Chapter 8 Distribution Channels Flashcards
Discuss the operating environments in which health & care insurance products are traded.
1
Q
The main distribution channels
A
- Insurance intermediaries (brokers)
- Tied agents
- Own salesforce
- Direct marketing
2
Q
Insurance intermediaries
A
- Brokers should act independent of any individual insurer.
- They should choose a product which best meets the clients needs in terms of premiums and benefits.
- They may be remmunrated via commission by companies’ whose products they sold.
3
Q
Tied agents
A
- These are sales people tied to either one or a group of insurance companies.
- They sell to their clients products only from these insurers.
- Typically they may be employees of a bank.
- Tied agents are also remmunerated via commission payments by companies the agent is tied to.
4
Q
Own salesforce
A
- Usually employees of an insurance companies hence will only sell products of this company.
- Remmunerated by commission and/or salary
- salesperson initiates sale using leads
5
Q
Direct marketing
A
- This takes four main forms:
- mailshots
- telephone selling
- press advertising
- internet advertising and comparison websites
- In case of mailshots the insurer initiates the sale.
- In case of telephone selling it could be either prospective policyholder or insurer.
- IN case of press it is arguable who initiate.
6
Q
Worksite marketing
A
- this is a process by which an insurer obtains permission from an employer to access its worksforce and sell its products to them.
- the distributor aims those employees may have cover for only themselves and not dependents or do not have adequate employer-paid cover.
- this form of distribution in unlikely to be undertaken for LTCI products, but already part of health cash plan and simple PMI.
7
Q
Different types of commission
A
- Initial & renewal commission
- Level commission
- Alternative commission structures
8
Q
Indemnity commission
A
- A form of Initial commission
- Lump sum paid by insurer to distributor for new business written.
- May be expressed of sum insured or first premium.
- this will involved the insurer in some form new business strain.
- Indemnity commission may be paid to any distributor who needs cash up-front to develop his/her business.
9
Q
Clawback arrangements
A
- The adviser earns indemnity commission over a defined period which is normall stated in months.
- if a policy lapse before the commission is fully earned then insurer may clawback a proportion of the commission from distributor, which is deemed unearned.
10
Q
Renewal commission
A
- commission payable upon policy renewal, usually lower than initial commission.
- this encourages distributors to promote persistency.
11
Q
Level commission
A
- every premium paid by policyholders entitles the distributor to a proportion of premium.
- level commission doesnt involve any new business strain.
- it takes longer for distributor to earn their commission.
12
Q
Alternative commission structures
A
- Initial commission may sometimes be spread over a limited number of years.
- commission is sometimes paid as a % of SI.
13
Q
The effect of different channels
A
- Demographic profile
- Contract design
- Contract pricing
14
Q
Effect of different channels: Demographic profile
A
- Different channels are likely to appeal to different people of sophistication and level of income.
- this will be reflected in the experience of lives taking out contracts through each channel.
15
Q
Effect of different channels:Contract design
A
- The higher the level of client sophistication the greater the complexity of products sold.
- Different methods of sale will suit different products.
- An insurance using more than one distribution channel may sell more than one version of the same product, varying by channel sold.
