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35 Cards in this Set
- Front
- Back
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Characteristics of customers |
Customers' characteristics directly affect the products and services insurers supply. Customers can be distinguished based on needs, knowledge, access to the market, access to alternatives and negotiating ability. Insurance customers include: Individuals, Small businesses, Middle markets and National accounts. |
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Individuals |
Many have same insurance needs (auto, home). Insurers are able to pool loss exposures. Often need to rely on the expertise of a producer to determine coverage. Have few risk financing alternatives available besides retention and insurance. Have little negotiation power in insurance transactions. Utilize direct access or agents. |
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Small businesses |
Organizations with few employees and limited revenue. Do not usually have any employees with full-time management responsibilities (risk management may be conducted by the business owner). Insurance needs can usually be covered by a limited number of commercial policies. Have little negotiation power with insurers. Limited number of choices when it comes to risk financing alternatives (retention or insurance). Utilize small agents or small local brokers. |
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Middle markets |
Larger organizations with insurance needs that vary considerably. Loss histories often provide credible statistics for use in projecting future losses (may not be as accurate with individuals but works for businesses). May have a risk manager. Typically have some negotiating power. Have increasing access to risk financing alternatives such as risk retention groups. Utilize small regional or national broker. |
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National accounts |
Largest organizations seeking insurance coverage. Have most complex insurance needs. Have most comprehensive knowledge. May have large management depts. Utilize the widest variety of risk financing alternatives. Utilize regional or national broker. |
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Making differentiations |
Insurers differentiate themselves in the market in various ways. Customer focus (improved through market intelligence). Products and services (insurers often sell a range of products that meet customer needs). Size (smaller insurer might select a subsection of the market or avoid the national accounts market). Geographic area (many insurers are small organizations that compete in only one or a limited number of states). Distribution system (insurers focused on mature customers may choose a system based on exclusive or independent agents. Insurer targeting young customers might choose internet-based distribution system). |
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Unique factors |
Unique factors affecting insurance market: Economic forces (inflation and availability of reinsurance affects the price and cost of insurer operations). Regulatory controls (create a minimum practice standard for all competitors). Demands for technology (Producers and customers want technology that is easy to use). Underwriting cycles (create competitive shifts to which insurers must adapt). Unanticipated catastrophic losses (catastrophes of unanticipated severity can cause losses that exceed maximum anticipated losses, unplanned losses can result in insurer insolvencies, withdrawal from geographic markets and reinsurance shortages). |
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Marketing activites |
Insurer's marketing activities are focused on information gathering, synthesis (analyzing) and dissemination (distributing and using the data). Categories of marketing activities: Marketing research (gathering), Market development (looking into getting into a new market), Marketing information (creating info internally for use by management), Marketing planning (creating written marketing paln on how company will go to market with new product) and Product development. |
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Marketing research |
The gathering and analyzing of data to assist in making decisions. Focus groups (small group of customers that provide opinions about a need or product). Predictive analytics (statistical techniques used to develop models that predict future events or behaviors). Insurers also use market segmentation to differentiate themselves from other insurance providers to meet the needs of customer groups. A type of segmentation is niche marketing e.g. an insurer looking to sell to one particular group of individuals. Most market research begins with an analysis of secondary data. Primary data is more costly to obtain. |
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Market development |
Market development activities provide leadership when an insurer enters a new market. Training programs, Problem resolution, Process documentation, Funding assistance, Technical assistance and Public relations campaigns. |
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Marketing information |
Marketing information (insurer creates internal info presented to senior management) activities develop and maintain information needed in market planning. Answers specific market questions. Divided into two major systems: Internal accounting (provides report and analysis capability based on transactions associated with sales activity, this is used in marketing because an insurer may want to base marketing on this information). Market monitoring (provides intelligence about external environment to senior management, internal function that provides info about external environment). |
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Internal marketing environment includes |
Technical resources, Types of products sold, Age of product, Product mix, Distribution channels, Corporate ownership and Company size and resources. |
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Marketing planning |
Provides the tools to assist management in developing marketing plans. Before introducing a new product, the insurer should complete a marketing plan. Identifies product to be promoted, the target customers, marketing goals and strategies that will be used. Includes a determination of the appropriate distribution channels for the product. Marketing plans provide the roadmap needed to acquaint sellers with buyers. |
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Marketing plan for a typical insurance product includes |
Product proposal and sales goals (focus on summarizing sales projections and a description of the needs the product is designed to fit), Situational analysis (Focuses on the external environment, Strengths, Weaknesses, Opportunities, Threats), Marketing goals, Marketing strategies and projected outcome (studies the pure loss ratio and ultimate loss ratio over a 5yr period). |
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Product development |
Insurers must decide which insurance products will be sold to which markets (what products will be sold and which won't). Usually begins with opportunity assessment (what opportunities are out there int he market place?). Advertising and promotion (this function is responsible for managing the company's communications through mass media). May create brochures and offer giveaways. Customer and public relations (this function communicates with public on behalf of insurer). Also provides management with low-cost, high-value information about customer needs. Ensures that all written communications seen by customers are understandable. Sales fulfillment (makes sure everything is delivered in satisfactory manner, satisfactory delivery of the products and services that result from the product development activity) |
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Distribution systems and channels |
Insurance distribution systems include: Independent agency marketing system, Exclusive agency marketing system and Direct writer marketing system. The cost of appointing an independent agent is generally lower than the cost of an exclusive agent or direct writer agent. Insurance distribution channels include: Internet, Call centers, Direct response, Group marketing and Financial institutions. |
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Independent agency system |
Independent agency is a business. Independent agents/brokers are usually free to represent as many insurers as they want. Can be organized as sole proprietorship, partnership or corporation. The ownership of expiration lists is an agency's most valuable asset. Agent owns the expirations, the insurer does not. E.g. if you're an agent an you move to another insurance company, you can take that insured's business with you. They're typically paid the same commission rate for new business and renewals. |
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Independent agency system pt.2 |
National and regional brokers generally represent commercial insurance accounts (sometimes agents represent). Often require sophisticated knowledge and service. Large brokerage firms may provide other services like extensive risk control, actuarial, claim administration and other insurance-related services. Can tailor insurance programs for customers. |
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Independent agency system pt.3 |
Independent agency networks consist of independent agencies and brokerages. Join together to gain advantages normally available only to large brokers. Advantages of networks: Access to an increased number of insurers, Meeting counter-signature law requirements (some states require certain policies to be signed by a producer that's licensed and resident in the state it's written), combining or sharing premium volume to meet insurer requirements for profit sharing, Earning additional income, Receiving preferred contracts, Facilitation succession planning with the agency, Providing expertise in risk management and financial planning services, Increased market share and Expense reduction. |
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Independent agency system pt.4 |
Managing general agents (MGAs) serve as intermediaries between insurers and the agents (do not represent the insured). MGAs can represent one insurer but they typically represent multiple insurers. Advantages of MGA for insurer: Insurer might want to use an MGA b/c of low fixed costs (insurer does not have to staff and support a branch office). Specialty expertise (can cover diverse risks). Assumption of activities (claim administration, policy issuance, premium collection, marketing and underwritting). |
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Independent agency system pt.5 |
Surplus lines broker (not licensed in state where they sell insurance) places business with insurers not licensed in the state. Can write insurance because coverage is not available through standard market insurers (may write product liab insurance that's difficult to get). Normally a reasonable effort to place the coverage with a licensed insurer is required. Appropriate for customers who require high limits of insurance or usually broad or specialized insurance. Customer may need a surplus lines broker if they have an unfavorable loss exposure. |
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Exclusive agency market system |
The exclusive agency marketing system uses independent contractors. Usually restricted by contract to representing a single insurer. Exclusive agents do not own expirations. Insurer management can exercise greater control over exclusive agents than over independent agents. Exclusive agents are not employees. More appropriate for an insurer wanting control over its agents but not wanting admin responsibilities associated with employees. |
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Direct writer system |
The direct writer system uses sales agents who are employees of the insurer they represent. Sales agents do not own expirations. Sales agent may act as a broker when a customer needs a type of policy not available from the direct writer insurer. |
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Distribution channels |
Use of multiple distribution channels has been driven by technology and customer preference. Internet (internet-based distribution channels have high startup costs and an insurer must have financial resources to expand, interactions range from exchanges of email to multiple-policy quoting, billing and policy issuance, provides cross-selling opportunities for all products, insurance portal leads must still be screened and fully underwritten, the objective of insurance portals is to provide leads to firms whose products are offered through the portals's website). Call centers (sell insurance products and services through telemarketing). Direct response (no agent is involved, relies primarily on mail, phone and/or internet sales, relies heavily on advertising and targeting specific groups of customers). The amount of information available on the internet has shifted customer focus toward price rather than service. Mass marketing plans offer policies to a large number of targeted individuals often at a discounted premium. |
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Distribution channels pt.2 |
Group marketing (sells insurance to individuals or businesses that are members of the same organization, includes affinity (marketing to a specific group based on profession or interest, like an alumni group for a certain university) and worksite marketing (employer might contract w/ insurance company to offer certain types of insurance to employees)). Financial institutions (banks etc, Insurers might partner with them b/c of strong customer base, Predisposition to product cross-selling and Strong in processing transactions). |
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Prospecting (other functions of insurance producers) |
Prospecting involves locating persons and entities interested in purchasing insurance. Generally, producers are the initial contact with insurance customers and provide expertise. Virtually all producers prospect. In the exclusive agent and direct writer marketing systems, insurers might assist producers with prospecting. An experienced producer is more likely to use referrals from present clients as a prospecting method than a new insurance producer. The principle method of determining a prospect's needs is through the completion of a risk management review for the customer. Includes cold canvass (contracting prospect without an appointment). |
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Risk management review (other functions of insurance producers) |
Risk management review is the principal method of determining a prospect's insurance needs. Individual or family (risk management review process might be relatively simple, can use questionnaires). Businesses (risk management review may be more complex, a loss run report can guide to producer). |
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Policy issuance (other functions of insurance producers) |
At the producer's request insurers issue policies and their associated forms to the customers. May mail the directly to policyholders or send them to the producer for delivery. Some producers use their own agency management systems to generate computer-issued policies on site. |
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Premium collection (other functions of insurance producers) |
Producers who issue policies might also prepare invoices and collect premiums. Small commercial and personal accounts typically use direct bill process (customer send prmium directly to insurance company). Customer sends premium payments to the insurer, bypassing the producer. |
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Premium collection (other functions of insurance producers) pt.2 |
Agency bill process used for larger accounts: Item basis (premium less commission is forwarded to the insurer when the producer collects it or when it becomes due). Statement basis (insurer sends a statement to the producer showing premiums due, producer obligated to pay premiums or show the statement in error). Account current basis (producer prepares a statement showing the premiums due and transmits that amount to the insurer, producer must pay insurer even if policyholders have not paid producer) The processes are in contrast with direct bill process that's used for many individual accounts. |
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Other producer services |
Customer service activities (responding to billing inquiries, account review, etc and corresponding with premium auditors and risk control representatives). Claim handling (all producers are likely to be involved to some extent in handling claims filed by their policyholders, adjusting small first-party property claims may be authorized as part of the claim handling functon). Consulting (many producers offer consulting services for which they are paid on a fee basis, when consulting services are offered, the producer may charge a fee only, or they might set a maximum fee that will be reduced by any commissions received on insurance written, once consulting services are provided, fees are billed separately from any premiums due). |
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Customer needs and characteristics (system and channel selection) |
The need and characteristics of customers are key factors in selecting of distribution systems. Products and services (customers with low expectations may be satisfied with the ease of comparison shopping over the internet). Price (some customers only care about price). Response time (customers routinely experience speedy financial transactions, expect the same from insurance). When selecting a distribution channel based on customer needs, important questions for an insurer to ask are: What are the expectations regarding coverage and service? To what degree is the price of products a factor? How quickly can inquiries and transactions be processed? |
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Insurer's profile(system and channel selection) |
The insurer's profile is key in selection of distribution system and channels. Insurer strategies and goals (provides purposeful direction for the organization, change in market strategies can be a catalyst to reexamine systems and channels). Insurer strengths (factors should be analyzed such as financial resources, core capabilities and producer experience and reputation). |
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Insurer's profile (system and channel selection) pt.2 |
Existing and target markets (if agents own the expirations, insurer must give up that business or purchase the expirations, disruptions in communication channels can result in policyholder dissatisfaction). Geographic location (key concern in selecting distribution system and channels, costs of establishing an exclusive or direct-writer agent are substantial in part b/c those agents are actual employees, cost of appointing an independent agent or using the direct response system is generally low). |
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Insurer's profile (system and channel selection) pt.3 |
Degree of control required (control the insurer wants over its marketing operations influences choice of distribution system (e.g. may choose producer that represents multiple insurers or many different insurers), can exercise the greatest control over producers in the direct writer system b/c they're employees, under both the agency and brokerage system and the exclusive agency system, the producers are independent contractors). |
