Underwriters – a dying breed? Health Claims Forum – Warren Copp 29th November 2012

Why customer journey really matters People desperately need protection Simple process leads to more sales PPI Over-50 Unprecedented risk in not making things simple? Stable/shrinking IFA market? Changing customers leave us behind Unprecedented opportunity to grow the market? Increased direct opportunities - The Rise of the Aggregator Creditor market - Post-PPI vacuum Government support for self provision

Why customer journey really matters Major catalyst for growth Fundamental impediment Down to us.......

Where are we currently? Customer Journey “Spectrum” Immediate Longer process Radio waves Infra-red Visible light Ultra violet X & γ ray Group Over 50’s MPPI / STIP Full app.

Spectrum of u/w approaches Group Immediate Longer process Group Key features Actively @ work selection + ve’s Instant process Insurer protected by the law of large numbers Potential to integrate protection in state provision - ve’s Nothing in terms of Customer Journey Not durable – e.g leaving employment when health has deteriorated

Spectrum of u/w approaches Over 50’s Immediate Longer process Over 50’s Key features Guaranteed acceptance subject to moratoria + ve’s Instant process No medical exam - ve’s Low levels of cover only Anti-selection becomes extreme at younger ages Questionable value for money

Spectrum of u/w approaches MPPI / STIP Immediate Longer process MPPI / STIP Key features Guaranteed acceptance subject to limited eligibility criteria Moratoria & PEC / general exclusions + ve’s Instant process High take-up dampens anti-selection - ve’s PEC potentially leads to too many claims being declined

Spectrum of u/w approaches Full application form underwriting Immediate Longer process Full app. Key features 40+ questions Disclosure based referrals + evidence requirements + ve’s Cheap prices for standard risks Material / flexible cover levels Durable long term cover - ve’s Complex process - long delays for some cases Only suitable for advised sales?

Where are we currently? “Spectrum” of u/w approaches Immediate Longer process Radio waves Infra-red Visible light Ultra violet X & γ ray Group Over 50’s MPPI / STIP Full app. US preferred

Spectrum of u/w approaches US preferred underwriting Immediate Longer process US Preferred Key features Blood + other evidence requirements at low levels of cover “Micro” rating of preferred criteria + ve’s Cheap prices for preferred risks Less disclosure based uncertainty (non-contestability) Material / flexible cover levels - ve’s Very low POS acceptance Complex process - long delays for some cases Durable long term cover Only suitable for advised sales?

World Leaders? We have come a long way: The cheapest premiums in the world 50 - 75% of decisions at Point of Sale Dramatic reductions in medical evidence and underwriting times A claims payment rate to be proud of UK Life Insurance penetration is 7.7% GDP compared with 3.6% in US and 5.0% for all advanced countries (Swiss Re Sigma 2011) But we are kidding ourselves if we think protection is easy to buy

The need for change

The need for change Keep going on “IFA sector” developments Extend POS acceptance further SAR’s + potential for claim guarantees? Outside the IFA sector – Attract new distribution Flexibility to fit / create opportunities Restrict questioning processes to make direct sales realistic Stop changing 25% of quotes post underwriting Go “instant” where this is needed Radio waves Infra-red Visible light Ultra violet X & γ ray Group Over 50’s New generation u/w Full app. US preferred

The need for change 2 Million Google searches p.a. on “Life Insurance” in UK Aggregators bring massive advertising power Emma Walker – Protection Channel Manager: Money Supermarket: “These are customers who have consciously made a decision to search – not just a retail product to browse to pass time” “We do a poor job to serve these customers – we need to have clear strategies that focus on this sector” “Simply using an IFA application process with some consumer words on top is not a strategy for a D2C proposition”

The need for change PLR Re:think consumer research

The need for change PLR Re:think consumer research Over a third of those aged below 35 are prepared to pay extra for a simpler process Of those prepared to pay extra (all ages): Average “simplicity “premium” of £3.37 vs. £15 per month basic cost (or +22%) Scope to offset higher risk costs with lower underwriting costs

The need for change Set-up speed ratings

The need for change Good customer value = + Claim certainty + Reasonable cost + Process that leads to people buying what they need Cheapest premiums are no good if no one accesses them! Our Government Agrees: “Creating straightforward products that are easy to understand, easy to buy, and do what consumers expect them to, will build trust and engagement.” Sergeant Review – Interim Report We need to sell this to distribution

Examples of Change

Examples of change ASDA Instant Life Cover

Examples of change HSBC PALs Demographic Age, Home Ownership, Residential Type, Property Value, Council Tax Band, Employment Status, Occupation, ACORN Geo-Demographic, HSBC Customer Segment. Product holding Behaviours Lending, mortgages, savings (internal and external) Monthly income and outgoings, ATM usage, lending balance, number of auto debit items, household assets. Each data item is weighted within the model. Age is currently the most significant factor.

Examples of change HSBC PALs 42 questions 22 page application 0% of cases accepted at point of sale Non disclosure 15% Pipeline 15,000 COVERED IN 7 WEEKS! COVERED NOW! Prior to Lifechoices 3 questions 15 page application 75% of cases accepted at point of sale Non disclosure 3.8% Pipeline 4,500 LifeChoices process 25 + minutes 7 minutes 0 questions 1 page application 100% of cases accepted at point of sale Non disclosure 0% Pipeline zero Under 5 minutes PALs process (for selected customers)

Examples of change Beagle Street

And coming soon..........

Claims and Underwriting – The future

Claims – Life gets easier! Simpler underwriting = less to go wrong at claim stage Non-contestability / guarantees? Maintaining / improving claims payment rates But: protect customers against the worst non-disclosure Consumer attitudes

Death of the underwriter? The move towards automation / less human intervention will / needs to continue European “Right to Underwrite” pressure But some underwriters will never die.....

Underwriters – a dying breed? Health Claims Forum – Warren Copp 29th November 2012