Distribution

1
Distribution Consumer ValuesInternational
Insurance Society Seminar
Hong Kong July 13th 2005
2
Conundrum
High pressure sales Distrust of distributors
providers Poor value for money
Commissions under pressure Mis-selling
accusations Cant afford to serve many segments
Scandals Retirement savings gap High charges
3
A solution in sight?
4
Consumers in charge Essential ingredients
Level of intermediation Low
High Low High
Med.
5
Aligning economic interests
Upfront Level Wrap Fee
Distributor Consumer Regulator
Bring it on Is it worth it?
Look for high rollers Clients too cheap
Thats a lot Seems fair
Its simple Why pay so much?
Mis-sale alert Better
Even better Now youre talking
TRANSPARENCY
6
Impact of charging Example
Payback Period
20
19
1 AMC with min 50pa
1 AMC with min 50pa
18
17
0.5 AMC 5 up front
1 AMC 5 up front for 3 years
16
Better for providers
1.5 AMC for 10 years then 1
1.5 AMC
1.5 AMC
15
14
13
2 AMC
2 AMC
1 AMC 5 up front
1 AMC 5 up front
12
6
8
10
12
14
16
18
20
IRR
Better for providers
7
Aligning distributors to consumer needs
Segment
Characteristic
Likely Adviser

• High
• Complex
• Multi coverage
• Tax
• Advice
• Wealth
• Income
• Low
• Simple
• 1-2 coverages
• Access
• education

Sophisticated Sceptics

• Distributor
• Independent Adviser

• Value support
• Financially sophisticated
• Strong preference for face-to- face

DIY

• Uninterested in support
• In control of finances

• Direct

• Independent Adviser

• Strong interest in finances
• Not in control of them

Advice Seekers

• Direct
• Distributor

Provider Sceptic

• Not very interested in finance
• Do not trust providers

• Distributor
• Independent Adviser

• Uncomfortable with finances
• Value a brand

Financially Averse
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Distributors focus on value added Enablers

• Product simplicity
• Regulatory encouragement of pull products
• simple savings plans
• transparency across all financial products
• tax ( /or employer) incentives for consumers
• education
• Business simplicity to allow more consumer self
  service, product selection, access advice on
  demand
• Technology enablement
• auto-underwriting
• straight through processing
• auto claims adjudication
• streamlined distribution

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Real Life Examples
Old approaches must change, especially if
potential conflicts The emerging brokerage model
Its difficult to change, the theory doesnt
always work UK Stakeholder pensions Success can
be achieved if based on market realities The
Aflac story in Japan