Prudential’s Agency Model Overview

We’ll get started with the afternoon session. We’ve got one long session and then we’ll get a chance to learn more about our operations in Malaysia and you’ll actually get a chance to go over and see our business here later this afternoon. This session focuses on our distribution strengths and this morning I told you that Prudential has been steadily introducing the multi-channel distribution since nineteen nine-five and progressive diversifying form a soul reliance on tied agency. Tied agency will continue to be the most important channel but as markets develop we need to adapt our distribution to meet the market needs. We need to continually improve the scope and quality of our distribution. I think Pierre will show us some information on how different distributions address different sections of the market so we can actually go after more customers with more distribution methods. But once again one of the common themes is we don’t look at multi-distribution, or the development of our multi-distribution as following the competitors. We try to out front, we try to be innovative, we try to be the leader in the way we develop our distribution, and develop our partnerships. To talk about Prudential’s approach to multi-channel distribution we will have Kevin Holmgren and Edward Navarro, senior directors in our life assurance business so they’ll com up and tell us a little bit about the over all picture. I guess Dan will start out and give us a few words first and then after Ed and Kevin, Pierre will come up and talk about that other twenty-five percent partnership strategy, and followed by James, CEO of Prudential of Hong Kong who will share with you are bank assurance partnership with Standard Chartered Bank and how that’s going in Hong Kong – it’s going very well. And the final person we have to come and talk about distribution is Mike Bishop. He’s CEO of our life operation in Korea and he’ll talk about our multi .. it’s one of our best examples of multi-channel distributions. Almost evenly divided between four major channels in Korea. And that’s been a very successful model. So we’ll start with Ed and Kevin, or Dan. Sorry.

Dan Bardin

Good afternoon, I hope everybody had a good lunch, a little break. I have a couple of slides. As Mike Bishop, our agency force is very important to us. Face to face relationships in this model across Asia is very very important. It’s what the customer wants and it’s who they trust, and that’s the reason agency has been so successful. For us to maintain our agency it allows us to have control and ownership and so there’s lots of distribution you can borrow and rent, but agency you do own. It allows us to have a product strategy and be able to manage product mix. It also helps you to … you can have customer strategies that go after customers segments. As well you are able to manage agent behaviour and control the sells process. We feel that all those things are important for us. I think you’re tired of seeing this slide. It shows a hundred and twenty seven thousand but what’s important here is it went by step change. Our growth wasn’t from the twenty thousand to the one hundred and twenty seven thousand over night. It’s taken time to build this in a quality fashion, and we do see this continuing to grow at the same rate over the medium to short term. The issue of having an agency force, the sales bring new challenges as well as new strengths. The challenges, how do you grow one hundred and twenty seven thousand, how do you keep doing that? Management of scale with this geographic diversity across Asia – how do you manage that, as well as these compliance issues? Our strengths answer some of these challenges. The growth we feel is like success based and agency. Prudential is well known for having a quality agency force across Asia. We feel like productivity gains are something quite ‘do-able’ going forward, especially as we continue to develop our agency forces in India and Vietnam. As well as we have a significant experience base structure across Asia that helps us manage the scale. In the management process and the ability to manage the compliance issue we feel like we have a good handle as well. As Mark mentioned Kevin Holgrem, Ed Navvaro, both senior directors, had been CEOs – I think you have seen their bios, both have years and years of agency experience, both in the US and Asia, and so as senior directors they have help manage the twelve operations and so they’re going to give you some insights today on our agency distribution channel. Go ahead.

Kevin Holgrem

Thanks, Dan. Good afternoon everyone. Well as you’ve seen the agency channel has generated exponential growth over the past four years, but our success is based on a clear and proven model, managed around key drivers, such as manpower growth, productivity improvement and agent retention. While the channel fundamentals are the same for all the markets, the emphasis is often quite different and the model is tailored to meet the needs of the different markets. Now the focus on three key drivers determines the channel structure. At an operational level the key drivers of growth, productivity and retention are converted into four core channel activities. Recruitment to drive manpower growth, training which facilitates growth and agent productivity through a broader product portfolio, activity management, to support productivity growth through agent behaviour management, and incentives which drive the right type of activity to ensure agent retention. Channel management as well infrastructure then at the bottom re-enforce these activities. Systems provide customer management data for agents and information on the key performance indicators for management. And there is a ten to one management to agent span of control. Now building a consistent and systematic recruitment cycle is critical. A strong brand drives external recruit flow. A systematic process brings people efficiently and quickly into the channel. Development of a critical mass drives internal referral flow and then a successful track record builds channel appeal. Prudential’s success at building a consistent and systematic recruitment cycle has supported market leadership and is difficult for competitors to emulate. I will also note here that whilst the vast majority of our new agents are new to the industry we do recruit inorganically where it’s appropriate in the market and these agents are typically very productive. So, the bottom line is the emphasis on recruitment is different for different markets. It’s the primary engine for growth in developing markets and it maintains critical mass in mature markets.

Ed Navarro

We have a very comprehensive training structure in place across Asia. We have dedicated trainers in every single one of our markets. Today in Asia we have three hundred and twenty three trainers and we’ve spent year to day four hundred and seventy thousand hours of training per month in Asia. We’ve developed sales universities to drive true true competitive advantage in the market place. For Prudential training ensures the correctness in terms of licensing so that our agents can start selling immediately. It ensures strong insurance and sells technique, critical in our business today. It truly builds a foundation for long-term success, and it continues to update our product portfolio for solid growth. In terms of our infrastructure the slide says SFA. It stands for Sales Force Automation. Sales Force Automation today is a fully integrated end-to-end sales process that truly gets us closer to the customer. I think those of you who were here in two thousand, we talked about ‘Pru Power’. SFA is the evolution of ‘Pru Power’. As you can it is uniquely integrated for a complete history of our customer. It’s a powerful sales tool that can be used to send out things like electronic booked birthday cards, controls your customer database so that you are able as an agent understand the needs of the customer. It has a complete product library that you can use as an advisor to track the life cycle of a customer. In turn this leads to greater penetration of your life insurance clientele. I think the question was asked earlier, is twenty six customers enough, and obviously it is not. But with this tool having customers is critical. Critical mass is important but what this tool does is it allows you to cross sale, to up sale and to really focus on wallet share of the customer. But I say what it truly does from a pure customer service prospective, and from a processing perspective, it allows our advisor to electronically submit applications and today we’re seeing return of issued applications in less than twenty minutes. I say, ladies and gentlemen, that’s true customer focus, and that’s true differentiation. This platform is proprietary to Prudential, fully developed in Singapore, it’s being rolled out as we speak. We believe long term it is the true competitive advantage that our agents are looking for.

Mark Norbom

Now the concept of agent retention is quite simply, once you’ve got them you’ve got to keep them. Higher levels of agent retention create a quantum difference in return on agent investment and while retention is based upon the whole package offered from recruitment through to incentives, the key drivers are training and sales support, with sales force automation as mentioned as a key competitive edge, career development opportunities and recognition programs including sales conferences which also offer the same sharing of best practices around the region.

Kevin Holgrem

With compliance issues today making headlines, Prudential’s approach to compliance is to have full compliance with local regulations. We also adopt the group standards in every single one of our countries. We are educating our agents and our sales managers in all of our countries on the importance of sales compliance. This process is being driven by our sales compliance resources that we have in every country today. The commitment by all compliance teams is to share best practices across the region and these actions we feel will ensure a true sales compliance culture that’s embedded across Asia. But we never lose sight, or focus of the three pillars that mark talked about this morning. That three pronged approach, prevention, detection, and reaction, are part of the compliance structure in prudential today. As Dan said in his presentation earlier, we do not use a cookie cutter approach to agency. So there is no one model that we use in every market across Asia. The traditional model, which is very typical of newly deregulated markets, is a single product offer. It really is the early stages of customer segmentation and starts the process of understanding customer buying habits in those newly deregulated markets. The general agency is particularly adept at supporting very quick geographical expansion; as a successful manager is able to take his best practices, take his or her successes that they’ve garnered in their primary location, move those successes out to new geographical locations for market reach. Segmented agency, in the other hand, supports the next stage of what we call channel development, which matches levels of support with agent productivity. The higher producing agents get different kinds of support to ensure long-term sustainable growth. Financial advisory takes segmentation to the next level. These are full time agents, there highly productive in selling sophisticated portfolios through a process in terms of development of financial plans that leads to true needs based offerings. As Dan mentioned earlier, channel evolution drives additional growth opportunities but it’s not so easy. It takes a team that understands the evolution of the marker place and then is able to understand when to move into the new channels and when to develop prior to the occurrence of each one of these channel developments.

Dan Bardin

Now as Ed just mentioned just now there are a number of agency model variants, which are matched to each country stage of development. The traditional model is predominantly used in newly deregulated markets such as Vietnam, India and China. The professional advisor channel is used primarily in developed sophisticated markets such as Korea and Japan. And we look to continually develop these models, as market needs change. General agency for India, China and Vietnam; increased levels of segmentation for markets, which are approaching critical mass; financial advisor channels in Hong Kong and Malaysia. So, four years from now we expect this map to look different in terms of which models are used in which countries. Here’s case study on Vietnam, where the focus has been on the traditional agency model. Here, as you can, manpower is very closely correlated with growth in APE. Our number one market share is driven by our number one share of agents. The focus is on building a critical base in large urban areas, building a large pool of candidate agents and then training them and licensing them quickly and efficiently. However, now that we are approaching critical mass in Vietnam we’re working on the next stage of agency development. Implementation of the general agency model to support expansion into provinces – incidentally using a variable cost base – and segmentation to improve productivity.

Ed Navarro

Here’s a case study on Singapore. Focus on segmentation and productivity were the key drivers. As you can see the industry is losing agents at a very rapid rate but in Singapore we were not only able to outperform the competition but grow the agency force. They were able to do this by increasing new business production per month per agent over the period illustrated. This success came through greater focus on agent retention, not just hiring, and also by helping those agents who are in our business, and already in the company, to become more successful as they stay in the agent career longer. To accomplish this the Singapore business leveraged its great recognisable brand, it focused on needs based selling and suing the infrastructure support through training, education and the SFA platform, to drive strong productivity gains, as you can see on this chart. As you can see for the longest term Prudential Singapore has been known as the professional agency in Asia. But as you can see from this chart Prudential Singapore is not only the professional agency it always has been, it is now one of the most productive agencies in Asia today.

So in summary, agency will continue to be our core channel for Prudential across Asia. It will continue to be a source of growth going forward. We have a clear proven model, for building and developing our agency distribution. It includes our ability to tailor the model and adapt to the local market as the market requirements change. And as the stages of development change the model is adapted to the development in the different stages. We’re beginning the process of improving productivity per agent per month across all of Asia. In many markets we see significant growth opportunities through agency segmentation, focus on increased activity ratios and rates, and a shift towards needs based selling, and a needs based offering. Those techniques and those skills sets will be what leverages us into the future. Our proven ability and proven success at managing these components means we will continue to be the market leaders across Asia. But that said we have a very important channel in our facets of multi-distribution and for more on this I would like to turn the podium over to Pierre, who will talk about our partnership distribution model.

Pierre Fenech

Good afternoon again. Thanks Ed and Kevin. I will take you through a better understanding of our partnerships distribution model and our achievements to date, so that we're very clear when we talk about partnership distribution, it covers all sales activities and marketing activities where we're accessing the customers of our partners. Whether we're doing this with our own distribution, or whether we're leveraging the distribution of our partnership. Some of the relationships we have with partners are exclusive, they're captive relationships, where we're the exclusive partner with them, or supplier of a specific product lines, and others are open architecture partnerships, where we are competing with other suppliers through that partner.

Those of you who were here four years ago would have heard Mike Bishop, who will talk to you later on, talking about our very successful bancassurance model in 2000. Since then, we have not only rolled out that bancassurance model to new markets, but we have also increased the breadth of reach in some of the key markets by increasing the number of partnerships through which we operate in that market. And another change that happened since 2000 is that we have moved on from just pure bank partners even into the space of non-bank partners.

What I am going to present are conceptual maps, and they are for -... It's simply to get the concept. Why do we pursue partnership? Although we believe, as Ed and Kevin said, that the agency model will continue to prevail, and will be one of the, if you want, more successful models in Asia, we also know that the agency model will not give us full reach of the market. We talked about also the deposits sitting in banks, and we want to access those deposits. Therefore we see that partnerships will actually help us cover a lot of the white space that's left, creating greater distribution reach across the market and into the market. We see this trend emerging in developed markets like Hong Kong, and Singapore, where bancassurance now is delivering a significant portion of the new business generated over there. From our point of view, these are all good signs, because our experience has been that as you grow these channels, the market expands, and in reality, you're not replacing bits of the market with other bits. Therefore it generates more business.

Today, our direct marketing and non-bank independent broker channels are actually delivering a sizeable chunk of our business, as I will show you in future charts. We believe also that there is further expansion in these channels to come in Asia, and we also believe that work-site marketing will be an emergent distribution in Asia, especially where retirement pensions would become indited, especially where they would be also funded by employers. This chart actually shows the impressive growth we have achieved through these channels since 2000. We have delivered a compound average growth rate of 123% per annum; the contribution has moved from 2% of the total APE to 25% of the APE, and apart from the major growth that you see in the blue bar, which is Hong Kong, we have added new markets, particularly Korea, Taiwan and India - the red bar. India, on the chart, is represented only by 26%. If you were to size it up to 100%, its contribution would be somewhere in between that of Hong Kong and Korea. You will also notice emerging that you have other markets like the black line at the top, which is Thailand. And in fact you heard Dan talk before about the model that we use in Thailand of multiple distribution, non-agency based distribution, and that's the contribution you have over there. You know, apart from achieving this fantastic result, we believe that there is room for further growth, especially as we continue to add quality bancassurance partners to our portfolio, and supplement these further with non-bank partners.

So to what do we attribute our success? I think there are some factors that really drive the success. Firstly, there is no doubt in my mind that the strong commitment the organisation has to multi channel distribution is a major driver. Usually you have to shift your paradigm, usually you have to get over the paradigm of channel conflict to push this through, and the businesses committed to it. Another contributor to our success is our focus on quality long-term partners, and I repeat that: quality long-term partners, and there's a reason: because we want our partners to be committed as much as we are to building the appropriate infrastructure and capabilities. So we're looking to generate value in the medium to long term, not the flash in a pan approach. And that's why we focus on quality long-term partners.
Thirdly, we know how to do this stuff. We have a proven track record. We have been successful in implementing it across the region, we have the advantage of proven operational models that today we have modularised, so these models are flexible, adaptable and transferable. Over the years, we also have built a bank of talented people, both in our operational teams and in our management teams. We have the advantage now of being able to move this talent around the region, so that we can support start-ups, we can support expansions, we can support trials, we can support (incomprehensible). With so many partnerships, we can provide development opportunities and even career paths for our people, who actually remain within these channels. And this creates a pipeline of future leaders, so that we can actually accelerate the growth. More importantly, as you'll see in later presentations, we are keen and continue to be ahead of the game by investing in innovation. We seek new ways of reaching appropriate target customers, and later on, some of my colleagues would be sharing what they have achieved in their businesses.

Since most of you have been here in 2000, we have expanded and more than tripled the number of bank partnerships where we have a strategic alliance or a significant relationship. And apart from the partnerships that we put up there, we also have a number of other bank partners where we conduct campaign-based initiatives. Our most significant multi-country relationship remains with Standard Chartered Bank, where today we operate partnerships in Hong Kong, in Singapore, in Taiwan, in Malaysia and even in Thailand. The focus on the current relationships that we have is to continue to develop and expand the existing businesses. We believe that growth will continue as the partnerships mature and as the regulators bring down a number of inhibiting barriers. Our operating model has also become more and more sophisticated. We continue to evolve the bancassurance model, we expand the bandwidth of channels through which we reach the customers. We have added mobile channels to our in-branch financial services consultants, because we found that there is a large proportion of bank customers that today don't walk through the branch, and this way we can access them at their home or their place of work. We also use these mobile financial consultants, who are our own staff, to service existing bancassurance customers. We have expanded the sales capability of the branch staff. They now sell simple medium-long term savings products, and we have also added our own specialists, insurance specialists, who work side by side with banks now, servicing priority customers and small to medium employer customers. At the same time we started joining forces with our bank partners to establish work site marketing initiatives that leverage both the bank product base and our product base and targets the staff of their commercial customers. In a mature market like Hong Kong, we apply a sophisticated operating model with a broad spectrum of channels, however when you look at emerging markets like Viet Nam, the model that we apply is very simplistic. It's our FSC's, or Financial Services Consultants, who are actually working on the walk-in customers at the branch of our bank partners. The good thing is that as the markets emerge and mature, we are able to evolve that simple model into something that's complex and sophisticated as the one you see on the screen.

This slide shows the break up of -... from where we're generating the new business. You have seen the slide on the left hand side, which shows the 25% of this years new business is coming from the partnerships distribution. You take that, and break it out into what I call channel clusters - you can't go channel by channel, otherwise it becomes too small, but basically the green bits show bank based channels, 25% is coming out of sales by bank staff, 24% is coming out of sales by our own financial services consultants operating in bank branches, 19% is generated out of direct marketing to the banks own customer bases. In the lilac-coloured part of the chart, they are the non-bank segments, 11% coming from direct marketing to affinity partners, non-bank affinity partners, and 21% coming out of the independent non-bank brokers or financial agents. So what we have achieved today is a complete de-risking of this side of the business, by having geographical spread, having multiple partners, having bank and non-bank partners and even a balance between the channels inside both the banking and non-banking bits of the business.

This success actually confirms our commitment to further expand the multi distribution strategy, and to focus on the partnership distribution. We continue to expand the business with existing partners, improving the productivity of the existing channels and expanding the number of channels to reach more customers. We also continue in our active pursuit of new long term relationships with quality bancassurance partners. In fact, this year we secured two exclusive relationships, one with E. Sun bank in January in Taiwan, and E. Sun since then has acquired Kaohsiung Business Bank, which basically doubles their branch network in Taiwan and also spreads their access to the southern part of the geography of that country. And more recently, in August, we announced an exclusive partnership with Maybank in Singapore. We have also demonstrated our appetite and capability to identify and develop innovative non-bank channels. We see this as an area for major growth. Today, we are keen to leverage our direct marketing successes, and we will expanding this capability further across the region to gain access to more affinity customer bases for both insurance and even retail funds management. We also believe that there is the opportunity to take the learnings from our successful work-site marketing experience in the UK, and apply it to selected markets out here in Asia. We maintain strong management commitment to build on this experience and to develop a pipeline of talent that will drive and support the future growth.

In conclusion, if there's one key message I would like to give you at the end of this presentation. it is that apart from having achieved tremendous success in partnerships distribution in Asia, we still believe that there are tremendous opportunities for much further growth in the future. We believe that Prudential is well placed to continue to be a major participant in this sector. Thank you.

I will now pass on to my colleague, James Wong, who is the chief executive officer of our Hong Kong insurance business. The partnership distribution team in Hong Kong manages one of the most successful bancassurance operations. So James will give us an insight into the successes of his team. James?

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