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Published on January 7, 2009

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Strategies for a Changing IndustryPresented to Inter-Company Marketing GroupAnnual ConferenceScottsdale, ArizonaBy : Strategies for a Changing IndustryPresented to Inter-Company Marketing GroupAnnual ConferenceScottsdale, ArizonaBy Ben DiSylvester Chairman Robert E. Nolan Company February 5, 2008 Discussion Overview : Strategies for a Changing Industry Discussion Overview Survey Structure & Participants The Big Five Trends Challenges, Issues, and Implications The Role of Service and Technology A Framework for Future Success Survey Structure : Strategies for a Changing Industry Survey Structure Areas Probed Company Self-Assessment 5. Operations Industry Trends 6. Technology Competitive Landscapes 7. Outsourcing Sales and Marketing Strategies Response Format• Very Likely • Strongly Agree • Likely • Agree • Somewhat Likely • Disagree • Not Likely • Strongly Disagree • Don’t Know • Don’t Know Respondents Industry Wide : Strategies for a Changing Industry Respondents Industry Wide Respondents as diverse as consumers are becoming Mainly Life and Annuity, but most product mixes represented Almost every department responded 51% EVP or higher 93% Director or Higher All Company Forms And Sizes : Strategies for a Changing Industry All Company Forms And Sizes Stock and Mutual Split A good array of company sizes The Big Five Trends : Strategies for a Changing Industry The Big Five Trends Shifts in Demographics Demographic changes are # 1 on the list (95%) Ethnic markets (88%) Diversity brings complexity Translating Strategy into Action a Necessity Narrowing margins demand effective resource utilization Alignment of Technology and Business critical Organic Growth Preferred Channel conflict and confusion is costly Enhanced product features to match changing needs Service Provides the Advantage Converging products profile service as the differentiator As market segments multiply, the customer is the key Technology is an Important Enabler Investments are needed, but within the context of service Facing Common Challenges : Strategies for a Changing Industry Facing Common Challenges Clear vision, goal, and strategy for where to be in 3 years? 85% Strongly Agree / Agree Effectively use process improvement to generate results? 54% Strongly Agree / Agree Is technology an enabler of competitive advantage? Only 45% Strongly Agree / Agree (less than half) YET… Plan on large tech investments to remain competitive? 65% Strongly Agree / Agree Will expense ratios decrease measurably next 3 years? 50% Strongly Agree / Agree 31% Strongly Disagree / Disagree 19% Don’t Know And Key Strategic Issues : Strategies for a Changing Industry And Key Strategic Issues Ethnicity and Age will be defining demographics driving product design, sales process, and service delivery Insurers need a diverse product portfolio for cash management, lifestyle protection, wealth transfer, and inflation protection Multi-lingual sales and service will provide competitive edge Privacy and Compliance costs will continue to increase Tax reform is an unpredictable wildcard provoking wait-and-see Concentration of resources will continue Divestitures and discontinued products will increase (66%) Niche companies will be more successful (59%) Mergers and acquisitions will improve economies of scale (49%) On the other hand… (Agree / Disagree / Don’t Know) Global expansion a growth source? All Over (37% / 30% / 33%) Banks and related a major threat? No (19% / 47% / 34%) Internet impacting channel profits? Unknown (15% / 22% / 63%) Sales / Marketing Focus Clear : Strategies for a Changing Industry Sales / Marketing Focus Clear Leveraging existing efforts - a top priority Enhance existing products and/or reduce cost? 83% Expand existing field force? 74% Increase focus on retirement / lifestyle products? 73% With technology key in optimizing current agent profits Provide field access to a web portal (rpts, comm, CRM)? 84% Integrate use of web tools and e-learning into the field? 81% Yet some strategies remain unclear or even avoided Increase internet-based products and sales? 46% Increase marketing of variable investment products? 41% Build private-label products for sale by other carriers? 40% Expand into new lines like P&C or A&H? 24% And one long-standing carryover… Increase direct marketing efforts (phones and mail) 52% (Very Likely / Likely) Expense Vs. Service Still An Issue : Strategies for a Changing Industry Expense Vs. Service Still An Issue A definite move towards more self-service and web / internet-based access Will seniors and differing culture accept these new tools? What will the total cost be over time, and will it be less? Will service tiers be approached; how and where? Will customers receive different services based on premium or profit? Will agent service be tiered based on production or earnings? Will a higher tier be created, adding cost, or will the current tier be the top and others get less service going forward? Consolidation remains an opportunity; questions on how By agent, by geography, by product, by consumer, or by company? How can overlaps and handoffs be handled efficiently? Phone center consolidation happening more and more Geographic consolidation Unlikely / Not Very Likely (68%) Competitive Advantage WillBe Built On Service… : Strategies for a Changing Industry Competitive Advantage WillBe Built On Service… “The top priorities for gaining competitive advantage through service will be: Training for consistent delivery of service, Having adequate technologies to effect good service, and Monitoring to make sure good service is delivered.” - Insurance Company President “Straight through processing…technology that meets targeted customer needs at cost effective price…use of technology…technical automation and process improvement…economies of scale…reduced cycle time…reduced costs…better service…faster time service…delivery efficiency…speed to market…superior service.” - A Medley of Comments and Responses …Which Will Require Technology : Strategies for a Changing Industry …Which Will Require Technology Technology remains the most consistently supported strategy surveyed, as well as the most mixed in results The emphasis on service as a differentiator puts pressure on information technology to deliver cost-effective solutions Focused, targeted development of transactional systems paired with the leveraging of existing investments seems optimal A platform of key technologies has been developed over the past decade that represents the foundation upon which the service edge can be constructed, requiring focus to fully leverage Full admin systems replacements have tapered off Phased plans that consolidate onto one legacy platform pursued Modular enhancements are being used to extend the life of legacy systems while enhancing their functionality Front ends providing graphical interfaces are being combined with data warehouses to “wrap” the commoditized portions of legacy systems, leveraging the transaction processing while enhancing the usability Operationally, Some Clear Trends… : Strategies for a Changing Industry Operationally, Some Clear Trends… Service Tiers (Agt) Service Tiers (Cust) Consolidate Functions Add Access Methods Speed Up Service …And Some Not So Clear Ones : Strategies for a Changing Industry …And Some Not So Clear Ones Align By Channel Merge Agt & Cust Call Centers Increase to 24 / 7 Align By Customer The Top IT Investments : Strategies for a Changing Industry The Top IT Investments e-Delivery Of Materials Data Warehouse / Mining Single ClientView / CRM Consolidated Commissions Common Front End Web Service Portals Doc Mgmt And Workflow E-Sig And E-App Followed Closely By… : Strategies for a Changing Industry Followed Closely By… Replacing Adm Systems Business Process Mgmt Straight Thru Processing Consolidating Adm Systems Call Center Scheduling Expert UW Outsourcing Trends Mature : Strategies for a Changing Industry Outsourcing Trends Mature Outsourcing has slowed down in recent years due to Changes in the economics of the global marketplace Selective nationalist preferences Risk management and the fear of terrorism Some less than successful attempts in the service sector Current trends are targeted and for selective purposes Still heavy in IT, part maintenance and part large development Targets of non-core areas, non-customer areas, inactive lines Focus is away from core competencies and toward commodity tasks Onshoring and development centers have grown in use Bringing key resources from global sources to the U.S. Acquiring and owning a center in another country Sourcing efforts are being directly impacted by Converging labor costs A growing need for customer centric differentiation Major TrendsImpacting The IndustryAt The Strategic Level : Strategies for a Changing Industry Major TrendsImpacting The IndustryAt The Strategic Level Broad Industry Financial Issues : Strategies for a Changing Industry Broad Industry Financial Issues Facing subprime problems in portfolios Approximately 11% of industry’s investment portfolio allocated to subprimes Reaction is a shift to either triple-A rated subprime or reduced allocations Recent rate cut mitigated the exposure and improved performance trends Succeeding in emerging international markets (India and China) Premiums up 23.7% in China and 12.7% in India annually for past decade Rapid industrialization and deregulation creating growth spurt Significant growth achieved through market entry partnering opportunities Leveraging available capital to accelerate consolidations and spin-offs Protective Life – Chase Insurance Group Prudential – Allstate Corps VA’s Wilton Re – Utica National Life Minnesota Mutual – CNL Financial Genworth – Continental Life Insurance Great West – MetLife’s Pension Annuity business The Drive For Organic Growth: Source Of Profits : Strategies for a Changing Industry The Drive For Organic Growth: Source Of Profits Life insurance companies that generated growth organically (blue) – through expanded sales – generated greater shareholder returns than companies that grew through acquisitions (yellow). How is this accomplished? With Product Innovation as a Core Competency. By: Acquisitions driven growth Sales driven growth Using a repeatable product development process Understanding needs of distributors and customers Leveraging lessons learned from consumer products The Most Common Sources Of Organic Growth : Strategies for a Changing Industry The Most Common Sources Of Organic Growth Critical Growth To Be Achieved By New Products : Strategies for a Changing Industry Critical Growth To Be Achieved By New Products Stock market puts higher value on companies that grow organically Creates higher multiples and better ratings Provides a clearer indication of a company’s long-term financial health Innovation provides the foundation for successful new product growth While mergers and acquisitions increase value, they are not valued as high Find a way to serve the one-third of adults without insurance (true since 1960’s) Companies growing through new products more appealing to producers Provides scale for the thinner profit margins necessary to be competitive Allows reaching profit targets while competitively priced and commissioned Failed, delayed, or underperforming new product releases are frequent Result is reduced market share and a poor return on the investment New product growth requires product innovation as a core competency Successful insurers will drive growth through product innovation by Establishing a repeatable product development process Understanding the needs of distributors and consumers Leveraging lessons learned and Best Practices of consumer products industry Why Do Products Fail? : Strategies for a Changing Industry Why Do Products Fail? Product Complexity Insufficient compensation Uncompetitive Pricing Unappealing features and benefits Too slow to market Top reason for failure What attributes do successful companies have? A disciplined approach to the sourcing, evaluation and translation of ideas into product design, implementation, and rollout A well thought out, well documented, well understood, and repeatable product development process A clear and unrelenting focus on understanding the needs of their distributors and customers What Drives Product Complexity? : Strategies for a Changing Industry What Drives Product Complexity? Changing customer needs number one cause of complexity Aging Market Best Source of Organic Growth : Strategies for a Changing Industry The most significant growth opportunity is the aging population By 2010, there will be some 78 million people over age 60 in U.S. alone Europe will have another 58 million Retiring “baby boomers” will shift assets to retirement income purposes Over $30 trillion in total expected to shift in the U.S. alone by 2010 Shift creates a move from accumulation to decumulation, or “payout” Annuities, particularly market adjusted ones, will be major opportunity Demand on actuarial pricing and product modeling to develop new products This market shift could represent the biggest period of growth ever seen Competition is high: banks, securities firms, asset management companies Insurers must offer client centric service and solutions Change will drive down to operational and technological priorities Aging Market Best Source of Organic Growth Slide 26: Strategies for a Changing Industry Strong Performers Innovate Their Business Model : Strategies for a Changing Industry Strong Performers Innovate Their Business Model Cumulative Annual Growth Rate Two Paramount Conclusions From The Look Ahead : Strategies for a Changing Industry Two Paramount Conclusions From The Look Ahead Collaborative innovation and the primacy of the individual will be key Investments in innovation must start today to ensure future success A Framework for Success : Strategies for a Changing Industry A Framework for Success Customer-Centric Focus Internalize awareness of diverse customer needs Commit to a plan and stay the course Optimize distribution through tools, training, and targeting Operational Excellence Be F.A.S.T. Service remains the differentiator for $uccess Membership has its privileges: Tiers by need Technological Alignment Availability, accessibility, reliability, and simplicity Matching method to market Leveraging for efficiency; investing for advantage

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