The New Normal Bill Tyson CEO Strategic Marketing

The New Normal: Bill Tyson CEO Strategic Marketing Plus, LLC Monday, October 8 th 2012

AGENDA Part 1: Industry Overview Part 2: Distribution Update and Sponsored Programs Break at 10: 15 am to 10: 30 am Part 3: Best Practices: The Strategic Marketing Plan Part 4: Innovative Marketing and Distribution Approaches in the USA

Part 1: Industry Overview

The Power of A Link Social capital - “a sociological concept used to refer to connections within and between social networks. ” “Swiss Army Knife” - like features: Advanced Search – because of the accuracy of profile information (if you lie about anything your peers, colleagues will out you), it is more powerful than Google search. Groups – these community-of-interest-networks go beyond discussions and job postings enabling relationship building around common interests. Information Sharing – through the use of “social objects” – newsworthy items, not authored by you, that you can share rapidly with those you know will find it relevant. Paying it forward – meaning the obligation placed upon everyone in Linked. In to make introductions for and on behalf of your 1 st level connections. Mapping your network – for the first time in history, you can actually map most of your network. See http: //inmaps. linkedinlabs. com.

Insurance Industry Overview Macro Trends Impacting Marketing and Distribution

8 Key Macro Trends – Trillion $ + to 2020 – Bain & Co. The rise of the China and India Middle Class Aging Infrastructure China militarization Increasing demand for Commodities Workforce training in emerging economies Keeping the “Wealthy Healthy” Soft Innovation – quality improvements with existing products and services Big breakthroughs – some unforeseen (“black swans”) robots, nanotechnology, 3 -D printing

Consumer Trends Forever recession – lingering unemployment… 21 st Century models are being disrupted. Total mistrust of institutions (OWS). Un-retirement – 66% expect to work after retirement. Shift from Government/Employer to Worker Obesity epidemic. Self-service and foreign tech support backlash. Life expectancy increasing - average will be 87 years by year 2029. Ownership of Life Insurance way down.

4 Key Insurance Marketing Forces Fatigue, Distribution, Technology and Competitive pressures forcing business model transformation. Consumer behaviors that require new, relevant marketing, sales and integrated distribution approaches. The blurring of the lines between insurance products and services. Legal and regulatory challenges - to protect the consumer privacy and ensure equity through minimum loss ratio requirements.

#1 Fatigue, Distribution, Technology and Competitive Pressures

“The trends toward creative populism, personalized measurements, interactivity, open ad inventory platforms and greater consumer control will generate more change over the next 5 years than the advertising industry has seen in the last 50 years. ” Dr. Saul J. Berman, IBM Global Media Practice

Market Trends – Fatigue Marketing fatigue – across products, channels and traditional media. Product fatigue – “meaningless differentiation” Little R&D at carrier and TPA levels. Product homogeneity is the norm. Channel Fatigue – increased fragmentation – “a million different niches”. Direct mail/inserts ROMI is worsening: Fatigue is across – lists, creative, formats and offers. Better segmentation leads to smaller and smaller targets. Material Costs are increasing due to energy costs (affecting paper, delivery, ink, etc. and postage). Postal delivery slower, less reliable. Do not mail, “go green” movement. Sponsored direct mail is in direct opposition to “Paperless movements” at major financial institutions.

IBM CMO Study – Marketing’s Biggest Challenges

IBM CMO Study – 7 Measures of Marketing Success “The success of my role is far more about analytics and technology than it is about hanging out with my ad agency, coming up with great creative campaigns. We must increase campaign ROI. ” Rob Colwell, Executive Manager — Commercial and Marketing, Qantas Frequent Flyer

John Hayes, CMO of American Express

Major Trends – Fatigue Service Fatigue: Best practices adopted over the years adds leads to proliferation of sameness: Key Performance Indicators, ROI and Lifetime Value calculations enable “apples-to-apples” performance. Technology and automation of workflows and processes. New metric is the Net Promoter Score (NPS) Rise of Enterprise Risk Management programs to deal with common business risks

Distribution Trends - Affinity Traditional Associations are facing mounting pressure to become more relevant. Governmental Employee Unions – are facing cost shifting of welfare programs and cutbacks due to mounting deficits (Federal, State, Local) Trade Associations – tough to sustain membership when dues are optional. Manufactured Associations – face increased scrutiny and potential extinction.

Distribution Trends (continued) Employers/Worksite programs – cost shifting – from being providers (and subsidizers) to enablers of insurance for their employee/consumers. Financial Institutions – eliminating programs to avoid additional litigation and regulatory challenges. Approval process on new products takes years, not months. Channel opportunities have been reduced or eliminated: Outbound Telemarketing bans and elimination of statement inserts to trans-promotional ones (like Amex page 2 & 3 ads). Preference now goes to internal bank products. Web sites are profit centers – highest money contributors win. Card issuers – facing high degree of fatigue. Leveraging social media for loyalty programs. Mobile Commerce and Call Center platforms – emerging to compete and fill void of financial institutions and/or use insurance as a means to monetize traffic.

Bank Comparison of Mail 2010 vs. 2011 50, 000 45, 000 40, 000 35, 000 2010 30, 000 2011 25, 000 20, 000 15, 000 Bank Wells Fargo -29% 10, 000 Bank of America -53% Citibank -70% U. S. Bank 21% Chase -97% 5, 000 0 Wells Fargo Bank of America Citibank U. S. Bank Chase % Change 2010 to 2011

Technology Trends – Beyond Social Mobile Access/Apps. “Tap and Go”, M-commerce (NFC) Mobile Financial Services – wave started by mobile banking. “Gamification” – great way to engage audiences From Saa. S to Xaa. S – “Everything as a Service” aka Cloud Computing: Cost advantages BUT worries remain about Outages & Security Big Data – struggling to make it actionable. Cyber Disruptions – cybercrime, cyber-war and

Competitive Pressures Competition is intensifying “Pay-as-you-go” models emerging - auto New emerging competitors have these attributes: Cool Brand, No legacy Technology-driven First mover advantage Partnerships and alliances Customer experience leaders – exude passion and comparative expertise. Outsourcing is intensifying

Competitive Pressures In our business, there is a “Herd-like” regression towards the mean Great awareness of competitor positions and moves particularly at publicly traded companies. Pre-disposition to make adjustments to match competitors in coverage and rates. The more tightly contested the category, the more clustered the competition: The more hyper-vigilant companies are going to be sensitive to the movements of those around them The more poised they will be to respond in kind. (1) Youngme Moon, March 2010: Different, page 41, Kindle Edition, Random House, Inc.

Competitive Pressures Mobile/Portability is going to be a big disrupter. Service is going to be the linchpin of the integrated channel experience. Personalization and customization is necessary to reinforce the customer relationship Must have Real-time responses to data to provide business advantage. Flexibility that dynamically aligns with customer use and behavior. Modular products and new, more equitable pricing models (“pay-as-you go/drive” auto insurance, etc. )

#2 Consumer Behavior is changing…dramatically “Consumers are moving outside the purchasing funnel—changing the way they research and buy your products. If your marketing hasn’t changed in response, it should. ” -Mc. Kinsey Quarterly, 2009 #3

The Traditional Sales Funnel Awareness Familiarity Consideration Preference 25 Purchase Re-purchase (Loyalty)

Has Changed To This HBR: The Customer Decision Journey 26

Requiring this type of intensity Advocacy

Customer Journey Mapping… Let’s take a look at a Life Insurance Customer Experience Map.

Sample Life Insurance Customer Experience Map 2 1 Direct Mail/Web Mark receives a direct mail offer from Hawkeye Family Life to buy guaranteed tem life insurance. The cost seems affordable and he has considered buying additional coverage for his growing family, beyond the plan his employer provides. Mark visits the PURL (personalized URL) that is referenced in the mail piece, enters his email address, and fills out a quote request. Email Knowing that Mark linked into the PURL, but didn’t make an initial purchase, Hawkeye Life sends Mark an email the next day that points him to the coverage calculator to help Mark determine the appropriate level of coverage based on his needs. He goes online to further investigate his options using the weblink to the calculator, and also researches the cost of an additional policy for his wife, Molly. Online/WOM Later that evening when online, Mark notices an ad for term insurance from Hawkeye Life. He decides to check to see how rates compare, and when he googles “affordable term life”, he sees Hawkeye near the top of the list. Mark clicks on a couple sites to check their rates, and as he surfs the web, another Hawkeye message appears. He visits a few more sites with customer reviews and see a lot of positive feedback. 3 4 5 TV/Online/Social About a week later, Mark and Molly see a tv ad for a new car that she is considering buying. Mark mentions that he saw some car buying tips on the Hawkeye website. Molly goes onto the Hawkeye General website to check out the car buying tips. While on the website, she enrolls for the enewsletter that includes gas saving tips and other auto related articles. And since their oldest child will be driving soon, they join Hawkeye’s parents blog re: best ways to teach good driving skills to your children Direct Mail/Email/Word of Mouth 6 Direct Mail/Web/Phone In his mailbox the next day, Mark finds a thank you note from Hawkeye for clicking on the calculator, and offers him a 5% discount if he signs up online. Mark decides to take advantage of the offer and buys a $500 k term life policy from Hawkeye. During his purchase, a prompt to add a policy for his spouse at a 20% discount is offered. Mark decides to purchase a policy for her, too. The following day, a Hawkeye agent calls to set up medical exams for both Mark and Molly. When Mark receives his first bill and policy in the Hawkeye welcome kit through the mail, he finds an insert that offers discounts on bundled car, life, and home insurance. Mark tells Molly, and she looks online to see what car insurance at Hawkeye covers, and what potential savings could be had by bundling. Email/ Direct Mail/Phone An agent calls Mark and Molly to review the final policy, and let’s them know they will receive a survey via email in the next few days. In return for providing Hawkeye with their feedback on the experience, Molly and Mark will receive 2 Starbucks gift cards in the mail. 7 29 All information contained herein is confidential and/or proprietary information of Epsilon Data Management, LLC. Any unauthorized use and/or any disclosure is strictly prohibited.

Customer Journey Mapping… “With internal and external research in hand, journey-mapping leaders need to distill their findings about: 1) how customers interact with the company, 2) what they want from each interaction, and 3) how they feel about each interaction today— the three key elements of a journey map. ” [1] Bruce Tempkin, Author of the blog: Customer Experience Matters.

Key takeaways • “Sales Funnel” to Lifecycle. Marketing needs to reflect • • 31 the new reality. Interactivity that drives engagement. The 3 “C”s – choice, consistency and continuity. Leverage Channel Synergies: 4 How are you speaking to your customers/prospect, what channels are you using? Can you utilize more? Measure all interactions: 4 Campaigns, segmenting internal and external data 4 Targeting, frequency, multiple channel consistent messaging 4 Performance indicators help to optimize channels

Accenture 2011 Marketing Study Says…Marketers need to focus on 4 things • Master use of data and analytics • Leverage insights to ensure value proposition remains strong • Use multi-channel marketing • Structure relevant offers that foster engagement in an efficient way to fund new growth opportunities

#3 The blurring of the lines between products and services.

Examples Streaming audio, video, i. Tunes. Zipcar – car for those who don’t want a car. Cloud Computing. Identity Theft protection. Red 24 - is a leading global security company providing global risk management to employees and companies. Auto Service – Extended Warranty. Beneficiary Companion – Europ Assist.

#4 Legal and regulatory challenges to protect the consumer privacy (and ensure equity through minimum loss ratio requirements).

Regulatory Fatigue – Major Drag on Commerce: Healthcare and Financial regulatory reforms. Many Sales practices under scrutiny. Information security and privacy concerns. Longer State filing and due diligence periods on insurance and investment products and programs Diverts scarce company resources.

Another Way to Look at Branding

Critical Success Factors The need to generate new revenue streams to grow and replace mature programs. CVP based on True Differentiation. Improving the member/customer experience (to one that is authentic, genuine and compelling). An understanding that the consumer is in control, not the advertiser. Leveraging Data and Analytics. Multi-channel marketing proficiency. Being impactful, e. g. being proactive, innovative, relevant/authentic to younger members. All touch points and interactions executed seamlessly with thoughtfulness, relevance, accuracy and precision (at the right time). Striking a Balance between “monetizing” traffic and member/accountholder base without being obnoxious and intrusive (privacy is a big issue).

Part 2: Insurance Distribution Update and Sponsored Insurance Programs

Trends That Will Shape Next 10 Years Carrier’s Focus on lower acquisition costs. Agent/Broker as Advisor – Subject matter expert, Choice editor, navigator, simplifier and advocate. Pricing Transparency. Regulatory intensity. More pressure on Agent Compensation through Minimum Loss Ratios. Underwriting automation via artificial intelligence. Mobility and Integrated, Real-time Communications to support agents and consumers.

Distribution Investment by Insurers 66% of Insurers do not consider their current distribution model as a source of competitive advantage. Key Drivers in investing in Distribution are: The emergence of new technologies (86 Percent) Changes in customer needs and attitudes (84 percent), New regulations (81 percent) and the increasing importance of advice in the distribution of insurance products (also 81 percent). 66% of insurers said that all services -- including quoting, underwriting, billing, claims declaration and account management -- will be available online within the next three years; 75 percent -said that developing relationships with “non-tied” channels (independent agents and brokers, and others) was a main priority. 66 percent - of insurers identified investment in training as a key priority for optimizing the performance of their captive sales force, 64 percent - identifying specialized tools and sales support, including information technology (IT), as their main priority. Aligning IT infrastructure with a defined distribution strategy was cited by 63 percent of insurers as a key challenge. Saa. S – Software as a Service applications are replacing legacy systems. Source – Accenture Study Accenture Global Survey Finds Insurers Will Invest $84 Million, on Average, Over the Next Three Years To Improve Distribution Strategy, May 24, 2010

5 Common Distribution Objectives Obtain a premium price for your product that provides superior profit vs. competition. Favorably position your company in a poorly differentiated marketplace. Achieve the right match of distribution to key product requirements (Decision support and Target Customer Segment(s)). Meet the growing demands of your customers: transparency, value, accessible, convenient, green and friendly. Leverage data and advanced analytics to determine best offer through the best channel at the right time.

9 Attributes for Product and Distribution fit Definition – extent to which product is known and recognized. Customization – the amount of product adaptation required by customers. Aggregation – is the product stand alone or needs to be bundled (malpractice insurance and adherence to a loss control program) Exclusivity – the uniqueness of the offer. (common in sponsored or direct channels). Customer education needs – before and after the sale. Substitution – the ease with which a product can be replaced by a competitive offering (i. e. auto insurance). Maturity – the stage in a product lifecycle – more mature products require low touch. Customer risk – potential consequences of a wrong decision and/or switching costs (and associated risks). Negotiation – the degree to which the scale and complexity factor in the transaction. This checklist is from Friedman and Furey, in their book The Channel Advantage, and is featured in). The Manager's Guide to Distribution Channels (Kindle Locations 1336 -1338) Gorchels, Linda (2004 -04 -23. Mc. Graw-Hill - A. Kindle Edition. .

Channel Types by Decision Support Requirements High-Touch Low-Touch Direct Risk Managers Captive Agent Financial Advisor Brokers/TPAs/MGAs MGUs Agents, Call Centers supporting: Corporate Website DRTV/Direct Mail/email Inbound/outbound Telesales Mobile Indirect Hybrid Risk Managers CPAs/Attorneys Financial Advisors Brokers/TPAs/MGAs Independent Agents Aggregators IMOs/DMOs/MGAs Brokers Independent Agents

Product and Channel Fit By Segment Commercial • • Risk manager Consultant Broker Agent Wealthy – High Net Worth Co st, Co mp lex ity an d C P A Common Distribution Options Middle Market Direct-to-Consumer – Mass Market • • Investment Advisor Broker Agent CPA/Attorney • Affinity Groups • DRTV/Radio • Virtual Marketing - Aggregator • • • DRTV/Radio Virtual Marketing Micro-insurance Retail “Air-breather” trusts

Common Marketing Channels to Support Insurance Outbound • • • • Direct mail Tradeshows/seminars/events/Kiosks Facebook Email Twitter Web sites, Microsites, PURLS My. Space Contact Centers (Telemarketing) DRTV and Radio You. Tube Mobile/SMS/Chat/Apps RSS Brick and mortar stores Other (newspaper, out-of-home ads, etc. ) Inbound Paid search/Pay per click Search Engine optimization Blogs and social media Word-Of-Mouth (WOM) Viral video TV Radio Newspaper Direct Mail Company Website Email Blogs Online Forums Customer Service Friends/Family Retail Location Mobile

The Value Chain for Sponsored Programs

Sponsor LOB Sponsors P & C Group (Insured or Self-Insured) Individual or Franchise Wet or Dry Trusts or, to the Group Policyholder Individual Policy Distribution Admin. /Fulfillment Broker, MGA, MGU Agent and /or TPA GA, Broker or Agent Broker, Agent and /or TPA Insurance Company, Agent, IMO or TPA Common Elements of A Sponsored Insurance Program Commercial or RRGs, Program Captive, Commercial Administrator, Insurance Business Entity (Insured, Agent, Broker, company, RRGs or MGU or MGA Agent, Captives) Broker, MGU or MGA 48 C h a n n el S * Members, Member Firms and Customers L & H Underwriter Policyholder & Contract

Program Sponsors Professional Associations (LAPD) Military and veterans groups. Financial Institutions - “Bancassurance” – Credit Unions, Banks, Virtual Banks, Lenders, Credit card Companies, Investment banks, etc. Clubs (NRA, AAA, Costco, Sam’s Club, etc. ). Employer Groups (Worksite marketing) Loyalty programs. Call Centers- Monetizing large volumes of traffic. Virtual Marketers - Mobile operators, Lead generation companies

Additional Success Factors Trusted Brand Win-win “partnerships” between the sponsor, Broker(s) and Carriers Innovation – in terms of products, services and channels (both inbound and outbound) Strict standards of performance (sales, administration and claims) Metrics, Scorecards and Business Reviews Transparency across broker, TPA and Carrier – roles, responsibilities and compensation Content and social media support Legal and Regulatory compliance Ownership of records Strategic Marketing Plus, LLC. On behalf of the American Bar Association. All rights reserved, 2012. 50

Why Have a Sponsored Insurance Program? Benefits to the Affinity Group Adds value to Member benefits program Can help attract, engage, connect and retain members Fill a specific insurance need Advocacy role at billing/collection/claims time Generate Non-dues revenue Can be “turn key” with no capital requirement necessary Benefits to the Member Low pressure sales Competitive pricing More relaxed underwriting vs. general market Tailor-made coverage(s) Program Vetting and Oversight by trusted organization High quality service Strategic Marketing Plus, LLC. On behalf of the American Bar Association. All rights reserved, 2012. 51

Types of ROI for Affinity Groups Indirect Benefits Direct Benefits l l Increased Revenues Faster and streamlined business process improvement l Decreased Customer Service Costs l Decreased Service Costs l Increased Customer Retention and lifetime value of members l Increased relevance to stakeholders l Increased Brand Awareness l l l Increased Access to Customer Profiling Data Enhanced Customer/Vendor Satisfaction Increased Employee Recruiting Satisfaction l Improved delivery of reporting l Attractive host for acquisitions l Demonstrate service value l Increased Competitiveness l Decreased Staff Recruiting Costs l Improved relationships with partners

The ABC’s of Distribution Alternatives Individual Lines (including Personal Lines): Direct – Mutual of Omaha, GEICO, AAA, ANICO. General Agents, IMOs and DMOs. Captive Agents- State Farm, Nationwide, Liberty Mutual, etc. Independent Agents – Hanover, Travelers, etc. Group: Association and Benefits (for firms) Brokers, Agents and TPAs. Full Service Brokers that are MGA’s, MGU’s, TPAs, etc. P&C Specialty programs – Program Administrators/Brokers, MGAs, MGUs, RRGs and Captive Insurance Companies. Strategic Marketing Plus, LLC. All rights reserved, 2012. 53

Business Models 54

Association Insurance Program Business Model Variables Core competencies: marketing, administration, education, information, networking, etc. Line of Business (L, A&H and P&C). Member or Customer Value Proposition. Knowledge, specialized expertise and capabilities. Capital Resource Commitments (people, processes and technology). Licensing (Agent, Broker, Captive, etc. ). Partners, vendors and supplier networks. Level of risk and risk tolerance. Strategic Marketing Plus, LLC. All rights reserved, 2012. 55

5 of the Most Common Business Models 1. “Turn key”, Private label – select a TPA and/or PA with insurance company relationships that can manage all facets of the program. 2. Insurance company-run program, direct-to-member and/or member firm. (i. e. Liberty Mutual). 3. The “for profit”, In-house agency/TPA subsidiary -with responsibilities for marketing, sales and administration. Could be limited to select, few products. 4. Captive Insurance company run, RRG or Self-Insured program, direct-to-member and/or member firm. (i. e. NASW). 5. Hybrid Approach – a combination of 2 or more of these other models. Strategic Marketing Plus, LLC. All rights reserved, 2012. 56

Determining Feasibility

Factors to Consider in Determining Feasibility Is running an Sponsor Insurance Program A Sponsor’s Enterprise. Level Activity? Strategy - does it have a high level of strategic importance to the Sponsor? Value creation – is the insurance program a source of perceived or real value for the membership? Brand - does the program affect the Sponsor brand image (good or bad)? Customer experience - Is a seamless member experience required across Sponsor? Trust and Quality - Does it require Sponsor vetting, oversight and periodic performance assessments? Relevancy - Is it a service that needs to be relevant to serve a current and future membership? Risks - and rewards trade-off. Strategic Marketing Plus, LLC. All rights reserved, 2012. 58

Factors to Consider in Determining Feasibility – Product Portfolio Level Is it a product nearly every member (that is the right fit for the product) will want to buy and buy through the Sponsor Insurance Program? Is there significant funding of resources (people, processes and technology) and Sponsor control over the sales, marketing, fulfillment and servicing of the product and service, since this activity can have an impact on the brand? Is there an opportunity to make a big, positive change in the customer experience (a. k. a. the ‘Wow’ factor)? Will it provide enough of a positive contribution (non-dues revenue and brand equity) to the Sponsor and partners to make it a worthwhile part of our product portfolio? Strategic Marketing Plus, LLC. All rights reserved, 2012. 59

Abbreviations and Terms Agent – licensed and appointed as a representative of the insurance company. Broker – licensed and appointed intermediary that represents the insured. TPA – a third party administrator that performs one or more insurance company functions: marketing, sales, medical underwriting, billing, collection, claims adjudication and/or claims payment. GA – General Agent appointed by an insurance company: (by territory or vertical) IMO and DMO – Independent or Direct Marketing Organization. MGA – Managing General Agency (same as a GA but more of a wholesaler). MGU – an MGA that also has underwriting authority delegated, sanctioned and audited by the insurance company. Program Administrator – same as an MGA, usually P&C, that also has underwriting authority delegated, sanctioned and audited by the insurance company. Program Business – specialty lines tailored to a homogeneous occupational group. (i. e. Lawyers Professional Liability). Self-insured program – a vehicle common in health insurance, where the employer assumes a certain level of risk (stop loss limit) and is supported by an administrator and stop loss provider. Captive insurance company and Risk Retention Group (RRG)- allows similar businesses to form groups to provide self-insurance for the primary purpose of assuming and spreading the liability risk exposure(s) of its group members (memberowners).

Additional Articles and Resources Met Life Association Study, March 2012 “Run for Coverage” by Jeffrey Altman, Association Management, July 2001. “Does Your Sponsored Insurance Program Measure Up? ” By: Ed Armstrong, ASSOCIATION MANAGEMENT, November 1998. “Building Robust Distribution to Support Strategy”, By Bill Tyson, The Savvy Strategist, October 18, 2011. “Establishing an Insurance Subsidiary”, Douglas Culkin, Association Management Magazine, October 1999. Insurance Glossary of Insurance and Risk Management Terms by IRMI. com Strategic Marketing Plus, LLC. On behalf of the American Bar Association. All rights reserved, 2012. 61