Persistency in the life insurance industry in Ireland

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

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.

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.

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 12.3 1.8 7.9 Ireland 1 All business UK 2 87.1 8.8 93.5 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

1.1 Definitions 1.1.1 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. 1.1.2 Whatdowemeanbyretention? Retentionactivityiswhatisundertakenbylifeandpensionsprovidersinanattemptto improvetheirpersistencyperformance. Inaddition,companiesalsotalkaboutretentionofcustomersandcustomermoneyat maturityoftheoriginalcontract-usuallybyrollingthatmoneyoverintoanewcontract (usuallyreportedasacompletelynewsale).thisisimportant,butitdoesnotdirectly impactuponpersistencyperformanceandisnotthereforecoveredtoanysignificant degreeinthissurvey. 1.2 Your contacts YourKPMGcontactsinrelationtothisreportare: BrianMorrissey,Director,4101220,brian.morrissey@kpmg.ie MariePhelan,Manager,4101740,marie.phelan@kpmg.ie DaveGooding,PrincipalAdvisor,+441132542940,dave.gooding@kpmg.co.uk 2

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

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

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

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

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

4. Survey Findings 4.1 Industry Headlines 4.1.1 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%] 4.1.2 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

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%. 4.2.1 Importanceofpersistencyandretention Persistencyinthelifeinsuranceindustryisrecognisedasakeyissueandaddressingithas somedegreeofboardlevelsponsorshipinmostcompanies. Figure 5 - Importance of persistency and retention 9

Allparticipantsagreedthataddressingpersistencyisimportantandinallbutone,the issuehasboardlevelsponsorship. 4.2.2 NatureofRetentionStrategy 75%ofrespondentssaidtheyhadsomeformofstrategyinplacetoaddresspersistency. Strategiesappeartohaveoriginatedfromareactiveresponsetotheissueandnoneof themhavenowevolvedtoincludeproactiveandpredictiveapproaches.intheuk,25%of respondentssaidthattheirstrategywasacombinationofareactive/proactiveand Predictiveapproach. Figure 6 - Nature of Retention Strategy 4.2.3 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

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

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

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

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

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

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

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

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

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

5.3 Moving forward Webelievetherearesixcriticalenablersthatneedtobeinplaceinordertoaddressthe persistencychallengefacedbytheindustry: 1. Boardlevelsponsorshipandcommitment. 2. Aclearstrategyfornewbusiness. 3. Creationofcustomeranddistributorincentivesforpersistentbehaviour. 4. Relevant,accurateandtimelymanagementinformation. 5. Thecorrectorganisationalfocus. 6. Abiasformanagedaction. 5.3.1 Boardlevelsponsorship Thisiscritical.TheBoardneedstoseehowandwherevalueisbeingcreatedand destroyedanditneedstomakeitveryclearthroughoutthecompanythatmeasuresof persistencyperformancearescrutinisedcarefullyandareexpectedtodriveactivityto manageperformanceinthisarea.staffatalllevelsandinallfunctionsneedtobevery clearthatthisisakeysuccessmeasureforthecompanyandthattheyhavearoletoplay inachievingit. 5.3.2 Newbusinessstrategy Wethinktheinsurancesectorneedstodevelopamuchbetterunderstandingofwhat createsvalueandwhatdestroysitanditneedstoplayamajorroleineducatingthe analystsaroundthis.iftheindustryisnotpreparedtodothisandcontinuestopursue new businessgrowth,itmustbemorerealisticabouttheexpectedlongevityofthat businessandthevaluethatisattachedtoit.eitherway,understandingthetruevalueof businessbeingwonandlostisakeyrequirementandapre-requisitetosustainable success.thisisastrategicimperativeinourview. 5.3.3 Creationofcustomeranddistributorincentives Akeyelementinaddressingpersistencyistheabilityofthecustomertoswitchprovider withoutpenalty.foryearsthelifeinsuranceindustryhasbeenabletoinsulateitselffrom theriskofearlyterminationthroughsurrendercharges.withtheremovaloftheseexplicit chargesinmanyproductareas,thisprotectionhasbeenneutralised.sodoestheindustry needtoturnthisproblemonitshead?ifitisbecomingmoredifficulttopenalise customersforearlydeparture,canitbemadepossibletorewardthemfor loyalty?in otherwords,cantheindustryfindawayofusingincentivesofsomedescriptiontocreate customerdisadvantageintheeventthatcustomersareencouragedtoswitchproviders withoutgoodreason? 5.3.4 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

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. 5.3.5 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. 5.3.6 Co-ordinatedprogrammeofaction Analysisandinformationaccountsforverylittleifitcannotgeneraterealinsightand understandingthatisactedupon.inourexperiencethisisthekeytosuccessfully 21

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Organisation, targets and incentives Q14. To what extent has your organisation set retention targets? Targets have been set at senior management level only Targets have been set at senior management and cascaded to front line staff We are currently considering whether or not to set retention targets We have not yet considered setting retention targets 12.5% 25% 12.5% 50% Q15. Which functions have responsibilities in respect of customer retention in your organisation? Q15a. Sales / Network None 37.5% Sales / Network 62.5% Q15b. Product Managers None 62.5% Product Managers 37.5% Q15c. Customer Insight / Customer Relationship Management (CRM) None 100% Customer Insights/ Customer relationship management (CRM) Q15d. Contact Centre / Operations 0% None 62.5% Contract Centre / Operations 37.5% Q15e. Finance None 62.5% Finance 37.5% Q15f. Other: Specify None 100% Q16. Of these functions, which have specific targets for customer retention? Q16a. Sales / Network None 87.5% Sales / Network 12.5% 38

Q16b. Product Managers None 100% Product Managers 0% Q16c. Customer Insight / CRM None 100% Customer Insights/ Customer relationship management (CRM) Q16d. Contact Centre / Operations 0% None 87.5% Contract Centre / Operations 12.5% Q16e. Finance None 100% Don t know 0% Q17. Who has primary accountability (ownership) for retention in your organisation? No one specific 12.5% Chief Executive 12.5% Sales and Marketing Director 50% Operations Manufacturing Director 25% 39