Assignment 3

Dev. of contract, U/W and pricing-Product development

* Dev. Coverage and policy forms * Dev. guidelines for underwriting and claims * Dev. Classifications * Dev. Pricing Structure * Secure Approval from functional managers to proceed

Distribution Requirements-Product development

* Develop Advertising Sales and promotional Info * Develop Sales Training * Plan Roll Out strategy

Regulatory Requirements-Product development

* File with regulators * Develop Statistical info systems * Communicate Regulatory Approval

Introduction-Product development

* Implement Sales Training and promotion * Measure and compare results to plan

Distribution System Types

* Independent agency and brokerage marketing systems * Exclusive Agency Marketing Systems * Direct Writer Marketing System * Other Distribution Channels

Opportunity Assessment-Product development

* Monitor the market * ID an opportunity * Relate opp. to business strategy * Develop specifications * Secure senior management approval to proceed

Business Forecast-Product development

* Review the product plan with profit center management * Identify requirements for statistics * Develop business forecast * Secure senior management approval to proceed

Marketing Activities

1. Marketing Research 2. Market Segmentation 3. Market Development 4. Marketing Information 5. Marketing Planning 6. Product Development 7. Advertising and Promotion 8. Customer and Public Relations 9. Sales Fulfillment

Geographic Area and Marketing Differentiations

1000's of insurer's in the US but not all compete nationally. Many are small orgs. that compete in only one or in a limited number of states Decisions regarding geographic area are based on size, level of expertise in the area(s), level of competition and customer focus.

Independent Agents and brokers #2

A main distinguishing feature between independent agents and brokers and other Dist. systems is the ownership of the agency expiration list If an insurer ceases to do business with an agency, the agency has the right to continue doing business with its existing customers by selling them insurance form another insurer. The expiration list is an agency's most valuable asset. An independent agency has the right to sell its expiration list to another independent agent.

Typical market plan

A marketing plan for a typical insurance product or service might include the following: * Product proposal and sales goals * Situational analysis * Marketing Goals * Marketing Strategies * Projected outcome

Market Segmentation

A part of marketing research Used to differentiate an insurer from other providers in meeting the needs of customer groups. The more closely a group of customers is defined, the more in depth the insurers expertise in that area can be. Products and services can be specifically tailored to meet their needs. As groups are more closely defined, insurers are less likely to encounter competition for that group than in the open market. Each Marketing segment should be accessible, substantial, and responsive

Independent Agent Networks

AKA Agent groups, agent clusters, agent alliances. Consists of independent agencies and brokerages that join together to gain advantages normally available only to large national and regional brokers Combining individual agency forces into a single selling, negotiating and servicing unit. An agent network can offer many benefits to its agent members, including: * Obtaining access to additional insurers * Meeting countersignature law requirements for business in multiple states * Combining premium volume to meet insurer requirements for profit sharing

Unique Factors in the Insurance Marketplace

All markets are shaped by the economy. The P/C market is shaped by additional, industry specific factors: 1. Economic Forces 2. Regulatory controls 3. Demands for technology 4. Underwriting Cycles 5. Unanticipated catastrophic losses

Claim Handling-Producer Function

All producers are likely to be involved to some extent in handling claims filed by policy holders The producer may only provide the policy holder with the phone number for the claim department They may obtain some basic info about the claim from the policy holder, relay it to the insurer, and arrange for a claim rep to contact the insured. Some producers are authorized by insurers to adjust some types fo claims.

P/C Insurer Marketing Differentiations

An insurers marketing differentiations uniquely match the characteristics of the customer groups or segments of those groups that they target for sales. Aspects of marketing differentiations * Customer focus * Products and services * Size * Geographic Area * Distribution system

Policy Issuance-Producer Function

At the producers request, insurers issue policies and their associated forms. Can either be mailed directly to the insured or can be delivered to the producer for delivery Some producers use their own agency management systems to generate computer-issued policies on-site.

Bases of segmentation-marketing segmentation

Behavioristic Division of markets by purchase behavior Geographic Division of markets by geographic unit Demographic Division based on demographic variables-age, gender, education, occupation, ethnicity, income, family size, family life cycle Psychographic Division of markets by individuals values, personalities, attitudes and lifestyles

Internet-Distribution channel

Can be used by all parties for insurance transactions Interactions range from email exchanges to multiple-policy quoting and billing, and policy issuance.

Distribution System and Marketing Differentiations

Choice of marketing system(s) is influenced by customer knowledge of insurance products and the risk financing alternatives available Ex. * Targeting older customers for home and auto and personal property coverage may call for a system based on exclusive or ind. agents. * Targeting young drivers for auto coverage may call for an internet based approach Similar decisions are needed when targeting small business, middle markets and national accounts

Customer Needs and Characteristics

Customer needs and characteristics (current and in target markets) are key factors in the Dist. Channel Selection process. Their satisfaction drives their purchasing decisions. Needs and characteristics include preferences for the following: * Products and services * Price * Response Time

Customer Service-Producer Function

Customer service activities performed by producers include * Responding to billing inquiries * performing customer account review * engaging in field underwriting * answering questions about existing coverage and additional coverage reqs. * Corresponding with premium auditors and risk control reps.

Products and services-Customer Needs

Customers with low service expectations may be satisfied with the ease of comparison shopping over the internet for direct writers policies. A large commercial account risk manager will see the expertise of an agent or broker

Demands for Technology-Unique Factor

Demand for tech is a powerful factor in the insurance marketplace because of * The computer networks that interconnect insurers and producers. * The connections between insurers and customers through the internet. The primary demand for technology in these areas is ease of use.

Marketing Information

Develop and maintain info needed in market planning to support management at all levels in answering specific questions about markets, customers, producers and competitors. Two main types of systems: Internal accounting system * Reports and analysis capability on transactions associated with sales activity * much of the essential info on production, retention and policies in force is available as a byproduct of the systems that track commissions and billing Marketing Monitoring System * Provides senior management with intel about developments and changes in the external environment. * Assists senior management in making decisions * Should provide current, unfiltered, and unbiased info about customers, producers and competitors

Choosing Distribution Systems

Different distribution systems are chosen based on Organizational Structure Business and marketing plans Growth goals Tech capability Staffing Resources needed to support the selected systems

Exclusive Agents and Expirations

Exclusive agents typically don't own expirations as independent producers do. Usually, when the agency contract is terminated, the ownership of expirations reverts to the insurer. The agent does not have the option of selling the expirations to anyone other than the insurer Some insurers that use exclusive agency systems do grant agents limited ownership of expirations

Degree of required control-insurers profile

Extent of control the insurer wants over marketing operations can influence the choice of Dist. system. Direct writer system * High level of control b/c the producers are employees. Control over results and methods. Agency, brokerage and exclusive agency systems * Lower level of control b/c producers and brokers are IC's. Control over results only. Direct Response * No producers or brokers involved. Complete control of all aspects of the Dist. System

Size and Marketing Differentiations

For a given number of organizations, the level of competition is usually greater if all organizations are about the same size than if there are two or three large organizations and many small ones. An insurers size in the marketplace effects its decisions on which markets to enter and which customers to market to If the market is dominated by a large organization, a smaller insurer * May select a subsection of the market or a niche market and tailor it's product to that specific group. * Might avoid national accounts whose high premium is offset by high reserves and reinsurance requirements. Making it difficult to write other business.

Response Time-Customer Needs

For customers whose inquiries and transactions can be addressed over the phone or internet, a variety of distribution channels can meet those needs Large commercial accounts may demand more face time, speed and extensive services

National and Regional Brokers

Generally represent commercial accounts that require sophisticated knowledge and service In addition to sales, large brokerage firms may provide extensive risk control, appraisal, actuarial, risk management, claim admin and other insurance related services. Can tailor insurance programs for customers or groups of customers who require a particular type of coverage for multiple locations. Brokers receive negotiated fees for the services they provide. They may also receive fees in additional to commissions subject to state regulation.

Individuals-Customer Characteristics

Generally share the same needs * Property coverage (real and personal) * Liability coverage for losses arising from personal actions and ownership of property Individuals loss exposures can be pooled to determine premium Individuals often need to rely on the expertise of the producer in choosing coverage Few risk financing alternatives besides retention and insurance. Mortgagors and lenders often require insurance. States require auto liability. Little negotiating power. Only real option is to look to other insurers if they are unhappy.

Geographic Location-insurers profile

Geographic location of existing policy holders or target markets is a key concern because the fixed costs of est. a direct writer or exclusive agent territory are high. Exclusive agent or direct writer marketing can only be effective when enough prospects exist in a small enough area. Independent agents or direct response are generally cheaper than exclusive or direct writer agents. Independent agents have lower start up costs and may be good solutions for rural areas and small towns.

Property-Casualty insurance marketplace

Highly competitive meeting point between customer needs and insurers abilities to meet them. Important factors in the market include: Characteristics of P-C insurance customers * Significant b/c they directly affect the products and services supplied to the customer Insurer Marketing Differentiations * Marketing uniquely matched the customer groups targeted for sales Unique factors specific to the insurance marketplace * Specific economic forces, regulkatory controls, technology demands

Core Capabilities-Insurer Strengths

Include the abilities of an organizations staff, process and technology Complex commercial accounts require personalized service and are well served by agents and brokers. Agents and brokers can provide advice and ongoing service to expand the types of business or geographic markets targeted by the insurer.

Distribution Channels

Increased use of multiple distribution channels has been driven by technology and customer preference. Channels Include: * Internet * Call centers * Direct Response * Group Marketing * Financial Institutions

Predictive analytics-marketing research

Increasingly being used to improve the outcome of market research A predictive model weighs the importance of each relevant variable to provide an estimate of the likely profitability of each characteristic. Models usually generate a score, with a higher score indicating an increased likelihood the given event/ behavior will occur. Predictive analytics provide additional applications such as cross selling, target marketing, individualized customer support, new agent contracting, improved design and eval. of marketing campaigns.

Independent Agents and brokers #1

Independent Agency Business operated for the benefit of its owners that sells insurance, usually as a representative of several unrelated insurers. Broker Independent business owner/ firm that sells insurance by representing customers rather than insurers. Brokers shop among insurers to find the best coverage and value for their clients. Compensation of agents and brokers is typically in two forms: A flat percent commission on new and renewal business submitted A contingent or profit-sharing commission based on volume or loss ratio goals

Unanticipated Catastrophic Losses-Unique Factor

Insurers maintain reserves and reinsurance to pay catastrophic losses. BUT: Catastrophes of unanticipated severity can cause losses that exceed maximum anticipated losses. Unplanned losses can result in insurer insolvencies, withdrawal fo insurers from the market and reinsurance shortages. The market must respond with improved catastrophe ratemaking and forecasting that anticipates even greater unforeseen events.

Middle Markets-Customer Characteristics

Larger organizations. Insurance needs can vary considerably depending on their products and services. Often large enough that their loss histories provide credible stats for projecting future losses. May have a risk manager. Typically have some negotiating power because they have more credible loss histories, generate more premium and have broker representation to help them. Have increased access to risk financing alternatives: Captives, protected cell companies, contingent capital programs.

Expertise and reputation of producers-Insurer Strengths

Level of expertise required of a producer depends on the line of business being written Specialty target markets (international manufacturing, high-net worth individuals, large public entities) require knowledgeable and prominent producers to advise them. Having producers like that in a direct writer Dist. system allows the insurer to expand into similar or secondary markets. An insurer trying to enter specialty markets without a skill base or staff must compete for agents and brokers who can provide the needed expertise and reputation.

Prospecting-Producer Function

Locating people, businesses or other entities that might be interested in purchasing the products and services offered by the producers principals. Prospects can be located using several methods * Referrals from current clients * Referrals from strategic partners (real estate brokers, financial institutions) * Advertising in multimedia and direct mail * Websites * Phone solicitations * Cold Canvassing

Consulting-Producer Function

Many producers offer consulting on a fee basis. Some state laws prohibit agents from receiving both a commission and a fee from the same client. Fees are billed separately from any premiums due. Commissions are included in the premiums totals billed.

Financial Institutions-Distribution channel

Marketing products and services through a bank or other financial services institution. Can be exclusive or involve additional distribution channels Insurers view financial institutions as beneficial strategic partners because of their strong customer base and predisposition to product cross selling.

Direct Response-Distribution channel

Markets directly to customers with no agent involved Relies on mail, phone and/or internet sales Commission fees (if any) are greatly reduced but advertising costs are generally higher

Small Business-Customer Characteristics

Operations with few employees and limited revenue. Do not usually have any employees with full time risk management responsibilities. Needs can usually be covered by a small number of commercial policies (BOP, WC, commercial auto). Little negotiating power and a limited number of choices for risk financing alternatives. Some have been able to join other similar orgs. to form small RRG's or purchasing groups as an alternative to the standard insurance market.

Strengths-insurers profile

Orgs. evaluate their internal and external environments to asses their SWOT. After identifying their strengths, the insurer selects those Dist. Channels and systems which maximize its opportunities to capture market share and minimize its weaknesses. Factors in this process: * Financial Resources * Core Capabilities * Expertise and reputation of producers

Economic Forces-Unique Factor

P/C insurers must manage a narrow margin of profitability to remain competitive Inflation is a factor b/c it raises the cost of losses and the cost of operations. Reinsurance rates influence the price and cost of operations as well When investment earnings diminish or the prospect of catastrophic losses increases, insurers must raise premiums to sustain risk-appropriate rates of return.

Producers (AKA agents)

Perform different functions depending on the marketing system and the individual producer. Generally act as the initial contact with insurance customers and provide expertise and ongoing services. Activities include: * Prospecting * Risk Management Review * Sales * Policy issuance * Premium Collection * Customer Service * Claim Handling * Consulting

Products and Services and Marketing Differentiations

Personal or commercial lines insurers may focus on property or liability insurance, packages, or specialty lines. But they often sell a range of products to meet customer needs Services are tailored to respond to customers needs as identified through market intelligence.

Surplus Lines Brokers

Place business with insurers who are not licensed in the state in which the transaction occurs. They are permitted to write insurance because coverage is not available through standard market insurers. The agents and brokers must be licensed to place surplus lines business in the state Circumstances under which business can be placed with a non-admitted insurer through a surplus lines broker vary by state. Surplus lines agents/ brokers may be required to show that a specified number of licensed insurers have refused to provide the coverage. Surplus lines is used for customers who: * Need high limits * Need unusually broad or specialized coverage * Have unusual or unique loss exposures * Have unfavorable loss exposures.

Item Basis-Agency Bill Process

Premiums (less commission) are forwarded to the insurer when the producer collects it or when it becomes due.

Risk Management Review-Producer Function

Principal Method of determining a prospects insurance needs: 1. Individuals or families * Process can be very simple. It may involve an interview and a questionnaire to assist in identifying the prospect's loss exposures. Usually these will be from property ownership and activities. 2. Businesses * Process is likely to be more complex because there are property ownership, products, services, employees and other liabilities that are unique to the size and type of organization. * Loss runs can be helpful in identifying problem areas and costs, in tracking the results of current risk management efforts and in developing risk management programs.

Account Current Basis-Agency Bill Process

Producer periodically prepares a statement showing the premiums due to the insurer, after deducting the appropriate commissions, and transmits that amount to the insurer. The producer must pay the insurer when the premium is due, even if the policy holders have not paid the producer.

Premium Collection-Producer Function

Producers who issue policies may also prepare policy invoices and collect premiums After deducting their commissions, the agency sends the net premiums to the insurer. This is known as thew agency bill process. 3 methods of transmitting premium to the insurer if agency billing is used. * Item Basis * Statement basis * Account Current Basis For the majority of personal lines and for small commercial accounts the customer is usually directed to send premium payments directly to the insurer. This is known as the "direct bill process".

Product development

Product development usually consists of a series of steps: * Opportunity Assessment * Development of contract, Underwriting and Pricing * Business Forecast * Regulatory Requirements * Distribution Requirements * Introduction

Market Development

Provides leadership when an insurer enters a new market i.e. a new territory, customer type, or product. Involves actions required to ensure the success of the venture: * training programs * problem resolution * process documentation * funding assistance * technical assistance * PR campaigns Involves project managers who generate and screen ideas, develop project scope documents, decision grids, outlines, etc.

Marketing Planning

Provides the tools and facilitation skills to assist management in developing fact-based marketing plans. Assists in updating company strategy. Before introducing a new product or service the insurer completes a comprehensive marketing plan which should. * Identify the product or service to be promoted * Customers to be targeted * Resources and strategies that will be used to create, price and promote/ sell the product or service.

Study design and data-marketing research

Qualitative Focus groups and observer impressions Quantitative Survey research and statistical techniques Secondary Data Data collected by other parties. Market research typically starts here because it is available at little to no cost. Primary Data More expensive to obtain (pay a focus group etc.) but is can address issues specific to the marketing project.

Group Marketing-Distribution channel

Sells to individuals or businesses that are all part of the same organization Uses call centers, the internet, direct mail response, or producers

Mixed Marketing System

Refers to the use of more than one distribution system or channel to attract a wider range of customers. Combining distribution systems and channels requires consideration fo several factors * Maintaining consistent customer communications * Providing a consistant customer experience * Matching the insurance product with the appropriate Dist. system or channel

Sales-Producer Function

Sales are one of the most important activities of a producer Steps include: * Contacting prospective client * Determining their needs * Preparing and presenting a proposal * Closing the sale

Call Centers-Distribution channel

Sell insurance products and services through telemarketing The best call centers can replicate many of the activities of producers. In addition to making product sales call center staff can: * Respond to general inquires * Handle Claim reporting * Answer billing inquires * Process policy endorsements

Managing General Agents (MGA's)

Serve as intermediaries between insurers and the agents and brokers who sell insurance directly to the customer. Similar to wholesalers in tangible goods. Exact duties/ responsibilities of an MGA depend on its contracts with the insurers it represents. An insurer operating through an MGA gains the following advantages * A low fixed cost * Specialty Expertise * Assumption of insurer activities

Price-Customer Needs

Some customers major concern is the price of their insurance Others are concerned with price but won't make changes if they like the product and the price is acceptable. Still others seek RM alternatives, including insurance, that will minimize the adverse effects of losses for the organization over the long term.

Insurers Profile

The insurer's profile has an effect on the Dist. Channel selected: Key factors in this decision: * Strategy and goals * Strengths * Existing and target markets * Geographic location * Degree of required Control

Regulatory Controls-Unique Factor

State insurance regulators stipulate the financial requirements that insurers must sustain to operate within a state. Also stipulate marketing conduct practices

Strategy and goals-insurers profile

Strategy, as defined by high level organizational goals, provides purpose and direction to the org. Strategies and goals often address issues regarding market share size, sales, service and the markets in which the insurer competes. May also relate to mergers and acquisitions. Changes in market strategies, or aggressive goals, can be a catalyst for an insurer to reexamine it's Dist. Channels in light of the new goals.

Marketing Research

Systematic gathering and analyzing of data to make a decision. Typically done on a project basis with a stated objective,research design, data collection, analysis and formal report. The best marketing research is done as scientifically and objectively as possible.

Target vs. Niche-marketing segmentation

Target Marketing A practice of more closely defining a group of customers within a market segment Niche Marketing A well defined, often small, marketing segment of the population what has specific needs

Advertising and Promotion

The Advertising function is responsible for managing communications through mass media between the company and its chosen target markets Sales promotion (brochures, giveaway items etc.reinforces the image and positioning created by the insurers advertising efforts when carried down to the agency level.

Customer and Public Relations

The customer relations function Manages communications with individual customers from the home office. * Ensures that all written statements seen by customers are understandable and have a consistent tone. * Provides a forum for communication with customers, including complaints, suggestions, and questions. Public Relations Function Includes communications with the public on behalf of the insurer to ensure a strong public image * PR staff provides periodic info to the insurers community about the Orgs. Activities * In times of crisis, PR staff coordinates a consistent message to the media and responds to negative publicity as necessary

Existing and Target Markets-insurers profile

The existing book of business must be considered when in any change of Dist. system or channel If agents or broker s own the expirations for current accounts the insurer must either give up the accounts and start over or purchase the expirations. Disruptions in communication channels can cause changes in communication patterns. This can lead to policyholder dissatisfaction and lost accounts. Changing marketing systems and channels for existing customers should be done with great caution. Some situations are threatening enough to encourage a change (an aggressive competitor is gobbling up market share). Cost of changing systems must be balances with expected benefits resulting from new accounts brought in.

Financial Resources-Insurer Strengths

The initial fixed cost of entering the market through an exclusive agency or direct writer system is higher than an independent agency system Insurer must hire, train and support direct writer and exclusive agency producers before they can become productive. Internet based Dist. Channels have high startup costs for I.T. Infrastructure. If you have the capital to finance a high start up cost channels you can compete in the markets that require those channels

Customer Focus and Marketing Differentiations

The insurer must understand the characteristics of specific customer groups and provide products and services in response. Customer focus is improved through market intelligence, which provides info on customer current and future needs, preferences, attitudes and behaviors.

Statement Basis-Agency Bill Process

The insurer sends a statement to the producer showing premiums that are due. Producer is obligated to pay the premiums indicated as due or to show that the statement is in error.

Sales Fulfillment

The satisfactory delivery of products and services that result from product development Fulfillment of a product plan impacts many of the insurers functional areas. Each area must determine the impact on operations budget and performance standards Milestones should be est. for each functional area with metrics that can be checked to monitor the results of a marketing plan and address any unmet goals.

National Accounts-Customer Characteristics

This segment contains the largest orgs. seeking insurance coverage. They have the most complex needs, the most comprehensive knowledge of insurance and the widest variety of risk financing alternatives. Generally have large risk management depts. and regional or national broker representation Often generate millions of $ in annual premium. This gives national account brokers lots of negotiating power with insurers. Likely to have complex insurance programs that combine commercial coverage with retention and captives. * Captives provide flexibility by allowing direct access to reinsurance markets * Unique exposures are often insured by a consortium of insurers

Underwriting Cycles-Unique Factor

U/W cycles create additional competitive shifts to which insurers continuously adapt. U/W cycles have numerous causes. They have varying duration and depth. Insurers must adapt as the cycle patterns reveal themselves in order to remain competitive.

Independent agency and brokerage marketing systems

Uses agents and broker who are usually free to represent as many insurers as they want System types include * Independent agents and brokers * National and Regional Brokers * Independent Agent Networks * Managing General Agents (MGA's) * Surplus Lines Brokers

Exclusive Agency Marketing System

Uses independent contractors (called exclusive agents or captive agents), who are not employees or insurers. Exclusive agents are usually restricted by contract to a single insurer. They may be able to place business with other companies if their exclusive insurer does not offer the product or service. Insurer management has greater control over exclusive agents than over independent agents The exclusive agency insurer handles many admin functions for the agent, including policy issuance, premium collection and claims processing.

Direct Writer Marketing System

Uses sales agents (aka sales reps) who are employees of the insurers they represent. Sales agents usually do not have ownership of expirations and are restricted to representing a single insurer or group of insurers. If a customer needs a product not available from a direct writer, the sales agent may act as a broker by contacting an agent who represents another insurer and applying for insurance through that agent.