8. Distribution Channels Flashcards
Main distribution channels
- Direct marketing
- Own salesforce
- Tied agents
- Independent intermediaries (brokers)/ IFAs
Reason health and care products less likely to be mis-sold
- health and care products are primarily protection products
- policies differ in material ways
- more scope for judging suitability of products on basis of differences in benefits provided
- rather than on commission
- most individuals lack time and expertise to find product best value, appropriate for needs
- usually client initiates sale
Ways insurance intermediary may help client select cover options for PMI
- select cover most appropriate to needs and affordability
- help client decide aspects of cover
- level of hospital cover (procedures included/ excluded)
- cover for chronic conditions
- range of preventative options
- range of treatment protocols and medication covered
- co-payments, exclusions, co-payments
- freedom of choice wrt healthcare provider
Bank tied agents
- give access to warm customer base - established relationship, likely to be inclined to purchase products, in the bank ecosystem
- bank has information on clients - target marketing
Main forms of direct marketing
- mailshots
- telephone selling
- press advertising
- internet advertising, comparison websites
Worksite marketing
Process whereby broker/ insurance representative obtains permission from employer to address entire workforce and sell health and care insurance products
- complexity of cover suggested dependent on financial sophistication of targeted staff
Commission structures
Initial
Renewal
Initial
- Indemnity - lump sum from insurer to distributor in respect of new business written
- for example, may be expressed as percentage of first premium
Clawback
- indemnity commission earned over defined period
- commission repaid on early policy lapse if not earned
Renewal commission
- lesser amount of commission paid for balance of policy term to encourage persistency
Why initial commission a function of premium-paying policy term
profit from a policy would be expected to be broadly in proportion to total premiums paid over contract term
- longer premium-paying period, the higher profit would be expected to be
- sensible for the reward to intermediary to reflect this
Level commission
- distributor entitled to set proportion of premium
- does not involve insurer in new business strain
- simpler than other commission structures
- less popular with intermediaries - discourages the intermediary from actively seeking new clients
Effect on demographic assumptions
- level of underwriting linked to marketing strategy
- level of underwriting then reflected in demographic assumptions for pricing
- more stringently the company underwrites, the better the morbidity experience likely to be
- persistency rates are likely to be affected by level of financial sophistication and whether it was the policyholder who initiated the sale
Effect on need for competitive terms
- need for competitive terms varies by dbn channel
- greatest competition sold through insurance intermediaries
Other considerations
- products may be differentiated on innovative features
- complex products may be difficult to compare across companies
- UL products may compete based on past investment performance
- some products may compete on level of customer service
Group risks
Role of IFA
- responsible for communication and data gathering for insurer
- transfer premium receipts
- interested in retaining business with same employer but not necessarily same insurer
-
benefit to insurer
- assurance regarding quality of selection process
- minimum additional administration expense
downside
- limited exposure with employer - no relationship
- limited influence business retention
- limited influence on risk attitude and management of the employer
