The Marketing & Servicing of Short Term BusinessDirect or Intermediary?

IISA Conference – Sun City 10th – 12th June 2012Perspective by :

Guy Scott

CEO Aon Risk Solutions

Aon South Africa (Pty) Ltd) | Aon Risk SolutionsProprietary & Confidential) | IISA Sun City Conference 10 th – 12th June 2012

Agenda

Market dynamics A place for both The Customer/Consumer Evolution of social media driving consumer behavior Professionalism of our Industry Concluding remarks Q&A – audience participation

Aon South Africa (Pty) Ltd) | Aon Risk SolutionsProprietary & Confidential) | IISA Sun City Conference 10th – 12th June 2012 2

Consumer triangle

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Consumer drivers

Buying indicators (commoditised business): Simplicity and transparency. Value clearly demonstrated, reflecting a balance between price, product features and

that product is right for their needs. Buying process convenient and transparent to enable purchasing with confidence. Service delivery against expectations. Factual advice Exceptional claims service

Buying indicators (mid market): Simplicity and transparency. All of the above and advice using judgment Bespoke broking

Aon South Africa (Pty) Ltd) | Aon Risk SolutionsProprietary & Confidential) | IISA Sun City Conference 10th – 12th June 2012 4

A Case for Intermediation

McDonalds – “hot coffee law suit” Liability Matter : Liebeck v Mc Donald’s Restaurants

– Compensatory Damages – R 1.6m

– Punitive Damages – R 21.6m

Total Claim – R23.2m

What liability limits and spectrum of cover do SA franchised operations have?

Will they get the requisite advice in terms of liability cover going direct?

Will a proper risk analysis be done?

What is the impact on brand and how do you mitigate this risk?

5Aon South Africa (Pty) Ltd) | Aon Risk SolutionsProprietary & Confidential) | IISA Sun City Conference 10th – 12th June 2012

Professionalism – The FAIS Act

Market conduct legislation – the financial services market in its entirety Codes of conduct amongst other things include:

– Avoidance of fraudulent and misleading advertising, canvassing and marketing

– Certain direct markets are practicing undesirable business practices Giving advice which incorporates the exercising of judgment

– Make a recommendation

– Provide guidance

– Provide a proposal Differentiated from factual advice Most intermediary’s provide a combination of both intermediary service and advice Higher level of competency in the intermediary model through registered key

individuals and representatives Continuous professional development

Aon South Africa (Pty) Ltd) | Aon Risk SolutionsProprietary & Confidential) | IISA Sun City Conference 10th – 12th June 2012 6

Professionalism – Unethical Business Practice

- Last Tango Advert “Cut out the middleman” Undesirable business practice in terms of Section 34 of the FAIS Act: Registrar needs to consider the following:

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The business practice must have, or is likely to have, a direct or indirect effect resulting in:

•Harming the relationship between FSP’s or any FSP or category of FSP’s, and clients or the general public. •Unreasonable prejudice to clients. •Deceiving any client. •Unfairly affecting any client. •Continuation will defeat one or more of the objectives of the FAIS Act.

Aon South Africa (Pty) Ltd) | Aon Risk SolutionsProprietary & Confidential) | IISA Sun City Conference 10th – 12th June 2012

Advantages of Intermediation

Significant product knowledge Pricing awareness Independence Affordability Knowledge of emerging risks - risks are changing Market leverage Innovation Qualified skills – KI’s and reps Specialist knowledge Client centric Broad spectrum of choice Claims advocacy Trusted advisor – no vested interests

Aon South Africa (Pty) Ltd) | Aon Risk SolutionsProprietary & Confidential) | IISA Sun City Conference 10th – 12th June 2012 8

Concluding Remarks

A place for both – SA will remain a strong intermediated channel. Market share will stabilise at the global average of 75/25 in favor of the

intermediated channel. The shift in market share will be determined by which channel adapts to market forces

quickest. Professionalism and ethical standards should be consistently applied – direct

markets flaunting the advertising standards and FAIS Act should be taken to task. Technology - internet, mobile telephony will play a major role in the process but

traditional channels will remain important. The consumer, customer, client “is king “ and still wants face to face interaction

– Listen to the voice of the customer

– Customers want to be able to buy with confidence

– Trust a major factor

“Long live the intermediary”

Aon South Africa (Pty) Ltd) | Aon Risk SolutionsProprietary & Confidential) | IISA Sun City Conference 10th – 12th June 2012 9

Q&A – Audience Participation

Questions to audience:

1. Do you think that there is a role for both channels direct and intermediary channels?

– 1. strongly disagree 2.disagree 3.not sure 4.agree 5. strongly agree

2. Is technology going to be the main driver of change in the insurance sector?

– 1. strongly disagree 2.disagree 3.not sure 4.agree 5. strongly agree

3. Are ethical standards being adhered to by certain direct markets in advertising?

– 1. strongly disagree 2.disagree 3.not sure 4.agree 5. strongly agree

Aon South Africa (Pty) Ltd) | Aon Risk SolutionsProprietary & Confidential) | IISA Sun City Conference 10th – 12th June 2012 10

Q&A – Audience Participation

Questions to audience:

Drivers of customer choice – rank highest to lowest:

1. Online access i.e. internet when researching & purchasing

2. Personal interaction when buying

3. Call center communication

4. Simplicity and transparency of product offering

5. Brand of business

Choice of interaction in insurance purchasing – rank highest to lowest:

1. Via an intermediary

2. On line purchasing - internet

3. Via direct market

4. Mail shot

5. Face to face

Aon South Africa (Pty) Ltd) | Aon Risk SolutionsProprietary & Confidential) | IISA Sun City Conference 10th – 12th June 2012 11

“Long live the intermediary”