Shifting Landscape in Canadian Insurance Distribution

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1 Shifting Landscape in Canadian Insurance Distribution Prepared for: 2011 KPMG Insurance Issues Conference November, 2011 Lubo Li Senior Director J.D. Power and Associates

2 Changes in Insurance Distribution Landscape Declining market share of broker-based insurers in Canada in past decade Trend is expected to continue based on the experiences in other markets Personal P&C Market Share in Canada Broker Market Share in Various Markets Broker Insurers 67% 60% Direct/ Agent Insurers 33% 48% 60% 44% 33% 31% Canada US Australia UK Premium Written $12B $27B 2 Sources: MSA Research Inc.

3 Forces Driving the Distribution Shift - Industry Consolidation Industry Consolidation Emerging mega insurers allow expansion of the direct-to-consumer channel Banks Entering P&C Market Enabling Technologies Share of top 10 insurers 36% 56% 58% 80% Consumer Preferences Share of top 20 insurers Sources: MSA Research Inc.

4 Forces Driving the Distribution Shift - Banks Entering the P&C Market and growing at a faster rate Industry Consolidation Banks Entering P&C Market Share of Bank Owned Insurers 10.6% 5.3% Enabling Technologies Premium Growth (Q4-10 vs. Q4-09) 27% Consumer Preferences 7% 13% 10% Industry TDI RBCI DGI 4 Sources: MSA Research Inc.

5 Forces Driving the Distribution Shift - Rapidly expanding internet and mobile penetration has enabled insurers to reach customers directly anywhere anytime Internet Users in Canada Industry Consolidation 80% Banks Entering P&C Market 35% Enabling Technologies Consumer Preferences Mobile reaches critical threshold, with increasing adoption of application driven smartphones 45% 56% 74% 78% Sources: World Bank World Development Indicators

6 Forces Driving the Distribution Shift - In the end, it s the consumers who demand the change Industry Consolidation Banks Entering P&C Market Enabling Technologies Demographic change Adoption of new technology Expectation shaped by other industries Online Channel Use in Past 12 Months % 84% Consumer Preferences 18% 19% Retail Banking Auto Insurance 6

7 Purchase Channels - Purchase channel is reflective of past behaviour, as average tenure is 9-10 years. Gen X/Y are more attracted to online and call centre channels How Did You First Purchase Your Auto Insurance Policy? Purchase Channel By Age Group Local Agent/ Broker/Staff 62% 63% 61% 61% 61% 65% Call Centre 17% 19% 21% 19% 15% 12% Website 7% 10% 8% 8% 6% 4% Other 14% 7% 10% 13% 18% 18% 7 Sources: J.D. Power 2011 Canadian Auto Insurance Customer Satisfaction Study

8 Customer Loyalty By Segment - The Agent Segment shows a higher loyalty than Broker or Direct, with lower Switching and Shopping, and higher Intended Renewal Switchers - % who switched from a previous insurer Shoppers - % who shopped after opening account Intended Loyalty - % who Definitely Will Renew with Current Insurer Total 60% Total 75% Total 47% Direct 71% Direct 86% Direct 48% Broker 69% Broker 78% Broker 38% Agent 49% Agent 67% Agent 52% 8 Sources: J.D. Power 2011 Canadian Auto Insurance Customer Satisfaction Study

9 2010 Insurers Ranking on Customer Satisfaction Index - Agent and Direct seem to offer a better customer experience overall than Broker, although some Broker insurers have shown significant improvement 2010 Canadian Auto Insurance Customer Satisfaction Index Score Private Full Coverage (Max. 1,000) Change from 2009 Grey Power RBC Insurance Johnson Insurance State Farm Co-operators TD Insurance Meloche Monnex Intact Insurance Belairdirect The Personal Private Full Coverage Industry Avg. CAA Insurance Company Wawanesa TD Insurance Home and Auto Allstate Alberta Motor Association Dominion of Canada Economical Insurance Group RSA Aviva Insurance AXA Insurance * (35) (5) 15 (4) 32 (12) 7 (35) * 7 15 Pilot Insurance Company * Avg. CSI Agent = 726 Direct = 717 Broker = * = Small sample size, ** = Insufficient sample size

10 CSI Benchmark Across Industries - Broker insurers trail Agent and Direct in most of the drivers, except Interaction, where it is matching Agent in the Agent/Broker Channel Agent Broker Direct Policy Offerings Price/ Premium Billing & Paymenbt Claims Interaction Agent/ Broker Call Centre CSR Online - Website 10