Chapter 4 AINS 21
Describe the Distribution method of Financial Institution
- Insurers and producers can elect to market their products and services through a bank or another financial services institution, either exclusively or through additional distribution channels. Marketing arrangements can range from simple to complex. The prospect of diversifying into new markets appeals to many financial institutions. - Insurers view financial institutions as beneficial strategic partners because of these qualities: - Strong customer base - Predisposition to product cross-selling - Strength at processing transactions - Efficient use of technology for database mining geared to specific products and services
what are examples of prospecting methods
- Referrals from present clients - Referrals from strategic partners, such as financial institutions and real estate brokers - Advertising in multimedia and direct mail - Interactive websites, social media, and mobile marketing - Telephone solicitations - Cold canvass
Rhonda is a personal lines insurance producer. Under the terms of her agency contracts, the insurers forward policies promptly to Rhonda's customers and send a premium invoice with the policy. Insureds are instructed to remit premium payments to their insurer. The insurers calculate Rhonda's commissions and forward those commission payments to her monthly. Rhonda is operating under which payment procedures?
Direct bill basis
Which insurance distribution channels usually cuts compensation costs greatly but has higher advertising costs?
Direct response
If a consumer or policyholder had a preference for dealing with sales representatives who are employees of the insurer, which marketing system would they choose?
Direct writer
Erin has recently graduated from college and relocated to Chicago. She has purchased a car and rented an apartment and now needs to purchase insurance. Erin is looking for minimum coverages and the lowest price available. Which is likely the best distribution system to meet Erin's needs?
Direct writer Internet search
Bill is an insurance producer for ABC Insurance Company (ABC). He represents only ABC when marketing insurance products. ABC compensates Bill primarily through salary, and he has no ownership rights to policy expirations. Bill is a producer in the
Direct writer marketing system.
When a firm is selecting a distribution channel, what is an important consideration with regard to its operations?
Does the selected channel capitalize on its core capabilities?
True or False The principal is the party the agent authorizes to bind coverage.
FALSE
True or False the following is similarity between agents and brokers, Both are legal representatives of insurers.
FALSE
Describe the Distribution method of Group Marketingwhat rp fo st are wayahWhat isW
Group marketing sells insurance products and services to individuals or businesses that are all members of the same organization. Distributing insurance to specifically targeted groups is known by a number of terms, including these: - Affinity marketing—Insurers target various customer groups based on profession, interests, hobbies, or attitudes. - Mass marketing or mass merchandising—Insurers design an offer for their policies to large numbers of targeted individuals or groups. - Worksite marketing or payroll deduction—Employers can contract directly with an insurer or through a producer to offer voluntary insurance coverage as a benefit to their employees. - Sponsorship marketing—A trade group sponsors an insurer in approaching a customer group. The sponsor participates in the profitability of the program.
A producer will generally review a company's loss run report while performing which function?
Risk management review
Donna is an insurance producer. She makes an appointment with a potential policyholder to review the prospect's loss exposures. She asks the prospect to complete a questionnaire to assist her in this effort. Donna is conducting a
Risk management review.
Describe the Distribution method of Direct Response
The direct response distribution channel markets directly to customers. No agent is involved; rather, the direct response relies primarily on phone or Internet sales. Direct response relies heavily on advertising and targeting specific groups of affiliated customers. With direct response, commission costs, if any, are greatly reduced. However, a disadvantage is that advertising costs are typically higher. The customer can sometimes "opt out" and speak with a call-center customer service representative or be assigned to a local servicing office.
When selecting a distribution channel, which one of the following is an important consideration with regard to customers' needs and characteristics?
The ease of accessibility within the channel
The Wellborn agency represents only Coastal Insurance Company. Wellborn is an independent contractor but its contract with Coastal specifies that all insurance it sells will be placed with Coastal. Wellborn is operating under which marketing systems?
The exclusive agency system
Principal
The party in an agency relationship that authorizes the agent to act on that party's behalf.
Omicron Manufacturing has approached Delta Insurance Brokerage to develop and implement a voluntary insurance program for life, health, and disability insurance for Omicron's employees. Delta puts together a program in which employees receive the coverage at discounted rates, and premiums are deducted from the employees' paychecks. Omicron and Delta are using what type of group marketing to offer this program?
Worksite marketing
Agency
A legal, consensual relationship that exists when one party, the agent, acts on behalf of another party, the principal.
what are the 3 advantages of an insurer operating through an MGA
A low fixed cost Specialty expertise Assumption of insurer activities
Describe the Distribution method of Internet
As a distribution channel, the Internet and online access to insurance transactions by the insurer, its representatives, and the customer are experiencing rapid growth. Interactions range from exchanges of email to multiple-policy quoting, billing, and policy issuance. Customers also interact with insurers via web-based insurance distributors, also called insurance portals or aggregators. These portals deliver leads to the insurers whose products they offer through their websites. Portals benefit customers by offering the products and services of many insurance providers on one website. Although the leads that portals generate must subsequently be screened and fully underwritten by the insurers accepting the coverage, they can increase an insurer's market share and brand awareness.
Independent agency
A business, operated for the benefit of its owner (or owners) that sells insurance, usually as a representative of several unrelated insurers.
what are the two forms of compensation for independent agents and brokers
A flat percent commission on all new and renewal business submitted A contingent or profit-sharing commission based on volume or loss ratio goals
Independent agency network
A group of agencies that contractually link to share services, resources, and insurers to gain advantages normally available only to large regional and national brokers.
What is a principal characteristic that distinguishes traditional marketing systems for insurance?
A principal characteristic that distinguishes one traditional marketing system from another is the ownership of policy expirations.
A business manufactures a product that is harmful to the public if used improperly. More than three licensed insurance companies have refused to provide commercial general liability coverage for the business. The producer should contact whom to attempt to arrange coverage?
A surplus lines broker
Apparent authority
A third party's reasonable belief that an agent has authority to act on the principal's behalf.
An agency in New Jersey has decided to market personal insurance to accountants. It is offering a 10 percent discount to all Certified Public Accountants in the state. This is an example of which type of group marketing?
Affinity marketing
When an insurer appoints an agent to act on its behalf, the agent's scope of authority is spelled out in the
Agency contract.
Principals often authorize another party to act on their behalf. This relationship is called
Agency.
Independent agent networks are known as
Agent clusters.
When an insurance company appoints an insurance agent to serve as its representative, what specifies the scope of authority given to the agent in this relationship?
An agency contract
Managing general agent (MGA)
An authorized agent of the primary insurer that manages all or part of the primary insurer's insurance activities, usually in a specific geographic area.
Broker
An independent producer who represents insurance customers.
Binding authority
An insurance agent's authority to effect coverage on behalf of the insurer.
An independent business owner or firm that sells insurance by representing customers rather than insurers is which one of the following?
An insurance broker
An independent business owner or firm that sells insurance by representing customers rather than insurers is
An insurance broker.
Direct writer marketing system
An insurance marketing system that uses sales agents (or sales representatives) who are direct employees of the insurer.
Exclusive agency marketing system
An insurance marketing system under which agents contract to sell insurance exclusively for one insurer (or for an associated group of insurers).
Producer
Any of several kinds of insurance personnel who place insurance and surety business with insurers and who represent either insurers or insureds, or both.
Apparent Authority is included with the laws of agency for specific duties on all agents True or False?
Apparent authority
An agent may at times act on behalf of the principal in ways that the principal did not intend, and a third party reasonably believes that the agent has sufficient authority. This authority is known as
Apparent authority.
Northtown Agency has an agency contract with Withers Insurance Company for personal lines coverages only. Anita, one of Northtown's existing personal lines customers is starting a floral delivery business that will require commercial insurance. Horace, one of the agents, accepted Anita's application, bound coverage and said he would pass the paperwork on to Withers, as Withers had handled all her other needs. As soon as he remembered the agency contract with Withers, he planned to send the request to a different insurance company that could accept the new business. Before he could do this, Anita submitted a claim. The claim would be covered because the coverage is bound based on the concept of
Apparent authority.
Among other things, a binder provides
Applicable coverages and limits.
Actual authority
Authority (express or implied) conferred by the principal on an agent under an agency contract.
what are the 5 duties the laws of agency impose on all agents
Be loyal to the principal. Obey the principal's lawful instructions. Exercise a reasonable degree of care in actions on behalf of the principal. Account promptly for any of the principal's money that the agent holds. Keep the principal informed of all facts relating to the agency relationship. This is the duty of relaying information.
Which distribution channels is also an efficient way to handle claim reporting and billing inquiries?
Call centers
Managing general agencies
Commonly represent several insurers.
The principal method of determining a prospect's insurance needs is through
Completing a risk management review for the prospect.
A producer is usually paid a fee for performing which function?
Consulting
Cold canvass
Contacting a prospect without an appointment.
Which method of premium collection is generally used for personal insurance policies and small commercial accounts?
Direct bill
what premium collection methods is used in the majority of personal insurance sales?
Direct bill process
Insurance Company D (ICD) has traditionally used regional brokers to market and produce its insurance products. The management team at ICD has decided it wants to launch a new specialized product. The marketing plan includes ICD's desire to control the targeted number of monthly applications as well as the methods that will be used to advertise and campaign to achieve the desired results. Which distribution system will best allow ICD the desired control?
Direct writer
When an independent agency is bought or sold, the agency's most valuable asset is its
Expiration lists.
Authority that the insurance company specifically grants to an agent is called
Express authority.
Binding authority is a form of
Express authority.
The authority that the principal specifically grants the agent is called
Express authority.
The authority that the principal specifically grants to the agent is contained in the agency contract. This authority is known as
Express authority.
The terms of the agency contract define the agent's
Express authority.
Excluse Agencies are examples of insurance distribution channels, True or False
FALSE
Knowledge is included on the laws of agency specific duties on all agents, True or False?
FALSE
True or False An agency expiration list is the record of policies that have lapsed or been canceled due to overdue premiums.
FALSE
What would be a critical strength required for a personal lines insurer planning to expand geographically through web-based distribution?
Financial resources
An independent agency
Has the right to switch a customer's coverage to another insurer.
An important question for an insurer to ask when examining customers' needs and characteristics to select a distribution channel is
How quickly can inquiries and transactions be processed?
The Miller Agency has an agency agreement with Big Insurance Company. The agency collects premiums from Big Insurance insureds even though the agency agreement lacks a clause specifically granting authority to do so. Miller's agents collect premiums upon
Implied authority.
Agent
In the agency relationship, the party that is authorized by the principal to act on the principal's behalf.
What type of agent is usually paid the same commission rate for new business and renewals?
Independent agent
In an insurance agency relationship, the agent's fundamental responsibility is to act for the benefit of the
Insurer.
What are distribution channels and why are they used
Insurers use distribution channels to promote products and services as well as to communicate with existing and prospective insureds.
What is true concerning the direct response distribution channel to market insurance?
It relies heavily on advertising.
Because the agent represents the insurer, the law presumes that
Knowledge acquired by the agent is knowledge acquired by the insurer.
Which broker type is generally paid a negotiated fee, rather than a fixed commission rate?
National broker
Insurers using direct response marketing
Often advertise heavily, which can be costly.
Fictitious Consultants Inc. (FCI) has been hired by a local insurance company located in Claremont, CA to introduce The Omnichannel Marketing System (OMS) as a sales tool. Knowing that Claremont is a college town with five undergraduate colleges alone, FCI believes that targeting the young demographic in the city will pay dividends in sales traffic for the insurance company. Given the young demographic, what three channels of the OMS would FCI expect to bring in the most hits for the insurance company?
Online, Mobile App, Social Media
The primary duty of a principal to its agent is to
Pay the agent for services performed.
The functions that insurance producers perform vary widely from one marketing system to another. What function do all producers perform?
Prospecting
Which method of prospecting is more likely to be used by an experienced producer than a new insurance producer?
Referrals from present clients
If a third party sues the agent in connection with activities performed on behalf of the principal, the principal must
Reimburse the agent for any liability incurred, if the agent was not at fault.
The most difficult time for an insurer to change distribution systems is when
Renewing an existing book of business.
True or False An insurance agent represents the insurer while a broker represents the customer.
TRUE
What opportunities are there in respect to insurers' use of the Internet and insurance portals
The Internet provides lead-generation and cross-selling opportunities for all products.
What states the scope of the agency's authority to conduct business for the insurer
The agency contract
One of the main distinguishing features between independent agency systems and other marketing systems is the ownership of
The agency expiration list.
What best describes the elements of authority and control in an agency relationship?
The agent has authority to act for the principal; the principal has control over the agent's actions on the principal's behalf.
After investing significant resources to develop a Web-based system, a personal lines insurer has decided to expand its territory by assuming the role of a direct writer and using the Internet as a distribution channel. What is the insurer's greatest concern with the existing book which used independent agents as the distribution system?
The agents own the expirations for the existing book
Implied authority
The authority implicitly conferred on an agent by custom, usage, or a principal's conduct indicating intention to confer such authority.
Express authority
The authority that the principal specifically grants to the agent.
The selection of a distribution channel for an insurer's products and services depends, partly, on customer preferences. What is true regarding customer preferences that should be considered when selecting a distribution channel?
The channel should be consistent with the customer's expectations for service.
What is true with regard to Internet distribution channels for selling insurance?
The objective of insurance portals is to deliver leads to the firms whose products they offer through their sites.
Agency expiration list
The record of an insurance agency's present policyholders and the dates their policies expire.
When an agency relationship is created between a principal and the agent, it requires a high degree of
Trust.
Leah decides to purchase her personal automobile insurance through a program offered by her employer. Leah's employer offers her a discounted premium which is deducted from her paycheck. Leah's employer is using which type of distribution channel?
Worksite marketing
Explain the Omnichannel Marketing System
allows insurers to market to customers in multiple channels and meet the needs of customers seeking alternative methods to purchase insurance. By using an omnichannel approach, insurers can target various market segments using methods such as online, mobile applications, call centers, or other approaches based on the customers' preferred method of interaction. This approach is supported by developments in data analytics, which assists insurers in using customer data to make better and more consistent marketing decisions
Distribution channels act as a conduit for establishing communication with
current customers.
A Regional broker sells insurance by representing who instead of who
customers rather than insurers
Where does an insurer have the greatest control over producers in the selection of insurance marketing systems and distribution channels?
direct writer system.
Many producers offer consulting services for which they are paid on a
fee basis.
what are the 3 factors that influence an agency relationship
legal roles Legal responsibility Scope of Authority
Surplus lines brokers can place coverage that is
not available through standard market insurers.
what are typical functions performed by insurance producers
prospecting, risk management review, sales, policy issuance, premium collection, customer service, claim handling, consulting
In the exclusive agent and direct writer marketing systems, insurers might assist producers with
prospecting.
Explain the independent agency and brokerage marketing system
uses agents and brokers who are independent contractors rather than employees of insurers. These independent agents and brokers are usually free to represent as many or as few insurers as they want.
Explain the exclusive agency marketing system
uses independent contractors called exclusive agents (or captive agents), who are not employees of insurers. Exclusive agents are usually restricted by contract to representing a single insurer
Juan received a phone call from an angry policyholder. The insured received a bill as a result of a workers compensation premium audit. The individual does not understand why premium has increased when his total payroll is lower than originally projected. Juan advises the insured that he will contact the auditor, review the audit, and call back with an explanation. Which producer function is Juan performing?
Customer service
The scope of an agent's authority can go beyond the terms of the agency contract and may include authority to perform other tasks customary to the agency relationship. This authority is referred to as
Implied authority.
Given the complexity of commercial insurance, what is best suited for its distribution?
Independent agencies
In which type of insurance marketing systems does the agency or agent usually own the expiration lists?
Independent agency system
Michelle is shopping for auto insurance. Which insurance agent is most likely to be able to give her quotes from several different, unrelated insurers?
Independent agent
Gulford Insurance Company (Gulford) is a direct writer of commercial insurance in Pennsylvania. The management team is frustrated by the continued lack of success in the more rural western part of the state. It is difficult to penetrate the market without a local presence, but the cost of assigning agents to this territory is not justified by the returns. Which distribution system would best allow Gulford the local presence in a cost-effective manner?
Independent agents
From an insured's point of view, relative to the concept of agency, little distinction exists between the
Insurance agent and the insurer.
Describe the Distribution method of Call Centers
The best-equipped call centers can replicate many of the activities of producers. In addition to making product sales, call center staff can respond to general inquiries, handle claim reporting, answer billing inquiries, and process policy endorsements. In some cases, a customer can begin an inquiry or a transaction on the Internet, then have a customer service representative at the insurer's call center access the Internet activity and answer the inquiry or conclude the transaction.