1. What’s Brewing in Insurance Distribution Bancassurance and Alternative Distribution Seminar 27 May 2008

2. 2008 Bancassurance & Credit Life Survey ____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ Feedback Presentation Bernard Ross FIA, FASSA Executive Director: Business Development RGA Reinsurance Company of South Africa Alternative Distribution Workshop 27 & 29 May 2008 www.rgare.com

3. Agenda Introduction Section I The Survey Process Results Changes from 2006 Survey Section II The National Credit Act The ‘Nienaber’ Consumer Credit Enquiry Impact of Changing Economic Environment Questions

4. Introduction Reason for survey RGA as a bancassurance specialist International benchmarking External Factors National Credit Act Nienaber CCI Past surveys LOA survey in 2003 RGA Survey 2006 – “Giving Credit Where Credit is Due” RGA Survey 2007 – “Bridging the Cultural Divide”

5. Participants Absa Life NedGroup Life Liberty Life & Standard Bank Hollard Capitec Bank Sanlam Channel Life Metropolitan Life FNB Life Momentum Aspire Guardrisk Ooba (previously MSA) Regent Life SA Home Loans

6. The Survey Process ____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

7. Data Collection The Questionnaire 31 questions, split across product lines Data collected online Included Funeral and non-Credit Life, complex underwritten business Follow-up questions Gross Annual Premium Strike rates

8. Data Collection (continued) Changes from 2006 Major change – data collected online Data scrubbed by RGA Adjustments to the Data Alternative Sources of Data from National Credit Regulator – Form 45 Returns NCR reports expected in Q3 2008

9. The Survey Process Analysed by RGA Responses weighted by 2007 Premium Single Premium vs.. Recurring Premium – mostly changed fully by start of year already Double counts Terminology

10. Results ____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

11. Distribution of Players Total 2007 Premium for participants estimated at R5.4bn

12. Products Offered Products shown as a proportion of total number of offerings in survey (total 53): Proportion of participants offering each product (total 14):

13. Process Features

14. Underwriting In general microloans business continues to be automatically issued. Vehicle finance is showing slightly more underwriting being conducted. Quite a varied response for mortgages. Credit card business is mostly automatically issued. For personal loans business, some questions are being asked again. Funeral appears to be issued with basic questions. Complex underwritten: speaks for itself.

15. Change from 2005: More products have moved to 12/12 Underwriting at claims stage

16. Mortality Experience

17. Mortality Experience (cont.)

18. Morbidity Experience

19. Lapse Experience

20. The National Credit Act ____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

21. Overview Gazetted 15 March 2006 Came into effect in stages 1 June 2006 1 September 2006 1 June 2007 Purposes include: regulate credit extension market better ensure better protection for clients (also stop reckless lending) fairer charges, prohibit unfair credit marketing practices

22. Overview (continued) Replaces Usury Act, Integration of Usury Act Laws Act and Credit Agreements Act Sees the creation of National Credit Regulator Supersedes all regulatory bodies under Usury Act Maintain register of all credit providers Establish national register of credit agreements Monitor trends in the credit market Establish National Credit Tribunal Several sections of the Act relate to assurers Sections 8, 102 – 106

23. Impact A significant reduction in credit life sales. More NTU's. Lower premium volumes due to change from SP to RP. Increased period between grant and registration.

24. The ‘Nienaber’ Consumer Credit Enquiry _______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ LOA / SAIA Investigation

25. Background Purpose of the Inquiry LOA raised concerns about practices in Consumer Credit Insurance (CCI) Highlighted by media reports Inquiry self-appointed, with SAIA, to investigate CCI practices Terms of reference Improper and inappropriate marketing and distribution practices. The payment of excessive commissions or improper fees or incentives. The fairness of standard terms and conditions. The adequacy of the overall value to consumers. Pre- and post-sale disclosures and information provided to consumers. Promoting greater consumer understanding of credit life products, their benefits and the consumer’s rights.

26. The Report Important findings and recommendations Credit Insurance is an enabler for credit extension Inefficiencies exist Complex interpretations of remuneration in the credit life industry Establishment of LOA / SAIA Subcommittee to consider, inter alia: what is due by the consumer by way of premiums to the consumer by way of benefits and fees the simplification and standardisation of policy terminology; the standardisation of limitations to cover, exclusion clauses and waiting and notification periods for different product lines; the highlighting of the health declaration; the introduction of an industry practice of a follow-up letter; and in the case of direct marketing, core questions and answers.

27. The Report (continued) Issues raised in the report Deregulation of initial and / or service commissions Regulation of credit insurance by the National Credit Regulator Arbitrage between short- and long-term licence Use of cell captives Consumer education and awareness Product value proposition

28. Possible Implications Issues that remain unanswered Fair pricing and possible profiteering Creating better value for money Interesting findings / Points to note Panel and NCR views on premium and commission capping, over- regulation: Source: Consumer Credit Insurance Enquiry, April 2008

29. The Economic Environment ____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

30. Changes in Economic Environment Interest rates have soared. Credit extension believed to have been brought to bear Motor vehicles sales had dropped off significantly in second half of 2007 Yet, SARB statistics as recent as March 08 suggested that credit lending continued to grow in the low 20%’s. This is similar to that in 2005! Oil prices and food prices are sky rocketing…

32. Changes in Economic Environment (continued) So what to make of this? Not clear what specific impact each of the factors highlighted in this analysis had on credit life business. Interesting to note the diversification happening, in that non-credit life sales had grown. Clear that NCA, worsening economic conditions and resultant tightening of the credit cycle is impacting on the sale of credit life business.

33. Final Comments NCA, worsening economic conditions and resultant tightening of the credit cycle have negative impact on the sale of credit life business. Not clear what specific impact each of these factors has on credit life business. Diversification – standalone insurance sales have grown. NCA – impact of single vs. recurring premium Credit Enquiry – highlights important issues going forward

34. Questions? ____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

36. www.rgare.com Target Segments and Alternative Insurance Channels ____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ Johannesburg, South Africa Sean Gilday 27 May 2008

37. Agenda Target Segments Needs Alternate Channels Case Studies Questions

38. Segments/Needs Family Market (Mass-Affluent) Typically 30-55 Both spouses working with kids Spending and incurring debt Disposable income can be low Looking for: 1.Mortgage cover, Credit Card Covers 2.Education plans 3.Health Coverage 4.Income replacement on death, disability, illness 5.Retirement Planning

39. SegmentProduct SolutionsSales ChannelUnderwriting Type Family Market Term Life, UL, Whole Life Critical Illness, TPD PHI AD&D Credit Card, loan covers Variable Annuities Internet Bank Agent/Broker Tele-sales Direct Mail For bank sales and tele-sales simplified For agent and broker sales full underwriting Seniors Market Long Term Care Guaranteed Issue Whole Life Simple Premium Whole Life Payout Annuities Agent/Broker Bank Tele-Sales Tele-underwriting Simplified and Guaranteed Issue Business Market Term Life, Whole life, UL Group Products Disability Protection (DI, TPD) Agent/Broker Business Banking Generally full underwriting including significant financial underwriting High Net Worth Whole Life Universal Life Full financial and medical underwriting Use smart underwriting Tele- underwriting Para-medicals

40. Segment/Needs Seniors Market (Mass-Affluent) Typically over 65 Close to retirement/already retired May have shortfall on retirement needs May have decent assets accumulated Needs: 1.Estate conservation 2.Funeral Expenses 3.Payout Annuities 4.Health Care –Medical and old age

41. SegmentProduct SolutionsSales ChannelUnderwriting Type Family Market Term Life, UL, Whole Life Critical Illness, TPD PHI AD&D Credit Card, loan covers Variable Annuities Internet Bank Agent/Broker Tele-sales For bank sales and tele-sales simplified For agent and broker sales full underwriting Seniors Market Long Term Care Guaranteed Issue Whole Life Single Premium Whole Life Payout Annuities Agent/Broker Bank Tele-Sales Direct Mail Tele-underwriting Simplified and Guaranteed Issue Full underwriting Business Market Term Life, Whole life, UL Group Products Disability Protection (DI, TPD) Agent/Broker Business Banking Generally full underwriting including significant financial underwriting High Net Worth Whole Life Universal Life Private Bank via Agent/Broker Agent/Broker Full financial and medical underwriting Use smart underwriting Tele- underwriting Para-medicals

42. Segment/Needs Business Market (SME) Family owned or limited partnership Small Management Team Under 100 employees Needs include: 1.Group insurance –Life, Health, Pension 2.Key Man, Buy Sell, Business Continuation 3.Business Loan Cover 4.Retirement Planning

43. SegmentProduct SolutionsSales ChannelUnderwriting Type Family Market Term Life, UL, Whole Life Critical Illness, TPD PHI AD&D Credit Card, loan covers Variable Annuities Internet Bank Agent/Broker For bank sales and tele-sales simplified For agent and broker sales full underwriting Seniors Market Long Term Care Guaranteed Issue Whole Life Simple Premium Whole Life Payout Annuities Agent/Broker Bank Tele-Sales Tele-underwriting Simplified and Guaranteed Issue Business Market Term Life, Whole life, UL Group Products Disability Protection (DI, TPD) Agent/Broker Business Banking Generally full underwriting including significant financial underwriting High Net Worth Whole Life Universal Life Private Bank via Agent/Broker Agent/Broker Full financial and medical underwriting Use smart underwriting Tele- underwriting Para-medicals

44. Segments/Needs High Net Worth Market Estate Conservation Tax Planning Business Coverage Complex needs with high-end solutions Global solutions

45. SegmentProduct SolutionsSales ChannelUnderwriting Type Family Market Term Life, UL, Whole Life Critical Illness, TPD PHI AD&D Credit Card, loan covers Variable Annuities Internet Bank Agent/Broker For bank sales and tele-sales simplified For agent and broker sales full underwriting Seniors Market Long Term Care Guaranteed Issue Whole Life Simple Premium Whole Life Payout Annuities Agent/Broker Bank Tele-Sales Tele-underwriting Simplified and Guaranteed Issue Business Market Term Life, Whole life, UL Group Products Disability Protection (DI, TPD) Agent/Broker Business Banking Generally full underwriting including significant financial underwriting High Net Worth Whole Life Universal Life Critical Illness Private Bank via Agent/Broker Agent/Broker Full financial and medical underwriting Use smart underwriting Tele- underwriting Para-medicals

46. SegmentProduct SolutionsSales ChannelUnderwriting Type Family Market Term Life, UL, Whole Life Critical Illness, TPD PHI AD&D Credit Card, loan covers Variable Annuities Internet Bank Agent/Broker For bank sales and tele-sales simplified For agent and broker sales full underwriting Seniors Market Long Term Care Guaranteed Issue Whole Life Simple Premium Whole Life Payout Annuities Agent/Broker Bank Tele-Sales Tele-underwriting Simplified and Guaranteed Issue Business Market Term Life, Whole life, UL Group Products Disability Protection (DI, TPD) Agent/Broker Business Banking Generally full underwriting including significant financial underwriting High Net Worth Whole Life Universal Life Private Bank via Agent/Broker Agent/Broker Full financial and medical underwriting Use smart underwriting Tele- underwriting Para-medicals

47. Alternate Channels Direct Response TV (DRTV) Direct Mail Telesales Internet Shop-assurance

48. Direct Response -Background Source: Limra 2004 US Life Premium by Channel, 2003

49. DRTV Insurers have increased their spend on this channel in the last few years 93% increase in 2006 for US spending Both short form to long form ad campaigns Simple to complex products Companies use both “Hard Offers” and “Soft Offers” Life companies use soft offers as a lead generation tool The Hartford uses DRTV to AARP Members

50. DRTV –AIG Life Canada AIG Canada Product: Guaranteed Issue Whole Life Target Market: Seniors Model: DRTV and Direct Mail –”Patrick” Ad Self Enrollment Successful Global Model Used by other companies in the US and Canada

51. DRTV –Shopping Channels Korea Korean insurers use shopping channel approach Use infomercials for product and needs explanation Customers can buy over the phone after viewing the product Done in South Africa as well

52. Direct Mail- Torchmark One of the largest direct response operations in the US Over USD1.5 billion in revenue 38% of Premium comes from targeted Direct Mail as the main sales model 8% average growth in DR premiums over 5 years Targets middle market households

53. Direct Mail -Torchmark Products: Term and Whole Life Face offered of 5,000/10,000/20,000/50,000 Premium and Benefits Guaranteed for life Simple Underwriting No medical exams Typical 30-day money back offer Average face amount in 2002 was $12,000

54. Torchmark –DM KSFs 1.Control of Acquisition Costs 2.Look for Economies of Scale 3.Sufficient Capital to fund campaigns 4.Strong database mining capabilities Goal: Increase Underwriting Profit

55. Direct Mail -Torchmark Torchmark’s DR Operating Performance, 2004 Source: 2004 Torchmark Annual Report

56. Outbound Telephone-Inbursa Large Mexican-based conglomerate Have banking, insurance and telecommunications Targeted telco customers with simple life offer Small face amount with simple underwriting High Take-up rates Premiums added to phone bill

57. Outbound Telephone –BMO Life Large Canadian Bank Over 4 million retail banking customers Developed call centre outbound tele-sales solution Use bank’s database to target market customers Have full tele-underwriting Good Straight through processing model Term life –pick your term

58. Inbound Telephone –Direct Line UK-based company Short Term and Long Term Developed inbound model with strong advertising and branding campaign Sell Term and CI Known to tweak program daily

59. Inbound Telephone –Direct Line Use a preferred underwriting model “Life-style” factor preferred model (not US style medically preferred) Allows them to offer discounts The underwriting rules, scripts and process was set up to be very flexible – they could change it over night! (including the associated rate changes) Mail Send a letter to the customer a post-sale Welcome Letter

60. Internet Sales –Allianz Australia Online Sales of Short Term and Long Term To develop a direct life insurance offer to compete with the IFA channel Sell Life, TPD, and CI Up to AUS$1.25 million life and TPD, 500,000 CI Will issue full face amount without fluids or medical Use drill-down full underwriting model

62. Internet Sales –Shop-assurance Web & phone with in-store & TV advertising Term Cover (+CIC) – underwritten Over 60’s – guaranteed acceptance In store – self underwriting? 20 to 39, 5 year age bands T10, £100,000 cover only Sex & smoker differentiated The in-store product is totally different from any other UK product

64. Key Success Factors Executing on Customer Needs Matching product to customer needs and sales model Ensuring quick and easy sales process Use modern underwriting methodologies Try to make insurance sale “transactional” Sales Management Use the most effective sales models Continuous access to sales people for training and advice Create and use effective needs-based insurance sales approaches where possible

65. Questions? ____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________