Decoding the Middle Market Walter H. Zultowski, Ph.D. WZ Research + Consulting, LLC Society of Actuaries Annual Meeting October 15, 2012

Limitations of 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/purchasing Enamored with online buying behavior 2

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 3

How the MaD 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 4

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 (findings) “White paper” (strategic implications) Webinar (November 15 th ) Articles, interviews, etc. Subsequent decision to be made regarding future studies in the program 6

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 the information differently) Help companies penetrate the middle market more efficiently and effectively

35% 39% 26% Segmentation Results 8

Understanding the Segments Buy because it was offered to them, not because they believe in it 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 9 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 10 Planners (35%)

Understanding the Segments (cont’d) Buy based on specific needs Purchases typically life-event driven (e.g., birth of a child, marriage, home purchase) Need for life insurance is temporary, rather than a part of a lifelong plan More likely to buy term More likely to buy based on affordability Somewhat more likely to be male 11 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 agent 12 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

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? 14

Please indicate how much you agree or disagree with the following statement: 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) 15

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 statement: (Planners n=345, Protectors n=258, Opportunistic Buyers n=397) 16

Life Insurance Purchase

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 18

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) 19

(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 20 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% 21

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 22

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% 23

Life Insurance Ownership

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 25

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 26

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 the information differently) Help companies penetrate the middle market more efficiently and effectively (We'd like to hear your comments and observations)

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