MAIN EVENTS in the Life Insurance Marketplace Walter H. Zultowski, Ph.D. WZ Research + Consulting, LLC SOA Life and Annuity Symposium May 21, 2012

Business 101: Successful businesses are those that respond efficiently and effectively to changes in their external environment. 2

External Environmental Influences The Life Insurance Marketplace More PredictableLess Predictable Demographics TechnologyRegulation The Economy

Demographics Retirement Security Health Care and Long-Term-Care 4 1) Continued Aging of the Baby-Boomers Theoretically, should be a boom for life insurance May still be a positive Delayed household formation; different buying behavior 2) Gen X and Gen Y Coming to the Forefront

Demographics (contd) Continued decline of husband-wife families Growth of non-traditional families of all types 5 3) Changing Family Structures Hispanics and women Immigration and population heterogeneity 4) Increasing Diversity

Demographics (contd) Greying of the sales force; succession planning Difficulty attracting Gen X and Y to the business A force driving interest in non-agent distribution channels 6 5) Impacts on the Field Force Also

Technology A tool for information vs. direct selling? High tech vs. high touch 7 1) Continued Pervasiveness of the Internet A tool for recruiting vs. direct selling? Democratization of information and opinion The need to get marketing and compliance on the same side of the table 2) Social Networking

Technology (contd) Would seem to address the high tech/high touch challenge Not new:Is the agent of the future human? (Zultowski) Comp-phone-a-vision (Baranoff) An issue of critical mass of the technology itself 8 3) Hybrid Technologies Simplified issue (agent vs. consumer driven?) Predictive modeling and analytics 4) The Underwriting Revolution

Technology (contd) Longevity (has it peaked?) Genetic testing 9 5) Medical Technology

The Economy Uncertainty Continued low interest rate environment Market volatility; cost of hedging 10 1) Hangover from the Past Decade (at the company level) Job instability, wage stagnation, loss of confidence, desire for guarantees Disappearance of government and employer-based safety nets Changing views on investments (a positive?) The New Retirement: Working 1 2) Hangover from the Past Decade (at the consumer level) 1 12 th Annual Transamerica Retirement Survey. Transamerica Center for Retirement Studies. May, 2011

The Economy (contd) At the corporate level (e.g., exiting certain lines of business) At the product level –Stagnant product lines (e.g., fixed annuities) –Disappearance of product lines (e.g., financial guarantees, standalone LTC) –Growth in hybrid products (e.g., life/LTC combos) 11 3) Rationalization of the Business Internationalization of regulation (e.g., Solvency II) New market opportunities 4) Results of Industry Globalization

The Technology (contd) Debt crises, defaults of economies, wars, political upheavals, new international powers, nuclear proliferation, price of oil, etc., etc., etc. 12 5) The Geo-Political Environment

Regulation Gridlock in Washington Undoing of actions taken 13 1) Political Uncertainty New sources of revenue: taxation of the inside build-up 2) Budget Deficits

Regulation (contd) Cost Impact on the health insurance business Potential source of new life agents? 14 3) National Health Care 2010 tax law expires in 2012 If no action, returns to $1M exemption and 55% tax rate Unlikely, but stranger things have happened 4) Estate Tax Legislation

Regulation (contd) European models New York State Regulation ) Commission Disclosure

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