Norwich Union Insurance

Sharing the future - Sharing the Profits

22nd March 1995

Hyatt Sanctuary Cove

SECOND DRAFT

INTRODUCTION

It is with much pleasure that I introduce our next speaker. This man has raised a lot of eyebrows in the Australian Life Insurance industry since he joined it some five years ago. I won't go into a lot of detail regarding his business acumen as I know he will reveal and share these during his speech. However I will say that he is someone I have met several times recently at different events and I was attracted by his enthusiasm and foresight. Will you please welcome Mr. David Stephens.

Thank you for the introduction Peter(?), I appreciate your kind words. I would start by asking "And what's wrong with a ponytail?" But I must agree that it is not the norm in our industry. Perhaps that has been the secret of my rapid success, a quiet revolution that helps move the business into the nineteen seventies. I entered the insurance industry just over five years ago and in that time have received many different awards and accolades, to the point where it has become something of a millstone around my neck.

In my first year I was honoured and surprised to be chosen as the 1989 National Life Brokerage Recruit of the Year from the, The Australian Life Insurance Industry Association. I also took out the Legal & General award for the Highest Achieving Novice, the Insurance Broker's Club award for the most likely to succeed and I was also Best & Fairest in my local 10 Pin Bowling club, but I won't go into that. this was a bit of a surprise given that this was in my first year in the industry. Of course, someone had to win all these awards and I suppose the reason you have me here today is because it was me. It was felt I represent the new face of the industry brought up in the sixties and ready for the year 2000 and beyond. Hence the subject of my speech today, "Share the future - share the profits".

As you would all know, society is undergoing many changes and we all need to understand and accept the new technologies that will affect and revolutionise industry in general but Life Insurance in particular. With the new technologies will come new ways of looking at insurance, but especially Life Insurance and its related domains. Yes, I include all of you - agents, brokers, advisors, planners and the like. I raise an alarm because we are becoming an endangered species as the insurance industry evolves. There are progressively fewer intermediaries having to produce more business on continually shrinking margins. Our survival will depend on implementing new and creative technologies, which when properly exploited will enable the middleman to reach heights of productivity previously thought unattainable. I have always been one for innovation, but I am more for borrowing innovative ideas.

The hardest part about having great ideas is keeping them to yourself, especially after they have been seen to be effective in the marketplace. In this age of consumerism, over the counter products have found themselves a vibrant niche in the insurance market. People have easy access to many forms of insurance - including life - through various retail outlets such as banks, chemists, newsagents and even over the phone with their credit cards. It has got to the point where service stations, schools and health food stores are promoting insurance policies. There is even an Internet address where a customer can e-mail their renewal details.

The two to five percent of the market we are talking about here is not a major share, however, as more and more companies enter the direct-marketing market, there is likely to be a substantial shift in the basic customer loyalty paradigm. Our problem is not that direct-sellers are entering and taking some of what has always been our market, but they are doing so with a product that is deficient and could even be seen as preying on consumers. They have largely trimmed cover benefits and for that reason compete not in quality, but exclusively on price. And as we all know, since most customers don't read their policies they are likely to be in for a rude and stressful shock should they claim. These low-cost household policies rarely offer full replacement value for contents with age limits being the norm. Many policies in that cheap range include penalties for claimants who are underinsured. Also, often the accidental loss or damage is limited to a specific set of events. While this may be acceptable in the home insurance market, the emotional involvement of life insurance is such that we cannot allow our industry to be tainted in this manner.

Of course, these policies aren't illegal, but they could be seen to be unethical because they fail to give the customer the protection they are expecting. Obviously this type of marketing will pick up in Australia and New Zealand, especially since the success of Direct Line, a subsidiary of the Royal Bank of Scotland. Using television to advertise their cheaper product and utilising a team of tele-marketeers to target specific suburbs, they quickly snared fifty percent of the United Kingdom car insurance market. As you would know, Oceanic Life is a leader in direct marketing of their products. The other day I was talking to Warrick Reynolds, their marketing manager and he confided in me that direct insurance products now account for seventy five percent of all new Oceanic policies written and fifty percent in terms of new premiums collected. Their products are marketed on TV, over the phone, through the mail and even within gift baskets to mothers of new-born children and are marketed as simple products for people with simple needs. Oceanic has written more than one hundred thousand policies in Australia and New Zealand through it's direct marketing operations in the last few years. I challenged him about the various deficiencies but he defended Oceanic saying that they do not offer the right product for everybody.

So where does that leave you and me. I say we must look forward and embrace the future. We must look at new ways of marketing our products while maintaining the image it has taken many years to cultivate. But when you think about it, how often does an opportunity like this actually arise? Not often enough, but there is one exception. In Australia, the risk or protection portion of the Life Insurance market produced some three hundred and fifty million dollars in the new business year to September 1994. To capitalise on this commencing in just two weeks on April 3rd, an offshoot of Norwich Life Australia, Norwich Lifescreen will begin a program that will start a quiet revolution. In a move from the traditional method of assessment for a life policy, Lifescreen will begin using registered nurses for health evaluations. The underlying purpose of this scheme is to speed up the approval times and increase the number of successful life applications.

This service heralds a new era for the industry in general and is being instituted in reaction to the potential of the market as shown by the policies sold last year. The whole idea of Lifescreen began in South Africa some four years ago and has since spread to the United States and Britain. I say this because although the scheme was initiated by Norwich Union South Africa, it quickly spread to become the norm for the whole South African Life Insurance industry. The ramifications of a new idea that is taken up by the rest of the industry is obvious to all of us who care about our position in a constantly evolving insurance business. Lifescreen was created because the quality of health related information is vital to the underwriting decision and having health-care professionals dedicated to collecting data ensures improved, professional and objective decisions.

With this in mind, to implement Lifescreen, Norwich Union Australia has recruited 10 nurses in Sydney and a further 10 in Melbourne who will carry out the assessment at a time and place that is convenient for the customer. If an issue arises the nurses will ask follow-up questions, something an application form can't do. All indications are that it will eliminate the need for a second and sometimes third appointment to obtain the missing information. The inconvenience to a customer of having to be re- interviewed is obvious, also obvious is the possibility for business customers to make an application in one city and undergo the evaluation at a convenient time in another. In fact, during the trial period, one customer made his application where he lived in Charters Towers, central Queensland. He was delighted to be able to undergo the examination in the QANTAS frequent flyer lounge at Sydney airport as he waited to leave on a six week business trip to China.

It is predicted that this service could cut direct costs by as much as thirty per cent, thereby giving us all that bit more profit to share as we share the future. There are even some financial benefits for the customer expected in terms of static or lowered premiums. Obviously Norwich will benefit by being able to grade its policy premiums more sensitively according to age and the sum insured. What I am trying to point out here is the way we need to move with the times to keep up with the changes. But very few of the bigger companies are willing to do this because when there is change there is always upset. No one wants to rock the boat and upset either customers, employees or shareholders. However, I saw that if a company was established based on change rather than constantly playing it safe, then a new way of thinking would be established that would not only welcome change, but foster new ideas.

With that in mind I started Mutual Fidelity trust to take advantage of market niches created by the introduction of new technology. With sufficient venture capital, the company was poised for an assault in previous hallowed areas. I can only tell you that the strategy worked much more successfully than either my computer model or I had predicted. In its first year out, Mutual Fidelity Trust wrote over four million dollars worth of annualized premiums and ten million dollars of single premiums. I can see all your minds doing the calculations on commissions and I will tell you that in my first year it was around two million dollars. Needless to say this altered my lifestyle somewhat and I am proud to say that I did it, I did it alone and I did it with a smile on my face. I raise the issue because Mutual Fidelity Trust knows it is vital to be on the cutting edge of new services, whether we think them up ourselves or borrow them from other organisations.

The important factor for any company, yours or mine, and the one factor that will ensure that we all share the profits in the future is for management to be far-sighted enough to recognise a valuable idea when it emerges and to be willing to embrace it with enthusiasm as an emergent concept if it is shown to be viable. No doubt many of you use laptop computers in your daily work. At Mutual Fidelity Trust we are pushing forward with the opportunities offered in this area. Right now we are trialing a system whereby I can connect my computer by mobile phone to the underwriting department and with my portable laser printer I can write the policy documents on the spot. No big deal these days you might think, but the ability to couple the system with instant electronic transfer of the premiums and diversion of the resulting commission to the company bank account is an example of what to expect in the future.

However, there is a basic contradiction that I would like to raise, despite my complete endorsement of the concept in general. As we approach the new millennium, we are being constantly bombarded with information about and urged to become travellers on the Information Superhighway. Of course with this new domain there is a whole new range of jargon. To survive in the future you will need to know about modems, the World Wide Web, Internet, e-mail, host sites, file-transfers and on and on it goes. For those of us with a basic grounding in computers the transition will not be too difficult. But I want to address the rest of us. Those of us who use computers the same way we use a car. The machine does the job, we know the basics, but don't ask anything tricky like fixing or modifying it. To go back to the idea of Lifescreen, I would question whether there is a need for such a service if this Information Superhighway is all its cracked up to be.

If computers can do all that is claimed, why can't the nurses carry out the examinations via phone line with a connection through a computer and modem attached to an digital-analogue converter and thus plug directly into an artificial intelligence program that can instantly assess the risk and thus make decisions on applications without delay? Perhaps that will come in the future, when the Information Superhighway has fibre-optic connections available to all those who feel the need to be able to contact various parties instantly and then be able to collect and then transmit the information that previously had to be faxed or whatever. The equipment necessary is readily available at reasonable prices. If you are set up properly like me you will have the three most important tools, a computer, a modem, a mobile phone and a flashy car. I don't know whether it was the business climate, my abilities or just luck, but with these simple tools, within two years Mutual Fidelity Trust became and still is one of the most respected names in the Australian Life Brokerage Business.

Given my beginnings it was a remarkable transformation. In fact the probability that an ergonomic environment should substantiate the necessity for overly controversial methodology generally accepted but misunderstood in mercantile assessments of underestimated risk situations can abruptly but conclusively ensure sequential parameters reorganised through contemporary post-modern industrialisation. By now you are probably wondering how you can achieve the same benefits in your area of expertise. Obviously you already have to some extent because you are here today. But I look out on you and I see a sea of faces that are being thrown toward the year 2000 with abandon. You will all have new challenges, new frontiers.

You will need new skills to enable you to cruise the information Superhighway without missing your turn-off. Whether or not you realise it, the direction taken by the communications industry will have a huge bearing on the future of society as we know it. Hands up if you have a mobile phone? Hands up if you don't have a mobile phone? Hands up if you didn't even realise you could buy mobile phones? Is there anyone who knows which country has the highest per- capita use of mobile phones? If you were thinking it is Cambodia you would be totally wrong. Believe it or not, the country with the greatest acceptance of Mobile Phones is Australia. And within Australia, the region with the most number of phones is right here, the beautiful Gold Coast. I live right here on the Gold Coast in a little place called Mudgeeraba, it's an aboriginal word that means "Place where lies are told", but you don't have to believe me.

I have a mobile phone and that makes me a member of a group that includes an incredible one in seven people. That's right, here on the Gold Coast, one in seven people has a mobile phone. As you can imagine it allows for plenty of business to be carried out on the move and is starting to be of concern to the low-end office rental market as more and more people are able to maintain an office in their car. Despite all the advantages of owning a mobile phone, they have their dangers as demonstrated by something I heard recently about a colleague who shall remain nameless. The story as I heard it was that he was a client's house indulging in a little, shall we call it, "horizontal folk dancing". Unexpectedly her husband suddenly pulled into the driveway. Since they were naked, it would have looked a little strange to be discussing a policy. This agent must have watched a few of the right movies, because he made all the moves. He grabbed all his gear and quick as a flash hid in the cupboard. It looked like he was going to get away with it until, you guessed it, his mobile phone started ringing. Now this guy was a good salesman. When the cupboard door was flung open he said "It's for you!" It didn't work.

Of course, that is an extreme to demonstrate how far reaching the telecommunications expansion will affect our lives. But to bring it back to earth and back to the topic of how to share the profits in the future, I would begin by asking what you have contributed to the industry to be expecting to share the profits. You are all at the top of the heap, that's why you are here. But even though you are all achievers, how can you stop that look you get, you how your glaze over when you think about your responsibilities under the Consumer Guarantees Act. I have painless remedy for those heavy financial days. Today I am going to share with you the secrets of my success.

It is a marketing method that rather than have people's eyes glazing over, has them sitting up with excitement at presentations. Seeing a marketing opportunity through not only my local, but every school in the country I approached the Parents & Citizens groups about doing a presentation and in return for any business written they would receive a commission. I've got to tell you that it was not what I had in mind, I hated public speaking. But I thought since my family has gypsy's in our background, perhaps I could use some of the powers handed down from my parents. One of the most valuable is that ability to actually perform amazing feats of mental mastery. Allow me to show you just how one individual can control the minds of many in a simple exercise that will have you thinking more deeply about the possibilities of mental manipulation.

First I must get my own mind under control....Ohhhhhhmmmmmm OK, I am now in a deep trance. I am completely focussed on my task, and I am ready to begin the test. I ask you all to relax and open your minds to me. For this to work I need your cooperation and your silence. Please do not discuss this with your neighbour. I want you all to think of a number from two to nine, inclusive. Those are the numbers 2, 3, 4, 5, 6, 7, 8 or 9. Now, I want you to multiply that number by nine. You can use a calculator if you need to. You should all have a two digit number in your mind. I want you to take that number and add the two digits together. We'll wait for the people with calculators. Now subtract 5 from your answer. You should have a number in your mind. OK I want you to associate that number with the corresponding letter of the alphabet. If your number is one, remember "A", number 2 "B" number 3 "C" number 4 "D" number 5 "E" number 6 "F" number 7 "G" number 8 "H" number 9 "I".

Now, you have a letter, I want you all to think of a country starting with that letter. No sir, you can't use your calculator for this part. Now, take the second letter of the country and think of a big animal starting with that letter. So, how many of you are thinking of Elephants in Denmark!!! The power of the human mind!!! (TRUST ME PETER, THIS WORKS!) The point I am trying to make is that the power of the human mind is extraordinary and we are about to tap into it and link it with computers so that the user interface will be mentally inspired.

Imagine the possibilities. By using the Internet we can link mental reality with virtual reality, and achieve a virtually mental realistic process that will surpass any marketing tool yet devised. Let me show you another example of the power of the human mind.

MIND READING TRICK PART ONE Typical. I've had a rotten day...

At this point, I segue into yet another hilarious rendition of my comedy show.