1. Understanding the Changing Life Insurance Market in China Walter H. Zultowski, Ph.D. WZ Research + Consulting, LLC SOA Life & Annuity Symposium May 19, 2014

2. I. Background II. Methodology III. General Findings IV. Market Segmentation Results V. Application of the Research

3. I. Background

4. The economy of China has changed dramatically –Growing middle class –Greater urbanization of the population Concurrently, life insurance is changing –Traditionally, discussion of death was taboo –Most life insurance was endowment, savings-oriented products –Largely sold through banks The life insurance business is changing –Emergence of death-protection products –Expansion of distribution channels 4

5. Purpose of the research –Document the changing life insurance business in China –Apply market segmentation methods to understand today’s life insurance consumer in the country A “First of Its Kind” such study in China –Up until now most life insurance market research has been census data and/or general attitudinal research 5

6. This research was commissioned by the SOA, and funded by: –The International Section –The Marketing and Distribution Section –The Research Expanding Boundaries Pool 6

7. II. Methodology

8. 1,989 completed surveys across 16 cities 18 minute, online questionnaire Horizon Research (Beijing) conducted the data collection using their on-line panels Mathew Greenwald & Associates conducted the data analysis Data collected between December 6-15, 2013 8

9. Families selected for the study were: --Married couples -- Age 25 – 50 -- At least one child, age 0 – 18 -- Annual household income between RMB 60,000 and RMB 360,000 (Roughly 10,000–60,000 USD) 9

10. 10 BeijingShanghai ChengduSheuzen ChongquingShijiazhuang DalianTianjin GuangzhouWuhai HangzhouXiamin JinanXi’an NanjingZheugzhou Cities Represented

11. Caveats to the Research An attempt was made to differentiate life insurance as a protection-oriented product from a savings- oriented product Term “death benefit life insurance” was used Didn’t differentiate as well as had been hoped because endowments typically have a death benefit component Could have been some confusion in the respondents’ minds which may have washed out some of the results 11

12. III. General Findings

13. 67% How important is purchasing death benefit life insurance becoming to… 13 Your Community? 62% 27% 6% 5% Your Children?

14. 26% How important is it for a family to purchase death benefit life insurance to protect loved ones in the event of the insured’s death? 14

15. “I use life insurance primarily for saving money.” 15 Strongly Agree13% Agree Somewhat33% Neutral33% Somewhat Disagree17% Strongly Disagree 4% 46%

16. Life Insurance Ownership 16 Percentage Owning… Any Individual Life Insurance72% Endowments62% Death Benefit Life Insurance46%

17. Attitudes Toward Death Benefit Life Insurance 17 “Your family has enough death benefit life insurance in the event that you or your spouse dies”

18. Attitudes Toward Death Benefit Life Insurance (cont’d) 18 “Which of the following best describes how you feel about the total amount of death benefit life insurance coverage your household currently has” You have much more than you would like 6% You have a little more than you would like30% You have the right amount38% You have a little less than you would like14% You have much less than you would like 6% You have no insurance and are comfortable with that 4% Don’t know 2%

19. 4% 23% 62% Future Purchase Intentions 19 “How likely are you to purchase more death benefit life insurance coverage in the near future?”

20. Observations From the General Findings The life insurance business in China is changing, and will continue to become more diversified There is significant opportunity for future life insurance sales Consumers are not homogeneous in their attitudes; they are all along this change continuum To effectively market to them in terms of product, messaging, and distribution methods, companies need to be able to identify different groups and approach them accordingly Thus…the need to segment the market 20

21. IV. Market Segmentation Results

22. Market Segmentation Methodology K-means cluster analysis Resulted in the identification of three segments Respondents classified based on their responses to eight questions 22

23. 26% 33% Three Segments of Young, Middle Market Life Insurance Consumers in China 23

24. Snapshots of the Three Segments “Uninterested” (33%) Least concerned with family’s financial security Lowest interest and belief in life insurance Much less likely to own any type of life insurance Lowest level of financial product knowledge Lower income; less educated 24

25. Snapshots of the Three Segments (cont’d) “Life Protectors” (26%) Most appreciation for the value of life insurance throughout one’s lifetime Most likely to buy for security, peace of mind Most oriented toward the concept of death protection Also own endowments; have an expanded view of life insurance Oldest; best educated; more likely female 25

26. “Life Investors” (41%) Own more endowment and death benefit policies than the other segments Less likely to see life insurance as a part of their life-long planning Have a broad view of life insurance, but more for “temporary” needs –To borrow against –Business purposes –Pay for a child’s education Most likely to buy life insurance as a savings vehicle Demographically between the other two segments; more likely male 26 Snapshots of the Three Segments (cont’d)

27. “I use life insurance primarily for saving money.” 27 % Strongly Agree/Agree Total (46%)

28. “Life insurance serves only a temporary need until such time as the kids leave the house or the mortgage is paid off.” 28 % Strongly Agree/Agree Total (45%)

29. “It is very important to own death benefit life insurance.” 29 % Strongly Agree/Agree Total (34%)

30. “Your family has enough life insurance in the event that you or your spouse dies.” 30 % Very/Somewhat Confident Total (59%)

31. “Thinking about the last time you purchased individual life insurance, was the amount you purchased based primarily on….” 31 Total = 65% Total = 33%

32. “Are either you or your spouse covered by one or more life insurance policies that were… 32 Total = 51% Total = 36%

33. V. Application of the Research

34. Application of the Research Collect responses to the eight questions: –Asked by agents –Asked by a call center rep –Answered by prospect on a website Categorize prospects into the three segments Develop different strategies, messaging, and products for each segment 34

35. Marketing to the Segments “Uninterested” A significant challenge Role of education Basic term life insurance protection Need to address trust, and safety/security of life insurance companies 35

36. Marketing to the Segments (cont’d) “Life Protectors” Targets for existing coverage “check-ups” and updates Targets for new products Market to female decision-makers Consider marketing to them online or thru call centers 36

37. “Life Investors” Disturb them regarding the need for death benefit life insurance Position life insurance as the “bedrock” of a financial plan Target with a better trained agency force Do a better job of targeting online 37 Marketing to the Segments (cont’d)

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