ASISA Assembly 2014

1. ASISA Assembly 2014 Robert A. Kerzner President and CEO LIMRA, LOMA, LL Global

2. The Trusted Source for Industry Knowledge Research Learning & Development Research Learning & Development Professional Networking

3. Nearly 100 Years of Providing Industry Research and Knowledge to:

4. LIMRA Research—A Catalyst for New Ideas LIMRA employs 80 researchers to provide this research to our members.

5. Life insurers infused R176 billion into the South African economy through death benefits paid to beneficiaries in 2013. Source: ASISA Annual Report, 2013

6. The financial services industry makes up 20 percent of South Africa’s GDP. Source: ASISA Annual Report, 2013

7. LIMRA’s Market Maturity Model China I

8. The Dichotomy of the South African Population

9. Forces of the Future Regulation & Legislation Demographics Technology External Forces Major Driver of Growth/Change Unknown The Change Agent Possible Disruptors Focus on Retirement Risk Interest Rates & Investment Climate How We Engage Legislative Changes Create New Markets OR How We Become More Effective Globalization Rules/Regs Make It Hard to Do Business

10. South Africa Has a Young Population South Africa - 2050 Source: U.S. Census Bureau’s International Data Base

11. Advice Model Under Scrutiny

12. Commission Advice Under Pressure Commissions Banned in 2007 and 2008: Countries Where Commissions Were Banned in 2013: Australia Norway United Kingdom Netherlands Finland

13. Regulators 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.

14. Consumers Say They Prefer Flat Fees Source: Bye-Bye Commissions, LIMRA 2012

15. 1 in 5 Consumers 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

16. In UK, Consumers Won’t Pay for Advice Half of consumers are not willing to pay more than £50 ($80) for an hour of professional advice Source: Bye-Bye Commissions, LIMRA 2012

17. Consumers in UK 84% not aware of RDR or that they will have to pay for financial advice said they would refuse advice rather than pay a fee 54% Source: Deloitte, 2012

18. Impact of Retail Distribution Review (RDR) in United Kingdom

19. New IRDA Rules Resulted in 20% Drop in Agents Source: IDRA Annual Reports, 2011, 2012, 2013

20. Regulation in China • 2010 reg. # 90 banned insurance advisors from selling in bank branches • Limits banks to selling no more than three of a given insurers’ products • Unit linked products can only be sold through wealth management centers • Sales staff must hold specific designations and experience to sell investment and UL products Source: interviews with Chinese members

21. New Regulations Dampen Bancassurance Sales In 2011, CIRC and CBRC released new rules to impose stricter control. A 2014 regulation resulted in a 60% decline in bancassurance policy sales by eight major life insurance companies in China Source: 2012 Special Report: Asia-Pacific Life – Review & Preview. Growth Pauses in Asia-Pacific Life Markets as Insurers Seek New Routes to Expansion (2012), AM Best, Shanghai Securities News

22. 7 in 10 Canadians Prefer to Purchase Life Insurance Face-to-Face Future Preference For Buying Life Insurance Source: 2013 Canadian and 2010 U.S. Life Ownership Studies

23. In general, consumers don’t trust life insurance agents or advisors Source: Advisor For Life, LIMRA 2009

24. But when it comes to their advisor… 83% of consumers who work with a financial advisors, trust them Source: Finding the Right Mix: Retirement Income Attitudes and Preferences, LIMRA Secure Retirement Institute, 2014 (in progress).

25. Advice Matters

26. Advisors Make a Difference Contribute to a Retirement Plan With Advisor Without Advisor Source: Use of and Impact of Advisors, LIMRA, 2012

27. Consumers Who Use Advisors Also Save More Percent of consumers who defer more than 7% of their income into employer’s defined contribution retirement savings plan. Source: Use of and Impact of Advisors, LIMRA, 2012

28. Pre-retirees who worked with advisors feel more prepared for retirement Source: Retirement Income Reference Book, LIMRA Secure Retirement Institute (2012)

29. Retirees working with advisors are more confident Source: Retirement Income Reference Book, LIMRA Secure Retirement Institute (2012)

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

32. Three in 10 U.S. Households Have No Life Insurance Source: LIMRA Household Trends in U.S. Life Insurance Ownership, 2010

33. Americans Households Owning Individual Life Insurance Source: LIMRA Household Trends in U.S. Life Insurance Ownership, 2010

34. Canadian Household Life Insurance Ownership at Record Lows Source: Canadian Life Ownership Studies

35. American Households That Say They Need More Life Insurance 2004 44% 2010 50% Source: LIMRA Household Trends in U.S. Life Insurance Ownership, 2010

36. Canadian Households Needing More Life Insurance at All-time High 2013 Sources: Canadian Life Ownership Studies (LIMRA) and Statistics Canada

37. Americans’ Top Financial Concerns Source: 2013 Insurance Barometer Study, LIMRA & LIFE

38. Living Expenses Have Increased Coffee Average Price 2002 - $2.92 2012 - $5.98 ↑90% Peanut Butter Average Price 2002 - $1.96 2012 - $2.75 ↑40% Orange Juice Average Price 2002 - $1.84 2012 - $2.69 ↑46% Gasoline Average Price 2002 - $1.44 2012 - $3.73 ↑158% Electricity – kw/hr Average Price 2002 - $0.091 2012 - $0.130 ↑42% Source: Consumer Price Index, Bureau of Labor Statistics

39. Every day expenses limit achieving financial goals 61% 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 costs 43% taxes (income, sales, property) What limits your ability to save for goals or for discretionary items. Source: 2008 Middle Market Study

40. Americans’ Disposable Income Has Been Dropping for 30 Years

41. South Africans Have Other Priorities

42. Behavioral Economics Helping us understand the seemingly irrational decisions of consumers about investments, savings and insurance.

43. Which Would You Choose? 70% Consumers who chose chocolate Source: Presentation by Dr. Barbara Fasolo, Senior Lecturer in Behavioral Sciences, London School of Economics

44. Self-control is not a problem in the future I start my diet on Monday…. Solution: Commit to save later Offer programs that allow employees to commit future income to retirement plan Source: Presentation by Dr. Barbara Fasolo, Senior Lecturer in Behavioral Sciences, London School of Economics

45. We live…NOW Thinking 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

46. Age Progression Age 70 Age 10

47. Using Virtual Games to Show People their “Future Selves” In 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. Source: Increasing Saving Behavior Through Age-Progressed Renderings of the Future Self Jeremy Bailenson, Stanford University

48. 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 Weber Columbia University

49. Why don’t they buy? Think they can’t afford it — 74% Can’t decide on amount — 52% Haven’t gotten around to it — 50% Worry about wrong decisions — 43% Put money in other financial products — 40% Have never been approached to buy — 29% Don’t want to think about dying — 20%

50. Benefits Source: Improving Sales Presentations: Using Choice Architecture to Influence Buying Decisions, LIMRA (2009)