AGENDA

Presentation 1: Paul Zondagh Founding Partner: True South Actuaries & Consultants

Presentation 2: Dr. Eric Starke Sanlam Senior Medical Adviser

Networking lunch

Panel Discussion: Petrie Marx; Karen Bongers (Sanlam Actuaries); Dr Starke; Jeremy Maggs

Presentation 3: Errol Meyer Estate, Trust, Tax & Financial Consultant

Refreshment break

Presentation 4: Bruce Sahd CEO: CaseJohnson

Wrap up and close Jeremy Maggs MC & Renowned Journalist

10:15

11:15

12:00

12:35

13:35

14:35

14:45

15:30

PAUL ZONDAGH

F O U N D I N G PA R T N E R : T R U E S O U T H A C T U A R I E S A N D C O N S U LTA N T S

South Africans are under insured – what is the opportunity?

AGENDA

“Mind the gap”

How adequate is insurance cover in SA?

Premium patterns

Have we considered the consumer implications?

Disability sales trends

Is the market efficient in its provision of disability cover?

MIND THE GAP

How adequate is insurance cover in

SA?

Available at

www.truesouth.co.za

MIND THE GAP

R’billion Life Disability

Insurance need

Commercial cover

Government cover

Insurance gap

Gap as % of need

MIND THE GAP

R’billion Life Disability

Insurance need 15 146

Commercial cover

Government cover

Insurance gap

Gap as % of need

MIND THE GAP

R’billion Life Disability

Insurance need 15 146

Commercial cover -5 867

Government cover -

Insurance gap

Gap as % of need

MIND THE GAP

R’billion Life Disability

Insurance need 15 146

Commercial cover -5 867

Government cover -

Insurance gap 9 279

Gap as % of need 61%

MIND THE GAP

R’billion Life Disability

Insurance need 15 146 24 435

Commercial cover -5 867

Government cover -

Insurance gap 9 279

Gap as % of need 61%

MIND THE GAP

R’billion Life Disability

Insurance need 15 146 24 435

Commercial cover -5 867 -7 280

Government cover - -2 414

Insurance gap 9 279

Gap as % of need 61%

MIND THE GAP

R’billion Life Disability

Insurance need 15 146 24 435

Commercial cover -5 867 -7 280

Government cover - -2 414

Insurance gap 9 279 14 741

Gap as % of need 61% 60%

MIND THE GAP

MIND THE GAP

THE AVERAGE IN THE “RICHEST

20%”

MIND THE GAP

2.6 million of these earners

Earning R401 000 p.a.

Average age 42

THE AVERAGE IN THE “RICHEST

20%”

MIND THE GAP

2.6 million of these earners

Earning R401 000 p.a.

Average age 42

Life gap R1.9 million

Disability gap R3.8 million

THE AVERAGE IN THE “RICHEST

20%”

PREMIUM PATTERNS

Have we considered the

consumer implications?

Available at

www.truesouth.co.za

PREMIUM PATTERNS

You’re adding to your risk cover to cover estate duties.

The quotes range from 4% to 6% of your income.

How do you choose?

- Cheapest?

- Ancillary benefits?

- Detailed actuarial projection?

PREMIUM PATTERNS

PREMIUM PATTERNS

PREMIUM PATTERNS

PREMIUM PATTERNS

PREMIUM PATTERNS

PREMIUM PATTERNS

Starting at Lifetime

cost

R507pm R606 000

R776pm R396 000

PREMIUM PATTERNS

Starting at Lifetime

cost

R507pm R606 000

R776pm R396 000

PREMIUM PATTERNS

Starting at Lifetime

cost

R507pm R606 000

R776pm R396 000

PREMIUM PATTERNS

Starting at Lifetime

cost

R507pm R606 000

R776pm R396 000

PREMIUM PATTERNS

Starting at Lifetime

cost

R507pm R606 000

R776pm R396 000

PREMIUM PATTERNS

Starting at Lifetime

cost

R507pm R606 000

R776pm R396 000

PREMIUM PATTERNS

Starting at Lifetime

cost

R507pm R606 000

R776pm R396 000

DISABIL ITY SALES TRENDS

Is the market efficient in its

provision of disability cover?

Available at

www.truesouth.co.za

DISABIL ITY SALES TRENDS

DISABIL ITY SALES TRENDS

DISABIL ITY SALES TRENDS

DISABIL ITY SALES TRENDS

THANK YOU

DR ERIC STARKES A N L A M S E N I O R M E D I C A L A D V I S E R

Protecting one’s ability to earn an income

Benefits:

Functional impairment

Physical impairment

Accidental injury

Temporary

Permanent

PROTECTING YOUR INCOME IF FUNCTIONALLY

IMPAIRED DUE TO ILLNESS OR INJURY

Background:

Illness

Injury

Impairment

(Functional

limitation)

OccupationOccupation

disability+

Life insurance products available

Lump sum disability benefits Disability income benefits

OCCUPATIONAL DISABIL ITY

LUMP SUM DISABILITY BENEFITS:

• Disability for regular occupation

• Disability for regular and reasonable alternative occupation.

• Accidental disability benefit

> Single payment when permanently disabled.

OCCUPATIONAL DISABIL ITY

DISABILITY INCOME BENEFITS:

1. Temporary Disability income

• Maximum payment of 24 months per condition

2. Extended disability income

• Fixed cease age or whole life

3. Sickness benefit

• Maximum payment of 3, 6, 12 & 24 months per condition.

> Selection of waiting periods.

> Multiple claims possible.

> Covers temporary and permanent disability.

OCCUPATIONAL DISABIL ITY

Lump Sum Disability vs. Disability Income

THE QUESTION TO BE ANSWERED

There are probably arguments for and

against each of these benefits

Many factors to consider when getting

involved in this debate e.g.

- occupation

- self-employed or not

- affordability

- financial status

- age

WHICH OF THESE

BENEFITS WILL BEST

PROTECT ONE

AGAINST THE

FINANCIAL LOSS

WHEN FUNCTIONALLY

INCAPACITATED DUE

TO ILLNESS OR

INJURY?

Claims according to age: 1 Jan’ 2014 – 31 Dec’ 2014

Claims admitted:

Age Group Lump sum

Disability

Income Protector Sickness Benefit

16-25 0% 2% 3%

26-35 1% 31% 41%

36-45 18% 44% 31%

46-55 46% 16% 19%

> 55 35% 8% 7%

AGE STATISTICS

Lump sum Disability Disability Income Sickness benefit

Total

and

Permanent

Total/Partial

and

Loss of income

Total/Partial

1. Definition:

“Permanence”:

- No substantial improvement in the impairment after reasonable optimal

treatment (taking into account treatment risk and success).

- Impairment has reached the point of maximal medical improvement (MMI).

FACTORS IMPACTING ON THE OUTCOME

OF A DISABIL ITY CLAIM

2. Medical technology today:

….the end result: less chance of becoming permanently disabled compared to the past.

New advanced diagnostic tools

Advanced surgical techniques

More efficient medicines available

FACTORS IMPACTING ON THE OUTCOME

OF A DISABIL ITY CLAIM

3. Our changing environment:

Cancer:

• Newly diagnosed cancers are on the increase.

• Predicted to double in the next 10 yrs.

• Cancer related claims are on the increase.

• Advanced medical technology could lead to less cancers reaching permanency.

Accidents:

• Increase in motor vehicle accidents in the RSA.

• Accident related claims are relatively high (up to 30%)

• Temporary disability more likely.

HIV/Aids:

• Now a treatable condition with a better prognosis.

• Permanent disability less likely.

FACTORS IMPACTING ON THE OUTCOME

OF A DISABIL ITY CLAIM

What the claim statistics have shown us

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2011 2012 2013 2014

Lump Sum Disability Claims Sickness Benefit / Income Protector Claims

LUMP SUM DISABIL ITY VS INCOME

PROTECTION

REAL CASE STUDIES TELLING A STORY…

MALIGNANT MELANOMA

31/03/2015

Male, 46 yrs , Electrician Claim: Lump Sum Disability benefit

ONCOLOGIST REPORT

Male, 37 yrs , Diesel Mechanic Claim: Lump Sum Disability benefit

MEDICAL REPORT

RETINA DETACHMENT

21/01/2014

Male, 40 yrs , Clinical Psychologist Claim: Income Protector (1 month waiting period)

Policy I/date: 2006

EYE SPECIALIST REPORT

RHEUMATOID ARTHRITIS

Mr X02/02/2015

Male, 42 yrs , Aircon technician Claim: Lump Sum disability

SPECIALIST PHYSICIAN REPORT

RECTUM CANCER

09/02/2015

Female, 38yrs , Occupation Therapist Claim: Sickness Benefit

(Income Protector 24 months w/p

& Lump Sum Disability)

ONCOLOGIST REPORT

SICK LEAVE LETTER

STROKE

28/01/2015

Male, 57yrs , Accountant Claim: Temporary Income Protector

& Lump Sum Disability)

SPECIALIST PHYSICIAN REPORT

08/07/2015

FOLLOW-UP SPECIALIST PHYSICIAN

REPORT

SUBCLAVIAN VEIN THROMBOSIS/ STROKE

Female, 51yrs , Secretary Claim: Lump Sum Benefit

09/07/2015

SPECIALIST PHYSICIAN REPORT

BIPOLAR DISORDER

08/07/2015

Male, 55yrs , Business Owner Claim: Lump Sum Disability

SPECIALIST PSYCHIATRIST REPORT

LUMBAR DISC DISEASE (LOW BACK PAIN)

Female, 51yrs , Nursing sister Claim: Lump Sum Disability

14/06/2015

NEUROSURGEON REPORT

20/04/2015

Male, 49yrs , Financial Director Claim: Sickness benefit

Lump Sum Disability

NEUROLOGIST REPORT

STOMACH CANCER METASTASIZED TO

THE L IVER

Male, 57yrs , Representative (Chemical Products) Claim: Lump Sum Disability

ONCOLOGIST REPORT

Depending on the medical condition, the “permanence” aspect of the Lump sum disability benefit, could leave a person financially uncovered for a substantial period of time.

As long as the impairment shows signs of adequate improvement with medical treatment, a decision on permanency cannot be made under reasonable circumstances.

WHAT WE HAVE LEARNT FROM THE CASE

STUDIES

Depending on the medical condition there is a high probability that a person will not be totally disabled after treatment.

It would seem the chance of becoming temporarily disabled is greater than the chance of becoming permanently disabled.

WHAT WE HAVE LEARNT FROM THE CASE

STUDIES

The time has come for a mind shift in the way we think about protecting one’s income.

Temporary disability is a reality and are our client’s properly protected against this?

There are currently good products available to properly address the needs of our clients.

If there is a need for a lump sum disability benefit, then one must consider including a temporary income benefit as well.

FINAL THOUGHTS

Thank you for your attention

PANEL DISCUSSION

Exploring when a lump sum disability benefit

or an income protection benefit will be suitable.

Petrie Marx: Sanlam Product Actuary

Karen Bongers: Sanlam Product Development Actuary

Dr Eric Starke

Facilitated by Jeremy Maggs

ERROL MEYERE S TAT E , T R U S T, TA X & F I N A N C I A L C O N S U LTA N T

Business financial planning

AGENDA

Company-owned policies

Advice and business financial planning

Different risk profile and different considerations apply

Individual-owned policies

Buy and sell agreements

Different risk profile and different considerations apply

WHERE DO WE START?

WHAT IS RISK PROFILING?

How does a financial adviser qualify to be a professional and how do we distinguish ourselves from

other professions?

How should we define advice from a financial planning perspective?

WHY THE TERM BUSINESS FINANCIAL PLANNING AS OPPOSED TO BUSINESS ASSURANCE?

NAME THE RISKS FOR A BUSINESS?

THE ADVICE PROCESS

Contact/Contract

NeedsSolution

Advice defined for the professional financial

planner

Causal link

THE ADVICE PROCESS ( T H E S T O R Y M U S T M A K E S E N S E )

• Gathering of information

• Relevant and material

• Risk profile of client

Implement

• Instructions

• Contract

• Who is your client?

• Recommendation

• The Plan must make sense

• Suitability of advice and

product

• Follow up service

• The way forward

B U S I N E S S A N D R I S K P R O F I L I N G

F I N A N C I A L P L A N N I N G P R I N C I P L E - C O M P E T I N G

I N T E R E S T S

Shareholder A

Keyman

Shareholder B

Bank, Supplier,

Lease agreementCompany

Bo

rrow

mo

ne

y

Bo

rrow

mo

ne

y

Borrow money

Buy and sell

agreement

A NEGLECTED AREA OF F INANCIAL PLANNING

IN SA

Business Financial Planning

A solid understanding of taxes is necessary:

- Business entities are trading entities and entitled to tax relief

- Life assurance policies are not owned by the life assured and has a tax implication.

COMPANY-OWNED POLICIES

Key person policies

Surety plans

Loan Accounts

KEY PERSON POLICY

The replacement cost of the keyperson must be

calculated with reference to the revenue losses as

opposed to capital losses.

Example: Husband insures the life of his spouse who

earns no income.

In business context the same principles must apply

and be recorded.

INCOME TAX

(w) expenditure incurred by a taxpayer in respect of

any premiums payable under a policy of

insurance (other than a policy of insurance that

relates to the death, disablement or severe illness

of an employee or director of the taxpayer arising

solely out of and in the course of employment of

such employee or director) of which the taxpayer

is the policyholder, where— ………….

((ii) (aa) the taxpayer is insured against any loss

by reason of the death, disablement or severe

illness of an employee or director of the taxpayer;

(bb) the policy is a risk policy with no cash value or

surrender value;

(cc) the policy is not the property of any person

other than the taxpayer at the time of the

payment of the premium: and

(dd) in respect of any policy entered into—

on or after 1 March 2012, the policy agreement

states that this paragraph applies in respect of

premiums payable under that policy; or

before 1 March 2012, it is stated in an addendum

to the policy agreement by no later than 31

August 2012 that this paragraph applies in

respect of premiums payable under that policy;

Note the

objective and

subjective

factors

KEY PERSON - INCOME TAX

Income Tax

• Pure risk policy.

• Cover an operational

loss. (Revenue?)

• Capital in nature

(Objective factors)

Taxpayer has a choice (Subjective factor)

ESTATE DUTY

(3) Property which is deemed to be property of the deceased includes—

(a) so much of any amount due and recoverable under any policy of insurance which is a

“domestic policy”, upon the life of the deceased as exceeds the aggregate amount of any

premiums or consideration proved to the satisfaction of the Commissioner to have been paid

by any person who is entitled to the amount due under the policy, together with interest at six

per cent per annum calculated upon such premiums or consideration from the date of

payment to the date of death: Provided that the foregoing provisions of this paragraph shall

not apply in respect of any amount due and recoverable under a policy of insurance, if—

ESTATE DUTY CONTINUED …

except where the provisions of paragraph

(i) or (iA) of this proviso apply, the

Commissioner is satisfied and remains

satisfied that such policy was not effected

by or at the instance of the deceased,

that no premium on such policy was

paid or borne by the deceased, that no

amount due or recoverable under such

policy has been or will be paid into the

estate of the deceased and that no such

amount has been or will be paid to, or

utilised for the benefit of, any relative of

the deceased or any person who was

wholly or partly dependent for his

maintenance upon the deceased or any

company which was at any time a family

company in relation to the deceased;

KEY PERSON - ESTATE DUTY

Estate Duty

Instance of deceased

Premium paid or borne

Not for benefit of the estate

May not be a family company

All the requirements are of a personal

nature?

Income Tax

Pure risk policy

Cover an operational

loss. (Revenue?)

Capital in nature

(Objective factors)

Taxpayer has a choice (Subjective factor)

SURETY - PLANS

Company wants to repay debt since

shareholder signs surety on behalf of

the company for the debts of the

company.

- First – what is the Risk Profile?

- You get this wrong – you get

everything wrong!

Tax Implications:

- Income Tax

- Estate Duty

95

First question is

who is my client?

“S IR YOU REQUESTED A CONTINGENT LIABIL ITY POLICY”

For the exclusion in terms of section 3(3)(a)(ii) of

the Act to be applicable the following

circumstances must be considered:

The Commissioner must be ‘satisfied’ that all the

requirements of the section are met before the

exclusion will be allowed. To enable SARS (on

behalf of the Commissioner) to consider whether

the proceeds of a policy fall within the ambit of the

exclusion, all the relevant documentation

pertaining to the case:

-copies of the resolution taken by company to

take out such policy, - application made for the

policy and any other documentation to prove that

the proceeds of the policy were not applied to

benefit either the estate, any relative of the

deceased or any person who was dependent

upon the deceased for his/her maintenance or a

family company of the deceased as envisaged in

the relevant section of the Act.

These must be submitted together with the

Liquidation and Distribution Account to the

Master’s Office where the SARS estate auditor

will verify the documentation.

The policy will have been ‘effected by the

deceased’ if he was the person who contracted

with the insurer for the issue of the policy,

whether or not he was the beneficiary under the

policy.

SURETY PLAN

Income Tax

Pure risk policy

Cover an operational

loss. (Revenue?)

Capital in nature

(Objective factors)

Taxpayer has a choice (Subjective factor)

Estate Duty

Instance of deceased

Premium paid or borne

Not for benefit of the estate

May not be a family company

All the requirements are of a personal

nature?

- Can be argued that Reference guide can be

interpreted differently in favour of taxpayer

- Should we have an agreement incorporating the

repayment of loan account?

SARS REFERENCE GUIDE 2008

SCENARIO 2: A is the

Managing Director of a private

company. The company

borrows R1million from a

financial institution. A, as MD

of the company, stands surety

for the company’s debt. The

company takes out a policy on

the life of A, to meet their

obligations to the financial

institution at A’s death.

In cases where the company took out

insurance cover on the life of A to

enable them to pay the debt as set out

in (1) above to his estate, the argument

that the policy was not effected by or at

the instance of A would be very difficult

to prove as the deceased (my

underlining) was directly involved in

the negotiations regarding the whole

transaction.

“SURPLUS FUNDS SHALL BE USED TO

REPAY THE LOAN ACCOUNT”

The words ‘no amount has been’ or

‘will be paid to the estate,’ are

capable of meaning that the

condition is not fulfilled if there is an

actual or future payment of any

portion of the proceeds into the

estate. The absence of some

obligation linking the proceeds with

the payment to the estate largely

removes the basis for connecting any

payment to the estate with the

proceeds of the policy, a connection

which must be present before it can

be said that the condition has not

been fulfilled.

(SARS Reference Guide 2008)

CREDIT LOAN CONVERSION SCHEME

Property CC BankBorrow 5 K

Repay loan

Accounts 5 K

Equity v Debt financing

Substituting creditors

Strain on gearing ratio

Ability to borrow

Economic circumstances prevailing

CREDIT LOAN CONVERSION SCHEME

Tax Implications

- Section 11(a) read with 23 (g)

Investment rationale

Borrow 10 %

Tax rate 28 %

Effective nominal cost 7.2 %

If investment outperforms 7.2 %, then scheme viable from an investment perspective

No, rather look from

risk perspective!

CREDIT LOAN CONVERSION SCHEME

Investment philosophy

Minimum risk and maximum returns

In holistic financial Planning it is

possible to reduce overall risk and

increase after tax investment returns

CREDIT LOAN CONVERSION SCHEME

Inter Vivos Trust

Endowment

Bank

Planner100 000 donation

Pays interest

@ 10 %

Property CC Bank

CREDIT LOAN CONVERSION SCHEME

Growth in Trust after taxes @ 10 %

Value after 5 years – R 671 561

Value after 20 % donations tax saving

- Total ACA Taxes – 671 561 + 134 312 +

(171 561 × 13.65 = 23 418*) = 829 291

- Equates to IRR of 17,37 %

- Davis Tax Committee 2015

recommendations on taxation of Trusts

- (Caveat – Add a life assured payable in

the event of the last dying)

CREDIT LOAN CONVERSION SCHEME

BENEFITS

Growth of Risky Company is channeled to risk

free Trust

Less CGT overall – No CGT in trust

Growth outside the reach of creditors

Liquidity of Planner overall not negatively

affected

Freeing up business capital

Capital Financing converted to Debt Financing

CREDIT LOAN CONVERSION SCHEME

Bank

Planner

Pays interest @ 10 %

Property CC Bank

Inter Vivos

Trust

Endowment at

10% growth

Minimum Risk

Reduction

In

Growth

CGT

saving

Maximum Return

IRR

17,37%

BUY AND SELL AGREEMENTS

The risk profile remains important

75% fails

Focus on the survivor

Insurable interest

What is the solution?

FOLLOW THE HYPOTHETICAL EXAMPLE

Assets R10 000 000

Liabilities R9 000 000

NAV R1 000 000

ESTATE DUTY EXEMPTION

Section 3(3) (a) (1A)

The purpose of the policy (Risk profile?)

No premium paid or borne (Risk profile?)

Partner at the date of death of the deceased (Risk profile?)

Loan accounts included in agreement

Family relationship irrelevant

TRUSTS AND BUY & SELL ARRANGEMENTS

Individual shareholders Trusts as shareholders

ED + CGT paid by estate ED + CGT paid by trust

Property

(shares)

5 000 000

Deemed

Property

5 000 000

Exemption (5 000 000)

NET ESTATE 5 000 000

Property

(shares)

(Nil)

Deemed

Property

5 000 000

Exemption (Nil)

NET ESTATE 5 000 000

SHARE BUY BACKS?

What about a share buy back?

Compare a share buy back vs traditional buy and sell.

The answer is simple. Additional estate duty, CGT and the

forced distribution of dividends are increased and forced

where the main intention is to preserve and transfer wealth.

The real question is the whether the correct risk profile is

addressed?

LOAN ACCOUNTS

They are a dead investment from a Business Succession and Financial Planning

Perspective.

Policies effected to repay loan accounts increase the value of the company and

has relevance with share buy backs as well, but no negative dividend tax

implications.

THE END

“Financial planners are perfectly suited to educate and advise their clients on successful

business succession planning strategies, since they are qualified risk specialists, perfectly

positioned in the financial environment to render value added advice.”

See www.errolseminars.mobi for free Newsletters

CEO:

BRUCE SAHD

Direct, Digital, Data:

Threats & Opportunities in a changing distribution landscape

CASEJOHNSON IS A DIRECT CONSULTANCY

Direct Strategists

A specialist combination of Consultant +

Implementation Manager

Three-step approach = Plan, Pilot, Profit

Emerging markets is the primary focus

Have worked with clients in SA, Ghana,

Nigeria, UAE, Lebanon, India, Sri Lanka

SETTING THE SCENE WITH A CONFESSION

I am a direct practitioner, but I still prefer to buy my

personal insurance from an adviser !

However I am not sure if this will always be the case…

DIRECT, DIGITAL, DATA & ‘THE NOISE’

Direct distribution of life insurance is non-intermediated selling with

paperless/electronic application and underwriting done on a pre-approved basis

using personal data or automated at point-of-sale.

“Cut-out the middleman!”

“Get 20% cash back”

“No medical exam”

Is it cheaper to go direct?

Will direct pay your claim?

Can direct retain and service you?

MYTH-BUSTING ADDS COLOUR TO THE

DEBATE

Source: Discovery Life. “The value of the financial adviser in life insurance. 2013

Myths dispelled by Discovery Life:

Myth 1: Direct insurance is cheaper than buying life insurance through a financial adviser

Myth 2: Financial adviser commissions inflates premiums compared to direct insurers who do

not pay commission

Myth 3: Consumers will be able to maintain direct insurance premiums over the long-term

Myth 4: Direct insurance products offer comprehensive cover

Myth 5: Consumers do not need financial advice as information is readily available

Myth 6: Financial advice is the same whether a call centre agent or qualified financial planner

provides it

Myth 7: Claim pay-outs from direct insurers are transparent and certain

Myth 8: Intermediaries do not add real value to consumers

MYTH-BUSTING ADDS COLOUR TO THE

DEBATE

KEY FINDINGS:

1. Initial premiums of direct life insurance

companies are 9% more expensive.

2. Limited premium guarantees create

uncertainty for consumers and increased

unsustainability.

3. Benefits are not comprehensive and do not

address consumers’ needs at every life

stage.

4. Restricted maximum cover amounts render

them unsuitable for high income earners.

5. Poor claims payment record.

WHAT IS HAPPENING IN DIRECT?

DIRECT IS GROWING

NOW: Only 7% of life cover in SA is sold direct

BUT: Direct is growing and is already bigger

than bancassurance in terms of value

Life offices hesitant (Spice, Connect, Frank)

Growing activity - 1Life, Outsurance, Instant

Life, Frank, Different Life, MiWay Life

Investment products are next in line

Telemarketing is ‘sold’, Internet is ‘bought’

Smartphones will have a huge impact

DIRECT IS MOVING UP THE PYRAMID

HNW

Middle

Mass

How far down will

‘pay for advice’

hold the line?

How far up will

direct & digital encroach?1

2

INSURANCE DISTRIBUTION IS EVOLVING

Man from the Pru in 1800’s

Telemarketing in 1970’s

Digital in late 1990’s

Technological advances on 2 fronts

- Information (data, analytics, cloud)

- Communication (phone, web, digital)

Clients, insurers, regulators all forcing change

Underpinning all distribution models is data

Face to Face also has an important

distinction:

- Independent, or Tied

(each with its unique strengths and weaknesses)

Face to face

Direct

Digital

Advised

Intermediated

Complex

Advertised

Direct

Simple

Client-led

Bought

Commoditised

Technological landscape

FOUR FORCES ARE DRIVING CHANGE IN A

DYNAMIC TECHNOLOGICAL LANDSCAPE

INDUSTRY

DISTRIBUTORS

REGULATORS

INSURERS

CLIENTS

Convenience

Comparison

Choice

Remuneration

Reach

Relevance

RDR

POPI

Ideology

Control

Brand

Margin

CLIENT BEHAVIOUR IS THE MOST

IMPORTANT FORCE TO UNDERSTAND

Why are clients attracted to direct and digital

ways of doing business?

Information (24/7 any time)

Functionality (quotations)

Convenience (at home)

Personalisation (tailored for me)

Comparisons (window shopping)

Lowest price (client can decide)

Brand trust (they will pay me)

No obligation (its just a website)

Immediate/ quick (on my terms)

Event-triggered (as it occurs to me)

Drivers of behaviour will vary depending on

what the client wants to do:

Research for information?

Make buying decisions?

View their portfolio?

REGULATION IS ( INADVERTENTLY) MAKING

DIRECT MORE APPEALING

RDR ushers in ‘pay for advice’ which

seems likely to drive more people online

POPI requires client opt-in which seems

likely to stem the growth of direct marketing

Ideology plays a major role too … will we

always follow the UK? Post-2008 will an

increasingly ‘heavy hand’ continue to be

seen as a necessary counter-balance?

Compliance remains a disproportionate

burden for all players, especially IFA’s?

“RDR is going to be a major growth driver

for our business” (large direct insurer)

PRODUCTS ARE BECOMING SIMPLER AND

MORE COMMODITISED

PWC noted in their 2014 Insurance Report that

products sold through direct and digital channels

have achieved relevance through standardised,

simpler product design

“The first generation of products sold over digital

channels have tended to be relatively simple, off-

the-shelf options.”

Implication: these products are less complex, less

advice-intensive, easier for the client to make his

own decision…

Source: PWC, Insurance 2020, 2014

ADVISERS DON’T SEEM READY FOR CHANGE

CoreData research study in 2014

Of the 11,500+ key individuals registered

with the FSB in 2013:

- Only 5,209 were planning for change

- The remaining 6,290 weren’t

Source: CoreData research: ‘Prepared for change? The South African advice industry’. April 2014

THE RISE AND RISE OF DIGITAL

STILL EARLY DAYS FOR DIGITAL INSURANCE

“Insurance in a Digital World” survey by EY 2013:

Insurers acknowledge their digital immaturity

Ambitions are high, but not yet in line with digital capabilities

Insurers are constrained by culture

Insurers want more direct control and better customer experience

Channel conflict can be reduced by treating distributors as digital customers

Data analytics is critical to future digital success

Insurers should commit to the mobile and social future

And some Recommendations …

Frame the case for investment … and plan a strategy

Build the analytics infrastructure … and the implementation capabilities

Embed a culture of innovation … so that everybody sees the opportunities

Source: EY "Insurance in a digital world: the time is now"

DIGITAL INSURANCE IS A NEW REALITY

Kroodle (Dutch insurer) sells short-term

cover exclusively on Facebook

SOCIAL MEDIA STRATEGIES ARE EMERGING

Friendsurance.de founded in Berlin in 2010 (Australia in 2014)

An online “peer-to-peer” insurance broker to reduce

marketing, admin, claims costs & risk

People invited to use social media to invite friends into self-

selecting groups

Two people connect & agree to support each other with an

amount in case of claim (max €30 but grows as network grows)

Insurers are there to cover the claim amount that exceeds the

network support (or provide payback)

Payback of 50% of insurance fees is possible with 10 or more

connections in the network

People who invite low-risk friends enjoy lower cost of insurance

Benefits = less fraud, better risk selection, lower sales costs,

lower admin cost, risks self-managed

“Probably the most

disruptive and

innovative thing you

can do in the

insurance world” Tim

Kunde, co-founder of

Friendsurance

“Don't

underestimate

what people are

willing to do to

save money”

THE INSURANCE INDUSTRY HAS BEEN

SLOW TO EMBRACE SOCIAL MEDIA

Source: KPMG The South African Insurance Industry Survey 2014

“It seems, in the online

universe, the industry appears

to be as conservative and

traditional as it is in popular

opinion. Risk considerations

and the nature of the insurance

business have sorely limited the

industry’s exploration of these

media platforms.”

Case Study: Aviva life insurance

• US operations of Aviva traditionally used

medical tests to ascertain customers’

lifestyle patterns, which determined

insurance coverage, but pathological tests

are costly, manipulated, not user-friendly

• Aviva analysed the online behaviour of

60,000 insurance applicants from their

online shopping, social media activities

• Categorised as runners/hikers; dieters or

couch potatoes.

• Predictive modelling to estimate longevity

• Coverage decided on the basis of lifestyle

pattern life expectancy

ONLINE PROFILES & SOCIAL MEDIA CAN

DETERMINE COVER LEVELS

Benefits achieved:

Social media analytics are considered

more efficient and customer-friendly

Insurers expected to save approximately

$125 per applicant by eliminating

conventional medical tests

Facebook page 'likes' and Tweets are

better indicators of lifestyle risks such

as high blood pressure

Source: KPMG “The South African Insurance Industry Survey 2014”

DIGITAL TECHNIQUES CAN INFLUENCE

CONSUMER BEHAVIOUR IN GOOD WAYS

Web-based tools (age-progressed renderings)

were tested to see if it could encourage people to

prepare for the future and boost sales of savings

products

- Age-progressed renderings of participants

- Use slider to decide how much to save

- Low amount = frowning

- High amount = smiling

- Participants saved twice as much as

control group ($172 vs $80)

Source: Hershfield et al (2011). Increasing Savings Behaviour Through Age Progressed

Renderings of the Future Self. Journal of Marketing Research.

“Wealthfront have dispelled

the notion that robo-advisors

are for young people with no

money,” Dennis Clark,

Schwab executive

IS ROBO-ADVICE A VIABLE DIGITAL

ALTERNATIVE?

‘Direct investing’, ‘direct indexing’, ‘fintech’

Offers consumers direct access to portfolio

management tools

Wealthfront founded the category in 2008

Charles Schwab resisted but then

launched a robo-advisory in 2015

Wealthfront average investment =

$90,000, but new pilot attracting HNW

(min. $500,000) is already 1/3 of AUM

Google has adopted Wealthfront advice as

an employee benefit for all its staff

Will HNW clients ever adopt robo-advice

without human adviser involvement?

DATA IS AT THE CORE OF IT ALL

Data strategies can help us know:

- Who our existing customers are

- Who our future customers should be

- What insurance they will need

- When they will need it

- How to reach them

- How much they can afford

- If they are a high or low risk

Every insurance study identifies data and

analytics as an imperative strategy to adopt

If every distribution channel uses data

properly it would level the playing field

Tele Face to FaceWeb2,046

Met with FSC

(62.6%)

3,268

Prospects with

Appointments

Appointments

9,816

Prospects

Telemarketing

(Final count after

de-duplication)

3,356Agreed to

Appointment

(34.2%)

Meetings with FSC635

Rescheduled

(19.4%)

585

No Shows

(17.9%)

2

No Status

(0.1%)

382TM In-Progress

(3.9%)

2,830Unsuccessful

Contacts

(28.8%)

2,046

Meetings

with FSC

384

Sale

(18.8%)

355

Follow-Up

(17.3%)

1,307

No Sale

(63.9%)

(Counting only

prospects in the CRM

File with appointments

before 31 Dec 2007)

3,248Contacted but

Not Interested

(33.1%)Data Data Data

DATA CAN LEVEL THE PLAYING FIELD

PRODUCTIVITY IS ENHANCED WITH DATA

Consider how much time in the day is spent on:

- Prospecting

- Servicing

- Selling

Huge productivity gains are possible by using

technology tools and data to more effectively:

- Acquire the right new client profiles

- Target the right existing clients at the right

time with the right offer

What are the right productivity measures?

Time spent Sales made?

Want to Acquire Want to Retain

Buy Data Leads

Enrich

Segment

Message

Route

Sell

Enrich

Segment

Message

Route

Sell

Extract

DATA TOOLS ARE ALREADY AVAILABLE

Buy Digital Leads E.g. Buydata.co.za

E.g. Campaignmonitor.com

SOME CASE STUDIES SHOW WHAT IS

POSSIBLE

PREDICTIVE UNDERWRITING USES BIG

BANKING DATA TO ASSIST ADVISERS

Winner of ‘African Distribution Innovator of the Year 2015”

Collaboration of Absa Life, Absa Bank, Swiss Re

First in Africa, one of the first globally, to use big banking data to pre-

underwrite clients for high-value life cover

Improves distribution – removes biggest inconvenience

Banking behaviour data used to predict claims risk to reduce

underwriting to 3 questions for R5m life cover

Uses client data for the benefit of clients as part of the Treating

Customers Fairly dispensation

Fully underwritten life product is offered to selected clients, at the

standard rates, without medical underwriting

In-house financial advisers are passed batches of leads who meet

with clients for needs analysis

12.5% sales rate to leads actioned so far

Persistency is higher than for standard business

CLOSING THOUGHTS ON

THREATS & OPPORTUNITIES

A PERSONAL RELATIONSHIP SHOULD

LEVERAGE L IFE EVENTS AND TOUCHPOINTS

Source: EY – Key findings from the Global Insurance Survey, S. Hanlon.

“Independent brokers are

more effective in leveraging

moments of truth to generate

sales or increase coverage for

a customer.”

CLIENTS WANT PERSONAL & DIGITAL TO

WORK TOGETHER

Digitally active

insurance

customers want to

use a combination

of face-to-face

meetings,

telephonic

interactions and

digital platforms.

Source: Bain & company. Leading a digital transformation in insurance, 2014. S. Hanlon

CONSUMERS MAY HAVE INFORMATION BUT

NOT KNOWLEDGE

Source: EY – Key findings from the Global Insurance Survey, S. Hanlon.

Ernst & Young - “In an era when many consumers

feel bombarded by push communications and

suffer from a general sense of information

overload, it is particularly interesting for

customers to express a desire for more

communication from a company”

57% of global insurance consumers

surveyed say they want more frequent,

personalised and meaningful

communications from their insurer, agent

or broker

JP Morgan - “Our research indicates that the most

powerful trigger for paying for advice is a

recognition by an individual of the limits of their

own knowledge on a particular finance issue”

Advisers must show a deep understanding

of a clients needs, and pro-actively identify

opportunities to alert clients to events that

may affect their cover.

Source: JP Morgan. Winning propositions: the consumer market post RDR. August 2012, S.

Hanlon.

OVERHEARD…

“Who needs data and

technology when all the

really important information

about my clients is in my

head…?”

OVERHEARD…

“Affluent individuals will always want a

personal relationship when it comes to

long-term products…”

OVERHEARD…

“Nobody is better placed than the IFA to know when a key

event has happened in the clients life that triggers a

financial need…”

OVERHEARD…

“Long term is about personal relationships, not

impersonal websites and call centres…”

OVERHEARD…

“Long-term products will always be

sold, not bought…”

OVERHEARD…

“IFA’s should pro-actively offer web-based front

ends to the end-user …”

OVERHEARD…

“IFA-branded portals

for clients to view

their entire portfolio

in one place would

be a good idea…”

OVERHEARD…

“Surely self-service admin is something that could be

offered to clients under the IFA’s brand…?”

OVERHEARD…

“Statements are terribly designed at

present, this is a big opportunity to

demonstrate value-add to clients …”

OVERHEARD…

“IFA’s have access to IT systems but

they don’t properly utilise them…”

OVERHEARD…

“RDR is definitely a looming threat for IFA’s as

nobody knows how clients will respond when

having to pay for advice…”

OVERHEARD…

“When commercial

insurance started to go

direct it was a wake up

call for those who

thought big ticket

insurance never

would…”

OVERHEARD…

“IFA’s shouldn’t simply target high

net worth individuals, they should

use technology and data to find

those who value advice and are

prepared to pay for it…”

Any other questions?

To buy direct or not

to buy direct …?