Innovation and Distribution Osvaldo do Nascimento Taipei, Taiwan July, 2008 International Insurance Society, Inc 44th Annual Seminary V6 – 30/06/08.

Innovation and Distribution

Osvaldo do NascimentoTaipei, Taiwan

July, 2008

International Insurance Society, Inc44th Annual Seminary

V6 – 30/06/08

1. Brazil: - Prepared to develop its Insurance Industry

2. Insurance Market - Need of Growing

3. Information Technology to develop insurance sales

4. Micro-insurance: Definition and Challenge

5. “Brazil Case” – CRM and Life Insurance Sales at Itaú

2

Brazil

Area (km2): 8,511,965

GDP 2007: US$ 1,3 trillion

Population 2007: 191.8 million

3

About Brazil...

Conditions to Develop the Insurance Industry in Brazil

Inflation under control

Wealth distribution

Market Growth

4

0,00%

5,00%

10,00%

15,00%

20,00%

25,00%

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Inflation in Brazil(INPC - % p.y.)

Source: IBGE5

(*) 2008 until May

(*)

Nominal and Real SELIC Rate(in 12 months, % p.y.)

12.2%

0%

4%

8%

12%

16%

20%

24%

28%

32%

Jan

-97

May-9

7S

ep

-97

Jan

-98

May-9

8S

ep

-98

Jan

-99

May-9

9S

ep

-99

Jan

-00

May-0

0S

ep

-00

Jan

-01

May-0

1S

ep

-01

Jan

-02

May-0

2S

ep

-02

Jan

-03

May-0

3S

ep

-03

Jan

-04

May-0

4S

ep

-04

Jan

-05

May-0

5S

ep

-05

Jan

-06

May-0

6S

ep

-06

Jan

-07

May-0

7S

ep

-07

Jan

-08

May-0

8S

ep

-08

Jan

-09

May-0

9S

ep

-09

Nominal Selic rate

Real interest rate (ex post)

Average real rate

Interest Rate

6Source: Brazilian Central Bank

Net Debt

Net debt of public sector (% GDP)

-9.4

41.0

-15,0

-10,0

-5,0

0,0

5,0

10,0

15,0

20,0

25,0

30,0

35,0a

br-

01

jul-

01

ou

t-0

1ja

n-0

2a

br-

02

jul-

02

ou

t-0

2ja

n-0

3a

br-

03

jul-

03

ou

t-0

3ja

n-0

4a

br-

04

jul-

04

ou

t-0

4ja

n-0

5a

br-

05

jul-

05

ou

t-0

5ja

n-0

6a

br-

06

jul-

06

ou

t-0

6ja

n-0

7a

br-

07

jul-

07

ou

t-0

7ja

n-0

8a

br-

08

Do

llar

den

om

inat

ed d

ebt

30,0

35,0

40,0

45,0

50,0

55,0

60,0

Net

deb

t

Dollar denominated debt/GDP Net debt/GDP

Apr / 2008

Source: Brazilian Central Bank7

Foreign Reserves

Source: Brazilian Central Bank

US$ Billion195,8 (*)

(*) Apr, 2008

10

30

50

70

90

110

130

150

170

190

210

01/0

0

07/0

0

01/0

1

07/0

1

01/0

2

07/0

2

01/0

3

07/0

3

01/0

4

07/0

4

01/0

5

07/0

5

01/0

6

07/0

6

01/0

7

07/0

7

01/0

8

US$ BillionInvestment grade by Standard & Poor’sUpgrades on April 30, 2008 – long-term foreign currency

Brazil: BBB -

8

Source: ACLI Fact Book, 2005

Asset Growth

$10.400

$2.800

$495

$4.500

$2.100$826

$0

$2.000

$4.000

$6.000

$8.000

$10.000

$12.000

1985 1995 2006

$ in

bil

lio

ns

Mutual Fund Companies

Life Insurance Industry

Robert A. Kerzner, President and CEO of LIMRA International presented this slide during the LIMRA 2007 Annual Meeting in Boston last October.

9

And more…

According to LIMRA , 60% of consumers in the USA say they prefer to buy “face-to-face”.(*)

But , to be physically present to sell “face-to-face” nowadays we have to consider:

(*) Trillion Dollar Baby, LIMRA International, 2005 10

So, we can be available, but not physically present, offering the most recent technology to interact with clients.

Costs of transportation Traffic jam into big cities New stile of life

Face-to-face preference Personalized approach Opportunity to establish relationship

X

11

1.4 billion Internet users worldwide!

Source: Internet World Stats

Brazil: 46.2 million

12

Wealth Distribution in Brazil

Bolsa Família – a Brazilian program to reduce the poverty

11 million families supported by Bolsa Familia

45 million people are covered

US$ 6.8 billion* is the budget to 2008

(*) US$ 1,00 = R$ 1,597 – 06/30/2008

Mr. Luiz Inácio Lula da Silva (President Lula)President of República Federativa do Brasil

13

15% 15%18%

34% 36% 46%

51% 46% 39%

2005 2006 2007

Source: Ministry of Finance - Research IPSOS (O Estado de São Paulo, pages B16, 03/30/2008).

Class A/B

Class C

Class D/E

Wealth Distribution in Brazil

More than 86 million people

Changes in the population distribution by classes

Micro-insurance

Micro-insurance is a type of insurance with low premiums developed to protect low-income people against specific risks.

As the premium price is very low, there is a need of a large scale to allow its economic viability and one important issue is to define the distribution model to be adopted by insurers.

In Brazil SUSEP (the Governmental Supervisor) and FENASEG (the insurance market institutional representative) are working hard to create the adequate environment to develop the micro-insurance.

Of course, some partnerships will be relevant to sell micro-insurance, like utilities companies (electricity and gas bills), retail market, credit cards providers and financial institutions.

China, India and Russia have significant experience in micro-insurance distribution, but Brazil certainly will be a expressive player in this business considering its technological structure provided by the financial industry and specialized insurance brokers developed inside the communities.

14

Challenge! Regulatory changes…

INSURANCE COMPANIES

BROKERS AGENTS DIRECT SALES BANKASSURANCEFINANCIALADVISORS

CLIENT

Distribution Players at Insurance Industry

Mobile Phones(SMS & 3G technology)

Internet Call Centers Financial Services

Providing the distributors…

… with high technological tools

122 million of mobile phones in Brazil (1)

46.2 million of internet users in Brazil (2) and 99% of Income Tax Declarations delivered by internet (3)

166,773 ATM’s (5)

18,308 Bank Braches (4)

1. Source: ANATEL – Brazilian's Telecommunications Agency2. Source: Internet World Stats – Dec/20073. Source: O Estado de São Paulo, 04/may/2008 – Mrs. Renata veríssimo, Jornalist4. Source: Tribuna do Brasil, 28/may/20085. Source: Research “O setor bancário em números” by FEBRABAN – Brazilian's Association of Banks – Dec/2007 15

16

Experience of Itaú in Segmentation and Distribution

Key Information (*): 2nd largest financial institution in Brazil 2,594 branches 11.2 million current account holders US$ 138.7 billion** billion in AUM

(*) March, 2008

(**) US$ 1,00 = R$ 1,597 – 06/30/2008

CRM Environment

17Material prepared by Banco Itaú, Brazil

CLIENT

InternetATMVideoPhone

E-mailSMS

Mailing

Insurance Products

Insurance Products

Insu

ran

ce P

rovi

der

s

Brokers Agents Financial Advisors Insures Banks Partners

StimulationInteraction

Insu

rance P

rod

ucts

Service Interactive Providers

Post-Sales Valuation Segmentation

Control of stand-by Contacts Policies for

Product-Channel

2

Elected Customers to offers

1

Sales Probability Models

Sales Optimization Budgets/Scenario,Capacity Planning

7b

Cartão

LIS

$11

$6

$0

$3

$4

$1

Seg. PPI

CPF 1

CPF n

Warnings optimization Algorithm

7a

Customers CRM Feedback Registers

3

Potential Offers Basket for each

Customer

Valuation João Crediário - 281

PPI – Tomadores Renda < R$500

Cartão - Tomadores Renda < R$500

Residência - Tomadores Renda < R$500

Mini PIC - Tomadores Renda < R$500

PIC – Tomadores Renda entre R$500 e R$1.000

PPI – Tomadores Renda entre R$500 e R$1.000

Cartão – Tomadores Renda entre R$500 e R$1.000

Residência – Tomadores Renda entre R$500 e R$1.000

Mini PIC – Tomadores Renda entre R$500 e R$1.000

Valuation João Crediário - 281

PPI – Tomadores Renda < R$500

Cartão - Tomadores Renda < R$500

Residência - Tomadores Renda < R$500

Mini PIC - Tomadores Renda < R$500

PIC – Tomadores Renda entre R$500 e R$1.000

PPI – Tomadores Renda entre R$500 e R$1.000

Cartão – Tomadores Renda entre R$500 e R$1.000

Residência – Tomadores Renda entre R$500 e R$1.000

Mini PIC – Tomadores Renda entre R$500 e R$1.000

Custo de Venda

Valuation

500

375

250

125

0

% (Stimulated x Controlled)

$ post-sell

% x $ = Potential stimulations

Valuation

Products Uses(renew cancel,

attrition, up-sell, etc)

Stimulation feedback(acceptation/refuses)

Operational Return(no-call, phone and address actualization

and signalization good/bad)

Performance Manage

Customers Feedback

Feedback analysisto support theCorrect Value Proposition(price, product, channel, communication/script)

Warnings and TelemarketingCommittees

Bureau

4 5

6

Control Groups Feedback(to determine Stimulus)

Objective: Total ValuationMaximization

Channels

8 Intranet accompaniment / alert triggers

9

27.5 29.6 27.3 28.7 28.1 28.4 30.9 28.8 30.6 30.4 32.8 30.4 28.8 30.5 32.3

78.283.5

74.5 75.3

57.4

78.2

71.2

98.187.6

115.0124.5

0

20

40

60

80

100

120

140

0

10

20

30

40

50

Fev/07 Mar/07 Abr/07 Mai/07 Jun/07 Jul/07 Ago/07 Set/07 Out/07 Nov/07 Dez/07 Jan/08 Fev/08 Mar/08 Abr/08

Val

uat

ion

(R$

MM

)

Qtd

e d

e A

cess

os

(MM

) ***

*

Acessos Valuation Total - (Eixo Secundário)

M

S

IT

Disponibilidade Financeira

CapacidadeFinanceira

PERFIL de

PERFIL da 7 1 .4 % 7 4 .8 % 6 6 .1 % 7 1 .6 % 6 7 .0 % 6 7 .1 % 6 7 .0 % 6 7 .0 % 7 0 .0 % 7 0 .7 % 7 1 .4 % 7 6 .2 % 7 9 .9 % 7 6 .6 %

6 6 .3 % 6 8 .0 % 6 3 .9 % 6 3 .3 % 6 4 .2 % 6 2 .8 % 5 8 .1 % 4 4 .7 % 6 3 .9 % 6 6 .7 % 7 1 .4 % 6 8 .6 % 7 5 .1 % 7 1 .0 %

5 9 .0 % 6 0 .4 % 6 1 .2 % 5 6 .9 % 5 5 .7 % 5 8 .5 % 3 9 .4 % 4 1 .2 % 5 8 .4 % 6 5 .5 % 7 0 .4 % 6 8 .4 % 6 8 .4 % 7 2 .3 %

5 3 .7 % 5 5 .9 % 5 9 .2 % 5 5 .7 % 5 3 .9 % 5 3 .2 % 3 5 .9 % 3 8 .9 % 5 5 .8 % 5 8 .7 % 6 3 .9 % 6 6 .7 % 6 9 .1 % 7 2 .8 %

4 7 .6 % 4 9 .5 % 4 8 .7 % 5 1 .1 % 4 6 .3 % 5 1 .4 % 3 2 .1 % 3 8 .7 % 5 2 .2 % 6 0 .0 % 6 2 .5 % 6 1 .0 % 7 0 .9 % 6 4 .9 %

3 5 .3 % 4 1 .5 % 4 4 .6 % 4 2 .9 % 4 1 .7 % 3 9 .3 % 3 0 .7 % 3 4 .9 % 4 7 .9 % 5 8 .3 % 5 6 .1 % 5 8 .1 % 5 9 .5 % 6 9 .1 %

2 7 .3 % 3 7 .0 % 3 8 .7 % 3 4 .9 % 3 8 .6 % 3 7 .0 % 2 8 .6 % 3 2 .9 % 4 6 .5 % 5 1 .0 % 5 4 .2 % 4 8 .4 % 5 0 .0 % 5 0 .0 %

2 4 .8 % 3 3 .7 % 4 0 .3 % 3 6 .7 % 3 7 .8 % 3 9 .2 % 3 0 .9 % 3 5 .7 % 4 0 .0 % 4 1 .0 % 3 3 .3 % 2 8 .4 % 4 1 .2 % 4 1 .0 %

3 5 .9 % 2 7 .8 % 2 4 .2 % 2 4 .5 % 2 8 .8 % 2 7 .6 % 2 0 .6 % 2 2 .1 % 2 6 .1 % 2 6 .1 % 2 6 .1 % 2 6 .1 % 2 6 .1 % 2 6 .1 %

CRM Operational PlatformCRM Operational Platform

DW

CUSTOMER

Telemarketing

Bankline

Direct Mail

e-mail

Telemarketing

ATM

BanklineBankfone

CashierBranch

18Material prepared by Banco Itaú, Brazil

Filters:Customer File Quality and Contact Restrictions

100% Active Customers &

Prospects

31,5% Elect for

Telemarketing

65,2% Elect toOffers

UniqueSelection

Optimization

CRM Policies

24,7% Sent to Operation

19,6% Effective Contact

15% Conversion

(Sell)

$ - Results (Valuation 7 years)

• Relation Customer-Channel saturation• Relation Customer-Product saturation• Preferred Channel to buy• Profile: Investor, Mixed, etc.• Product propensity

CRM Feedback

for each Customer

Modeling CRM by Customer /Product

/ Channel

CRM x Valuation

50% effective Call

Operational Optimization Workflow

Filters:Elect to Offers and Standby Policies

19Material prepared by Banco Itaú, Brazil

20

0

200.000

400.000

600.000

800.000

1.000.000

2008 (Jan to May) 2007

30%

70%27%

73%

Sales by electronic stimulation (1)

Sales by “face-to-face” (2)

(1) ATM, Internet, Bank Cashier and Telemarkting(2) Sales Team and brokers

Material prepared by Banco Itaú, Brazil

277,000

646,000115,000

312,000

Experience of Itaú in Life Insurance Sales(Number of individual polices sold)