Chapter Three

1
Chapter Three

• Marketing and Distribution Systems

2
Definitions

• Insurance Consumer-
• all buyers of insurance, including individuals,
  families, business, government bodies, and others
• Distribution Systems-
• Communicate information between buyer, buyer and
  seller
• Move the product between seller and buyers of the
  seller
• Intermediary-
• an agent, broker or employee of the seller who
  performs these functions
• Agent-
• a person or firm in an agency relationship
  authorized by the principal (insurance company)
  to act on behalf of the principal
• Broker-
• an independent business owner or firm that
  represents policy holders and prospective policy
  holders in their dealings with insurers

3
Powers and Duties of Agents

• A written contract exists
• Specifies powers and duties
• Designates lines of insurance to be written
• Agents authority to bind coverage
• Claim adjustment authority if any
• Account issues provide account current or most
  companies new provide
• Apparent authority
• Actual authority
• Producer brokers, agents, employees of
  insurance or intermediaries

4
The Marketing Plan

• Product proposal and sales goals
• Situational Analysis a SWOT analysis
• Marketing goals
• Marketing strategies

5
Traditional Marketing Systems

• Independent Agency System
• The Exclusive Agency System
• The Direct Writer System

6
Distribution Systems
Independent Agent
Exclusive Agent
Direct Writer
Insurance Company
Insurance Company
Insurance Company
Agent / Broker
Agent
Insured
Insured / Risk Manager
Insured
7
Agents vs. Employees of Company Differ

• Relationship with insurer
• Compensation methods
• Ownership of expiration

8
Independent Agency and Brokerage Marketing System

• Free to represent as many or few insurers
• Ownership of expirations- marketable asset
• Compensation
• Flat percent commission
• Contingent on profit commission

9
Independent Producers Other Roles

• Provide risk management advice
• Manage self-insurance programs
• Implement loss control measures
• Determine alternatives or supplements to
  insurance
• Other participants
• Networks
• MGAs
• Excess and surplus lines brokers
• National and regional brokers

10
Large Insurance Brokerage Firms

• Operate nationally and regionally
• Some internationally
• Meet needs of large commercial customers
• Equipped to provide
• Risk management services
• Loss control
• Actuarial services
• Claim administration services
• Negotiated fees or
• Fees and commission

11
Independent Agent Network

• Agent groups, clusters or alliances
• Are independent acting regionally or nationally
• Combine to offer a single selling or negotiating
  unit
• Obtain access to more insurers
• Preferred agency contracts
• Facilitate succession plans
• Increase market share

12
Managing General Agents

• Serve as intermediary between insurers and
  producers
• May represent more than one insurer
• Usually have expertise in particular markets
• Petroleum distributors
• Fire departments
• Horse farms
• Employment practices liability
• Directors and officers liability
• Compensated by commission override plus profit
  sharing

13
Excess and Surplus Lines Brokers (ES)

• Place business with insurers not licensed in
  state of transaction
• Circumstances dictate variance
• Could not place with licensed insurers
• May require rejection letters
• Operate best in hard market conditions
• Net subject to guaranty fund protection
• Subject to state regulation

14
Exclusive Agency Marketing System

• Agents are not employees but are captive agents
• Restricted to writing only for one company
• May can place coverage outside that is not
  provided
• Compensated by commissions
• Typically may not have ownership of expirations
• With termination expirations revert to insurer
• Company handles many administrative functions

15
Direct Writer Marketing System

• Use sales agents who are employees of insurer
• Have no ownership in expirations
• Insurers perform most all administrative
  functions
• Compensation salary or commission

16
Functions Performed by Agents

• Prospecting referrals, advertising, telephone,
  cold canvass (calls)
• Sales commissions on sales source of income
• Risk analysis determining prospects needs
• Policy insurance

17
Functions Performed by Agents (cont.)

• Collections of premiums
• Direct billing
• Agency billing
• Claims all agents involved to come degree
• Consulting part of ongoing risk analysis
• Customer service

18
Market Share
19
Convergence of Traditional Marketing Systems

• Exclusive agency and direct writer serve
  individual needs
• General concerns are on price
• Insurers driven by competition
• Gramm - Leach Bliley lifted any restrictions on
  bank holding companies
• More toward multiple distribution channels
• Allstate, Farmers, Nationwide, Progressive
  exclusive agents and independent agents
• Vertical integration

20
Banks and Insurance
21
Insurers and Other Business

• Technology facilitate cross-selling systems
• Car dealers
• Real estate companies
• Financial service firms
• CPAs
• Risk management firms
• Credit unions

22
Alternative Insurance Distribution Channels

• Internet
• Call centers
• Direct response
• Group marketing
• Financial institutions
• Contact consumer direct
• No producer is used

23
Internet

• Insurers and producers build web strategies
• Benefits
• Reduced costs
• Streamlined business practices
• Increased brand awareness
• Broadening marketing potential
• Lead generation for all products
• Insurance portals or aggregators
• Insweb.com and Quotesmith.com
• One stop shopping

24
Challenges of the Internet

• Assumes cost advantage
• Competition a click away
• Quoting capabilities
• Sales or combination sales and service
• Price vs. service
• Security concerns
• Website content-fresh

25
Call Centers

• Used as alternative distribution center
• Can operate with
• Customer service representatives
• Touch tone service
• Speech-enabled service
• Can
• Respond to general inquiries
• Claim reporting
• Billing inquiries
• Policy endorsements

26
Direct Response

• Internet or telephone response
• GEICO
• USAA
• Mail offers
• High advertising costs GEICO
• May also have call centers

27
Group Marketing

• Includes
• Affinity marketing
• Mass marketing/merchandising
• Work site marketing/payroll deduction
• Objective to sell to all members in same
  organization
• Success depends on
• Support of employer
• Discounted premium

28
Financial Institution

• Success depends on
• Strong customer base
• Predisposition to cross selling
• Strength at processing
• Use of technology
• Bancassurance

29
Distribution Channel Selection

• Customer preference and firms operation
• Combination of traditional and alternative
• Maintaining consistent communications
• Consistent customer experience
• Matching types of insurance with appropriate
  marketing system
• Personal insurance less complex
• Commercial Insurance only the small business
  customers