Chapter 8 - Distribution Channels

Question 1

Main distribution channels: (4)

Answer 1

1. Insurance intermediaries
2. Tied agents
3. Own salesforce
4. Direct marketing

Question 2

Worksite marketing definition

Answer 2

Process whereby broker or insurer representative obtains permission from the employer to address the entire workforce and sell health and care insurance products

Question 3

Indemnity commission definition

Answer 3

It is a form of initial commission. It is a lump sum payment from the insurer to the distributor in respect of new business written. Typically expressed as a % of the first premium, but may be expressed as a proportion of sum insured
(Represents advance remuneration)

Question 4

Advantages and disadvantages of level commission

Answer 4

+ encourage persistency, results in greater profit for the insurer, so more closely relates to the profit earned by the insurer
+ produces less new business strain for insurer. So make policies more capital efficient
+ matches commission outgo to contribution to profitabiliy more appropriately
+ simpler than other comm structures

• discourages intermediary from actively seeking new clients
• problem is level com does not reflect work done to earn the com
• if other companies pay high initial/low renewal comm structure. Intermediaries will be encouraged to sell new policies for other companies