In Search of the Industry’s Holy Grail: Penetrating the Middle Market Walter H. Zultowski, Ph.D. WZ Research + Consulting, LLC Brian Perlman, Ph.D., CLU, ChFC, FLMI Mathew Greenwald & Associates, Inc. Society of Actuaries Webinar November 15, 2012

Sponsors and Project Oversight Group Marketing and Distribution Section Product Development Section Reinsurance Section Committee on Life Insurance Research 2 Adam Vanevenhoven, ChairpersonDonna Megregian Doug BennettScott Sheefel Jeffrey C. HarperMichael Shumrak Jeff JohnsonRonora Stryker, SOA staff

Past Research… Treats the market as an undifferentiated whole Asks very general questions Too much reliance on demographic segmentation Overlooks the role played by workplace access/buying 3

Consequently, Past Research… Produces general findings diluted by mixing subsegments of the market Produces superficial understanding of the market Provides very general direction for action: –Provide more education –Motivate agents to pursue the middle market –Sell to the market online 4

How this Research Effort is Different: A program of subsegment studies rather than a single study A two-stage market segmentation approach Attitudinal/behavioral vs. demographic segmentation 5

Phase 1: “Young Families” 1,000 primary financial decision makers Age: Household income: $35,000 - $125,000 At least one dependent in the household If no dependents, but have purchased life insurance 18 minute online survey, conducted by Matthew Greenwald & Associates August 6 – 13,

Study Deliverables SOA Annual Meeting presentation Research report “White paper” (strategic implications) Webinar Articles, interviews, etc. Subsequent decision to be made regarding future studies in the program 7

Objectives Provide a new way of looking at the middle market Help marketers apply this information in their business models (recognizing that different companies may use this information differently) Help companies penetrate the middle market more efficiently and effectively 8

35% 39% 26% Segmentation Results 9

Understanding the Segments Not a strong belief in life insurance Buy because it was made available to them Have less coverage; less confident in adequacy of coverage Least likely to be planning for the future Least likely to seek advice of an agent or advisor Less likely to have children Often buy at their place of work 10 Opportunistic Buyers (39%)

Understanding the Segments (cont’d) Most likely to appreciate the lifetime value of life insurance More likely to buy as a part of a financial plan More likely to buy for “general peace of mind,” or because it’s the “right thing to do” Value the role of the agent Somewhat more likely to be female 11 Planners (35%)

Understanding the Segments (cont’d) Buy based on specific needs Purchases typically life event driven, most likely the birth of a child Need for life insurance is temporary, rather than a part of a lifelong plan See little need for life insurance beyond age 55 More likely to buy term More likely to buy based on affordability Somewhat more likely to be male 12 Protectors (26%)

Understanding the Segments (cont’d) Income, education, employment status Health status and mortality expectations Perceptions of adequacy of life insurance coverage General views of agents 13 The segments are similar in terms of: Somewhat older More likely to be married/in a civil union More likely to have children More likely to describe themselves as “upper middle class” Protectors:

Attitudes Toward Life Insurance 14

Very important Extremely important Not too/Not at all important Somewhat important Overall, how important do you think it is for a family to purchase life insurance? 15

Please indicate how much you agree or disagree with the following statements: Everyone with someone depending on their income should have some form of life insurance It is important to have life insurance throughout your life Life insurance is an integral part of a person’s life long planning Life insurance is as much of a necessity as food, shelter, and clothing (Planners n=345, Protectors n=258, Opportunistic Buyers n=397) 16

Life insurance serves only a temporary need until such time as kids leave the house or the mortgage is paid off The life insurance offered by employers is sufficient to meet your needs There is little need for life insurance past age 55 or so At your age, it is more important to put money toward retirement savings than life insurance Please indicate how much you agree or disagree with the following statements: (Planners n=345, Protectors n=258, Opportunistic Buyers n=397) 17

How knowledgeable would you say you are about the following? Auto insurance Health insurance Life insurance (Planners n=345, Protectors n=258, Opportunistic Buyers n=397) 18

Your most important goal is to increase your family’s financial security It is your responsibility to make sure that your family has everything it wants If you or your immediate family member ever needed assistance, you have close friends or relatives who would be willing and able to step in and help Being able to buy whatever you want for yourself and your family makes you happy (Planners n=345, Protectors n=258, Opportunistic Buyers n=397) Please indicate how much you agree or disagree with the following statements: 19

Life Insurance Purchase 20

Where would you go to get information regarding life insurance products and costs? Multiple responses accepted Online A relative A friend A financial advisor other than a life insurance agent A life insurance agent Call the life insurance company directly Written material 21

To what extent was the following ever a reason that motivated you to purchase life insurance? I simply thought I should Getting married You were given the opportunity at work Birth of a child As part of a financial plan (Planners n=345, Protectors n=258, Opportunistic Buyers n=397) 22

(Planners n=345, Protectors n=258, Opportunistic Buyers n=397) Your spouse/partner or a relative told you to do it A new job Purchase of a home Your started feeling older Someone you knew died 23 To what extent was the following ever a reason that motivated you to purchase life insurance?

Thinking about the most recent life insurance policy you purchased, did you purchase it…? (Filter: Has individual life insurance; Planners n=308, Protectors n=229, Opportunistic Buyers n=330) At work Online without working with an agent Through the mail From an insurance agent From a financial advisor other than an insurance agent Through a bank By calling the company directly * <.5% 24

How likely are you to purchase more life insurance coverage in the near future? (Filter: Has financial advisor and would like more coverage; Total n=109, Planners n=44, Protectors n=24, Opportunistic Buyers n=41) Very likely Not too likely Not at all likely Somewhat likely 25

Thinking about the next time you might purchase life insurance, would you most likely purchase it? From an insurance agent By calling the company directly Through the mail At work From a financial advisor other than an insurance agent Through a bank Online * <.5% 26

Life Insurance Ownership 27

What is the total amount of coverage or death benefit from this life insurance and how much to you feel you should have (In $1,000)? (Filter: Has life insurance and reported amount, n=827; total reporting amount should have, n=924) Average Coverage Average amount should have 28

Which of the following best describes how you feel about the total amount of life insurance coverage your household currently has? (Filter: Has financial advisor; Total n=977, Planners n=338, Protectors n=251, Opportunistic Buyers n=338) You have much/a little more than you would like You have a little less than you would like You have much less than you would like You have the right amount 29

Putting This Research to Use Categorize prospects into the three market segments Can be accomplished by: –Agents asking questions in a fact finder –Call center reps asking the questions –Prospects answering the questions on a website 30

Putting This Research to Use (cont’d) Develop different marketing approaches for different segments. Can extend to: –Different website “landing pages” based on one’s segment –Different sales presentations by agents –Different scripts used by call center reps –Different direct mail letters –Different products emphasized with different segments 31

Putting This Research to Use (cont’d) The fundamental concept: –To use this information to improve the efficiency and effectiveness of one’s marketing efforts –Applications will vary depending on a company’s target market(s), product set, and overall marketing strategy 32

Examples “Opportunistic Buyers” Emphasize general education about the value of/need for life insurance Promote price and value instead of conducting a needs analysis Encourage workplace buying, disturb them about its “portability” Don’t view workplace purchase as an end in itself, seek opportunities to make additional sales to workplace buyers over time Attempt to identify future major life events, at which time they may “morph” into another segment In developing leads for agents, leave them off the list 33

Examples (cont’d) “Planners” Don’t emphasize the purchase of life insurance in response to major life events, instead emphasize the role life insurance can play over one’s lifetime Emphasize the emotional side of the sale – e.g., “peace of mind” and the “right thing to do” Use needs analysis tools, and sell life insurance within the context of one’s total financial picture Discuss a program of planned term conversions as their incomes and assets grow Reinvigorate product concepts – e.g., graded premium life and guaranteed insurability options Given no additional information about a female prospect, assume she is a “Planner” 34

“Protectors” Don’t discuss needs analysis and the value of life insurance over one’s lifetime Emphasize the value of life insurance in providing income protection in response to major life events Be vigilant for future “non-traditional” life events -- e.g., divorce, job change, death of a parent Disturb them with the idea that many in their ‘50’s and’60’s today are finding their life insurance coverage expiring before their need for income protection has passed Consider new product designs – e.g., “term to age X” with an option to renew for X number of years on a guaranteed issue basis Given no additional information about a male prospect, assume he is a “Protector” 35 Examples (cont’d)

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