerations - General Age: Definition – last birthday Banding Issue & Termination ages Price Points Price vs Benefit Premium guarantees Individual / spouse / family

CIA Annual Meeting Session 1101: Non-Traditional Distribution LOOKING BACK…focused on the future Actuarial Considerations - Affinity Affinity Markets: Variations in design Compensation Recovery of Acquisition Expenses Demographic skew Actuarial Considerations - Affinity Affinity Markets: Variations in design Compensation Recovery of Acquisition Expenses Demographic skew

CIA Annual Meeting Session 1101: Non-Traditional Distribution LOOKING BACK…focused on the future Actuarial Considerations –Underwriting Mortality / Morbidity Incidence rates Anti-selection Product design Exclusions Pre-ex clauses Target market Actuarial Considerations –Underwriting Mortality / Morbidity Incidence rates Anti-selection Product design Exclusions Pre-ex clauses Target market

CIA Annual Meeting Session 1101: Non-Traditional Distribution LOOKING BACK…focused on the future Actuarial Considerations - Lapses Varies by: distribution technique Telemarketing Direct Mail marketing offer product billing method Actuarial Considerations - Lapses Varies by: distribution technique Telemarketing Direct Mail marketing offer product billing method

CIA Annual Meeting Session 1101: Non-Traditional Distribution LOOKING BACK…focused on the future Actuarial Considerations - Maintenance Expenses Large volume of homogenous policies: Economies of scale Efficient systems Billing method: credit card PAC Direct bill Actuarial Considerations - Maintenance Expenses Large volume of homogenous policies: Economies of scale Efficient systems Billing method: credit card PAC Direct bill

CIA Annual Meeting Session 1101: Non-Traditional Distribution LOOKING BACK…focused on the future Actuarial Considerations - Acquisition Expenses The key differences between traditional and non-traditional distribution are the techniques used to manage acquisition costs Actuarial Considerations - Acquisition Expenses The key differences between traditional and non-traditional distribution are the techniques used to manage acquisition costs

CIA Annual Meeting Session 1101: Non-Traditional Distribution LOOKING BACK…focused on the future Traditional Business: Acquisition costs: Internal marketing departments Internal sales force for recruitment, education and retention of brokers Brokers are only compensated when policies actually sold Acquisition expense control revolves around management of internal costs and recovery of commission advances on early termination Traditional Business: Acquisition costs: Internal marketing departments Internal sales force for recruitment, education and retention of brokers Brokers are only compensated when policies actually sold Acquisition expense control revolves around management of internal costs and recovery of commission advances on early termination

CIA Annual Meeting Session 1101: Non-Traditional Distribution LOOKING BACK…focused on the future Non-Traditional Business: Acquisition costs: Creative development - print, brochures, direct mail packages, DRTV, scripts Media costs – list rental, TV commercials, postage, telemarketers All costs incurred before any sales are made There is no direct link between money spent and volume of sales Non-Traditional Business: Acquisition costs: Creative development - print, brochures, direct mail packages, DRTV, scripts Media costs – list rental, TV commercials, postage, telemarketers All costs incurred before any sales are made There is no direct link between money spent and volume of sales

CIA Annual Meeting Session 1101: Non-Traditional Distribution LOOKING BACK…focused on the future Marketing Profit The excess of Acquisition loading over actual acquisition expenses The challenge is to acquire business within the acquisition loadings Once issued, traditional techniques used to manage risk Marketing Profit The excess of Acquisition loading over actual acquisition expenses The challenge is to acquire business within the acquisition loadings Once issued, traditional techniques used to manage risk

CIA Annual Meeting Session 1101: Non-Traditional Distribution LOOKING BACK…focused on the future Management of Acquisition Costs Mix of business by product and distribution Client Lifetime Value Predictive Modelling Segmentation Management of Acquisition Costs Mix of business by product and distribution Client Lifetime Value Predictive Modelling Segmentation

CIA Annual Meeting Session 1101: Non-Traditional Distribution LOOKING BACK…focused on the future Mix of Business Acquisition costs vary by: Product Distribution Customer type Mix of Business Acquisition costs vary by: Product Distribution Customer type

CIA Annual Meeting Session 1101: Non-Traditional Distribution LOOKING BACK…focused on the future Client Lifetime Value Costs most to acquire a new policyholder Costs less to sell an additional product to existing customers Balance mix of business to achieve marketing break-even Client Lifetime Value Costs most to acquire a new policyholder Costs less to sell an additional product to existing customers Balance mix of business to achieve marketing break-even

CIA Annual Meeting Session 1101: Non-Traditional Distribution LOOKING BACK…focused on the future Predictive Modelling / Segmentation Identify top performing deciles Maximize response by limiting depth of media spend Segment data to identify most likely respondents Risk can be minimized by testing, tracking and analyzing results Predictive Modelling / Segmentation Identify top performing deciles Maximize response by limiting depth of media spend Segment data to identify most likely respondents Risk can be minimized by testing, tracking and analyzing results

CIA Annual Meeting Session 1101: Non-Traditional Distribution LOOKING BACK…focused on the future Some Final Thoughts: Keep an open mind Just because you wouldn’t buy it, doesn’t mean it won’t work – you are NOT the target audience for most direct marketing We are trained to expect the worst – but if a product is broadly distributed, anti-selection will be less than you might expect Direct marketing is 70% science, 30% art With experience, testing and proper controls, non-traditional distribution is no more risky that traditional distribution ….. …. AND IT’S FUN! Some Final Thoughts: Keep an open mind Just because you wouldn’t buy it, doesn’t mean it won’t work – you are NOT the target audience for most direct marketing We are trained to expect the worst – but if a product is broadly distributed, anti-selection will be less than you might expect Direct marketing is 70% science, 30% art With experience, testing and proper controls, non-traditional distribution is no more risky that traditional distribution ….. …. AND IT’S FUN!