Section B Flashcards
Primary Life Insurance Distribution Channels
- Direct mail
- Internet direct
- Call center mediated direct response
- Home service
- Worksite
- Independent marketing organizations
- Multiple-line exclusive agents (MLEA)
- Career agent
- Independent agent
- Financial advisors
- Banks
- Retail Outlets
The Art and Science of Life Insurance Distribution Chapter 3
Digital Distribution in Insurance: A Quiet
Career Agent Considerations
- Primarily sells the products of one company
- Sells all types of life and annuity products
- Expensive – need to recruit, train, and house agents
- Field office is managed by an agency manager or general agent (GA)
- Captive vs. Career - a captive agent can only sell the products of one company
The Art and Science of Life Insurance Distribution Chapter 3
Independent Agent Considerations
- Can sell products of multiple companies
- Sells all types of life and annuity products
- Validation process controls who can sell products of the company
- Brokers vs. Personal producing general agents (PPGA) - little distinction between these two types of independent agents
- Producer groups negotiate higher compensation
- Wholesalers recruit new brokers to sell the company’s products
The Art and Science of Life Insurance Distribution Chapter 3
Functions of Distribution
- Prospecting new clients
- Pre-sales activities
a. Needs analysis
b. Underwriting
c. Advice - Completing the sale
a. Present and close
b. Sign contract
c. Issue policy - Managing the client relationship
The Art and Science of Life Insurance Distribution Chapter 4
Digital Distribution in Insurance: A Quiet
Ways to Generate New Leads
CIDERS
- Cold calling
- Internet marketing
- Direct main campaign
- Event-based networking
- Referrals
- Social media
The Art and Science of Life Insurance Distribution Chapter 4
Inputs to a Needs Analysis
- Demographic information (martial status, number of children, age, etc.)
- Current assets and debt
- Risk tolerance
- Personal financial goals
The Art and Science of Life Insurance Distribution Chapter 4
Insurance Distribution Management Structure
- Head of distribution
a. Ultimate responsibility for sales of the organization
b. Typically the highest level a salesperson can achieve - Regional director - report to the head of sales and act as liaisons to the field offices
- Agency head
a. Agency manager or a general agent
b. Primary functions:
- Business management - finance and production
- HR function
- Sales support for special situations - Sales manager - manage and train individual agents
The Art and Science of Life Insurance Distribution Chapter 5
Life Insurance Producer Compensation
- Commission
- New Agent Financing
- Vesting
- Bonuses
- Expense reimbursement
- Benefits
- Recognition (trips, prizes, etc.)
- Percent of Gross Dealer Concession
The Art and Science of Life Insurance Distribution Chapter 6
Types of Commission Scales
- Heaped - percent of premium commission is higher in the first year of the policy
- Level - percent of premium commission is level in all policy years
- Levelized - mix between heaped and level
The Art and Science of Life Insurance Distribution Chapter 6
Gross Dealer Concession (GDC)
- GDC is a payment to a brokerage firm or broker dealer
- The salesperson gets a percent of the GDC
- Advantages of GDC approach
a. Transparent
b. Easy to compare compensation from company to company
c. Sales person can easily see split between agent and brokerage - Challenges
a. Needs to translate traditional compensation to GDC
b. Insurance companies don’t normally disclose their expense loads
c. Insurance provides renewal commissions
The Art and Science of Life Insurance Distribution Chapter 6
Assumptions needed to model distribution expenses
- Fixed expenses
- Sales volume
- Persistency of policyholders
- Persistency of salespeople
- Other - production bonuses, bundled sales, etc.
The Art and Science of Life Insurance Distribution Chapter 7
Estimating the Cost of New Agent Financing
1. Cost of non-vested commission schedule LaTex needed 2. Definitions a. Latex needed b. Latex needed c. Latex needed d. Latex needed Latex needed
Marketing for Actuaries Chapter 4
Factors That Impact The Degree of New Agent Financing
Agents makes a PPAACT to get sales
- Preliminary training and supervision
- Personal circumstances
- Aptitude
- Annualized commissions
- Company and agency
- Types of commission scale
Marketing for Actuaries Chapter 4
Types of Financing Plans
SalSA
- Salary
a. Received for an initial period of time in lieu of commissions
b. This salary will be graded to zero over the time period - Subsidy
a. Also called a training allowance plan (TAP)
b. In addition to regular commissions
c. Can be fixed or variable - Advances
a. Loans made in anticipation of future commission earnings
b. The agents goes “in debt” during the financing period
Marketing for Actuaries Chapter 4
Validation Requirement
- The production requirements that the agent must meet in order to qualify for continued new agent financing
- Factors that impact the validation schedule
a. Growth rate
b. Commission scale
c. Average persistency and modal mix - Validation requirements usually refer to earned commissions
Marketing for Actuaries Chapter 4
Advantages and Disadvantages of New Agent Financing Plans – Part I
Variable Subsidy
- Advantages
a. Inventive to produce
b. Higher producers are rewarded proportionately
c. Less Costly - Disadvantages
a. Income is volatile
Fixed Subsidy
- Advantages
a. Incentive to produce
b. More stable than variable subsidy - Disadvantages
a. Higher producers are not rewarded proportionately
b. Production does not have to be smooth
c. Income may be too low
Marketing for Actuaries Chapter 4
Advantage and Disadvantages of New Agent Financing Plans – Part II
Advances
- Advantages
a. Stable income
b. Fairly flexible - Disadvantages
a. Income may decline after financing period
b. Production does not have to be smooth
c. More costly
Salary
- Advantages
a. Level income
b. Attractive to agents - Disadvantages
a. High producers are not rewarded proportionately
b. Costly if agents do not produce
c. Income may change after financing period
d. Requires close supervision
Marketing for Actuaries Chapter 4
Approaches for Field Management Cost Sharing of New Agents
- Field management’s share of the cost is highest in the early part of the financing period. This discourages hasty recruitment of agents.
- Field management’s share of the cost increases during the financing period. Encourages management to continually evaluate the agent.
- Field management assumes full cost when new agent’s production falls below a specified level
Marketing for Actuaries Chapter 4
Evaluation of New Agent Financing Plans
CIRCUS 2DL
- Cost
- Investment
- Relationship between validation schedules and the company’s training program
- Correlation between performance and benefits
- Understandability
- Simplicity of operation
- Distribution of costs between the company and the GA or branch manager
- Degree of control
- Likelihood that new agents will meet the validation schedule
Marketing for Actuaries Chapter 4
Risks When Developing a Distribution System
who’s in your Product DEPT?
- Product risk – the field needs to sell the right mix of products
- Development risk – Weighting the various options and the productivity of those options
- Expense risk
- Persistency risk – persistency of the customer
- Time risk – this is referring to the time between when the upfront cost is paid and when that investment returns dividends
Marketing for Actuaries Chapter 4
Fields Management Compensation
- Personal production – typically not a major source of income
- Salary – New agency managers are given a salary, but will grade to performance based pay
- First year overrides – % of new premium or % of commissions
- Renewal overrides – used for GAs and not agency managers
- Vesting – common for GA but not agency manager
- Service fees – common in GA system
- Bonuses
- Expense allowance – common in GA system since no expenses are paid for by the home office
- Sharing of new agent financing cost
Marketing for Actuaries Chapter 4
Information Sources on Insurance Products
- Internet
- Family, friends and colleagues
- Insurance agent
- TV
- Bank
- Independent financial adviser
- Internet enabled mobile phone
- Social media
Digital Distribution in Insurance: A Quiet Revolution
Aggregators
- Websites that compare prices on insurance products
- Common for P&C and term insurance products
- Customers can purchase insurance or just collect information
- Ultimate goal is to drive down price
- Product commoditization
Digital Distribution in Insurance: A Quiet Revolution
The Art and…Life Insurance Distribution
Insurance Distribution and Social Media
- Pool risks, negotiate price
- Find customers
- Branding
- Distribute information
- Consumer education
Digital Distribution in Insurance: A Quiet Revolution
Purchasing Insurance Online
- Most customers perform research over the internet
- Simple insurance products more commonly purchased online
- Complex products require face-to-face interaction
- Generational effects - young people buy online
- Geography - Asia is the most advanced
Digital Distribution in Insurance: A Quiet Revolution
Post-Sales Activities Over the Internet
- Access and print insurance cards
- File a claim
- Pay premium
- Update policy or personal information
- Modify asset allocation
Digital Distribution in Insurance: A Quiet Revolution
Insurance Distribution and Mobile Devices
- Smart mobile enhances insurance company’s ability to collect data, market products and interact with customers
- Basic mobile can allow insurance companies to efficiently sell and service low income market
- Usage-based insurance (UBI) - adjusts premium rates based on driving behaviors or risk characteristics
- Apps can collect data and/or provide information
- Gamification - marketing technique where you introduce competition
Digital Distribution in Insurance: A Quiet Revolution
High Cost of Servicing Emerging Markets
- Low premium per life
- Lack of infrastructure
- Lack of data
- Not everyone has a bank account
Digital Distribution in Insurance: A Quiet Revolution
Big Data Defined
- Size
a. High volume and velocity of data
b. Wide variety of data is collected - Complexity
a. Data can be structured or unstructured
b. Extracting meaningful insights can be challenging - Technology
a. Need to harness technology to use big data
b. Analytical methods are expanding
Digital Distribution in Insurance: A Quiet Revolution
Insurance Distribution and Big Data
- Automated underwriting
- Micro market segmentation
- Identify missing insurance markets
- Leverage existing retail customer base
- Telematics - refers to mobilized data collection
- Predictive modeling
- Customer retention and brand loyalty
Digital Distribution in Insurance: A Quiet Revolution
Micro Market Segmentation
- Activity-based data (website tracking information, driving behavior, purchase histories)
- Social network profiles (work history, group membership)
- Social influence and sentiment data (‘likes’, follows’, online comments and reviews)
Digital Distribution in Insurance: A Quiet Revolution
Digital Revolution in Insurance Strategic Implications
- Traditional agents and brokers need to adapt
- Brand and reputation remain influential
- Aggregators - need to compete on more than just price
- Channel conflict - increasing overlap of distribution channels
- Move to online and direct marketing should lower upfront expenses
- Need to upgrade IT systems to effectively roll out a digital strategy
- Innovation labs accepts multiple failures for every success
Digital Distribution in Insurance: A Quiet Revolution
Ansoff’s Innovation Matrix
LaTex needed for table
The Connection…Military and Business Strategies (LP-139-16)
Growth Share Matrix
LaTex needed for table
The Connection…Military and Business Strategies (LP-139-16)
SWOT Analysis
LaTex needed for table
The Connection…Military and Business Strategies (LP-139-16)
Porter’s Five Forces Model
LaTex needed for graph
The Connection…Military and Business Strategies (LP-139-16)
The Value Net
LaTex needed for graph
The Connection…Military and Business Strategies (LP-139-16)
Other Strategic Models
- System dynamics - useful for complex systems
- Game theory - studies interactions between self-interested agents
- Pop strategy - easy to understand strategic framework
- Blue ocean strategy - create a niche market
The Connection…Military and Business Strategies (LP-139-16)
Life Insurance Protection Gap
- Customers need more life insurance coverage
- The global mortality protection gap is 86T USD!
- Many sales linked to milestones (birth of child, purchasing home, etc.)
- Financial advisors have a strong degree of influence over consumers
- Socio-economic factors are correlated to purchasing decisions
Life Insurance: Focusing on the Comsumer (LP-147-17)
Reasons for people not purchasing insurance
- Cost
- Procrastination
- Perceived lack of need
- Limited product knowledge / product complexity
- Lack of trust in the insurance industry
- Other
Life Insurance: Focusing on the Comsumer (LP-147-17)
Consumer Decision Making Process
- Problem recognition / need
- Information Search
- Evaluation and selection
- Vendor choice and purchase
Life Insurance: Focusing on the Comsumer (LP-147-17)
Consumer Expectations of Life Insurance
- Insurers should be more customer-centric
- Simple and transparent
- Limit use of confusing language
- Customers want to build long-term relationships with insurance providers
- Consumers want insurers to earn their trust and loyalty
Life Insurance: Focusing on the Comsumer (LP-147-17)
Characteristics of customer with more willingness to pay (WTP)
- Higher income
- Older
- Have a trusted advisor
- Higher social status
- Understand benefits of insurance products
- Live in Asia-Pacific countries
- Married
- Have children
Life Insurance: Focusing on the Comsumer (LP-147-17)
How to Close the Insurance Protection Gap
- Simplify and innovate product design
- Streamline the underwriting process
- Improve communication and consumer education
- Innovation and distribution platforms
- Improve long-term relationships
- Close the consumer knowledge gap
Life Insurance: Focusing on the Comsumer (LP-147-17)
