CIA Annual Meeting Assemblée annuelle de l’ICA June 29 & 30, 2006  Les 29 et 30 juin 2006 Ottawa, Ontario IND-1 The Challenges of Simplified Issue Products

AGENDA 1.What’s happening in North America? 2004 SoA study overview USA Canada 2.Challenges 3.Future opportunities

CIA Annual Meeting  Assemblée annuelle de l’ICA Background sale of SI products not new SoA: SI survey in August 2004 – 27 companies described 48 products – most sold since 2000 – mix of term, whole life, universal life – mostly level benefit; $10K-$300K – issue ages – up to table 4 IND-1

CIA Annual Meeting  Assemblée annuelle de l’ICA Background (ctd) common riders: ADB, CTR, WP distribution channels included: – independent brokers – direct mail – bank platform IND-1

CIA Annual Meeting  Assemblée annuelle de l’ICA Background (ctd) non-medical information – sex, height, weight – country of residence – occupation; actively at work – declined or rated for other insurance – driving record; felony conviction – aviation avocations – alcohol or drug abuse IND-1

CIA Annual Meeting  Assemblée annuelle de l’ICA Background (ctd) medical information – prescription medication – hospitalization 6 / 12 / 24 months most common – consulting physician with last x months (often 24) – medical conditions: heart disease, cancer, HIV, stroke, respiratory system, kidney disease – MIB usually checked IND-1

CIA Annual Meeting  Assemblée annuelle de l’ICA Background (ctd) in event of adverse result: – reject more common with medical conditions – offer same product with full underwriting – offer alternative product IND-1

CIA Annual Meeting  Assemblée annuelle de l’ICA Background (ctd) process for accepting apps: – phone app with wet signature – e-app with wet signature – paper app with wet signature IND-1

CIA Annual Meeting  Assemblée annuelle de l’ICA Background (ctd) to prevent anti-selection: – point-of-sale interview – agent management – follow up telephone calls – MIB – plan and coverage limits – contestable claim review IND-1

CIA Annual Meeting  Assemblée annuelle de l’ICA Background (ctd) underwriting decisions: – 80-85% approved as applied for 17% not taken rate – 2-2.5% rated or offered alternative product 47% not taken rate – 10-12% declined or rejected – 5% incomplete, withdrawn or postponed IND-1

CIA Annual Meeting  Assemblée annuelle de l’ICA U.S.A. Term life to bank market direct mail telemarketing IND-1

CIA Annual Meeting  Assemblée annuelle de l’ICA U.S.A.- Term Life to Bank Market Benefit & Eligibility: 4 amounts offered:$25K, $50K, $100K, $150K issue ages coverage to age 70 rates: quinquennial age band Classes: non-smoker, smoker Individual policy or group certificate (state-dep’t) IND-1

CIA Annual Meeting  Assemblée annuelle de l’ICA U.S.A.- Underwriting – Direct Mail 6 question application 10 year time frame for heart, HBP, etc. AIDS/ARC/immune deficiency treatment or physician consult within last 5 years DUI/DWI conviction in last 3 years hazardous sport smoker? MIB check IND-1

CIA Annual Meeting  Assemblée annuelle de l’ICA U.S.A.- Telemarketing of Term Conducted TM test in fall 2005 Sale made using licenced reps on phone Initial approach: medical questions asked over phone potential insured sent application for wet signature Learnings individuals will agree to purchase individuals will not return signed application IND-1

CIA Annual Meeting  Assemblée annuelle de l’ICA U.S.A.-Telemarketing Process improvements introduced “e-signature” technology tamper seal technology compliant with e-sign and HIPAA regulations Questionnaire drill downs IND-1

CIA Annual Meeting  Assemblée annuelle de l’ICA U.S.A.-Telemarketing of Term sales presentation made prospect asked if they will answer questions over the phone – if yes, questions asked at conclusion, prospect asked – “do you agree to disclosures?” call centre takes tape of agreement, date, time IND-1

CIA Annual Meeting  Assemblée annuelle de l’ICA U.S.A.- Term Marketing Results Direct Mail: response rate: 0.4% - 0.7% dependent on segment of bank list average annual premium: $350-$400 Telemarketing: response rates: current:0.1% expected:0.3% average annual premium: $325-$375 approval rate of 70% month of May had 85% approval rate IND-1

CIA Annual Meeting  Assemblée annuelle de l’ICA Canada: Term Life to Retail Credit Cardholders Product features Benefit levels: $50K, $100K, $150K Quinquennial age banded rates Channels: direct mail, Internet IND-1

CIA Annual Meeting  Assemblée annuelle de l’ICA Term Life to Retail Credit Cardholders Underwriting: 5 questions medical conditions: heart, cancer, diabetes, nervous disorder, etc. AIDS/ARC/HIV unexplained weight loss, fatigue, etc. declined, postponed or rated for other insurance plan to live outside Canada also provide height, weight, current MD and reason for last consultation IND-1

CIA Annual Meeting  Assemblée annuelle de l’ICA Future opportunities Cross sell SI riders to existing insureds – T10 – Critical illness IND-1

CIA Annual Meeting  Assemblée annuelle de l’ICA T10 Rider to In force Insureds Reality: agents focus efforts on “A” and “B” clients many existing clients underserviced research indicates many are ready to make additional purchases alternative channels also more acceptable than in past IND-1

CIA Annual Meeting  Assemblée annuelle de l’ICA T10 Rider to In force Insureds Solution: distribute SI T10 rider via DM to existing clients no channel conflict: agents compensated limit offers to those with less than, say, $500K FA offers carefully structured: relative to existing FA ensure additional premium outlay not onerous utilize existing billing method IND-1

SI: in summary On the plus side –quicker speed of issue –opportunity to open up new markets

Challenges –Mortality must be carefully monitored huge potential for anti-selection clients know their personal and family history –For direct marketed products, lapse experience will vary from norm eg: involuntary lapse when card’s credit limit exceeded