CH 8 (WM) Flashcards
Describe the characteristics of the broker distribution channel. [3.5]
Also known as insurance intermediaries or insurance brokers.✓✓
Self-employed✓; they are salespeople who are independent of companies whose products they sell.✓✓
Their aim is to find the contract that best meets the needs and situation of their clients✓✓, i.t.o. premiums and benefits.✓
It will often be the client who initiates the sale.✓✓ However, intermediaries are also likely to promote themselves actively to existing clients by for eg, instigating a periodic review of finances.✓✓
Rewards via commission from insurers, or client fees.✓✓
Describe the characteristics of the Tied Agent distribution channel. [3]
These are salespeople who are “tied” to one, or sometimes several, insurance companies✓✓ – they offer to their clients only the products of those companies.✓
Typically, they may be the employees of a bank or other similar financial institution.✓✓
Where the tie is to more than one company, the product ranges of the companies are usually mutually exclusive.✓✓
They are remunerated via commission payments from the companies to which they are tied.✓✓
Often the prospective PH will initiate the sale, but tied agents may actively engaged in selling.✓✓
Bank staff are often given incentives to introduce products to clients.✓
Describe the characteristics of the Own Salesforce distribution channel. [4]
These are usually employees of an insurance company and will only sell the products of that company.✓✓
It will usually be the salesperson who initiates the sale✓, making use of client lists or purchased leads.✓✓
However, once he or she has built up a rapport with a particular client, the client often initiates further sales.✓✓
It is often seen as helpful for a company that is selling through an own salesforce to have a full range of products.✓✓
This way once it has a “warm” client✓ it can try to sell that client other kinds of insurance products✓ – such as life insurance✓, savings✓ and general insurance✓, as well as healthcare.✓
Describe the characteristics of the Direct Marketing distribution channel. [1.75]
This method uses:
telephone-selling✓
press-advertising✓
mailshots✓, and
internet selling and comparison websites✓✓
Some direct marketing is now being performed using other forms of social media✓, such as X and Facebook.✓
Describe the “telephone selling” sales process. [2]
In the case of telephone selling, it could be either the prospective PH or the insurer that initiates the sale.✓✓
Thus the sales process could involve the “cold-calling” of prospective customers, where this is allowed (ie marketing consent obtained).✓✓
Alternatively the customer might call in response to a newspaper or TV advert, with the sale then being completed over the telephone.✓✓
In this latter case, telephone-selling and press advertising are really parts of the same selling process.✓✓
Describe the “press adverting” sales process. [2.5]
In the case of press advertising, it is debatable who initiates the sale✓.
It may take various forms✓ for example:
It may include a short application form for the customer to complete and send in.✓✓
It may give a telephone number or address from which further information and an application form may be obtained.✓✓
It may give a telephone number to call for the sale to be completed telephonically.✓✓
The newspaper/magazine selected for advertising should be popular amongst the intended target market.✓✓
Describe the “internet selling” sales process. [3.5]
Some simpler✓ health insurance products, eg cash plans, dental plans, basic PMI and even some simplified CI insurance products, are now sold via the internet. [1]
The internet can also be used to provide information leading to sales by telephone or other means.✓✓
It is usually possible to get a quote online and some sites offer a choice of companies.✓✓
Comparison can be done, especially on cheapest premiums.✓✓
The facility to apply for a chosen quote is then usually provided.✓✓
In the case of internet selling, it is debatable who initiates the sale✓.
Describe the process of selling via “mailshots”. [3]
The insurer will get a list of names and addresses✓, for example from its database of current PHs✓ or other affinity groups✓ such as holders of a specific credit card.✓
The insurer will target the relevant groups appropriately✓, for example selecting only those over 50 for a LTCI mailshot.✓
The insurer will write to all the names on the list inviting them to take out a policy.✓✓
The letter will include details of the contract being offered and enclosing an application form.✓✓
In the case of mailshots, arguably the insurer who initiates the sale.✓✓
What are the advantages of “indemnity commission”? [2.5]
It can be used by distributor who needs cash upfront to develop his/her business✓✓, e.g. to support the cost of marketing ahead of commission from resulting sales.✓✓
This commission style provides a very strong incentive for the salesperson to sell and tends to produce “hunters”✓✓, those that attempt to sell one product only to a customer✓,
Rather than farmers✓, those who believe in the value of a LT relationship and building up a stream of recurring commissions.✓✓
Define the term “clawback arrangements”. [4]
The adviser earns indemnity commission over a defined period, which is normally stated in months✓✓, i.e. “earnings period”.✓
If a policy lapses before the commission is fully earned (i.e. during the earnings period)✓, then the insurer will clawback the proportion of indemnity commission that is deemed not to be earned at the point the policy is lapsed.✓ This repayment is often called clawback.✓
The extent of clawback is calculated by a formula specified in the commission agreement✓✓, such as the proportion of the initial commission that the number of premiums actually paid bears to the number expected during the earnings period.✓✓
The commission agreement between the insurer and the intermediary will specify the precise rules according to which indemnity commission is deemed to be unearned, and has to be paid back.✓✓
The longer a policy remains in force, the less commission ultimately has to be repaid.✓✓
If a policy were to lapse after the earnings period, then the insurer would not require any further clawback.✓✓
Define the term “indemnity commission” [2.5]
It is a form of initial commission.✓✓
It is a lump sum payment from the insurer to the distributor in respect of NB written.✓✓
It is typically expressed as a % of the 1st premium but may be expressed as a proportion of SI.✓✓
Payment of indemnity commission indicates that the insurer is willing to pay the distributor commission in respect of premiums that the insurer has yet to receive.✓✓
This will generally involve the insurer in some form of NB strain.✓✓
Tip: For definition of commission structures always say something about how comm is expressed, for e.g. % of 1st premium.
Define the term “renewal commission”. [2.75]
- Where the commission paid is a large initial amount✓ (such as indemnity comm for regular premium products)✓, there is often a lesser amount payable as renewal comm✓ for the balance of the policy term✓ to encourage the distributor to promote persistency.✓
- This may for example be paid annually✓ after the end of the earnings period✓ for contracts paying initial indemnified commission.✓
- For annually renewable contracts, a renewal commission, usually lower than initial commission✓✓, can be paid every time the contract is renewed.✓
Define the term “level commission”. [1.5]
- Every premium paid by policyholders entitles the distributor to a fixed proportion of premium.✓✓
- Level commission doesn’t involve any NB strain.✓✓
- It takes longer for distributor to earn their commission.✓✓
Outline the alternative commission structures. [2.25]
- Initial commission may sometimes be spread over a limited number of years.✓✓
- e.g in the UK this is typically 2 or 4 years.✓
- Commission is sometimes paid as a % of SI.✓✓
- The commission structures and formulae will be market norms established under law by regulators✓✓ or
- accepted as codes of practice by the insurers under the guidance of industry bodies.✓✓
Define the terms initial and renewal commission. [3.5 ]
- Initial and renewal commission is a common renumeration structure for the sale of LT healthcare insurance products.✓✓
- It involves two levels of payment✓:
(i) a high “initial” level, paid for a certain period from the start of the policy (eg 24 months) ✓✓, followed by
(ii) a much lower “renewal” level paid thereafter.✓ - The two commission levels are generally expressed as %’s of the premiums payable during the same term.✓✓
- The period over which the initial comm is payable may vary by product and also within products✓✓, e,g, by policy term.✓
- In a similar way, ST healthcare products, such as PMI✓, will often have a higher rate of commission payable for a new policy, compared with a renewal policy.✓✓
