Distribution & Consumer Values
International Insurance Society Seminar
Hong Kong
July 13th 2005
Conundrum
High pressure sales
Consumers
unhappy Distrust of distributors & providers
Poor value for money
Commissions under pressure
Distributors
Mis-selling accusations
unhappy
Can’t afford to serve many segments
Scandals
Regulators Retirement savings gap
unhappy
High charges
A solution in sight?
Aligned
Distributors
Consumers &
in charge consumers
Distributors
focus on value add
Consumers in charge: Essential ingredients
US UK Auto Packag Health
401K Pensions e
P&C
Consumer knowledge
Consumer motivation
Simple products
Simple Charging
Broad availability
Level of intermediation Low High Low High Med.
Aligning economic interests
Upfront Level Wrap Fee
Distributor Bring it on Is it worth it? Look for high rollers Clients too
cheap
Consumer That’s a lot Seems fair It’s simple Why pay so
much?
Regulator Mis-sale alert Better Even better Now you’re
talking
TRANSPARENCY
Impact of charging: Example
Payback Period
20
19
1% AMC with min £50pa
18
17
0.5% AMC + 5% up front
1% AMC + 5% up front for 3 years
16
1.5% AMC for 10 years then 1%
15 1.5% AMC
14
13
1% AMC + 5% up front 2% AMC
12
6% 8% 10% 12% 14% 16% 18% 20%
IRR
Aligning distributors to consumer needs
Segment Characteristic Likely Adviser
High
• Value support
•Complex Sophisticated • Financially sophisticated • Distributor
•Multi coverage Sceptics • Strong preference for • Independent Adviser
face-to- face
•Tax
Advice
• Uninterested in support
DIY • Direct
• In control of finances
• Strong interest in
Advice finances • Independent Adviser
Wealth & Seekers • Not in control of them
Income
• Not very interested in
Provider • Direct
finance
Low Sceptic • Distributor
• Do not trust providers
•Simple
•1-2 coverages
Access & • Uncomfortable with
Financially • Distributor
education finances
Averse • Independent Adviser
• Value a brand
Distributors’ focus on value added: Enablers
• Product simplicity
• Regulatory encouragement of “pull” products
– simple savings plans
– transparency across all financial products
– tax ( &/or employer) incentives for consumers
– education
• Business simplicity to allow more consumer self service,
product selection, access advice on demand
• Technology enablement
– auto-underwriting
– straight through processing
– auto claims adjudication
– streamlined distribution
Real Life Examples
Old approaches must change, especially if potential conflicts
The emerging brokerage model
It’s difficult to change, the theory doesn’t always work
UK Stakeholder pensions
Success can be achieved if based on market realities
The Aflac story in Japan