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UNIVERSITY OF MUMBAI

ICLES’ MOTILAL JHUNJHUNWALA

COLLEGE,
VASHI, NAVI MUMBAI

COLLEGE CODE –
PROJECT REPORT
ON
MARKETING IN INSURANCE

SUBMITTED BY
AKASH ZOTE

PROJECT GUIDE
MR. SHASHANK
IN PARTIAL FULFILMENT FOR THE COURSE OF
BACHELOR OF COMMERCE (BANKING &
INSURANCE) T.Y.B.Com. (BANKING & INSURANCE)
(SEMESTER VI) ACADEMIC YEAR 2014 - 2015

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Acknowledgement

I, Akash Zote would take this opportunity to thank the Principle sir for providing me an
opportunity to study on a project on Banking. This has been a huge learning experience
for me.

With great pleasure I take this opportunity to acknowledge people who have made this
project work possible.

First of all I would sincerely like to express my gratitude towards my project Guide Mr. Shashank
for having shown so much flexibility, guidance as well as supporting me in all possible ways
whenever I needed help. I am thankful for the motivation provided by my project guide throughout
and helped me to understand the topic in a very effective and easy manner.

I would like to thank Principal Sir. Ramesh Yamgar and the coordinator of the course Mrs.
B.V. Laxmi for her indirect support throughout.

I would also like to thank, other teaching faculties of the college, my colleagues, Library
staff and other people for providing their help as when required to complete this project.

I acknowledge my indebtedness and express my great appreciation to all people behind

this work.

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DECLARATION

I, Akash Zote student of ICLE’S MOTILAL JHUNJHUNWALA COLLEGE, VASHI Studying in

T.Y.B. Com (Banking & Insurance) in Semester VI hereby declare that I have completed this
project on “MARKETING IN INSURANCE” as per the requirements of University of Mumbai
as a part of the curriculum of B.Com. (Banking & Insurance) course and this project has not
been submitted to any other University or institute for the award of any degree, diploma etc.

the information is submitted by me is true and original to the best of my knowledge .

Date: - --------------------- -----------------------

Place: Vashi, Navi Mumbai.

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Executive Summary

The information related to introduction of insurance marketing, marketing

mix i.e. information about product, price, promotion, place etc., marketing of life
insurance, distribution channels i.e. marketing intermediaries, financial institution and
direct response. Bancassurance and the future of life insurance marketing are also
covered under this project.
Thus the project report clarifies that the direct selling method of marketing of life
insurance product is the most profitable and inexpensive method.
Direct marketing also helps the insurance company to promote their product in
rural market.
Telemarketing helps the company to provide useful information to their customer
and to maintain proper database of the customer.

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INTRODUCTION TO INSURANCE MARKETING

There are insurance marketing strategies that can take any insurance agency

from mediocre to success when utilized correctly. Breaking into a new business climate

and finding customers is hard work, but when equipped with innovative ideas and proven

techniques, financial markets sales personnel can become extremely successful. Getting

an education and training is very important in every industry, sales is certainly no

exception. Those selling insurance will want begin their careers with the very best tools

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of the trade and those with already established businesses that are in need of a

motivational push will also gain great benefits by researching and learning new insurance

marketing tips. This article serves to give a few helpful hints and to encourage those in

this career to seek further and find the right system or push for their business.

Key insurance marketing strategies will always include an in-depth review

of a value of follow-up. All successful sales agents understand that consumers need to be

contacted again and again in order to make a vital connection. Also, great follow-up

protocol lets the potential customer know that good, solid customer service will be part of

the over-all package. Follow-up says to a consumer that they are important, thought of,

and that their business would be greatly appreciated. The consumer today not only wants

a product at a great price, they also want a personal relationship, especially when it

comes to financial system sales, such as various insurances. Letters and phone calls are

gentle reminders that the salesperson intends to serve with his or her whole heart. And,

once a sale is secured, a thank you call is strongly advised.

Those in this industry will also want to keep constant contact with existing

customers, too. The competition is fierce today, and no one wants to loose a customer to

the next guy or service to come along. Clients that have had no contact for a period of

time loose loyalty. Keep birthday and anniversary postcards going into the home on a

regular basis. Keeping a name before a consumer will keep a name in their conscience.

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OBJECTIVES OF THE STUDY

1. To know about the marketing strategies of life insurance sector.

2. To know about different role of intermediaries such as agents, franchisers in life

insurance marketing.

3. To know about the promotional policies adopted by life insurance companies.

4. To know about insurance marketing in Indian environment.

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LIMITATIONS OF THE STUDY

The scope of the project “The Study of Role of Marketing in Life Insurance Sector” has

been restricted to some extent i.e. the project does not include the following:-

1. Study of Customer Relationship Management (CRM) program.

2. Study of insurance marketing in global market.

3. Study of role of marketing in general insurance sector.

4. Study of comparison of life insurance marketing and general insurance marketing.

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MARKETING MIX

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The term marketing mix refers to the four major areas of decision making in the

marketing process that are blended to obtain the results desired by the organization. The

four elements of the marketing mix are sometimes referred to the four Ps of marketing.

The marketing mix shapes the role of marketing within all types of organizations, both

profit and nonprofit. Each element in the marketing mix—place, price product promotion,

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and,—consists of numerous sub elements. Marketing managers make numerous decisions

based on the various sub elements of the marketing mix, all in an attempt to satisfy the

needs and wants of consumers.

PRODUCT

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The first element in the marketing mix is the product. A product is any combination of

goods and services offered to satisfy the needs and wants of consumers. Thus, a product

is anything tangible or intangible that can be offered for purchase or use by consumers. A

tangible product is one that consumers can actually touch, such as a computer. An

intangible product is a service that cannot be touched, such as computer repair, income

tax preparation, or an office call. Other examples of products include places and ideas.

For example, the state tourism department in New Hampshire might promote New

Hampshire as a great place to visit and by doing so stimulate the economy. Cities also

promote themselves as great places to live and work. For example, the slogan touted by

the Chamber of Commerce in San Bernardino, California, is "It's a great day in San

Bernardino." The idea of wearing seat belts has been promoted as a way of saving lives,

as has the idea of recycling to help reduce the amount of garbage placed in landfills.

Typically, a product is divided into three basic levels. The first level is often called the

core product, what the consumer actually buys in terms of benefits. For example,

consumers don't just buy trucks. Rather, consumers buy the benefit that trucks offer, like

being able to get around in deep snow in the winter. Next is the second level, or actual

product, that is built around the core product. The actual product consists of the brand

name, features, packaging, parts, and styling. These components provided the benefits to

consumers that they seek at the first level. The final, or third, level of the product is the

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augmented component. The augmented component includes additional services and

benefits that surround the first two levels of the product. Examples of augmented product

components are technical assistance in operating the product and service agreements.

Products are classified by how long they can be used—durability—and their tangibility.

Products that can be used repeatedly over a long period of time are called durable goods.

Examples of durable goods include automobiles, furniture, and houses. By contrast,

goods that are normally used or consumed quickly are called nondurable goods. Some

examples of nondurable goods are food, soap, and soft drinks. In addition, services are

activities and benefits that are also involved in the exchange process but are intangible

because they cannot be held or touched. Examples of intangible services included eye

exams and automobile repair.

Another way to categorize products is by their users. Products are classified as either

consumer or industrial goods. Consumer goods are purchased by final consumers for

their personal consumption. Final consumers are sometimes called end users. The

shopping patterns of consumers are also used to classify products. Products sold to the

final consumer are arranged as follows: convenience, shopping, specialty, and unsought

goods. Convenience goods are products and services that consumers buy frequently and

with little effort. Most convenience goods are easily obtainable and low-priced, items

such as bread, candy, milk, and shampoo. Convenience goods can be further divided into

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staple, impulse, and emergency goods. Staple goods are products, such as bread and milk

that consumers buy on a consistent basis. Impulse goods like candy and magazines are

products that require little planning or search effort because they are normally available

in many places. Emergency goods are bought when consumers have a pressing need. An

example of an emergency good would be a shovel during the first snowstorm of the

winter.

Shopping goods are those products that consumers compare during the selection and

purchase process. Typically, factors such as price, quality, style, and suitability are used

as bases of comparison. With shopping goods, consumers usually take considerable time

and effort in gathering information and making comparisons among products. Major

appliances such as refrigerators and televisions are typical shopping goods. Shopping

goods are further divided into uniform and no uniform categories. Uniform shopping

goods are those goods that are similar in quality but differ in price. Consumers will try to

justify price differences by focusing on product features. No uniform goods are those

goods that differ in both quality and price.

Specialty goods are products with distinctive characteristics or brand identification for

which consumers expend exceptional buying effort. Specialty goods include specific

brands and types of products. Typically, buyers do not compare specialty goods with

other similar products because the products are unique. Unsought goods are those

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products or services that consumers are not readily aware of or do not normally consider

buying. Life insurance policies and burial plots are examples of unsought goods. Often,

unsought goods require considerable promotional efforts on the part of the seller in order

to attract the interest of consumers.

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PRICE

The second element in marketing mix is price. Price is simply the amount of money that

consumers are willing to pay for a product or service. In earlier times, the price was

determined through a barter process between sellers and purchasers. In modern times,

pricing methods and strategies have taken a number of forms.

Pricing new products and pricing existing products require the use of different strategies.

For example, when pricing a new product, businesses can use either market-penetration

pricing or a price-skimming strategy. A market-penetration pricing strategy involves

establishing a low product price to attract a large number of customers. By contrast, a

price-skimming strategy is used when a high price is established in order to recover the

cost of a new product development as quickly as possible. Manufacturers of computers,

videocassette recorders, and other technical items with high development costs frequently

use a price-skimming strategy.

Pricing objectives are established as a subset of an organization's overall objectives. As a

component of the overall business objectives, pricing objectives usually take one of four

forms: profitability, volume, meeting the competition, and prestige. Profitability pricing

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objectives mean that the firm focuses mainly on maximizing its profit. Under profitability

objectives, a company increases its prices so that additional revenue equals the increase

in product production costs. Using volume pricing objectives, a company aims to

maximize sales volume within a given specific profit margin. The focus of volume

pricing objectives is on increasing sales rather than on an immediate increase in profits.

Meeting the price level of competitors is another pricing strategy. With a meeting-the-

competition pricing strategy, the focus is less on price and more on nonprice competition

items such as location and service. With prestige pricing, products are priced high and

consumers purchase them as status symbols.

In addition to the four basic pricing strategies, there are five price-adjustment strategies:

discount pricing and allowances, discriminatory pricing, geographical pricing,

promotional pricing, and psychological pricing. Discount pricing and allowances include

cash discounts, functional discounts, seasonal discounts, trade-in allowances, and

promotional allowances. Discriminatory pricing occurs when companies sell products or

services at two or more prices. These price differences may be based on variables such as

age of the customer, location of sale, organization membership, time of day, or season.

Geographical pricing is based on the location of the customers. Products may be priced

differently in distinct regions of a target area because of demand differences. Promotional

pricing happens when a company temporarily prices products below the list price or

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below cost. Products priced below cost are sometimes called loss leaders. The goal of

promotional pricing is to increase short-term sales. Psychological pricing considers prices

by looking at the psychological aspects of price. For example, consumers frequently

perceive a relationship between product price and product quality.

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PROMOTION

Promotion is the third element in the marketing mix. Promotion is a communication

process that takes place between a business and its various publics. Publics are those

individuals and organizations that have an interest in what the business produces and

offers for sale. Thus, in order to be effective, businesses need to plan promotional

activities with the communication process in mind. The elements of the communication

process are: sender, encoding, message, media, decoding, receiver, feedback, and noise.

The sender refers to the business that is sending a promotional message to a potential

customer. Encoding involves putting a message or promotional activity into some form.

Symbols are formed to represent the message. The sender transmits these symbols

through some form of media. Media are methods the sender uses to transmit the message

to the receiver. Decoding is the process by which the receiver translates the meaning of

the symbols sent by the sender into a form that can be understood. The receiver is the

intended recipient of the message. Feedback occurs when the receiver communicates

back to the sender. Noise is anything that interferes with the communication process.

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There are four basic promotion tools: advertising, sales promotion, public relations, and

personal selling. Each promotion tool has its own unique characteristics and function. For

instance, advertising is described as paid, nonpersonal communication by an organization

using various media to reach its various publics. The purpose of advertising is to inform

or persuade a targeted audience to purchase a product or service, visit a location, or adopt

an idea. Advertising is also classified as to its intended purpose. The purpose of product

advertising is to secure the purchase of the product by consumers. The purpose of

institutional advertising is to promote the image or philosophy of a company. Advertising

can be further divided into six subcategories: pioneering, competitive, comparative,

advocacy, reminder, and cooperative advertising. Pioneering advertising aims to develop

primary demand for the product or product category. Competitive advertising seeks to

develop demand for a specific product or service. Comparative advertising seeks to

contrast one product or service with another. Advocacy advertising is an organizational

approach designed to support socially responsible activities, causes, or messages such as

helping feed the homeless. Reminder advertising seeks to keep a product or company

name in the mind of consumers by its repetitive nature. Cooperative advertising occurs

when wholesalers and retailers work with product manufacturers to produce a single

advertising campaign and share the costs. Advantages of advertising include the ability to

reach a large group or audience at a relatively low cost per individual contacted. Further,

advertising allows organizations to control the message, which means the message can be

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adapted to either a mass or a specific target audience. Disadvantages of advertising

include difficulty in measuring results and the inability to close sales because there is no

personal contact between the organization and consumers.

The second promotional tool is sales promotion. Sales promotions are short-term

incentives used to encourage consumers to purchase a product or service. There are three

basic categories of sales promotion: consumer, trade, and business. Consumer promotion

tools include such items as free samples, coupons, rebates, price packs, premiums,

patronage rewards, point-of-purchase coupons, contests, sweepstakes, and games. Trade-

promotion tools include discounts and allowances directed at wholesalers and retailers.

Business-promotion tools include conventions and trade shows. Sales promotion has

several advantages over other promotional tools in that it can produce a more immediate

consumer response, attract more attention and create product awareness, measure the

results, and increase short-term sales.

Public relations is the third promotional tool. An organization builds positive public

relations with various groups by obtaining favorable publicity, establishing a good

corporate image, and handling or heading off unfavorable rumors, stories, and events.

Organizations have at their disposal a variety of tools, such as press releases, product

publicity, official communications, lobbying, and counseling to develop image. Public

relations tools are effective in developing a positive attitude toward the organization and

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can enhance the credibility of a product. Public relations activities have the drawback that

they may not provide an accurate measure of their influence on sales as they are not

directly involved with specific marketing goals.

PLACE

The fourth element of the marketing mix is place. Place refers to having the right product,

in the right location, at the right time to be purchased by consumers. This proper

placement of products is done through middle people called the channel of distribution.

The channel of distribution is comprised of interdependent manufacturers, wholesalers,

and retailers. These groups are involved with making a product or service available for

use or consumption. Each participant in the channel of distribution is concerned with

three basic utilities: time, place, and possession. Time utility refers to having a product

available at the time that will satisfy the needs of consumers. Place utility occurs when a

firm provides satisfaction by locating products where they can be easily acquired by

consumers. The last utility is possession utility, which means that wholesalers and

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retailers in the channel of distribution provide services to consumers with as few

obstacles as possible.

Channels of distribution operate by one of two methods: conventional distribution or a

vertical marketing system. In the conventional distribution channel, there can be one or

more independent product manufacturers, wholesalers, and retailers in a channel. The

vertical marketing system requires that producers, wholesalers, and retailers to work

together to avoid channel conflicts.

How manufacturers store, handle, and move products to customers at the right time and at

the right place is referred to as physical distribution. In considering physical distribution,

manufacturers need to review issues such as distribution objectives, product

transportation, and product warehousing. Choosing the mode of transportation requires an

understanding of each possible method: rail, truck, water, pipeline, and air. Rail

transportation is typically used to ship farm products, minerals, sand, chemicals, and auto

mobiles. Truck transportation is most suitable for transporting clothing, food, books,

computers, and paper goods. Water transportation is good for oil, grain, sand, gravel,

metallic ores, coal, and other heavy items. Pipeline transportation is best when shipping

products such as oil or chemicals. Air transport works best when moving technical

instruments, perishable products, and important documents.

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Another issue of concern to manufacturers is the level of product distribution. Normally

manufacturers select from one of three levels of distribution: intensive, selective, or

exclusive. Intensive distribution occurs when manufacturers distribute products through

all wholesalers or retailers that want to offer their products. Selective distribution occurs

when manufacturers distribute products through a limited, select number of wholesalers

and retailers. Under exclusive distribution, only a single wholesaler or retailer is allowed

to sell the product in a specific geographic area.

MARKETING OF LIFE INSURANCE

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MARKETING OF LIFE INSURANCE

A life insurance company’s success reflects the consolidated effort of all its

activities. These activities may be arranged into three major functional classifications –

marketing, investments and administration. Of these three areas, marketing is the largest

in terms of both personnel requirements and costs and is critical to success.

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Life insurers historically considered marketing to be synonymous with selling and

most insurers considered their customers to be their agents. By the middle of the

twentieth century, a customer-oriented philosophy began to emerge in business generally,

coming to some national markets later than others. As this new marketing concept was

adopted by more and more companies, it began to spread to services industries generally

and the life insurance industry specially. The concept involves:

 Focusing on consumer needs

 Integrating all activities of the organisation, including production, to satisfy these

needs

 Achieving long-term profits through satisfaction of consumer needs

Although life insurers were late in adopting this concept, the recent intense

competition within the life insurance business and the growing competition from other

financial services organizations substantially heightened its importance. To be

successful today, a life insurance must create a satisfied customer and then turn that

customer into a client. Historically, this was done by the agent. Today insurers seek

ways to argument and enhance the service provided by the agent.

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DISTRIBUTION CHANNELS

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An insurer that considers itself to be truly market driven (in contrast to

product or distribution driven) would use distribution channels that reflected the ways

that its customers wanted to interact with the insurer. Of course, for most insurers, there

are practical limits to the implementation of this philosophy. Even so, the great variety of

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distribution systems found in life insurance suggests that insurers continue to strive

toward this elusive goal.

In this section, we present the major distribution channels found in life

insurance. As will be seen, life insurers have evolved an almost bewildering array of

distribution systems. To simplify this complexity, we structure our discussion around

three broad categories of distribution channels:

 Marketing intermediaries

 Financial institutions

Marketing intermediaries are individuals who sell an insurer’s products,

typically on a face-to-face basis with customers and usually for a commission on each

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sale. Agents and brokers are marketing intermediaries. Most life insurance worldwide is

sold through new individual life insurance sales and for majority shares of other life and

health insurance sales.

Financial institutions are deposit-taking, investment, and other financial

firms that sell insurer’s products. They include commercial banks, investment banks,

thrifts, credit unions, mutual fund organizations, and other insurers. Banks are important

distribution channels in some of the overall U.S. life insurance market is less than 5

percent, although their share of variable products, with other financial institutions having

small shares.

With the direct response distribution channel, the customer deals directly

with the insurer without benefit of any intervening intermediary or firm. No face-to-face

contact from the insurer, such as through the mail, television, or telephone. This

distribution channel accounts for about 2 percent of total U.S. life insurance sales.

DISTRIBUTION THROUGH MARKETING INTERMEDIARIES

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We can divide marketing intermediaries into two broad classes, depending

on whether the insurer is attempting to build its own agency sales force. Thus, many

insurers have an agency-building distribution strategy under which they recruit, train,

finance, house, and supervise their agents. Such insurers are heavily involved in

recruiting individuals new to the insurance business.

Other insurers follow a non-agency-building distribution strategy under

which they do not seek to build their own agency sales force. Instead, they rely on

established agents for their sales. Under this strategy, the insurer seeks experienced

salespersons and avoids expenses associated with training, financing, and providing

office facilities.

Figure 24-2 shows the various divisions of agency-building and non-agency-

building distribution channels. We cover each next, relying on this agency-building

distinction. Of course, an insurer may use several distribution channels. The reason for

multiple distribution strategies is to serve several markets effectively. A market-driven

strategy calls for an optimal market-product-distribution linkage.

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Agency-Building Distribution

Most students of the industry agree that life insurers utilizing the agency-building

distribution strategy have been responsible for the widespread acceptance of life

insurance. These insurers have provided the initial training essential to successful

intermediary marketing. Four types of agency-building distribution channels exist:

1. career agency

2. multiple-line exclusive

3. home service

4. salaried

Each of these channels relies on agents who are commissioned or salaried

sale people who hold full-time contracts to represent the insurer. Most of these agents are

exclusive agents (also called tied or captive agents), meaning that they represent a single

insurer only.

Career Agency: Career agents are commissioned life insurance agents who

primarily sell one company’s products. They are probably the most commonly known life

insurance agents. Well known U.S. life insurers using the career agency distribution

channel include Metropolitan to career agency distribution are found: branch offices and

general agencies. We discuss each next.

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The branch office system. Under the branch office system, also called the

managerial system, the insurer establishes agencies in various locations, each headed by

an agency manager who is an employee of the insurer. The largest life insurers worldwide

tend to use the branch office system. The agency manager is charged with the

responsibility of recruiting new agents within a given territory and training and otherwise

helping and encouraging them in their work as solicitors.

Agency managers may be assisted by an office manager, assistant managers,

supervisors, specialist unit managers, or district managers. Assistants are responsible for

specific functions or for units of agents, or they may provide overall assistance to the

head of the agency. The office manager is particularly important in the branch office

system. He or she is expected to keep all office records; look after all correspondence in

connection with applications and policies; assist in filing proofs of loss, applications for

policy loans, and payment of cash values on surrenders; answer all communications from

policy owners not sufficiently important to be referred to the home office; and supervise

the clerical staff.

Agency-building systems (either general agency or managerial) also are

used by fraternal organizations that offer life and health insurance to their members. The

agents of these religious and social groups may sell policies only to members of the

fraternal society.

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The general agency system. The general agency system, which, in its pure form, is only

theoretical today in the United States, is the older of the two career agency systems and

aims to accomplish through agency managers. The company-appointed general agent

(GA) typically represents the company within a designated territory over which he or she

is given control. The general agent’s contract requires that the insurer pay a stipulated

commission on the first year’s premiums plus a renewal on subsequent premiums. In

return, the general agent agrees to build the company’s business in that territory.

The GA is responsible for agent recruitment, training, and supervision, as

with the agency manager. Agents contract with the insurer through the GA and are paid a

commission by the insurer for their sales. The GA also receives a commission on agent’s

sales, called an override or overriding commission.

In the past, the GA operated more or less as an independent entrepreneur,

managing his or her agency and meeting all operational expenses from override

commissions. Routine administrative matters today usually are handled by a separate

group of persons located in the general agent’s office or in separate offices throughout the

country and are directly responsible to the home office. It is also now common for the

insurer to pay the office rent directly. This is done to discourage the closing of the office,

which would leave the insurer without representation. In addition, companies now make

substantial expense reimbursements allowances.

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Home Service. A third agency-building life insurance distribution channel is

the home service distribution system, also known as the combination or debit distribution

system, which relies on exclusive agents who are assigned a geographic territory. The

target market for home service distribution is lower-income consumers. At one time,

agents collected renewal premiums on business in force in their territory (called their

debit), but the collection aspect has been deemphasized by many companies.

Originally, much of the business consisted of industrial insurance with

weekly collections of premium. Today almost all of the new sales consist of ordinary

insurance with premiums collected on a monthly basis or billed through the mail. The

assigned territory is becoming a sales region, as less of the business requires collection of

premiums by the agent.

The home service distribution system at one time was the largest and was

used by the largest life insurers, including Prudential and Metropolitan. Many insurers

have since abandoned this distribution system as being too costly. The number of home

service agents has fallen by 76 percent during the past 15 years.

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Salaried. The fourth agency-building life insurance distribution channel is

use of salaried insurer employees. Even though most life insurance is sold by

commissioned salespeople, a small share is sold by agents who are paid mostly or

exclusively by salary. For example, savings bank life insurance is sold in the states of

Connecticut, Massachusetts, and New York through salaried bank employee-agents,

although the trend is for the savings banks to use more conventional approaches. The

most important salaried distribution, however, occurs in group insurance.`

Group insurance actually involves three very distinct products lines –

retirement, group life, and group health products. The insurer typically markets through

group sales representatives who are salaried employees of the insurer charged with

promoting and possibly servicing the insurer’s group business. Group sales

representatives usually are also paid incentive bonuses based on achievement of

production goals.

The group representative’s responsibilities may be to sell group products

directly to customers or to promote the insurer’s group sales through its own or other

insurer’s marketing intermediaries to whom commissions are paid. Thus, group sales

representatives call on their own career agents, independent benefit consultants, third

party administrators, national brokerage organizations, independent property and liability

agents, and agents of other companies.

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Most of the smaller-sized cases are sold through career agents, either the

insurer’s own career agents or agents of other companies. Sales to other employer-

employee cases and association groups tend to be made through specialized brokers or, in

some instances, written directly with the employer. Many of the recent developments in

distribution systems reflect a continuing effort to find more effective ways to deliver

insurance products and service larger numbers of customers.

In addition to group insurance as such, various forms of mass marketing

have developed, frequently involving an agent. Association group, credit card

solicitations, and worksite marketing are examples.

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Agency Management. Effective field management is essential to the

success of agency-building distribution systems. An agency head’s responsibility is to

manage resources to achieve the common objectives of the agency and the company. In

terms of activities, these duties consist of:

 manpower development, including product and sales skills training

 supervision of agents

 motivation of agents and staff

 business management activities (e.g. office duties, public relations activities,

interpreting insurer policy, and expense management)

 personal production

Personal production by the agency head has a low priority in agency-

building companies. Although it is usually permitted, the need for growth and the design

of the agency manager’s or GA’s compensation formula both mitigate against significant

activity of this type.

Agent recruiting usually is the agency manager’s or GA’s most important

responsibility. The turnover rate of agents in many markets is 25 percent per year, so the

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agency head has to replace a fourth of the agency’s sales force each year just to maintain

the agency’s size. Recruiting is not one activity but a process, the steps of which include

1.

2. determining acceptable qualifications

3. approaching prospective agents

4. using selection tools

5. interviewing candidates

6. contracting with qualified individuals

The manager may attempt to locate several (three to five) prospective agents

at one time. As there is always fallout in the selection process, the group techniques

usually allow some recruits to be added to the agency from each recruiting effort.

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Non-Agency-Building Distribution

The other major classification of life insurance marketing channels relying

on marketing intermediaries is called non-agency-building distribution, as noted earlier.

Four common non-agency-building distribution channels are:

 brokerage

 personal-producing general agents

 independent property and casually agents

 producer groups

Agents selling through these channels are always nonexclusive; they sell for

more than one insurer. Not all of these channels exist in every country, with some

countries having no parallel to the non-agency-building system. In markets where they

exist, terminology may differ; for example, the U.K. concept of independent financial

advisors (IFAs) is akin to U.S. brokerage.

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Insurers that market through nonexclusive agent strategies provide products

or services to agents who are already engaged in life and health insurance selling. Thus,

the key to this strategy is to gain access to the producer. The producer’s loyalty is retained

by quality service, good compensation, and sound personal relationships.

Brokerage: Brokerage insurers gain access to agents through a company

employee, often called a brokerage representative or supervisor, who acts as the insurer’s

representative, or through an independent brokerage general agent who performs the

same function. Both of these individuals are authorized to appoint brokers on behalf of

the insurer. Direct contracting in response to trade press advertising also is used.

The term broker, as used in the U.S. lexicon of life insurance distribution,

refers to a commissioned salesperson who works independently of the insurer with whom

the brokerage business is placed & who has no minimum production requirements with

that insurer. In property and casualty insurance, a broker usually represents the client

rather than the insurer. In most U.S. jurisdiction, a life broker actually is an agent for the

insurer but subject to less supervision and control than that found with career agents. In

other countries, the term broker in life insurance refers to a full-time intermediary who

offers policies from several, if not all, life insurers in the market and who usually is the

legal representative of the applicant, not the insurer.

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Personal-Producing General Agents: A second type of marketing

intermediary falling within the non-agency-building category is the personal-producing

general agent. Personal-producing general agents (PPGAs) are independent,

commissioned agents who typically work alone and focus on personal production. Some

PPGAs appoint subagents, although most do not. PPGA insurers gain access to producers

through an organizational structure that is similar to the one used by brokerage insurers:

(1) company-employed regional directors of PPGAs, (2) independent contractors-

managing general agents, and (3) direct contracting with individuals identified through

trade press advertising. Both regional directors and managing general agents are

authorized to appoint PPGAs.

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The PPGA strategy has two variations. In the more traditional regional

director approach, experienced life agents are hired under contracts that provide both

direct and override commissions plus some type of expense allowance. For this, the

PPGAs supply their own office facilities and receive technical assistance in the form of

computer services and advanced sales support. Although personal-producing general

agents usually have contracts with more than one insurer, companies using the traditional

approach try to be the PPGA’s primary carrier. The managing general agent approach

typically specializes in single products, such as universal life or disability income, and is

essentially franchised to appoint PPGAs for the company in a territory.

Although there are philosophy differences in approach, a clear difference at

the producer level between the brokerage and the PPGA strategy is in the commission

schedule. The former resembles a career agent contract and the latter has elements of

general agent contract. Another difference is that brokerage business from a single agent

often is sporadic, whereas PPGA business is intended to be continuing. Both strategies

can operate simultaneously in the same insurer, along with others.

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Independent Property and Casualty Agents: A third type of marketing

intermediary using the non-agency-building approach is the independent property and

casualty agent. Independent property and casualty agents are commissioned agents whose

primary business is the sale of property and casualty insurance for several insurers. Often

the property and casualty insurers that the agent represents will have life insurer affiliates,

sell life insurance for them. Additionally, unaffiliated life insurers often seek independent

property and casualty agents as salespeople.

Technically, independent property and casualty agents who sell life

insurance unusually do so either as brokers or PPGAs. However, because of their

importance and uniqueness, and as contrast with the MLEA, we present them as a

separate distribution channel.

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Producer Groups: A fourth variation of the non-agency-building

distribution strategy has been the development of producer groups, which are

independent marketing organizations that specialize in the high-end market. Producer

groups are distinguished by three characteristics:

1. Membership is composed of independent life agents who specialize in high-end

markets.

2. The group is self-supporting, having negotiated special commission rates with

several insurance companies.

3. Minimum production requirements apply to members.

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Under its contracts with insurers, it receives maximum compensation with

virtually no market support services. Producer group provide the necessary sales and

marketing support systems to the member agents. Specialized software and other strong

computer and research support are hallmarks of producer groups, often affording their

members a competitive advantage.

The marketing organization typically provides its own continuing education

program, administration, illustration services, presubmission underwriting, and case

management the producer. It also provides market-specific or sales-concept support. Most

producer groups have created their own reinsurance companies-an additional source of

profitability. With such producer groups, part of the negotiation with direct-writing

insurers focuses on terms and conditions under which the insurer cedes business to its

reinsurance company.

DIRECT RESPONSE DISTRIBUTION SYSTEM

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Of the three major categories of distribution channels in life insurance,

direct response is the least important as measured by premiums written. Direct-response

marketing can take many forms, but in a broad sense it means that the sales is made from

the company direct to the customer without involving a face-to-face meeting between

buyer responds directly to the company because of solicitation via mail, broadcast media,

the Internet, and so on.

There is growing interest in direct-response marketing of life and health

insurance because some companies that specialize in direct-response sales have been able

to sell as many new policies as the largest career agent companies with thousands of

agents.

Direct marketing offers the consumer some of the same coverages available

from marketing intermediaries. The principal differences to the consumer are usually cost

and service. The same level of coverage sold through an agent may sometimes cost more

than when sold through an efficient direct-response marketing program, but, of course,

the potential exists for greater personal service if an agent is involved in the transaction.

At one time, life insurance sold by direct-response marketing was primarily

supplement coverage

More recently, companies have begun to offer comprehensive life and health

insurance protection, annuities, estate planning, and other products through direct-

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response marketing methods. Where direct-response marketing is targeted to a select

group of consumers, and the insurer has an affinity agreement with the consumer, it can

offer a broader range of relatively complex products. At least one successful insurer sells

automobile insurance, cash-value life insurance, and annuities to its customer base and

does it effectively. It utilizes professional, salaried salesperson in a telemarketing

arrangement. Regardless of how the sale has been completed – by an agent or direct-

response marketing – from that point on, the client frequently deals with the insurer on a

direct basis. Premium notices are sent by mail. Premiums are paid by mail or automatic

bank draft and at times claims are filed and benefit checks are delivered by mail. In this

sense, the direct-response concept – whereby the insurer deals directly with the consumer

– is not restricted to a few direct-response specialty companies, but is a concept that is

common to all elements of the insurance business.

Direct-response marketing can be accomplished through several

media.Direct mail is the oldest method of direct-response marketing. It depends on the

availability of mailing lists that may be obtained from many sources. Today lists can be

created that are specific as to the economic, demographic, and other characteristics of

individuals on the lists. A sponsored arrangement – under which the insurer arranges with

an association or similar group to offer products to its membership, is mailed

solicitations, or advertisements are placed in the association’s magazine or newsletter.

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Newspapers, magazines, and other print media reach large numbers of

consumers but only on a broad basis. In terms of total numbers reached, broadcast

surpasses all other media. The direct – response marketing use of television, utilizing

well-known personalities as sponsors, is popular for two reasons. First, the size of the

audience is staggering in its potential. Second, direct-response specialists have learned

how to reach specialized groups of viewers efficiently. However, the use of such “stars”

to sell insurance products has come under attack. Opponent’s claims that the material

often is misleading and the products are high in price.

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THE FUTURE OF LIFE INSURANCE MARKETING

The marketing since continues to change at an unprecedented rate. The

financial services evolution has masked the remarkable changes taking place in the

provision of insurance services themselves. Distribution systems in developed countries

have been influenced significantly by the cost pressures that continue to drive much of

the merger and acquisition activity. There are significant differences in marketing costs

for different distribution channels. Companies are trying either to significantly reduce the

cost of their distribution system or are looking for other lower-cost methods of

distribution.

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The production challenge

Surveys of life insurance executives consistently rank the need to improve

distribution and to reduce distribution costs as among the greatest challenges they face.

Marketplace dynamics are shaping the current distribution difficulties. Changing

demographics are creating a greater demand for asset accumulation products. Consumers

want more information, which heightens price sensitivity. Compensation for consumers’

savings is also intensifying, primarily from outside the mainstream of the life industry.

All of these factors have contributed to greater cost transparency and a more informed

and demanding consumer.

Additionally, insurance executives report that distribution costs are too high

and productivity to low. This is unsurprising because distribution-related costs may

account for two-thirds to three-fourths of an insurer’s total expense. Additionally, the

typical agent in the United States averages less than one policy sale per week.

Executives also complain about agent recruiting and retention. Public trust

of the life insurance business and its agents is low. The typical insurer must hire five to

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seven agents to yield one productive agent four years later. Insurer investment in a new

career agent can easily exceed $100,000. This low retention rate puts enormous cost

pressure on the system. Moreover, even those who survive to their fourth year often leave

as their value to other insurers, especially those relying on a non-agency-building

distribution strategy, rises enormously.

The size of a company’s investment in new agents and the period of time to

recover it depend on several factors such as agent productivity, persistency, inflation, and

most importantly, retention. Although improving agent retention is more difficult than

improving persistency and productivity, capital spent in this area has the potential for

much higher returns.

An even greater distribution issue relates to the appropriate alignment of

customer, agent, and insurer interests. The traditional heaped first-year commission

arrangement has been the norm for decades. Its rationale stems from the belief that life

insurance has to be sold-it is not bought (voluntarily) by consumers – and the

concomitant belief that a high initial commission is essential if agents are to have

sufficient motivation to sell.

The belief that consumers will not purchase life insurance on their own

volition or, as a variation of this theme, except through a commissioned agent, is today

open to question. It is probably true that the great majority of consumers need not be a

commissioned agent, and if the person is an agent, he or she need not necessarily be

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compensated through a heaped commission structure. Moreover, it is not self-evident that

the only way to motivate agents to sell life insurance. Moreover, it is not self-evident that

the only way to motivate agents to sell life insurance is through the heaped commission

approach.

This emphasis on new sales can encourage a short-run perspective – one that

many executives believe is compatible with building long-term customer relations (and

trust) for the insurer and the agent. Ill-advised replacement and churning are the

unfortunate but not expected consequences.

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Possible Compensation Solution

Many life companies have turned to compensation-based solutions rather

than making more fundamental and, therefore, more difficult changes in their distribution

systems. Many others are exploring the use of alternative distribution channels consistent

with a market-driven marketing philosophy. Some insurers will use alternative

approaches to complement existing distribution channels, either to generate leads or to

provide product to market segments not reached by agents. Other insurers may take more

drastic actions, spurred on by financial institution and direct-response distribution

successes.

Agent commissions are perhaps the most visible form of distribution costs

and, thus, receive the most attention. Yet other distribution costs often exceed the cost of

agent commissions. These include but are not limited to field manager income and

agency expenses, marketing support, and field benefits.

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Current efforts in compensation, however, still aim at reducing the more

visible agent commission. Ultimately, total product margins are driven by the perceived

by the agent. Increased sophistication of both consumers and insurers should produce a

closer alignment of agent compensation with the value of services delivered.

Insurers and distributors of life insurance are exploring the following

nontraditional approaches to agent and manager compensation:

 Salary plus bonus

 Partnering

These alternatives relate mostly to agency-building distribution systems

because companies selling through non-agency-building distribution channels have less

leverage to affect agent compensation. However, other channels will inevitably be

affected.

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Salary Plus Bonus

Under salary plus bonus plans, individuals responsible for the sale of life

insurance receive a salary with an incentive bonus tied to performance. Several

commercial banks consider this approach desirable. Even though such plans probably

more applicable to home office direct sales personnel than to field agents, more

organizations are considering this approach.

In situations in which the organization generates leads (e.g., bank annuity

marketing to customers with maturing CDs), the overall payout is reduced to reflect the

value created through lead generation. Incentive bonuses can be based on multiple

factors, including gross revenue, net or gross profit, cross selling acquisition and

retention.

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Partnering

Some agencies and producer groups have adopted the concept of partnering.

In such an arrangement, senior members of the group receive percentages of cases or

percentages of profits. Although compensation still tends to be variable, these plans

recognize that much of the revenue generated by a marketing organization is attributable

to the marketing effort and infrastructure support of the organization as a whole. Thus,

more of the revenue is allocated for these purposes. This approach lends itself to the

division of labor, as specialty roles within a selling and planning organization.

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Choosing the Right Distribution Model

An effective life company distribution model should be customer focused. It

should also reflect both company goals and customer needs. That is, it should be

consistent with the company strategy, supportive of its values, and economically viable,

while satisfying customer demands for value. The model should provide the company

adequate control of sales activities to ensure they are consistent with company goals and

objectives and meet compliances standards. It should also include appropriate incentives

to produce desired behaviors. Most importantly, it should be cost-effective.

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The marketplace eventually determines what amounts will be paid for

products and services. As consumers become better informed, their purchasing decisions

regarding financial products and services will be increasingly influenced by the level and

pattern of sales compensation priced into products loads. However, many life insurance

products are less transparent, which somewhat disguises the loads for distribution costs.

BIBLIOGRAPHY

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Books / Articles / Journals: -

- Life And Health Insurance [Third Edition] By –

Kenneth Black Jr. & Harold D. Skipper Jr.

Web Sites: -

www.apa.co.uk [Association of Publishing Agencies]

www.icfai.org

www.estrategicmarketing .com

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TABLE OF CONTENT

INTRODUCTION TO INSURANCE MARKETING

MARKETING MIX
MARKETING OF LIFE INSURANCE
DISTRIBUTION CHANNELS
DIRECT RESPONSE DISTRIBUTION SYSTEM
THE FUTURE OF LIFE INSURANCE MARKETING
BIBLIOGRAPHY

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