Persistency in the life insurance industry in Ireland

Transcription

1 Financial Services Actuarial Persistency in the life insurance industry in Ireland November2007 Advisory

2 Contents 1. Introduction 1 2. About the survey 3 3. Executive summary 5 4. Survey Findings 8 5. KPMG observations 18 member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in Ireland.

3 Appendix1 ScoringMethodology 24 Appendix2 SurveyResponses 25 member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in Ireland.

4 1. Introduction OurinterestinthetopicofpersistencyinthelifeinsuranceindustryinIrelandarosefroma similarsurveyofpersistencycarriedoutbycolleaguesinkpmgukduring2005ofuklife insurancecompanies. ThekeyfindingfromthatUKsurveywasthattheUKlifeinsuranceindustryappearedto haveaseriousproblemwithproductpersistencyanditseemedtobegettingworse.in 2004theUKlifeinsuranceindustrypaidoutapproximately 94billioninclaimswhilstit received 87billioninnetpremiums.Ofthe 94billionpaidinclaims,over 57billionwas inrespectofsurrendersandrefunds. (1) Inotherwords,significantlymorethanhalfofthe moneypaidoutbytheindustryrelatedtosurrendersofpoliciesbeforetheyreachedtheir expectedmaturity.althoughsomeofthesesurrenderswereofsinglepremiumpolicies wheretherewasnospecificmaturitydate,manywillhaveoccurredearlierthathadbeen anticipatedbytheinsurers.asaresult,thevalueoftheirinforcebusinesshasbeen reduced. ThecorrespondingfiguresfortheIrishlifeinsuranceindustryaremuchhealthierandthe pictureissignificantlydifferent.in2006,claimsof 7.9billionwerepaidoutwhilstit received 12.3billioninpremiums. (2) Table 1 Income premiums (figures in billions) New Business APE (figures in billions) Outgoing Claims, maturities and periodic payments (figures in billions) All business Ireland 1 All business UK Source:(1)IIF(2)ABI Theimpactofmakingpoliciespaid-up(PUPs)canalsobesignificant.Insomeclassesof businessasmuchas20%oftheregularpremiumsexpectedtobepaidintocontracts eachyearceasetobepaid.whilstthepolicyremainsinforce,theexpectedflowofnew moneyintoitdriesup.thefinancialimpactcanbeevenmoredebilitatingthanforlapses, particularlyfornewgenerationlevelloadedproducts. Giventheimportanceofandrelianceonembeddedvalueaccounting,wehavealsotried toexaminethevalueofnewbusinessgoingonandvalueofbusinessgoingoff(i.e.the valueiflapseassumptionsintheembeddedvaluemodelwerezerointheyear).whilewe recognisethatpolicyholderswillsurrenderpoliciesforavarietyofreasons,thevalueof businesslostisausefulmetrictoconsider.preliminaryestimatesbykpmgsuggestthat thevalueofnewbusinessin2005addedbetween 225and 300milliontoembedded values,whereasthevalueofsurrendersandpupsislikelytohavebeenbetween 175 and 225million (3).TheestimateintheKPMGUKSurveypaintedableakerpicturewithan estimateofthevalueofnewbusinessaddedbetween 1.2and 1.8billion,whereasthe valueofsurrendersandpupswasestimatedtohavebeenatleast 2billionbutcould havebeenasmuchas 4billion. (3) Thesurveyprovidesaninsightintothechallengesfacedbythelifeinsuranceindustryin Irelandandtheactionsbeingtakeninresponsetothemtoaddresswhatisregardedasa keyissueforcompanies. Sources: (1) ABI; (2) IIF; (3) KPMG estimates 1

5 1.1 Definitions Whatdowemeanbypersistency? Wedefinepersistencyasthemeasureofproductsnotstayingactiveonthebooksfor theirexpectedterm(i.e.earlyterminationorbecomingpaidup).itcanbeexpressedina numberofdifferentways: Thepercentageofpoliciesremaininginforceafter,forexample;one,two,threeor fouryears; Thevalueofpremiumsceasinginanyyear(priortoexpectedmaturity)orthevalueof pre-maturityassetsbeingtransferredoutoftheprovider(eitherintheformof repaymentstothecustomerortransferstoanotherprovider); Avariancebetweenthevalueofbusinessthatwasexpectedtoterminateearly(and forwhichallowancehasbeenmadeinthecalculationofthevalueofaparticularclass ofbusiness)andtheactualexperiencethatoccurred. Persistencythereforehasadirectfinancialimpactontheproductproviderbecauseit impactsavalueofbusinessthathasalreadybeencalculatedandisinmanycases reportedexternally Whatdowemeanbyretention? Retentionactivityiswhatisundertakenbylifeandpensionsprovidersinanattemptto improvetheirpersistencyperformance. Inaddition,companiesalsotalkaboutretentionofcustomersandcustomermoneyat maturityoftheoriginalcontract-usuallybyrollingthatmoneyoverintoanewcontract (usuallyreportedasacompletelynewsale).thisisimportant,butitdoesnotdirectly impactuponpersistencyperformanceandisnotthereforecoveredtoanysignificant degreeinthissurvey. 1.2 Your contacts YourKPMGcontactsinrelationtothisreportare: 2

6 2. About the survey 2.1 Objectives Thesurveyisintendedtopresentparticipantswithanobjective,evidence-based examinationofproductpersistencyandcustomerretentionacrossthelifeinsurance industry.itattemptstoprovideparticipantswithfreshinsightintotheimportanceofthe issue,thestrategiesbeingpursuedandthespecificactivitiesundertakenwith assessmentsoftheiractualoranticipatedeffectiveness. 2.2 Approach ThesurveywascloselybasedonasimilarsurveycarriedoutbyKPMGUKin2005which wasdevelopedbykpmgindustryleaderswhohaveextensiveexperienceofworkingwith clientsonpersistencyandretentionissues.thefeedbackprocessisintendedtofacilitate discussionofissuesidentifiedaswellasprovidebenchmarksaboutthevarioussolutions beingpursuedandtheirrelativeeffectivenessinimplementation.thesurveywas conductedbyquestionnairecompletedinmostcasesbyafacetofacediscussion. 2.3 Participation Thefollowingcompaniesagreedtoparticipateinthesurveyanddulysubmitted responses: Acorn Life Eagle Star Friends First Hibernian Life & Pensions (inc Ark Life) Irish Life New Ireland Standard Life Allthecompanieswhoparticipatedinthesurveyremainopentonewbusiness.Therange ofresponsesreceivedandthediversityoftheorganisationswhoparticipatedinthesurvey enableskpmgtoconcludethatthefindingsarerepresentativeoftheirishdomesticlife insurancesectorasawhole.aggregatedresultsfromallparticipantsaretherefore presentedasa SurveyAverage. 2.4 Scope and structure Thesurveywassplitinto5sections: 1. Strategyandsponsorship 2. Diagnosisandmeasurement 3. Actionsandsolutioneffectiveness 4. Organisation,targetsandincentives 5. Financialperformance Notallparticipantsprovidedfinancialperformancedata.Thissectionwasremovedfrom theevaluationthoughsomeanalysisandcommentaryispresentedinthisreport. Aparticularareaofinterestforparticipantswasinrelationtounderlyinglapseassumptions byproducttypeanddistributionchannelusedinembeddedvaluereporting.thiswas surveyedthoughwehavenotincludedthecompanybycompanyspecificinformationin thisreportduetoitsconfidentialnature.however,wehaveprovidedhighlevel commentaryonourfindings. Source: (1) IIF 3

7 2.5 Evaluation Responseswereevaluatedwithineachsectionofthesurveyandwerealsoaggregated acrossallsections.ourhypothesisisthatcompaniesneedtoperformattheirverybestin relationtopersistencybecauseitissuchacriticalissue.ineachsectionweshow: Themaximumpossiblescore Thesurveyaveragescore Thescoreforeachcompany Whenlookingattheaggregatedscoresacrossallsections,wealsoshowthebest compositescore(byaggregatingthebestindividualscoreineachsection). Thescoresofallparticipantsforeachquestionineachsectionofthesurveywere weightedaccordingtokpmg sjudgementoftherelativeimportanceofeachsection. AnoverviewoftheapproachtakeniscontainedinAppendixI. TheresponsestothesurveyarecontainedinAppendixII. 4

8 3. Executive Summary WerecognisethattheIrishlifeinsuranceindustrydoesnothavetheseriouspersistency problembeingexperiencedbytheuklifeinsuranceindustrybutitisanareaofkeyfocus foririshcompanies.thesurveyisintendedtopresentparticipantswithanobjective, evidence-basedexaminationofproductpersistencyandcustomerretentionacrossthelife insuranceindustry. 3.1 Key findings Persistencyexperienceinaggregateacrossthecompaniessurveyedhasremainedbroadly stableoverthepastthreeyearsthoughthishasmaskedvariationsacrosscompaniesand acrossproducts.thisisshowninfigures1and2below. Pensions(bothindividualandgroup)wouldbethekeyareaofconcernwhere experiencehaslargelyworsened. ExperienceonLifeSavingshasbeenbroadlypositive,thoughexperiencehasbeen distortedbyssiaeffects. ExperienceonProtectionbusinesshasbeenbroadlystable. LifeBondsexperiencehasbeenvariableacrosscompanieswithnoapparent differenceinlifebondexperiencebycompaniessellingbothunit-linkedorwithprofitsbusiness. Forcomparison,intheUKSurveyforeveryproductgroupexceptprotectionbusiness, morerespondentssaidpersistencyhadworsenedthansaidithadstayedthesameor improvedslightlyinthepastthreeyears. WhenwecombineinFigure3allthescoresfromtheindividualsectionssurveyed (StrategyandSponsorship;DiagnosisandMeasurement;ActionsandSolution Effectiveness;Organisation,TargetsandIncentives)toproduceanoverallassessmentof theindustry,theresultsshowthatthereisabiggapbetweentheindividualscoresand maximumpossiblescoreortheslightlymorerealisticcompositescore. Respondentscombinedscoresrangedfrom24%to41%ofthemaximumpossible. 37%wastheaveragescore. 50%wasthebestcombinationscore(thetotalofthebestscoresineachsection). TheindustryscoresbetteronmeasuresrelatingtoStrategyandSponsorshipand DiagnosisandMeasurementthanitdoesonOrganisation,TargetsandIncentivesand SolutionsandEffectivenessi.e.arecompanies talkingthetalk ratherthan walkingthe walk Theperspectiveonpersistency(andrelatedsalvageandretentionactivity)ispartly informedbyhowrealisticorclosetobestestimatetheunderlyingpersistency(orlapse) assumptionsusedinpricingandembeddedvaluereporting. 5

9 Figure 1 - Last 3 years trend in persistency experience Figure 2 - Last 3 years persistency experience across products 6

10 Figure 3 - Respondents total scores in % 3.2 Conclusion KPMGconcludesthatpersistencyisadifficultissueforallinsurancecompanies.Itisnot easytoaddresstheissueinameaningfulwaywithoutfundamentallyrethinkingand challengingtraditionalmeasuresofsuccessfocusedaroundnewbusinessmarketshare. Concertedactionisrequiredwithinindividualcompanies,andacrosstheindustryasa whole,ifthechallengesaretobeaddressedsuccessfully. 7

11 4. Survey Findings 4.1 Industry Headlines Persistencytrends Ineverymajorproductgroupmorerespondentssaidpersistencyhadstayedthesameor improvedslightlythanworsenedoverthelastthreeyears: Product Group Persistency has improved slightly (greatly) Persistency has stayed the same Persistency has worsened slightly (greatly) Group Pensions 0% [0%] 57% 29% (14%) Individual Pensions 12.5% [0%] 50% 12.5% [25%] Protection 28% [0%] 43% 29% [0%] Life Savings 57% [0%] 29% 14% [0%] Bonds 43% [14%] 14% 29% [0%] Overallindustryassessment Inthissectionwehavecombinedallthescoresfromtheindividualsections(Strategyand Sponsorship;DiagnosisandMeasurement;ActionsandSolutionEffectiveness;and Organisation,TargetsandIncentives)toproduceanoverallassessmentoftheindustry andrankingofthesurveyparticipants.theresultsshowthatthereisabiggapbetween themaximumpossiblescoreandthesurveyaveragescore: Respondentscombinedscoresrangedfrom24%to41%ofthemaximumpossible; Thesurveyaveragescorewas37%ofthemaximumpossible; 50%wasthebestcombinationscore(thetotalofthebestscoresineachsection). TheindustryscoresbetteronmeasuresrelatingtoStrategyandSponsorshipand DiagnosisandMeasurementthanitdoesonOrganisation,TargetsandIncentivesand SolutionsandEffectiveness. 8

12 Figure 4 Section scores and overall scores (range of scores %) 4.2 Strategy and sponsorship Strategyandsponsorshipconsidershowmuchimportancetheindustryattachestothis issueatboardlevel.scoresinthissectionwereweightedtodeliveramaximumof20% oftheoverallscore. Theindustryscoredmoststronglyinthissection-scoresrangedfrom17%to63%ofthe maximumpossible,withthesurveyaverageat50% Importanceofpersistencyandretention Persistencyinthelifeinsuranceindustryisrecognisedasakeyissueandaddressingithas somedegreeofboardlevelsponsorshipinmostcompanies. Figure 5 - Importance of persistency and retention 9

13 Allparticipantsagreedthataddressingpersistencyisimportantandinallbutone,the issuehasboardlevelsponsorship NatureofRetentionStrategy 75%ofrespondentssaidtheyhadsomeformofstrategyinplacetoaddresspersistency. Strategiesappeartohaveoriginatedfromareactiveresponsetotheissueandnoneof themhavenowevolvedtoincludeproactiveandpredictiveapproaches.intheuk,25%of respondentssaidthattheirstrategywasacombinationofareactive/proactiveand Predictiveapproach. Figure 6 - Nature of Retention Strategy Organisationalfocus Productmeasures(ratherthancustomermeasures)arethekeyfocusformostbusinesses andthisisreflectedinthewaythattheymeasureandreportuponsales.co-ordinatingand aligningretentionactivityacrossdifferentfunctionsappearstobeachallengingareafor mostrespondents.objectivesandstrategiesmaybecouchedintermsofcustomerfocus butmeasuresandbehaviourstendtostillbeproductledinpractice. NewBusinessisgivenmoreemphasisthanexistingbusinessandtendstobereportedas grosssalesratherthannetofsurrendersandlapses.specifically: 75%ofcompaniestreatreplacementpurchasesfromexistingcustomersasnew sales; Only25%ofcompaniestakereplacementpurchasesintoaccountwhenlookingat persistency. Only12.5%ofrespondentsexpressedanyagreementwiththestatementthatcross functionalgoalsarealignedtoachieveretention 50%activelydisagreedwiththis. Thesefindingsindicatethatpursuitofnewbusinesscontinuestobeamoreimportant behaviouraldriverthanretentionofexistingbusiness.thechallengesofachievingcross functionalalignmentareexemplifiedbythisissue particularlywherethefocusofsome functionsisexclusivelyononeaspect(forexamplenewbusiness).thelimitedfocuson 10

14 profitablecustomersorproductsmayinpartbeduetoinadequatemanagement information. 4.3 Diagnosis and Measurement Thissectionconsidershowmanagementinformationsupportsthediagnosisand measurementofpersistencyandretentionissuesandperformance.diagnosisand measurementwasweightedtodeliveramaximumof25%oftheoverallscore. Again,participantsscoredmorestronglyinthissectionthantheydidinaggregate.Scores rangedfrom25%to65%ofthemaximumpossible,withanaveragescoreof49%. Figure 7 - Diagnosis and Measurement scores compared to other sections and overall scores (range of scores %) Mostrespondentsseemtobehappywiththemanagementinformationthattheyreceive: Figure 8 Management Information (range of scores %) 11

15 75%agreedthatitwasrobustandaccurateandenabledidentificationastowhere actionshouldbetargeted. 37.5%feltthatinformationwasnotreceivedearlyenoughtoenablethemtotake meaningfulaction. Allexceptonecompany(whotookaneutralview)feltthatinformationfailedtobe forwardlookingandwasonlyhistoricinnature. Newbusinessmeasures(anddetailedbreakdowns)arereportedregularlywhereasonly theheadlinemeasuresofbusinesslostarereportedonasimilarfrequency: 87.5%saytheymeasureandreportontheirpersistencypercentageregularly. LapsesandsurrenderstendtobemeasuredandreportedmoreregularlythanPUPs. Thevalueofbusinesslost(i.e.discountedvalueasopposedtotheassetvalue)isonly measuredregularlyby25%ofcompanies,with25%sayingtheydothisonanadhoc basis. Figure 9 Measurement of key indicators Toplinepersistencyresultsappeartobereportedregularlyandfrequentlywithan increasingproportionofmoregranularmeasuresbeingdevelopedonanadhocbasis.all respondentsmeasurepersistencybyproducttype,andinaddition: 37.5%alsomeasurepersistencybydistributionchannel(butthismaybeafunctionof theirdistributionmix). 37.5%measuredistributor/channelprofitability. Only50%measureandreportonbusinesssavedbyaretentionunit(thoughonly12.5% measureonaregularbasis)and25%measurechangesincustomer/productbehaviour prelossthoughonanad-hocbasis(e.g.missedcontributions,requestsforvaluations, partialwithdrawals). 4.4 Solution Effectiveness and Activities Thissectionconsiderstheextenttowhichrespondentshaveimplementedvariousactions andtheirassessmentoftheeffectivenessofthoseactions.solutioneffectivenessand Activitieswasweightedtodeliveramaximumof40%oftheoverallscore. 12

16 Thisisanareawherelifeinsurancecompaniesscoredsignificantlylessthantheir aggregatescore.surveyscoresrangedfrom13%to33%withanaverageof19%ofthe maximumscore.forrankingpurposes,scoreswereonlyattributedtosolutionsthathad beenimplementedandconsideredeffective;nopointswereawardedforthose consideringimplementation. Figure 10 - Solutions and Effectiveness scores compared to other sections and overall scores (range of scores %) Incommentingonotheractionsthatwereconsideredtobeimportant,several respondentsnotedthatitwasimportantnottooverlook gettingthebasicsright. Commentsincluded doingthejobrightfirsttimeround andprovidinghighqualitycore services.centraltothiswas fullydeliveringonallpromisesmade,forexample,providing solid,dependablecustomerservice,goodinvestmentperformanceandsimpleandeasyto useproductsandprocesses. Inthesurvey,themostfrequentlyimplementedactionstogetherwithassessmentsof theireffectivenessshowthetopfivesolutionswhichhavebeenimplementedandare consideredtobeveryeffective/effectiveas: 1. Inclusionofretentionperformanceasafactorinsalesincentivesandrewards 2. Analysisofcommission/bonusshapesandclawbackpaid/recovered 3. Retentionofbranchstafforintermediaries 4. Useofpenaltiestodiscourageearlytermination 5. Effectiveaccounthandoverprocesseswhenaccountmanagerorintermediaryleaves Thesurveyquestionnairesuggested20solutionareasthatmightberelevanttoimproving persistencyperformance.thechartbelowshowstheextenttowhichrespondentshave deployedthesesolutionsandhoweffectivetheyconsiderthatthesolutionshavebeen. 13

17 Figure 11 - Solutions and Effectiveness Tried and Tested I Including retention performance in rewards F Analysis of commission/ bonus shapes E Effective account handover processes N Penalties to discourage early exit D Retention of staff/ intermediaries Worth Investigating? B Win back processes including flexible pricing L Design flexibility into products/ systems to allow for changing customer needs O Price existing products same as new ones S Profitability analysis to target most profitable segments Future Solutions G Analysis of channel/ agent/ intermediary retention A Customer retention/ recovery team P Cross sell to improve relationship C Effective recovery of complaints J Segment distributors/intermediaries by persistency K Offering differential terms to distributors/ intermediaries H Cascade retention targets No Apparent Benefit M Suggest migration from poorly performing products T Measure customer behaviour to identify changes pre-defection Q Identify customer risk at point of sale R Segmented pricing, design and marketing 4.5 Structure, Targets and Incentives Thissectionlooksattheextenttowhichtargetshavebeenembeddedinvariousfunctions togetherwithresponsibilityforaddressingpersistencyandretention.structure,targets andincentiveswereweightedtodeliveramaximumof15%oftheoverallscore. 14

18 Figure 12 - Structure, Targets and Incentives scores compared to other sections and overall scores (range of scores %) Thisisanotherareawhereparticipantsscorebelowtheaggregatescoreacrossall sections.thesurveyaveragewas35%,witharangeof24%to41%. Onlytworespondentssaidtheyhadsetandcascadedtargetstofrontlinestaffanda furtheronesaidtheyhadsettargetsatseniormanagementlevelonly. 57%oforganisationshadnotyetsettargetsforimprovingpersistencyalthough14% arecurrentlyconsideringthis. Figure 13 Target Setting 15

19 4.6 Financial Performance ThemajorityofparticipantsintheUKSurveycouldnotprovideinformationfortherequest forfinancialdatawithoutadditionalinvestigativework.thereasonforthiswassomeof thisinformationwasnotreadilyavailable.mostoftheirishsurveyparticipantswereable toprovidesomeifnotalloftheinformation. Companieswereaskedabouttheexpectedandactualvalueofinforcebusinessthat lapsedintheperiodcomparedtothevalueofnewbusinessacquiredinthesameperiod onanembeddedvaluebasis.nowwerecognisethattherewillalwaysbelapsesand surrendersthoughweconsiderthecomparisonvalidandusefulforcompaniestoconsider andassess. Themainfindingswerethat: Mostcompanieswerecapableofprovidingtheinformationrequestedinaggregate andsomecompanieswereabletoprovideafurthersplitbyproduct. Themajorityofcompaniesreportedthattheiraggregatelapseexperienceacrossall productsonanembeddedvaluebasiswaspositive(thoughitdidmaskvariances acrossproducts). Ofthecompaniesthatprovidedsufficientinformation,50%hadavalueofnew businesswrittenthatexceededthevalueofinforcelostthroughlapsesintheperiod. Figure 14 Financial Information 4.7 Lapse Assumptions WealsocarriedoutanadditionalsurveyoflapseassumptionsbeingusedbyIrishlife insurancecompaniesforembeddedvaluepurposes.werequestedlapseassumptionsby product,channelandduration.sixcompaniesparticipated.wehavenotincludedthe assumptionsduetotheconfidentialnatureoftheinformationprovided(butthe informationhasbeenprovidedtotheparticipants)butsomekeyobservationsare: 16

20 Littlechanneldifferentiationinsettinglapseassumptions. Formostcompanies,thereislittledifferentiationinlapseassumptionsfordurations beyond5yearsacrossproducts. Formostcompanies,thereisanimplicitallowanceforPaidUpandPremium Reductioneffectsforregularpremiumpensionproductswhensettinglapse assumptions. Thereisnodistinctionmadeforpremiumsizeinlapseassumptionsinrespectof regularpremiumpensionproducts. Thereisawiderangeoflapseassumptionsacrossproducts,particularlyinrespectof regularpremiumandsinglepremiuminvestmentproducts. Halfofthecompaniesmakeexplicitallowanceforpartialwithdrawalsfromsingle premiuminvestmentproducts. Fewcompaniesmakeexplicitallowanceforincreaseinlapsesattheendofthe surrenderpenaltyperiod(typicallyon5thor6thanniversary)forsinglepremium investmentproducts,basedondataprovided. Halfofthecompanieshavethesamelapseassumptionsforlevelanddecreasingterm assurance. 17

21 5. KPMG observations WhiletheIrishdomesticlifeinsuranceindustrydoesnotyetfacetheseriouschallengesof theindustryintheuk,wethinktheindustryhastimetoputinplacetherightmechanisms toensuretheycanmanagethechallengesposedbydeterioratingpersistency.theissue ofpersistencyisevidenttomostcompanies,certainlytoallthatparticipatedinthesurvey, butwedonotseemuchevidencethattheindustryismakingaconcertedefforttofocus attentiononpersistencyratherthanrelentlesslypursuing new business-almostatany cost. 5.1 Underlying drivers of poor persistency Thecostofacquiringnewbusinessishighandmarginsarebeingsqueezedasa consequence.thecostsofacquiringnewbusinessarenowgettingoutoflinewiththe valueofthatbusinesswiththeresultthatsensitivitytopoorordeterioratingpersistencyis increasing.apotentcocktailoffactorshascometogethertocreatethissituation: Industrychangehasledtoanewgenerationofbasiccontractswithlowerinitial chargesandmoreflexibilityforthecustomerwithnopenaltiesforearlyterminationor paymentholidays. Forsomeproducts,thereislittleornocustomerdetrimentinvolvedinswitching. Chargeshavefallenformanyproducttypesandalthoughcommissionsfornewsales hasalsofallenthishasnotbeenbyasmuchasforcharges. Intermediarieswhosebusinessmodelsdependlargelyuponasteadystreamofnew productsaleshavebeencompelledtoreviewthearrangementsmadebytheir customersmorefrequently andinmanycasestheircustomershavebeenwell advisedtoswitchtonewer,lowercost,moreflexibleproducts Customersfundamentallylacktheconfidencethattheyhavebeensoldtheright promiseinthefirstplaceandmostofthemdonothavetheknowledgeorexpertise todeterminewhetherornotthisisthecase.eveniftheyaresatisfiedthatthe promisetheyboughtwastherightone,theyoftenhaveafeelingthatthepromiseis notbeinghonoured.thismaybebecauseoftheirowndirectexperienceofpoor(or lackof)serviceorpoorinvestmentperformance. Furthermore,competitionbetweeninstitutionsofferingmortgages,loansandcredit cardshaseducatedmorefinanciallysophisticatedcustomerstobecomedealdriven andswitchtheirbusinessfrequentlyinpursuitofa betterrate oranintroductory offer Thesefactorsarecombinedwithanaccountingapproachthatreportsthenetpresent valueoffutureprofitsfromnewandexistingbusinessandisheavilydependantuponthe accuracyofassumptionsaboutfutureproductpersistencyandfutureexpenses. Embeddedvaluesforinforcebusinessaredeclaredeachyearandunderstandably, managementteamsarereluctanttomakerevisionstoprofitsthathavealreadybeen reported. 5.2 What exactly is the issue? Weseeseveralissues: 1. Thevaluewhichisbeingattachedtothisnewbusinesscanbeoverstated as assumptionsaboutthelongevityofthebusinessareoveroptimistic.the manufacturermayhaveregardedthisasalong-termcommitmentfromthecustomer butthecustomerandtheiradvisermaynothaveseenthingsinthiswayatall. 18

22 2. Thetermsatwhichthisnewbusinessisbeingwrittendonotactuallyreflectthetrue valueofthisbusiness frontloadedcommissionsandsalesincentivescreatean impressionthatthebenefitsofsellingtheseproductsarehighertothedistributor thantheyaretotheproductmanufacturer.recoveryofthesecostsoverthelifeof theproductdependuponitremaininginforceformanyyears andthelongerthe paybackperiod,thegreatertheriskthatsomethingwillhappentocausethe customer scommitmenttochange. Theresultisthatnewbusinesscouldpotentiallybeworthlessthanexistingbusinesswith mostoftheenergyinthebusinessmodeldirectedatwinningnewbusinessratherthan preservingexistingbusiness. FromtheKPMGUKsurvey,theUKlifeandpensionssectorhadreachedamorecritical pointintermsofthevaluecreatedandvaluelost;itwouldappearthattheirishlife insurancesectoriscurrentlyinamorecomfortablepositionbutweshouldnottakethis positionforgranted. Reduction of value of in-force business Value of new business written Expected persistency (priced in) (Net present value of expected future profits from new business) Variance (actual experience. not priced in) Inourexperience,thevolumeofgrossnewbusinessisaperformancemetricthatis scrutinisedonaweeklybasiswhereasthevolumeofbusinesslost(eithertosurrenderor PUP)rarelyfeaturesprominentlyinmonthlyreportingpacks.Andwhenitcomesto actuallyidentifyingthevalueofbusinesswonorlost,thepictureisevenlessclear.wedo notseemanywhouse NetNewBusiness asakeymeasure(aswouldbefoundinthe FundsIndustry). AnnualisedPremiumEquivalent(APE)isthecommonnewbusinesscurrencybutittells usvirtuallynothingabouttheworthofthatbusinessandcertainlycannotbecomparedto ValueofNewBusiness(VNB)orPresentValueofInForce(PVIF)asmeasuresofvalue creation. Werecognisechallengesaheadforcompanies: Continuingpursuitofnewbusinessgrowthwithdecliningmarginsaspersistency continuestodeteriorate,balancedagainst, Refocusingtheirbusinessmodelstoputincreasedemphasisontheretentionof existingbusinessandgreaterscrutinyonthequalityofnewbusinessbeingwritten almostcertainlywithanoverallreductioninthevolumeofnewbusinesssecured WethinkthiswillposeamajorchallengeformanyBoards theysaypersistencyisakey issuebutstillseeitassecondarytonewbusinessgrowth.webelieveitisasignificant challengetoachievebothcontinuednewbusinessgrowthandimprovedpersistency. 19

23 5.3 Moving forward Webelievetherearesixcriticalenablersthatneedtobeinplaceinordertoaddressthe persistencychallengefacedbytheindustry: 1. Boardlevelsponsorshipandcommitment. 2. Aclearstrategyfornewbusiness. 3. Creationofcustomeranddistributorincentivesforpersistentbehaviour. 4. Relevant,accurateandtimelymanagementinformation. 5. Thecorrectorganisationalfocus. 6. Abiasformanagedaction Boardlevelsponsorship Thisiscritical.TheBoardneedstoseehowandwherevalueisbeingcreatedand destroyedanditneedstomakeitveryclearthroughoutthecompanythatmeasuresof persistencyperformancearescrutinisedcarefullyandareexpectedtodriveactivityto manageperformanceinthisarea.staffatalllevelsandinallfunctionsneedtobevery clearthatthisisakeysuccessmeasureforthecompanyandthattheyhavearoletoplay inachievingit Newbusinessstrategy Wethinktheinsurancesectorneedstodevelopamuchbetterunderstandingofwhat createsvalueandwhatdestroysitanditneedstoplayamajorroleineducatingthe analystsaroundthis.iftheindustryisnotpreparedtodothisandcontinuestopursue new businessgrowth,itmustbemorerealisticabouttheexpectedlongevityofthat businessandthevaluethatisattachedtoit.eitherway,understandingthetruevalueof businessbeingwonandlostisakeyrequirementandapre-requisitetosustainable success.thisisastrategicimperativeinourview Creationofcustomeranddistributorincentives Akeyelementinaddressingpersistencyistheabilityofthecustomertoswitchprovider withoutpenalty.foryearsthelifeinsuranceindustryhasbeenabletoinsulateitselffrom theriskofearlyterminationthroughsurrendercharges.withtheremovaloftheseexplicit chargesinmanyproductareas,thisprotectionhasbeenneutralised.sodoestheindustry needtoturnthisproblemonitshead?ifitisbecomingmoredifficulttopenalise customersforearlydeparture,canitbemadepossibletorewardthemfor loyalty?in otherwords,cantheindustryfindawayofusingincentivesofsomedescriptiontocreate customerdisadvantageintheeventthatcustomersareencouragedtoswitchproviders withoutgoodreason? Relevanttimelyandactionablemanagementinformation Inourexperience,alllifeinsurersknowthatpersistencyisanissue,butaskthemwhatis causingittohappennowandtheywillstruggletogiveaninformedanswer.mostinsurers cangiveabreakdownoftheirpersistencyassumptionsandactualexperiencebyproduct typebutmanyfinditverydifficulttodothisatshortnoticeortobeabletosplitthisdown further.forexample,bydistributionchannels,agenciesinthesamechannel,customer groups,durationssincepolicyinceptionortypesofpersistency(surrender,lapseorpup). Insurerstendtosettheirpersistencyassumptionsataveryhighlevel(usuallymajor productgroup)withlittlebreakdownforanyofthesefactors.therefore,theycannotthen pinpointwherethedeteriorationbetweenassumedandactualhasoccurred.furthermore 20

24 becausetheyhavelittledataaboutthefactorsthatcausebusinesstogooffthebooks theycannotidentifywhathasdrivenanyvariances isitmoreofthecausesthey expectedorhavesomenewcausesemerged? Whenadversevariancesdooccur,theinitialreactionisoftenoneofneedingtoeliminate thevarianceratherthanactuallyreducingtheoverallcostoflostbusiness.companies thathavesoughtto manage theproblemsimplybychangingtheirunderlying assumptionstoreflectrecentactualperformancenowneedtoaccompanythiswith concreteandmeasurableactionstoimproveperformanceaswell.wheremarginsare alreadyfinethiscanmeanthedifferencebetweencreatingshareholdervalue(albeitata reducedrate)andnowactuallydestroyingitthroughwritingunprofitablenewbusiness. Withoutgoodunderstandingofthecausesoflostbusinessandthevaluethatisbeing lost,itisimpossibletomanagetheprobleminanysystematicormeasurablefashion. Thistendstohighlightneedsinseveralkeyareas: Financialinformationthatenablesproblemareastobeidentifiedatanearlystage Causationanalysisthatexplainswhyactualperformancediffersfromwhatwas expected(andprovidesaviewofallthebusinesslostratherthanjustthatoverand abovetheoriginalexpectation). Predictiveandearlywarningsignalsthat: Provideanearlyindicationofemergingtrends. Identifyatindividualcustomer/productlevelthesignalsthatthecustomerisat riskorthatdefectionmayalreadybeunderway. Theprovisionofrelevant,accurateandtimelymanagementinformationtoenable appropriatemanagementscrutinyandaction. ThedeliveryofoperationalMItothepersonswhoareempoweredandabletouseit toaddressissuesatanindividualcustomerordistributorlevel Organisationalfocus Focusoncustomerandproductretentionneedstobereflectedinthewaythatoperating modelsareconfiguredandresourced.wehavefoundthatdespitetheincreasinglevelof scrutinyonthepersistencyperformanceofproductsandchannels,organisational emphasisisnotsufficientlyfocusedonmanagingthesechallenges.resourcesand rewardstructurescontinuetobealmostexclusivelyalignedwiththedrivetoachieve new business.asaresult,theresourcesavailabletoaddresscustomerloyaltyare insufficientoverthelongtermtodeliverthechangesthatthesebusinessesneedtomake torespondtothesechallenges. Typicallythecurrentbusiness-as-usualfocusoncustomerandproductretentionisvery smallcomparedtothescaleoftheissuefromtheperspectivesbothofrisktothe businessandofmissedopportunitytoimprovebottomlineperformance.thekey questionformanycompaniesiswhethertheyarepreparedtocommitboththe investmentandresourcestosuccessfullymanagetheissue. Analysisoftheactivitiesrequiredasbusinessasusualacrossallareasoftheorganisation toimprovelongtermpersistencyandtheprofitabilityoftheexistingbook,needstobe undertakenasapriority Co-ordinatedprogrammeofaction Analysisandinformationaccountsforverylittleifitcannotgeneraterealinsightand understandingthatisactedupon.inourexperiencethisisthekeytosuccessfully 21

25 addressingpersistencyandcustomerretention-developing,testingandimplementing actionstoaddresstheproblems.thisactivityneedstobesegmentedbetween: Changestobusinessstrategy,philosophyandapproach.Forexample: Rebalancingresourcesbetweennewbusinessacquisitionandretention. Developingnewremunerationmodelstorewardcustomerretention. Designingpropositionsthatareinherentlymoreretentive. Targetingmarketsandchannelswheretherisksand/orimpactofpoor persistencyarelower. Developingcloserrelationshipswiththebestperformingadvisersandthemost valuablecustomers. Replacingthepursuitofbusinessvolumewithpursuitofbusinessvaluethrough betterpricingandriskassessment. Rewardingcustomerloyalty. Effectiveretention salvage operations.forexample: Developingtreatmentstrategiestoretaindefectingcustomers. Dealingwithadviserswhoappeartobeactivelychurningtheircustomers. Closingloopholesinproductoffers introducing underwriting controls. Closingloopholesinremunerationpractices. Weseemorebusinessesplacingmostemphasisonthesecondareaandnotenoughon thefirst.muchtacticalactivitybeingtriggeredinresponsetopersistencyissuesbutoften thisfailsbecause: Ithasnotbeeninitiatedaspartofacoherentplan. Itisnotco-ordinatedacrossbusinessareasandfunctions. Specifictargetshaveeithernotbeensetorarenotrealistic. Thereisinsufficientunderstandingofcauseandeffectwiththeresultthatthe implicationsofdecisionstakeninonepartofthebusinessarenotanticipatedinother partsofthebusiness. Basicprogrammeandprojectmanagementdisciplinesneedtobeappliedinthisareajust asmuchastheyneedtobeappliedtoanysignificantactivitytoimprovebusiness performanceandcapability. 5.4 Setting realistic goals and timescales Oneofthemostimportantthingsforcompaniestorecogniseisthatpersistencyproblems donotgrowupovernight.intheukithasbeendevelopingforanumberofyearsbutthe Irishlifeinsuranceindustrynowhasmoretimetoconsiderandaddresstheissuesgiven thestrengthofthenewbusinessvolumesbeingsold.asaconsequence,itisunrealistic toexpectthatquickfixeswilleitherproduceimmediateandsignificantpaybackorbe sufficienttoovercomeaproblemwhichinessenceisastrategicone.thisistheparadox, whilstitisimportantnottodelayinitiatingremedialaction,itisjustasimportantto recognisethattheresultsmaytakesometimetoappear. Webelievethatinsurersmustberealisticintheirassessmentsandexpectationsandbe preparedtoaddresssomeprettydifficultquestionsabouttheirfutureapproachinthelife business. 22

26 5.5 Conclusions Persistencyisadifficultissueforalllifeinsurancecompanies.Itisnoteasytoaddressthe issueinameaningfulwaywithoutfundamentallyrethinkingandchallengingtraditional measuresofsuccessfocusedaroundnewbusinessmarketshares.theextentofthis rethinkingmayevenstretchasfarasconsideringwhetheranembeddedvalueapproach continuestobeappropriategiventhatcustomersandtheiradvisersnolongerconsider manyoftheircommitmentstobelongterminnature. WebelievetheIrishlifeinsuranceindustryisnotatthesamestageintermsof persistencyissuesastheukmarketthoughthisdoesnotmeanitshouldignorethe potentialproblemsandchallenges. Noneoftheapproachessuggestedinthisreportareeasybutinourviewtheydeserve consideration.thesolutionshighlightedinthesurveypointthewayforwardforthelife insuranceindustry,inparticulartheimportanceofactionsthatrewardcustomerloyaltyand deployingretentionteamstoreducecustomerleakage. 23

27 Appendix1 ScoringMethodology Strategyandsponsorship (20%) Thissectionismadeupof4questions(andsub-questions)examiningviewsrelated toandtheimportanceplacedonretentionbyorganisation Diagnosisandmeasurement (25%) Thissectionismadeupof3questions(andsub-questions)lookingattheanalysisof pastexperienceandwhatismeasured Solutioneffectivenessandactivities (40%) Thissectionismadeupof2questions(thoughseveralsub-questions)lookingatthe extentofimplementationofcustomerretentionstrategiesandoveralleffectiveness bythecompany Structuretargetsandincentives (15%) Thissectionismadeupof2questions(andsub-questions)examiningtheextentto whichretentiontargetshavebeensetandrelatedresponsibilitieswithincompany Financialperformance (n/a) ThissectionlooksatthecomparisonoftheVIFexpectedtolapseeachyearcompared tothevalueofnewbusinesscreated Eachquestionhasbeenallocatedascoreandtheaggregatescoresareweightedacross eachofthesectionstoarriveattheoverallscoreforthecompany.forexample,the followingquestionisfromthediagnosisandmeasurementsection: Q5a:TheinformationIreceiveisrobustandreliableenoughtosupportdecisionmaking? Theparticipantsweregiventheoptiontorespondinthefollowingway(corresponding scoresassignedareinbrackets): Stronglyagree(2) Agree(2) Neutral(1) Disagree(0) Stronglydisagree(0) ThemaximumscoreattainableintheDiagnosisandMeasurementsectionwas48.The maximumscoreforthesurveywas119. Aweightingof25%wasassignedtoDiagnosisandMeasurement. 24

28 Appendix2 SurveyResponses Strategy and Sponsorship Q1a. Retention is recognised as a major issue in my organisation Agree 25% Neutral 25% Strongly Agree 50% Q1b. Improving retention has Board level sponsorship Strongly Agree 25% Agree 12.5% Neutral 50% Disagree 12.5% Q1c. Improving retention is high on my personal list of objectives Strongly Agree 12.5% Agree 12.5% Neutral 62.5% Disagree 12.5% Q2. How has the level of importance senior management attach to customer or product retention changed in the past three years? Much more important now 50% A little more important now 37.5% No change 12.5% Q3. Where you have a retention strategy, which statement best describes its nature? Our strategy combines reactive and proactive measures with predictive indicators to identify the likelihood of prospective and current customers defecting. (Reactive Proactive / Predictive) Our strategy combines reactive response with actions to build better retention in our proposition and delivery from the outset. (Reactive / Proactive) Our strategy is focused on retention once we become aware of possible loss of business or issues arise. (Reactive) 0% 75% 25% Q4a. Our focus is on retaining the product holding as we measure performance mostly in terms of products. Strongly Agree 12.5% Agree 62.5% Neutral 12.5% Disagree 12.5% 25

29 Q4b. When an existing customer switches to a new product we treat this as a completely new sale. Strongly Agree 25% Agree 50% Neutral 12.5% Disagree 12.5% Q4c. We target customer retention activity to profitable customers / products. Strongly Agree 12.5% Agree 37.5% Neutral 12.5% Disagree 37.5% Q4d. Cross functional goals are aligned to encourage retention. Agree 12.5% Neutral 37.5% Disagree 50% Q4e. When an existing customer cancels an existing product and replaces it with a new one we can take this into account when looking at product persistency for the old product. Strongly Agree 12.5% Agree 12.5% Neutral 25% Disagree 50% 26

30 Diagnosis and Measurement Q5a: The information I receive is robust and reliable enough to support decision making. (accurate) Strongly Agree 37.5% Agree 37.5% Disagree 0% Neutral 25% Q5b. The information I receive enables me to identify where action should be taken. (relevant and actionable) Strongly Agree 37.5% Agree 37.5% Neutral 25% Disagree 0% Q5c. I receive information early enough to enable me to take appropriate action. (timely) Strongly Agree 25% Agree 25% Disagree 37.5% Neutral 12.5% Q5d. The information I receive is forward looking as well as historic. (lead and lag information) Neutral 12.5% Disagree 75% Strongly disagree 12.5% Q6a. The numbers of new customers won Measured frequently as part of management reporting 25% Measured on ad-hoc basis only 12.5% Not measured but could see benefit in measuring Not measured and could not see benefit in measuring 37.5% 12.5% Q6b. The number of customers lost Measured frequently as part of management reporting 25% Measured on ad-hoc basis only 12.5% Not measured but could see benefit in measuring 50% 27

31 Q6c. The numbers of new products sold Measured frequently as part of management reporting 87.5% Q6d. The number of products lost (lapsed or surrendered) Measured frequently as part of management reporting 75% Measured on ad-hoc basis only 12.5% Q6e. The annual total of new premiums / contributions from new customers Measured frequently as part of management reporting Not measured but could see benefit in measuring 37.5% 37.5% Not answered 25% Q6f. The annual total of new premiums / contributions from existing customers into new products Measured frequently as part of management reporting 12.5% Measured on ad-hoc basis only 0% Not measured but could see benefit in measuring 62.5% Not answered 25% Q6g. The annual total of new premiums / contributions from existing customers into existing products (increments) Measured frequently as part of management reporting 75% Measured on ad-hoc basis only 12.5% Not measured but could see benefit in measuring 12.5% Q6h. The annual total of assets lost (surrendered / transferred out) Measured frequently as part of management reporting 37.5% Measured on ad-hoc basis only 50% Q6i. The annual total of regular premiums ceasing through decrements Measured frequently as part of management reporting 37.5% Measured on ad-hoc basis only 25% Not measured but could see benefit in measuring 25% 28

32 Q6j. The annual total of regular premiums ceasing lapsed or made paid-up Measured frequently as part of management reporting 50% Measured on ad-hoc basis only 25% Not measured but could see the benefit of measuring 12.5% Q6k. The net present value of business lost (reduction of value of in force business) Measured frequently as part of management reporting 25% Measured on ad-hoc basis only 25% Not measured but could see benefit in measuring 37.5% Q6l. Persistency percentage by product (proportion lost divided by number (or value) at start or average for period) Measured frequently as part of management reporting 87.5% Measured on ad-hoc basis only 12.5% Q6m. Business that was saved by retention or recovery unit Measured frequently as part of management reporting 12.5% Measured on ad-hoc basis only 37.5% Not measured but could see benefit in measuring Not measured and could not see the benefit in measuring 25% 12.5% Q6n. Business that was reinstated after having been made paid up Measured frequently as part of management reporting 12.5% Measured on ad-hoc basis only 25% Not measured but could see benefit in measuring 50% Q6o. Changes in customer / product behaviour pre loss (e.g., missed contributions, requests for valuations, partial withdrawals) Measured on ad-hoc basis only 25% Not measured but could see benefit in measuring Not measured and could not see benefit in measuring 37.5% 25% 29

33 Q6p. Distributor / channel profitability Measured frequently as part of management reporting 37.5% Measured on ad-hoc basis only 12.5% Not measured and could not see the benefit of measuring 12.5% Not answered 37.5% Q6q. Distributor / channel persistency performance Measured frequently as part of management reporting 37.5% Measured on ad-hoc basis only 0% Not measured but could see benefit in measuring Not measured and could not see the benefit of measuring 12.5% 12.5% Not answered 37.5% Q7a. How do you measure your persistency? By individual product type 37.5% By individual product type within distribution channel 62.5% Q7b1. Do you also measure your persistency by type of persistency (lapse /surrender / PUP)? No answer 25% Yes 75% Q7b2. Do you also measure your persistency by: length of time product held? No answer 0% Yes 100% Q7c. Do you collect information on why customers cancel their policies? No we do not collect this information 25% Yes we collect and analyse information on an ad Yes we systematically collect and analyse information 62.5% 12.5% 30

34 Solution effectiveness and activities Q8a. Customer retention / recovery team Currently considering 12.5% Implemented 50% Considered and rejected 12.5% Not yet considered 25% Q8b. Win back processes including flexible pricing Currently considering 12.5% Implemented 25% Not yet considered 62.5% Q8c. Effective recovery of complaints Currently considering 12.5% Implemented 50% Not yet considered 37.5% Q8d. Retention of branch staff or sales intermediaries Currently considering 0% Implemented 62.5% Not yet considered 37.5% Q8e. Effective account handover processes when account manager or intermediary leaves (management of orphan customers) Currently considering 0% Implemented 75% Not yet considered 25% Q8f. Analysis of commission / bonus shape and claw-back periods of commissions/bonus paid to intermediaries or own sales staff Currently considering 37.5% Implemented 50% Not yet considered 12.5% Q8g. Analysis of channel, sub-channel and adviser or intermediary retention record Currently considering 12.5% Implemented 50% Not yet considered 37.5% Q8h. Cascading customer retention targets to all front line staff and management Currently considering 12.5% Implemented 12.5% Not yet considered 75% 31

35 Q8i. Inclusion of retention performance as a factor in sales incentives and rewards Currently considering 25% Implemented 62.5% Not yet considered 12.5% Q8j. Segmenting distributors / intermediaries by persistency experience Currently considering 12.5% Implemented 25% Not yet considered 62.5% Q8k. Offering differential terms to distributors / intermediaries according to their persistency experience Currently considering 0% Implemented 37.5% Not yet considered 50% Considered and rejected 12.5% Q8l. Designing flexibility into products and systems to allow for changing needs of customers Implemented 37.5% Currently considering 12.5% Considered and rejected 12.5% Not yet considered 37.5% Q8m. Proactively suggesting migration from poorly performing / priced products to better alternatives Implemented 12.5% Currently considering 12.5% Considered and rejected 25% Not yet considered 50% Q8n. Use of penalties to discourage early termination by the customer (lock in periods) Considered and rejected 25% Currently considering 12.5% Implemented 62.5% Q8o. Pricing existing products the same as new business Considered and rejected 12.5% Currently considering 25% Implemented 12.5% Not yet considered 50% Q8p. Cross-selling further products to improve depth of relationship Currently considering 37.5% Implemented 25% 32

36 Not yet considered 25% Considered and rejected 12.5% Q8q. Identification of customer risk of defection at point of acceptance (e.g., scorecard) Currently considering 0% Implemented 12.5% Not yet considered 87.5% Q8r. Segmented pricing, features and marketing to address risks of poor retention Considered and rejected 12.5% Currently considering 0% Implemented 0% Not yet considered 87.5% Q8s. Customer profitability analysis to target limited resource on to most profitable segments Currently considering 25% Implemented 12.5% Not yet considered 62.5% Q8t. Measurement of customer behaviour to identify shifts in usage and profitability pre defection Currently considering 0% Not yet considered 100% Q9a. Customer retention / recovery team Not answered 0% Effective 87.5% Ineffective 12.5% Very effective 0% Q9b. Win back processes including flexible pricing Very effective 12.5% Effective 25% Ineffective 50% Q9c. Effective recovery of complaints Very effective 12.5% Effective 62.5% Ineffective 12.5% 33

37 Q9d. Retention of branch staff or sales intermediaries Very effective 12.5% Effective 75% Q9e. Effective account handover processes when account manager or intermediary leaves (management of orphan customers) Effective 75% Not answered 25% Q9f. Analysis of commission / bonus shape and claw-back periods of commissions/bonus paid to intermediaries or own sales staff Effective 75% Very effective 25% Q9g. Analysis of channel, sub-channel and adviser or intermediary retention record Very effective 12.5% Effective 62.5% Very ineffective 12.5% Q9h. Cascading customer retention targets to all front line staff and management Very effective 12.5% Effective 87.5% Q9i. Inclusion of retention performance as a factor in sales incentives and rewards Effective 50% Ineffective 12.5% Very effective 37.5% Q9j. Segmenting distributors / intermediaries by persistency experience Effective 62.5% Ineffective 12.5% Very effective 12.5% Q9k. Offering differential terms to distributors / intermediaries according to their persistency experience Effective 50% Very ineffective 12.5% Very effective 25% 34

38 Q9l. Designing flexibility into products and systems to allow for changing needs of customers Effective 37.5% Ineffective 50% Q9m. Proactively suggesting migration from poorly performing / priced products to better alternatives Effective 37.5% Ineffective 50% Q9n. Use of penalties to discourage early termination by the customer (lock in periods) Not answered 0% Effective 50% Ineffective 25% Very effective 25% Q9o. Pricing existing products the same as new business Very effective 12.5% Effective 37.5% Ineffective 37.5% Q9p. Cross-selling further products to improve depth of relationship Very effective 12.5% Effective 50% Ineffective 25% Q9q. Identification of customer risk of defection at point of acceptance (e.g., scorecard) Effective 25% Ineffective 62.5% Q9r. Segmented pricing, features and marketing to address risks of poor retention Effective 25% Ineffective 50% Very effective 12.5% 35

39 Q9s. Customer profitability analysis to target limited resource on to most profitable segments Effective 50% Very effective 12.5% Ineffective 25% Q9t. Measurement of customer behaviour to identify shifts in usage and profitability pre defection Effective 37.5% Ineffective 50% 36

40 Details on last 3 years persistency experience across products Q12a. Group Pensions Improved slightly 0% Stayed the same 50% Worsened greatly 12.5% Worsened slightly 25% Not in market 12.5% Q12b. Individual Pensions Improved slightly 12.5% Stayed the same 50% Worsened greatly 25% Worsened slightly 12.5% Q12c. Protection Improved slightly 25% Stayed the same 37.5% Worsened greatly 0% Worsened slightly 25% Did not answer 12.5% Q12d. Life Savings Did not answer 12.5% Improved greatly 0% Improved slightly 50% Stayed the same 25% Worsened greatly 0% Worsened slightly 12.5% Q12e. Life Bonds Not in market 12.5% Improved greatly 12.5% Improved slightly 37.5% Stayed the same 12.5% Worsened greatly 0% Worsened slightly 25% Q13. Experienced adverse persistency variances in either of the two years prior to the most recent year end? Yes- mainly pensions 37.5% Yes 12.5% Yes- mainly investment bonds due to market fluctuations 12.5% No 25% 37