Module 7: Insurance Marketing and Distribution
Products and Services
ex: personal or commercial, property or liability, package, specialty products. Often sell a range of insurance products to meet customers needs.
Choosing Distribution: Existing Book
if agents or brokers own expirations, insurance company will lose business by switching. Disrupts communication. But may get benefits if the current distribution channel isn't meeting customer needs.
Policy Issuance by Producers
producers issue policies on behalf of insurers. Some can generate computer issued policies on site.
Pros of Direct Response Distribution Channel
low/no commission costs
National Accounts: Insurance Needs
most complex
National Accounts: Insurance Knowledge
most comprehensive with a large risk management department and a regional or national broker representing them
Small Business
organizations with few employees and limited revenue. Generally do not have any employees with full time risk management duties.
Choosing Distribution: Core Capabilities
staff, processes, technology. Strength in large commercial accounts may lead a firm to choose agents/brokers.
Regulatory Controls
state based insurance regulations stipulate the financial requirements that insurers must sustain to operate within a state and the marketing conduct to which insurers must adhere. Stabilizes and standardizes.
What is an agency's most valuable asset?
ownership of expiration list, and thus the right to sell its expiration lists to another independent agent
Consulting from Producers
paid on a fee basis. Usually performed for insureds, but can also be done for prospects. Some states prohibit agents from receiving both commission and a fee.
Marketing Strategies
part of a marketing plan. Plans and proposals for how the product will be developed, priced, promoted, and sold. Include determining appropriate distribution channels for products and services.
Marketing Goals
part of marketing plan. An outline of the proposed target market, including detailed sales projections and specifics as to how success with be measured
Projected Outcome
part of marketing plan. Pure loss ratio and ultimate loss ratio over a 5 year period.
Situational Analysis
part of marketing plan: a SWOT analysis of the marketplace, competition, technology, regulations
Unique Factors in the Insurance Marketplace
-Economic Forces -Regulatory Controls -Demands for Technology - Underwriting Cycles - Unanticipated Catastrophic Losses
Cons of Internet as a Distribution Channel
- May not meet regulatory requirements (no agent) - Consumers expect internet products to be cheaper - Competitors are easy to access - If quoting is too complicated, users choose a different site - No agent to help make decisions/answer questions - Customers care more about price than service - Security concerns - Website content must be interesting and current
Economic Forces
-Inflation increases cost of losses and operations, reinsurance - Low investment earnings
Sponsorship Marketing
A trade group sponsors an insurer in approaching a customer group. The sponsor participates in the profitability of the program. Ex: wholesale club sponsors an insurer to market to club members for a fee based on the success of the program.
Niche Marketing
A type of marketing that focuses on specific types of buyers who are a subset of a larger market
Affinity Marketing
a type of group marketing that targets various groups based on profession, association, interests, hobbies, and attitudes (alumni, bar associations, credit card users). Sometimes discounted
Responsive
actions taken by the insurer should produce satisfactory results in the market segment.
Independent Agent Networks
aka agent groups, clusters, or alliances. Independent agencies/brokers join together to gain advantages like national/regional brokers.
Middle Markets: Risk Financing Alternatives
captive insurers or risk retention groups
Pros of Internet as a Distribution Channel
- Automation lowers costs of underwriting and claims handling - Fewer sales employees needed - Increased brand awareness/marketing potential - Cross selling opportunities
Mixed Marketing System Issues
- Consistent customer communication (same message about product and services, data management) - Consistent customer experience - Matching type of insurance to distribution system/channel
Insurance Customers
- Insurance Needs - Knowledge of Insurance - Access Method - Negotiating Ability - Risk Financing Alternatives
P&C Insurers
- Customer Focus - Products and Services - Size - Geographic Coverage - Distribution System
How can property-casualty insurers differentiate themselves through marketing?
- Customer Focus - Products and Services - Size - Geographic Location - Distribution System
How are independent agents and brokers compensated?
- Flat percent commission on all business - Contingent or profit-sharing commission based on volume or loss ratio goals
Benefits of independent agencies/brokers
- Flexible, can meet needs of many consumers - Spread geographically - Can assist in establishing self-insurance, risk control, alternative risk financing - Can sometimes settle small first party claims
Exposures Insured through Surplus Lines Brokers
- High limits - Broad/specialized coverage - Unusual/unique loss exposure - Tailored insurance program - Unfavorable loss exposure (poor claims history)
Benefits of Independent Agent Network
- More insurers - Countersignature law requirements - Premium requirements for profit-sharing - Additional sales income - Preferred agency contracts - Expertise - Resource sharing/expense reduction - Increased market share
How can effectiveness of marketing be measured?
- Pilot test - Focus Group
Functions Performed by Producers
- Prospecting - Risk management review - Sales - Policy issuance - Premium collection - Customer service - Claim handling - Consulting
How are prospects located?
- Referrals from current clients - Referrals from partners, like financial institutions/real estate brokers - Advertising - Interactive websites - Telephone solicitations - Cold canvass
What are the benefits of segmenting markets?
- more close identification of customer needs and products tailored to those needs. - less likely to encounter competition for a specific group.
What forces act on the property-casualty insurance marketplace?
-Economic -Regulatory -Technology -Underwriting Cycles -Catastrophic Losses
Examples of Market Development Activities
-Training programs - Problem resolution - Process documentation - Funding assistance - Technical assistance -Public relations campaigns
What are the ideal characteristics of a marketing segment?
1. Accessible 2. Substantial 3. Responsive
3 goals of surplus lines insurers
1. Coverage is placed with eligible nonadmitted insurers 2. Customers unique/unusual requirements can be met 3. Financial security of surplus lines
Customer needs/characteristics that drive selection of distribution channels/systems
1. Products and services (minimum coverage auto- online, complex commercial - agent) 2. Price - how sensitive are they 3. Response time
When are premiums usually due to insurers?
30-45 days after the policy effective date. The producer can invest premiums until they become due.
Independent Agency
A business, operated for the benefit of its owner (or owners) that sells insurance, usually as a representative of several unrelated insurers. Usually have binding authority.
Agency Bill
A payment procedure in which a producer sends premium bills to the insured, collects the premium, and sends the premium to the insurer, less any applicable commission. Most often used with large commercial accounts.
Direct Bill
A payment procedure in which the insurer assumes all responsibility for sending premium bills to the insured, collecting the premium, and sending any commission payable on the premium collected to the producer.
Loss Run
A report detailing an insured's history of claims that have occurred over a specific period, valued as of a specific date. Helps the producer with risk management and projecting costs.
Direct Writer Marketing System
An insurance marketing system that uses sales agents (or sales representatives) who are direct employees of the insurer. May be compensated through salary or commissions, high for NBUS. Don't own expirations. Can also be a broker for products the insurer doesn't sell. Less admin functions than brokers/agents.
Exclusive Agency Marketing System
An insurance marketing system under which agents contract (not employees)I to sell insurance exclusively for one insurer (or for an associated group of insurers). Paid on commission, focused on new business production. Do not own expirations. Issue policies, collect premiums, process claims.
Independent Agency and Brokerage Marketing System
An insurance marketing system under which producers (agents or brokers), who are independent contractors, sell insurance, usually as representatives of several unrelated insurers.
Market Segment Selection Considerations: Distribution Channels
Are our distribution channels appropriate to the characteristics of this market segment?
Market Segment Selection Considerations: Regulatory Environment
Are the products and services we are proposing for this marketing segment permitted under applicable laws/regulations.
Market Segment Selection Considerations: Economic Environment
Are there issues in the current economic environment (inflation, investment, customer spending habits, cost of employees) that affect our chances of success in this market segment?
Market Segment Selection Considerations: Company Size and Resources
Are we limited by our company size and resources to compete for customers in this market segment?
Cold canvass
Contacting a prospect without an appointment
Small Business: Insurance Needs
met by a limited number of commercial insurance policies: businessowners policy, workers comp, commercial auto
Market Segment Selection Considerations: Type of products sold
Do available products meet the specific segment's needs, or the homogenous needs of a larger group? What is the product fit to the market segment?
Market Segment Selection Considerations: Age of Product
Do the products available meet current customer needs?
Market Segment Selection Considerations: Product Mix
Do the products we will sell to this market segment help us achieve our optimum product mix?
Market Segment Selection Considerations: Corporate Ownership
Does our ownership affect our ability to obtain the sources of funds necessary for growth, expansion, or financial stability to market successfully to this market segment.
Advantage of MGA: Low Fixed Cost
Don't need staff to support a branch office. MGAs make enough commission to cover expenses and profit.
Market Planning
Fact-based road maps - assists in development/updating of a company's strategic plans. Plan identifies the product or service to be promoted, the customers to be targeted, and the strategies used to create, price, promote and sell the product/service.
Market Segment Selection Considerations: Market Segment Competition
How significant is competition in this market segment? What are characteristics of competing insurers in this market segment?
Market Intelligence
Information gathered and analyzed regarding a company's markets to improve competitive decision-making. Used to make decisions regarding opportunities, strategies, and changes in the market.
Countersignature Law
Laws that require all policies covering subjects of insurance within a state to be signed by a resident producer licensed in that state.
Advantage of MGA: Assumption of Insurer Activities
MGAs can provide claim administration, info mgmt, risk control, underwriting/marketing, policy issuance, premium collections.
Advantage of MGA: Specialty Expertise
MGAs have expertise in specific markets and help insurers design programs. Ex: petroleum, fire depts, horse farms, officers liability
Small Business: Knowledge of Insurance
No full time risk manager. Owner or manager with limited knowledge of insurance markets is responsible for making decisions, and often has the help of a local agent/broker.
Product Proposal and Sales Goals
Part of marketing plan: A summary of the new product's operation; a description of the unmet need the product is designed to fulfill, and summarized sales projections
Predictive Analytics
Statistical and analytical techniques used to develop models that predict future events or behaviors. Usually generate a score estimating the likelihood a specific event or behavior will occur. Measure risk/opportunity associated with a given customer/transaction.
Product Development: Opportunity Assessment
Step 1. Monitor the market, identify opportunity, relate opportunities to business strategy, develop specifications and secure mgmt approval.
Product Development: Contract, Underwriting and Pricing
Step 2: Coverage and policy forms, underwriting and claims guidelines, classifications, pricing, secure functional mgmt approval
Product Development: Business Forecast
Step 3: review the product plan with profit center, identify requirements for stats, develop business forecast, secure sr mgmt approval
Product Development: Regulatory Requirements
Step 4: File with regulators, develop statistical information systems, communicate approval
Market Segmentation
The process of identifying and dividing the groups within a market that share needs and characteristics and that will respond similarly to a marketing action. Insurers do this to differentiate themselves from other insurance providers.
Agency Expiration List
The record of an insurance agency's present policyholders and the dates their policies expire. If an insurer ceases business with an agency, the agency can continue doing business and selling other insurance to those customers.
Internet
Used by insurer, representatives, and the customer for emails, quoting, billing, and policy issuance.
Middle Markets: Insurance Needs
Vary considerably according to the products/services they provide. Ex: manufacturing airplanes v manufacturing greeting cards
Market Segment Selection Considerations: Social Environment
What behaviors or beliefs in the population of this market segment will increase or decrease our chances of success in offering our products and services.
Market Segment Selection Considerations: Technical Resources
What technical resources are needed to support the customers/products sold?
Underwriting Cycles
a cyclical pattern of insurance pricing, in which a soft market (low rates, relaxed underwriting and underwriting losses) is followed by a hard market (high rates, restrictive underwriting, and underwriting gains) before the pattern repeats itself. Insurers must adapt to the cycle to remain competitive/profitable.
Surplus Lines Broker
a person or firm that places business with an insurer that is unlicensed (nonadmitted) in the state in which the transaction occurs but that is permitted to write insurance because coverage is not available through standard market insurers. Independent and represent multiple insurers.
Focus Groups
a small group of customers or potential customers brought together to provide opinions about a certain product, service, need, or other issue.
Managing General Agents
aka management general underwriters. 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. Intermediary between the insurer and agent and broker. Usually represent multiple insurers
Prospecting
all producers locate persons, businesses, and other entities that may be interested in buying insurance.
Direct Response Distribution Channel
an insurance distribution channel that markets directly to the customer through such distribution channels as mail, telephone, or the internet. No agent is involved, so it relies on advertising and affiliated marketing.
Customer Focus
an insurer must understand the characteristics of specific customer groups and provide products and services that respond to those characteristics
Mixed Marketing System
an insurer's use of more than one marketing system or distribution channel to attract a wider range of customers.
Producer
any of several kinds of insurance personnel who place insurance and surety business with insurers, representing the insured, the insurer, or both.
Designing and Evaluating Marketing Campaigns
application of predictive analytics. Defining aspects of advertising efforts that result in the highest response rates from prospective customers.
New Agent Contracting
application of predictive analytics. Determining which characteristics of exclusive and independent agents result in the most successful market penetration.
Target Marketing
application of predictive analytics. Focusing marketing efforts on a specific group of customers.
Cross-Selling
application of predictive analytics. Identifying existing policyholder groups to whom efforts to sell additional policies will be most successful.
Individualized Customer Support
application of predictive analytics. Tailoring customer support to specific customers' needs.
Unanticipated Catastrophic Losses
catastrophes of unanticipated severity can cause losses that exceed maximum anticipated losses. Can result in insurer insolvencies, withdrawal from certain markets, and reinsurance shortages.
Primary Data
collected first hand by the insurer. More costly to collect, but is specific to the marketing research project.
Public Relations
communications with the public on behalf of the insurer to ensure a strong public image. Communicate with employees to request participation in events to promote the companies positive image. Consistent communication to respond to negative publicity
Business Risk Management Review
complex - property, products, services, employees, liabilities that are unique to the organization.
Distribution Channels
conduits for contacting and establishing communication with customers and prospective customers. Often use multiple to meet consumer needs (speed and efficiency of competitively priced and customized products)
Secondary Data
data collected by other parties. Usually the starting point of research, because it is immediately available at little or no cost.
Marketing Information
develop and maintain info needed in market planning to support management in answering specific questions about customers, producers, and competitors. Must be timely and cost effective.
Psychographic Segmentation
division of markets by an individuals' values, personalities, attitudes, and lifestyles.
Worksite Marketing/Payroll Deduction
employers contract with insurance to offer insurance as a benefit to employees. Usually used for optional life, health and disability coverage. Often discounted premiums are deducted from paychecks.
Individuals: Risk Financing Alternatives
few. Usually only retention and insurance, and they are required to purchase insurance by mortgagees/lenders/state DOI.
Product Development: Introduction
final step. Implement sales training and promotion, measure/compare results to plan.
Choosing Distribution: Geographic Location
fixed costs of establishing exclusive agent/direct writer in a territory are high. Need to have a lot of prospects in a concentrated area. Use independent agents/direct response in sparsely populated areas.
National/Regional Brokers
generally represent commercial insurance accounts that require sophisticated knowledge/service. Risk control/management, claim admin, etc. Can offer products to customers across locations. Receive fees for their services.
Producers and Claim Handling
give policyholders the number to call/name to speak with. May get basic claim info, communicate with insurer, and assign insured a claims rep. Sometimes can adjust some small first party property claims. Helps with quicker service and lower loss adjustment expenses (provided they don't overpay)
Choosing Distribution: Expertise/Reputation of Producers
good- strength. bad- weakness. Specialty target markets require expert producers.
Choosing Distribution: Degree of Control Required
greatest control over direct writers (results & methods), then agency/brokers where they can control results but not methods.
Cons of Direct Response Distribution Channel
high advertising costs
Dilemma of Advertising
how much is enough to communicate effectively with customers while staying in a reasonable budget.
Insurance Broker
independent business owner or firm that sells insurance by representing customers rather than insurers. They shop among insurance to find the best coverage and value for their clients. Usually don't have binding authority.
Individuals: Insurance Knowledge
individuals have the least knowledge of the insurance mechanism. Rely on producers to decide which coverage, policy limits, and deductible levels
Distribution System
influenced by customers knowledge of insurance products/risk financing alternatives available. May sell to individuals through agencies to help them with selecting policies, may sell to young drivers via internet. Larger accounts are more suitable for brokers
Choosing Distribution: Financial Resources
initial fixed cost of exclusive agency/direct writing is higher than independent agency. Internet requires IT implementation. Insurers without $ are limited in the markets they enter.
Brokered Business
insurance sold by an agent placing insurance for a customer through another agent
Mass Marketing/Merchandising
insurers design an offer for their policies to target to large numbers of individuals/groups. Frequently discounted, with the insurer reserving the right to underwrite each applicant.
Financial Institutions
insurers/producers can market their products/services through a bank or other financial institution. They have a strong customer base, experience cross selling, strength of transaction processing, and efficient use of technology.
Ex of Niche Market
jewelry stores can be a niche market in the target market of retailers in the segment of small businesses.
National Accounts: Negotiating Power
large as they generate millions of dollars in premiums each year. Can negotiate broader coverage, lower deductibles, higher limits, or cheaper premiums.
Size
large companies tend to dominate the market and reduce competition. Size influences which markets/customer groups an insurer serves. If a market is dominated by a large org, the smaller insurers may choose niche markets rather than national accounts.
Middle Markets
larger organizations- often large enough that their loss histories provide credible statistics for use in projecting future losses. May have a risk manager to assist with coverage decisions.
National Accounts
largest organizations: Fortune 500, chemical/manufacturing organizations, municipalities.
Small Business: Negotiation Power
little
Customer Relations
manages communications with individual customers from the home office. Ensures all written communications seen by customers are understandable and consistent in quality and tone. Forum for complaints, suggestions and questions. Low cost, high value information.
Advertising
managing the company's communications through mass media with its chosen target markets. Consistent with strategic direction and marketing plans. Reinforce company image.
Geographic Area
many insurance companies only compete in a limited number of states. Their operation radius depends on size, expertise, competition, and customer focus.
National Accounts: Risk Financing Alternatives
many. Likely to combine commercial insurance with retention and captive insurers.
Typical Requirement for Surplus Lines Brokers
must certify that 2-3 licensed insurers have refused to provide the coverage. They may even need to provide letters from insurers rejecting the coverage. Some states have a list of coverages that are eligible for surplus lines treatment, and some maintain a list of eligible surplus lines insurers.
Individuals: Negotiating Power
none. Contracts are offered on an as-written basis by insurers and their other option is to look somewhere else.
Sales by Insurance Producer
one of their most important activities. Commission on business sold is the principal source of income for producers, ownership of expirations is the principal asset of an agency. Must contact the prospect, determine their needs, propose a product, and close the sale.
Account Current Agency Billing
producer prepares a statement showing premiums due to insurer after commissions and transmits that amount every so often (monthly). Producer must pay even when policyholders have not.
Premium Collection by Producers
producers can deduct their commissions and send the net premiums to insurers.
Market Development
provide leadership when an insurer enters a new market (territory, customer type, product). Ensure the success of the venture.
Insurer Strategies/Goals
provide purposeful direction for the org. Address market share, sales, service, and markets. Aggressive goals can cause an insurer to choose new distribution systems/channels.
Market Monitoring
provides intelligence about the external environment to senior management. Current, unfiltered, unbiased info about customers, producers, and competitors. Measure performance using customer feedback and competitive benchmarking.
Internal Accounting
provides report and analysis capability based on transactions associated with sales activity (production, retention, PIF)
Sales Promotion
reinforces the image created by advertising at the agency level. Brochures, giveaways, awards.
Ex of Target Market
retailers can be a target market within the small business segment
Middle Markets: Insurance Knowledge
risk manager assists with coverage decisions. Use local, regional, or national brokers to access insurance markets
Small Business: Risk Financing Alternatives
risk retention groups/purchasing groups
Sales Fulfillment
satisfactory delivery of the products and services that result from the product development activity (customer service, underwriting, claims, etc.) Each functional area has milestones with metrics to measure progress on goals.
Accessible
segments should be able to be effectively reached and served
Insurer Strengths and Distribution
select distribution systems/channels to maximize opportunities to get market share and minimizes weaknesses. Financial resources, core capabilities, expertise and reputation of producers.
Call Centers
sell insurance products and services through telemarketing (representatives, touch tone, speech enabled). Make sales, answer questions, report claims, handle billing issues and process policy updates.
Group Marketing
sells insurance products and services to individuals or business that are all members of the same organization
Individuals: Insurance Needs
share the need to protect real/personal property and liability coverage for losses arising out of their actions/ownership of property. Allows insurers to pool loss exposures.
Market Research Methods
should be as objective/scientific as possible.
Individual/Family Risk Management Review
simple. Requires an interview or questionnaire to identify loss exposures. Producer uses results to suggest risk control, retention, or insurance.
Substantial
size and purchasing power of a segment should suggest potential for profit
Ex of Market Segment
small businesses
Middle Markets: Negotiating Power
some, because of their credible loss history, high volume of premiums, and broker representation
Product Development: Distribution Requirements
step 5: develop advertising and sales promotional info, develop sales training, plan roll out.
Marketing Research
systematic gathering and analyzing of data to assist in making decisions. Usually done on a project basis with an objective, research design, data collection, analysis and formal report detailing conclusions/recommendations. Implement programs on a cost/benefit basis.
Demands for Technology
tech connects both insurers to producers and insurers to customers. Demand is ease of use, requiring engineering.
Distribution Channel
the channel used by the producer of a product or service to transfer that product/service to the ultimate consumer.
Behavioristic Segmentation
the division of a total consumer market by purchase behavior
Demographic Segmentation
the division of markets based on demographic variables (age, gender, education, occupation, ethnicity, income, family size, family life cycle)
Geographic Segmentation
the division of markets by geographic units
Statement Based Agency Billing
the insurer sends a statement to the producer showing premiums due. The producer has to pay the premiums or prove they are wrong.
Item Based Agency Billing
the premium is forwarded to the insurer when collected/due.
Risk Management Review
the principal method of determining a prospect's insurance needs
Producers and Customer Service
value-added services and personalized insurance can differentiate producers in the marketplace. Expected to respond to billing inquiries, review accounts, obtain loss reports, credit scores, DMV reports, answer questions and coordinate with risk control/premium auditors.
