Chapter 8: Distribution channels

Question 1

Describe the distribution channels

Answer 1

insurance intermediaries:
act independently (aim to find product that best meets client’s needs),
remunerated via commission payments/ client fee,
client often initiates sale (may initiate periodic reviews)

tied agents:
offer their clients products of companies (usually mutually exclusive) to which they are tied to,
remunerated via commission payments/ salary,
client often initiates sale (may engage in active selling)

own sales force:
usually employed by insurer and only sell their products,
remunerated via commission payments/ salary/ both,
own sales force initiates sale (client may initiate further sales)

direct marketing:
through emails, internet, tv, radio

worksite marketing:
insurance product is marketed to a particular group of individuals (employees of the same company),
aim to attract individuals who have not made sufficient self provision for insurance

Question 2

Describe general points to consider for the previous list of distribution channels

Answer 2

The underwriting level and need for competitive terms usually decreases with the above list of distribution channels

Also important to consider the target market and financial sophistication (correlated with complexity of product design) associated with each distribution channel

Question 3

List the 3 general types of commission structures

Answer 3

initial commission:
can include commission clawback arrangement,
earnings period can be 1 year since policy inception

renewal commission:
lesser commission amount used to encourage persistency

level commission:
constant proportion of every premium paidby the policyholder
no impact on new business strain