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UNIVERSITY OF MUMBAI
ICLES MOTILAL JHUNJHUNWALA
COLLEGE,
VASHI, NAVI MUMBAI
COLLEGE CODE
PROJECT REPORT
ON
MARKETING IN INSURANCE
SUBMITTED BY
AKASH ZOTE
PROJECT GUIDE
MR. SHASHANK
IN PARTIAL FULFILMENT FOR THE COURSE OF
BACHELOR OF COMMERCE (BANKING & INSURANCE)
T.Y.B.Com. (BANKING & INSURANCE) (SEMESTER VI)
ACADEMIC YEAR 2014 - 2015

Acknowledgement
I, Akash Zote would take this opportunity to thank the Principle sir for providing me an
opportunity to study on a project on Banking. This has been a huge learning experience for
me.
With great pleasure I take this opportunity to acknowledge people who have made this project
work possible.
First of all I would sincerely like to express my gratitude towards my project Guide Mr.
Shashank for having shown so much flexibility, guidance as well as supporting me in all
possible ways whenever I needed help. I am thankful for the motivation provided by my project
guide throughout and helped me to understand the topic in a very effective and easy manner.
I would like to thank Principal Sir. Ramesh Yamgar and the coordinator of the course Mrs.
B.V. Laxmi for her indirect support throughout.
I would also like to thank, other teaching faculties of the college, my colleagues, Library staff
and other people for providing their help as when required to complete this project.
I acknowledge my indebtedness and express my great appreciation to all people behind this
work.

--------------------------------------------

DECLARATION

I, Akash Zote student of ICLES MOTILAL JHUNJHUNWALA COLLEGE, VASHI Studying in


T.Y.B. Com (Banking & Insurance) in Semester VI hereby declare that I have completed this
project on MARKETING IN INSURANCE as per the requirements of University of Mumbai as
a part of the curriculum of B.Com. (Banking & Insurance) course and this project has not been
submitted to any other University or institute for the award of any degree, diploma etc. the
information is submitted by me is true and original to the best of my knowledge .

Date: - --------------------Place: Vashi, Navi Mumbai.

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Executive Summary

The information related to introduction of insurance marketing, marketing


mix i.e. information about product, price, promotion, place etc., marketing of life
insurance, distribution channels i.e. marketing intermediaries, financial institution and
direct response. Bancassurance and the future of life insurance marketing are also
covered under this project.
Thus the project report clarifies that the direct selling method of marketing of life
insurance product is the most profitable and inexpensive method.
Direct marketing also helps the insurance company to promote their product in
rural market.
Telemarketing helps the company to provide useful information to their customer
and to maintain proper database of the customer.

INTRODUCTION TO INSURANCE MARKETING

There are insurance marketing strategies that can take any insurance agency
from mediocre to success when utilized correctly. Breaking into a new business climate
and finding customers is hard work, but when equipped with innovative ideas and proven
techniques, financial markets sales personnel can become extremely successful. Getting
an education and training is very important in every industry, sales is certainly no
exception. Those selling insurance will want begin their careers with the very best tools
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of the trade and those with already established businesses that are in need of a
motivational push will also gain great benefits by researching and learning new insurance
marketing tips. This article serves to give a few helpful hints and to encourage those in
this career to seek further and find the right system or push for their business.
Key insurance marketing strategies will always include an in-depth review
of a value of follow-up. All successful sales agents understand that consumers need to be
contacted again and again in order to make a vital connection. Also, great follow-up
protocol lets the potential customer know that good, solid customer service will be part of
the over-all package. Follow-up says to a consumer that they are important, thought of,
and that their business would be greatly appreciated. The consumer today not only wants
a product at a great price, they also want a personal relationship, especially when it
comes to financial system sales, such as various insurances. Letters and phone calls are
gentle reminders that the salesperson intends to serve with his or her whole heart. And,
once a sale is secured, a thank you call is strongly advised.
Those in this industry will also want to keep constant contact with existing
customers, too. The competition is fierce today, and no one wants to loose a customer to
the next guy or service to come along. Clients that have had no contact for a period of
time loose loyalty. Keep birthday and anniversary postcards going into the home on a
regular basis. Keeping a name before a consumer will keep a name in their conscience.

OBJECTIVES OF THE STUDY

1. To know about the marketing strategies of life insurance sector.


2. To know about different role of intermediaries such as agents, franchisers in life
insurance marketing.
3. To know about the promotional policies adopted by life insurance companies.
4. To know about insurance marketing in Indian environment.

LIMITATIONS OF THE STUDY

The scope of the project The Study of Role of Marketing in Life Insurance Sector has
been restricted to some extent i.e. the project does not include the following:1. Study of Customer Relationship Management (CRM) program.
2. Study of insurance marketing in global market.
3. Study of role of marketing in general insurance sector.
4. Study of comparison of life insurance marketing and general insurance marketing.

MARKETING MIX

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The term marketing mix refers to the four major areas of decision making in the
marketing process that are blended to obtain the results desired by the organization. The
four elements of the marketing mix are sometimes referred to the four Ps of marketing.
The marketing mix shapes the role of marketing within all types of organizations, both
profit and nonprofit. Each element in the marketing mixplace, price product promotion,
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and,consists of numerous sub elements. Marketing managers make numerous decisions


based on the various sub elements of the marketing mix, all in an attempt to satisfy the
needs and wants of consumers.

PRODUCT

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The first element in the marketing mix is the product. A product is any combination of
goods and services offered to satisfy the needs and wants of consumers. Thus, a product
is anything tangible or intangible that can be offered for purchase or use by consumers. A
tangible product is one that consumers can actually touch, such as a computer. An
intangible product is a service that cannot be touched, such as computer repair, income
tax preparation, or an office call. Other examples of products include places and ideas.
For example, the state tourism department in New Hampshire might promote New
Hampshire as a great place to visit and by doing so stimulate the economy. Cities also
promote themselves as great places to live and work. For example, the slogan touted by
the Chamber of Commerce in San Bernardino, California, is "It's a great day in San
Bernardino." The idea of wearing seat belts has been promoted as a way of saving lives,
as has the idea of recycling to help reduce the amount of garbage placed in landfills.
Typically, a product is divided into three basic levels. The first level is often called the
core product, what the consumer actually buys in terms of benefits. For example,
consumers don't just buy trucks. Rather, consumers buy the benefit that trucks offer, like
being able to get around in deep snow in the winter. Next is the second level, or actual
product, that is built around the core product. The actual product consists of the brand
name, features, packaging, parts, and styling. These components provided the benefits to
consumers that they seek at the first level. The final, or third, level of the product is the

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augmented component. The augmented component includes additional services and


benefits that surround the first two levels of the product. Examples of augmented product
components are technical assistance in operating the product and service agreements.
Products are classified by how long they can be useddurabilityand their tangibility.
Products that can be used repeatedly over a long period of time are called durable goods.
Examples of durable goods include automobiles, furniture, and houses. By contrast,
goods that are normally used or consumed quickly are called nondurable goods. Some
examples of nondurable goods are food, soap, and soft drinks. In addition, services are
activities and benefits that are also involved in the exchange process but are intangible
because they cannot be held or touched. Examples of intangible services included eye
exams and automobile repair.
Another way to categorize products is by their users. Products are classified as either
consumer or industrial goods. Consumer goods are purchased by final consumers for
their personal consumption. Final consumers are sometimes called end users. The
shopping patterns of consumers are also used to classify products. Products sold to the
final consumer are arranged as follows: convenience, shopping, specialty, and unsought
goods. Convenience goods are products and services that consumers buy frequently and
with little effort. Most convenience goods are easily obtainable and low-priced, items
such as bread, candy, milk, and shampoo. Convenience goods can be further divided into

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staple, impulse, and emergency goods. Staple goods are products, such as bread and milk
that consumers buy on a consistent basis. Impulse goods like candy and magazines are
products that require little planning or search effort because they are normally available
in many places. Emergency goods are bought when consumers have a pressing need. An
example of an emergency good would be a shovel during the first snowstorm of the
winter.
Shopping goods are those products that consumers compare during the selection and
purchase process. Typically, factors such as price, quality, style, and suitability are used
as bases of comparison. With shopping goods, consumers usually take considerable time
and effort in gathering information and making comparisons among products. Major
appliances such as refrigerators and televisions are typical shopping goods. Shopping
goods are further divided into uniform and no uniform categories. Uniform shopping
goods are those goods that are similar in quality but differ in price. Consumers will try to
justify price differences by focusing on product features. No uniform goods are those
goods that differ in both quality and price.
Specialty goods are products with distinctive characteristics or brand identification for
which consumers expend exceptional buying effort. Specialty goods include specific
brands and types of products. Typically, buyers do not compare specialty goods with
other similar products because the products are unique. Unsought goods are those

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products or services that consumers are not readily aware of or do not normally consider
buying. Life insurance policies and burial plots are examples of unsought goods. Often,
unsought goods require considerable promotional efforts on the part of the seller in order
to attract the interest of consumers.

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PRICE
The second element in marketing mix is price. Price is simply the amount of money that
consumers are willing to pay for a product or service. In earlier times, the price was
determined through a barter process between sellers and purchasers. In modern times,
pricing methods and strategies have taken a number of forms.
Pricing new products and pricing existing products require the use of different strategies.
For example, when pricing a new product, businesses can use either market-penetration
pricing or a price-skimming strategy. A market-penetration pricing strategy involves
establishing a low product price to attract a large number of customers. By contrast, a
price-skimming strategy is used when a high price is established in order to recover the
cost of a new product development as quickly as possible. Manufacturers of computers,
videocassette recorders, and other technical items with high development costs frequently
use a price-skimming strategy.
Pricing objectives are established as a subset of an organization's overall objectives. As a
component of the overall business objectives, pricing objectives usually take one of four
forms: profitability, volume, meeting the competition, and prestige. Profitability pricing
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objectives mean that the firm focuses mainly on maximizing its profit. Under profitability
objectives, a company increases its prices so that additional revenue equals the increase
in product production costs. Using volume pricing objectives, a company aims to
maximize sales volume within a given specific profit margin. The focus of volume
pricing objectives is on increasing sales rather than on an immediate increase in profits.
Meeting the price level of competitors is another pricing strategy. With a meeting-thecompetition pricing strategy, the focus is less on price and more on nonprice competition
items such as location and service. With prestige pricing, products are priced high and
consumers purchase them as status symbols.
In addition to the four basic pricing strategies, there are five price-adjustment strategies:
discount pricing and allowances, discriminatory pricing, geographical pricing,
promotional pricing, and psychological pricing. Discount pricing and allowances include
cash discounts, functional discounts, seasonal discounts, trade-in allowances, and
promotional allowances. Discriminatory pricing occurs when companies sell products or
services at two or more prices. These price differences may be based on variables such as
age of the customer, location of sale, organization membership, time of day, or season.
Geographical pricing is based on the location of the customers. Products may be priced
differently in distinct regions of a target area because of demand differences. Promotional
pricing happens when a company temporarily prices products below the list price or

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below cost. Products priced below cost are sometimes called loss leaders. The goal of
promotional pricing is to increase short-term sales. Psychological pricing considers prices
by looking at the psychological aspects of price. For example, consumers frequently
perceive a relationship between product price and product quality.

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PROMOTION
Promotion is the third element in the marketing mix. Promotion is a communication
process that takes place between a business and its various publics. Publics are those
individuals and organizations that have an interest in what the business produces and
offers for sale. Thus, in order to be effective, businesses need to plan promotional
activities with the communication process in mind. The elements of the communication
process are: sender, encoding, message, media, decoding, receiver, feedback, and noise.
The sender refers to the business that is sending a promotional message to a potential
customer. Encoding involves putting a message or promotional activity into some form.
Symbols are formed to represent the message. The sender transmits these symbols
through some form of media. Media are methods the sender uses to transmit the message
to the receiver. Decoding is the process by which the receiver translates the meaning of
the symbols sent by the sender into a form that can be understood. The receiver is the
intended recipient of the message. Feedback occurs when the receiver communicates
back to the sender. Noise is anything that interferes with the communication process.

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There are four basic promotion tools: advertising, sales promotion, public relations, and
personal selling. Each promotion tool has its own unique characteristics and function. For
instance, advertising is described as paid, nonpersonal communication by an organization
using various media to reach its various publics. The purpose of advertising is to inform
or persuade a targeted audience to purchase a product or service, visit a location, or adopt
an idea. Advertising is also classified as to its intended purpose. The purpose of product
advertising is to secure the purchase of the product by consumers. The purpose of
institutional advertising is to promote the image or philosophy of a company. Advertising
can be further divided into six subcategories: pioneering, competitive, comparative,
advocacy, reminder, and cooperative advertising. Pioneering advertising aims to develop
primary demand for the product or product category. Competitive advertising seeks to
develop demand for a specific product or service. Comparative advertising seeks to
contrast one product or service with another. Advocacy advertising is an organizational
approach designed to support socially responsible activities, causes, or messages such as
helping feed the homeless. Reminder advertising seeks to keep a product or company
name in the mind of consumers by its repetitive nature. Cooperative advertising occurs
when wholesalers and retailers work with product manufacturers to produce a single
advertising campaign and share the costs. Advantages of advertising include the ability to
reach a large group or audience at a relatively low cost per individual contacted. Further,
advertising allows organizations to control the message, which means the message can be

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adapted to either a mass or a specific target audience. Disadvantages of advertising


include difficulty in measuring results and the inability to close sales because there is no
personal contact between the organization and consumers.
The second promotional tool is sales promotion. Sales promotions are short-term
incentives used to encourage consumers to purchase a product or service. There are three
basic categories of sales promotion: consumer, trade, and business. Consumer promotion
tools include such items as free samples, coupons, rebates, price packs, premiums,
patronage rewards, point-of-purchase coupons, contests, sweepstakes, and games. Tradepromotion tools include discounts and allowances directed at wholesalers and retailers.
Business-promotion tools include conventions and trade shows. Sales promotion has
several advantages over other promotional tools in that it can produce a more immediate
consumer response, attract more attention and create product awareness, measure the
results, and increase short-term sales.
Public relations is the third promotional tool. An organization builds positive public
relations with various groups by obtaining favorable publicity, establishing a good
corporate image, and handling or heading off unfavorable rumors, stories, and events.
Organizations have at their disposal a variety of tools, such as press releases, product
publicity, official communications, lobbying, and counseling to develop image. Public
relations tools are effective in developing a positive attitude toward the organization and

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can enhance the credibility of a product. Public relations activities have the drawback that
they may not provide an accurate measure of their influence on sales as they are not
directly involved with specific marketing goals.

PLACE
The fourth element of the marketing mix is place. Place refers to having the right product,
in the right location, at the right time to be purchased by consumers. This proper
placement of products is done through middle people called the channel of distribution.
The channel of distribution is comprised of interdependent manufacturers, wholesalers,
and retailers. These groups are involved with making a product or service available for
use or consumption. Each participant in the channel of distribution is concerned with
three basic utilities: time, place, and possession. Time utility refers to having a product
available at the time that will satisfy the needs of consumers. Place utility occurs when a
firm provides satisfaction by locating products where they can be easily acquired by
consumers. The last utility is possession utility, which means that wholesalers and

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retailers in the channel of distribution provide services to consumers with as few


obstacles as possible.
Channels of distribution operate by one of two methods: conventional distribution or a
vertical marketing system. In the conventional distribution channel, there can be one or
more independent product manufacturers, wholesalers, and retailers in a channel. The
vertical marketing system requires that producers, wholesalers, and retailers to work
together to avoid channel conflicts.
How manufacturers store, handle, and move products to customers at the right time and at
the right place is referred to as physical distribution. In considering physical distribution,
manufacturers need to review issues such as distribution objectives, product
transportation, and product warehousing. Choosing the mode of transportation requires an
understanding of each possible method: rail, truck, water, pipeline, and air. Rail
transportation is typically used to ship farm products, minerals, sand, chemicals, and auto
mobiles. Truck transportation is most suitable for transporting clothing, food, books,
computers, and paper goods. Water transportation is good for oil, grain, sand, gravel,
metallic ores, coal, and other heavy items. Pipeline transportation is best when shipping
products such as oil or chemicals. Air transport works best when moving technical
instruments, perishable products, and important documents.

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Another issue of concern to manufacturers is the level of product distribution. Normally


manufacturers select from one of three levels of distribution: intensive, selective, or
exclusive. Intensive distribution occurs when manufacturers distribute products through
all wholesalers or retailers that want to offer their products. Selective distribution occurs
when manufacturers distribute products through a limited, select number of wholesalers
and retailers. Under exclusive distribution, only a single wholesaler or retailer is allowed
to sell the product in a specific geographic area.

MARKETING OF LIFE INSURANCE

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MARKETING OF LIFE INSURANCE

A life insurance companys success reflects the consolidated effort of all its
activities. These activities may be arranged into three major functional classifications
marketing, investments and administration. Of these three areas, marketing is the largest
in terms of both personnel requirements and costs and is critical to success.
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Life insurers historically considered marketing to be synonymous with selling and


most insurers considered their customers to be their agents. By the middle of the
twentieth century, a customer-oriented philosophy began to emerge in business generally,
coming to some national markets later than others. As this new marketing concept was
adopted by more and more companies, it began to spread to services industries generally
and the life insurance industry specially. The concept involves:
Focusing on consumer needs
Integrating all activities of the organisation, including production, to satisfy these
needs
Achieving long-term profits through satisfaction of consumer needs
Although life insurers were late in adopting this concept, the recent intense
competition within the life insurance business and the growing competition from other
financial services organizations substantially heightened its importance. To be
successful today, a life insurance must create a satisfied customer and then turn that
customer into a client. Historically, this was done by the agent. Today insurers seek
ways to argument and enhance the service provided by the agent.

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DISTRIBUTION CHANNELS

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An insurer that considers itself to be truly market driven (in contrast to


product or distribution driven) would use distribution channels that reflected the ways
that its customers wanted to interact with the insurer. Of course, for most insurers, there
are practical limits to the implementation of this philosophy. Even so, the great variety of
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distribution systems found in life insurance suggests that insurers continue to strive
toward this elusive goal.
In this section, we present the major distribution channels found in life
insurance. As will be seen, life insurers have evolved an almost bewildering array of
distribution systems. To simplify this complexity, we structure our discussion around
three broad categories of distribution channels:
Marketing intermediaries
Financial institutions

Marketing intermediaries are individuals who sell an insurers products,


typically on a face-to-face basis with customers and usually for a commission on each
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sale. Agents and brokers are marketing intermediaries. Most life insurance worldwide is
sold through new individual life insurance sales and for majority shares of other life and
health insurance sales.

Financial institutions are deposit-taking, investment, and other financial


firms that sell insurers products. They include commercial banks, investment banks,
thrifts, credit unions, mutual fund organizations, and other insurers. Banks are important
distribution channels in some of the overall U.S. life insurance market is less than 5
percent, although their share of variable products, with other financial institutions having
small shares.
With the direct response distribution channel, the customer deals directly
with the insurer without benefit of any intervening intermediary or firm. No face-to-face
contact from the insurer, such as through the mail, television, or telephone. This
distribution channel accounts for about 2 percent of total U.S. life insurance sales.
.

DISTRIBUTION THROUGH MARKETING INTERMEDIARIES

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We can divide marketing intermediaries into two broad classes, depending


on whether the insurer is attempting to build its own agency sales force. Thus, many
insurers have an agency-building distribution strategy under which they recruit, train,
finance, house, and supervise their agents. Such insurers are heavily involved in
recruiting individuals new to the insurance business.
Other insurers follow a non-agency-building distribution strategy under
which they do not seek to build their own agency sales force. Instead, they rely on
established agents for their sales. Under this strategy, the insurer seeks experienced
salespersons and avoids expenses associated with training, financing, and providing
office facilities.
Figure 24-2 shows the various divisions of agency-building and non-agencybuilding distribution channels. We cover each next, relying on this agency-building
distinction. Of course, an insurer may use several distribution channels. The reason for
multiple distribution strategies is to serve several markets effectively. A market-driven
strategy calls for an optimal market-product-distribution linkage.

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Agency-Building Distribution
Most students of the industry agree that life insurers utilizing the agency-building
distribution strategy have been responsible for the widespread acceptance of life
insurance. These insurers have provided the initial training essential to successful
intermediary marketing. Four types of agency-building distribution channels exist:
1. career agency
2. multiple-line exclusive
3. home service
4. salaried

Each of these channels relies on agents who are commissioned or salaried


sale people who hold full-time contracts to represent the insurer. Most of these agents are
exclusive agents (also called tied or captive agents), meaning that they represent a single
insurer only.
Career Agency: Career agents are commissioned life insurance agents who
primarily sell one companys products. They are probably the most commonly known life
insurance agents. Well known U.S. life insurers using the career agency distribution
channel include Metropolitan to career agency distribution are found: branch offices and
general agencies. We discuss each next.

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The branch office system. Under the branch office system, also called the
managerial system, the insurer establishes agencies in various locations, each headed by
an agency manager who is an employee of the insurer. The largest life insurers worldwide
tend to use the branch office system. The agency manager is charged with the
responsibility of recruiting new agents within a given territory and training and otherwise
helping and encouraging them in their work as solicitors.
Agency managers may be assisted by an office manager, assistant managers,
supervisors, specialist unit managers, or district managers. Assistants are responsible for
specific functions or for units of agents, or they may provide overall assistance to the
head of the agency. The office manager is particularly important in the branch office
system. He or she is expected to keep all office records; look after all correspondence in
connection with applications and policies; assist in filing proofs of loss, applications for
policy loans, and payment of cash values on surrenders; answer all communications from
policy owners not sufficiently important to be referred to the home office; and supervise
the clerical staff.
Agency-building systems (either general agency or managerial) also are
used by fraternal organizations that offer life and health insurance to their members. The
agents of these religious and social groups may sell policies only to members of the
fraternal society.

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The general agency system. The general agency system, which, in its pure form, is only
theoretical today in the United States, is the older of the two career agency systems and
aims to accomplish through agency managers. The company-appointed general agent
(GA) typically represents the company within a designated territory over which he or she
is given control. The general agents contract requires that the insurer pay a stipulated
commission on the first years premiums plus a renewal on subsequent premiums. In
return, the general agent agrees to build the companys business in that territory.
The GA is responsible for agent recruitment, training, and supervision, as
with the agency manager. Agents contract with the insurer through the GA and are paid a
commission by the insurer for their sales. The GA also receives a commission on agents
sales, called an override or overriding commission.
In the past, the GA operated more or less as an independent entrepreneur,
managing his or her agency and meeting all operational expenses from override
commissions. Routine administrative matters today usually are handled by a separate
group of persons located in the general agents office or in separate offices throughout the
country and are directly responsible to the home office. It is also now common for the
insurer to pay the office rent directly. This is done to discourage the closing of the office,
which would leave the insurer without representation. In addition, companies now make
substantial expense reimbursements allowances.

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Home Service. A third agency-building life insurance distribution channel


is the home service distribution system, also known as the combination or debit
distribution system, which relies on exclusive agents who are assigned a geographic
territory. The target market for home service distribution is lower-income consumers. At
one time, agents collected renewal premiums on business in force in their territory (called
their debit), but the collection aspect has been deemphasized by many companies.
Originally, much of the business consisted of industrial insurance with
weekly collections of premium. Today almost all of the new sales consist of ordinary
insurance with premiums collected on a monthly basis or billed through the mail. The
assigned territory is becoming a sales region, as less of the business requires collection of
premiums by the agent.
The home service distribution system at one time was the largest and was
used by the largest life insurers, including Prudential and Metropolitan. Many insurers
have since abandoned this distribution system as being too costly. The number of home
service agents has fallen by 76 percent during the past 15 years.

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Salaried. The fourth agency-building life insurance distribution channel is


use of salaried insurer employees. Even though most life insurance is sold by
commissioned salespeople, a small share is sold by agents who are paid mostly or
exclusively by salary. For example, savings bank life insurance is sold in the states of
Connecticut, Massachusetts, and New York through salaried bank employee-agents,
although the trend is for the savings banks to use more conventional approaches. The
most important salaried distribution, however, occurs in group insurance.`
Group insurance actually involves three very distinct products lines
retirement, group life, and group health products. The insurer typically markets through
group sales representatives who are salaried employees of the insurer charged with
promoting and possibly servicing the insurers group business. Group sales
representatives usually are also paid incentive bonuses based on achievement of
production goals.
The group representatives responsibilities may be to sell group products
directly to customers or to promote the insurers group sales through its own or other
insurers marketing intermediaries to whom commissions are paid. Thus, group sales
representatives call on their own career agents, independent benefit consultants, third
party administrators, national brokerage organizations, independent property and liability
agents, and agents of other companies.

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Most of the smaller-sized cases are sold through career agents, either the
insurers own career agents or agents of other companies. Sales to other employeremployee cases and association groups tend to be made through specialized brokers or, in
some instances, written directly with the employer. Many of the recent developments in
distribution systems reflect a continuing effort to find more effective ways to deliver
insurance products and service larger numbers of customers.
In addition to group insurance as such, various forms of mass marketing
have developed, frequently involving an agent. Association group, credit card
solicitations, and worksite marketing are examples.

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Agency Management.

Effective field management is essential to the

success of agency-building distribution systems. An agency heads responsibility is to


manage resources to achieve the common objectives of the agency and the company. In
terms of activities, these duties consist of:
manpower development, including product and sales skills training
supervision of agents
motivation of agents and staff
business management activities (e.g. office duties, public relations activities,
interpreting insurer policy, and expense management)
personal production
Personal production by the agency head has a low priority in agencybuilding companies. Although it is usually permitted, the need for growth and the design
of the agency managers or GAs compensation formula both mitigate against significant
activity of this type.
Agent recruiting usually is the agency managers or GAs most important
responsibility. The turnover rate of agents in many markets is 25 percent per year, so the

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agency head has to replace a fourth of the agencys sales force each year just to maintain
the agencys size. Recruiting is not one activity but a process, the steps of which include
1.
2. determining acceptable qualifications
3. approaching prospective agents
4. using selection tools
5. interviewing candidates
6. contracting with qualified individuals
The manager may attempt to locate several (three to five) prospective agents
at one time. As there is always fallout in the selection process, the group techniques
usually allow some recruits to be added to the agency from each recruiting effort.

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Non-Agency-Building Distribution
The other major classification of life insurance marketing channels relying
on marketing intermediaries is called non-agency-building distribution, as noted earlier.
Four common non-agency-building distribution channels are:
brokerage
personal-producing general agents
independent property and casually agents
producer groups
Agents selling through these channels are always nonexclusive; they sell for
more than one insurer. Not all of these channels exist in every country, with some
countries having no parallel to the non-agency-building system. In markets where they
exist, terminology may differ; for example, the U.K. concept of independent financial
advisors (IFAs) is akin to U.S. brokerage.

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Insurers that market through nonexclusive agent strategies provide products


or services to agents who are already engaged in life and health insurance selling. Thus,
the key to this strategy is to gain access to the producer. The producers loyalty is retained
by quality service, good compensation, and sound personal relationships.
Brokerage: Brokerage insurers gain access to agents through a company
employee, often called a brokerage representative or supervisor, who acts as the insurers
representative, or through an independent brokerage general agent who performs the
same function. Both of these individuals are authorized to appoint brokers on behalf of
the insurer. Direct contracting in response to trade press advertising also is used.
The term broker, as used in the U.S. lexicon of life insurance distribution,
refers to a commissioned salesperson who works independently of the insurer with whom
the brokerage business is placed & who has no minimum production requirements with
that insurer. In property and casualty insurance, a broker usually represents the client
rather than the insurer. In most U.S. jurisdiction, a life broker actually is an agent for the
insurer but subject to less supervision and control than that found with career agents. In
other countries, the term broker in life insurance refers to a full-time intermediary who
offers policies from several, if not all, life insurers in the market and who usually is the
legal representative of the applicant, not the insurer.

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Personal-Producing General Agents:

A second type of marketing

intermediary falling within the non-agency-building category is the personal-producing


general

agent.

Personal-producing

general

agents

(PPGAs)

are

independent,

commissioned agents who typically work alone and focus on personal production. Some
PPGAs appoint subagents, although most do not. PPGA insurers gain access to producers
through an organizational structure that is similar to the one used by brokerage insurers:
(1) company-employed regional directors of PPGAs, (2) independent contractorsmanaging general agents, and (3) direct contracting with individuals identified through
trade press advertising. Both regional directors and managing general agents are
authorized to appoint PPGAs.

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The PPGA strategy has two variations. In the more traditional regional
director approach, experienced life agents are hired under contracts that provide both
direct and override commissions plus some type of expense allowance. For this, the
PPGAs supply their own office facilities and receive technical assistance in the form of
computer services and advanced sales support. Although personal-producing general
agents usually have contracts with more than one insurer, companies using the traditional
approach try to be the PPGAs primary carrier. The managing general agent approach
typically specializes in single products, such as universal life or disability income, and is
essentially franchised to appoint PPGAs for the company in a territory.
Although there are philosophy differences in approach, a clear difference at
the producer level between the brokerage and the PPGA strategy is in the commission
schedule. The former resembles a career agent contract and the latter has elements of
general agent contract. Another difference is that brokerage business from a single agent
often is sporadic, whereas PPGA business is intended to be continuing. Both strategies
can operate simultaneously in the same insurer, along with others.

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Independent Property and Casualty Agents: A third type of marketing


intermediary using the non-agency-building approach is the independent property and
casualty agent. Independent property and casualty agents are commissioned agents whose
primary business is the sale of property and casualty insurance for several insurers. Often
the property and casualty insurers that the agent represents will have life insurer affiliates,
sell life insurance for them. Additionally, unaffiliated life insurers often seek independent
property and casualty agents as salespeople.
Technically, independent property and casualty agents who sell life
insurance unusually do so either as brokers or PPGAs. However, because of their
importance and uniqueness, and as contrast with the MLEA, we present them as a
separate distribution channel.

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Producer Groups:

A fourth variation of the non-agency-building

distribution strategy has been the development of producer groups, which are
independent marketing organizations that specialize in the high-end market. Producer
groups are distinguished by three characteristics:
1. Membership is composed of independent life agents who specialize in high-end
markets.
2. The group is self-supporting, having negotiated special commission rates with
several insurance companies.
3. Minimum production requirements apply to members.

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Under its contracts with insurers, it receives maximum compensation with


virtually no market support services. Producer group provide the necessary sales and
marketing support systems to the member agents. Specialized software and other strong
computer and research support are hallmarks of producer groups, often affording their
members a competitive advantage.
The marketing organization typically provides its own continuing education
program, administration, illustration services, presubmission underwriting, and case
management the producer. It also provides market-specific or sales-concept support. Most
producer groups have created their own reinsurance companies-an additional source of
profitability. With such producer groups, part of the negotiation with direct-writing
insurers focuses on terms and conditions under which the insurer cedes business to its
reinsurance company.

DIRECT RESPONSE DISTRIBUTION SYSTEM

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Of the three major categories of distribution channels in life insurance, direct


response is the least important as measured by premiums written. Direct-response
marketing can take many forms, but in a broad sense it means that the sales is made from
the company direct to the customer without involving a face-to-face meeting between
buyer responds directly to the company because of solicitation via mail, broadcast media,
the Internet, and so on.
There is growing interest in direct-response marketing of life and health
insurance because some companies that specialize in direct-response sales have been able
to sell as many new policies as the largest career agent companies with thousands of
agents.
Direct marketing offers the consumer some of the same coverages available
from marketing intermediaries. The principal differences to the consumer are usually cost
and service. The same level of coverage sold through an agent may sometimes cost more
than when sold through an efficient direct-response marketing program, but, of course,
the potential exists for greater personal service if an agent is involved in the transaction.
At one time, life insurance sold by direct-response marketing was primarily
supplement coverage
More recently, companies have begun to offer comprehensive life and health
insurance protection, annuities, estate planning, and other products through direct-

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response marketing methods. Where direct-response marketing is targeted to a select


group of consumers, and the insurer has an affinity agreement with the consumer, it can
offer a broader range of relatively complex products. At least one successful insurer sells
automobile insurance, cash-value life insurance, and annuities to its customer base and
does it effectively. It utilizes professional, salaried salesperson in a telemarketing
arrangement. Regardless of how the sale has been completed by an agent or directresponse marketing from that point on, the client frequently deals with the insurer on a
direct basis. Premium notices are sent by mail. Premiums are paid by mail or automatic
bank draft and at times claims are filed and benefit checks are delivered by mail. In this
sense, the direct-response concept whereby the insurer deals directly with the consumer
is not restricted to a few direct-response specialty companies, but is a concept that is
common to all elements of the insurance business.
Direct-response

marketing

can

be

accomplished

through

several

media.Direct mail is the oldest method of direct-response marketing. It depends on the


availability of mailing lists that may be obtained from many sources. Today lists can be
created that are specific as to the economic, demographic, and other characteristics of
individuals on the lists. A sponsored arrangement under which the insurer arranges with
an association or similar group to offer products to its membership, is mailed
solicitations, or advertisements are placed in the associations magazine or newsletter.

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Newspapers, magazines, and other print media reach large numbers of


consumers but only on a broad basis. In terms of total numbers reached, broadcast
surpasses all other media. The direct response marketing use of television, utilizing
well-known personalities as sponsors, is popular for two reasons. First, the size of the
audience is staggering in its potential. Second, direct-response specialists have learned
how to reach specialized groups of viewers efficiently. However, the use of such stars
to sell insurance products has come under attack. Opponents claims that the material
often is misleading and the products are high in price.

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THE FUTURE OF LIFE INSURANCE MARKETING

The marketing since continues to change at an unprecedented rate. The


financial services evolution has masked the remarkable changes taking place in the
provision of insurance services themselves. Distribution systems in developed countries
have been influenced significantly by the cost pressures that continue to drive much of
the merger and acquisition activity. There are significant differences in marketing costs
for different distribution channels. Companies are trying either to significantly reduce the
cost of their distribution system or are looking for other lower-cost methods of
distribution.

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The production challenge


Surveys of life insurance executives consistently rank the need to improve
distribution and to reduce distribution costs as among the greatest challenges they face.
Marketplace dynamics are shaping the current distribution difficulties. Changing
demographics are creating a greater demand for asset accumulation products. Consumers
want more information, which heightens price sensitivity. Compensation for consumers
savings is also intensifying, primarily from outside the mainstream of the life industry.
All of these factors have contributed to greater cost transparency and a more informed
and demanding consumer.
Additionally, insurance executives report that distribution costs are too high
and productivity to low. This is unsurprising because distribution-related costs may
account for two-thirds to three-fourths of an insurers total expense. Additionally, the
typical agent in the United States averages less than one policy sale per week.
Executives also complain about agent recruiting and retention. Public trust
of the life insurance business and its agents is low. The typical insurer must hire five to

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seven agents to yield one productive agent four years later. Insurer investment in a new
career agent can easily exceed $100,000. This low retention rate puts enormous cost
pressure on the system. Moreover, even those who survive to their fourth year often leave
as their value to other insurers, especially those relying on a non-agency-building
distribution strategy, rises enormously.
The size of a companys investment in new agents and the period of time to
recover it depend on several factors such as agent productivity, persistency, inflation, and
most importantly, retention. Although improving agent retention is more difficult than
improving persistency and productivity, capital spent in this area has the potential for
much higher returns.
An even greater distribution issue relates to the appropriate alignment of
customer, agent, and insurer interests. The traditional heaped first-year commission
arrangement has been the norm for decades. Its rationale stems from the belief that life
insurance has to be sold-it is not bought (voluntarily) by consumers and the
concomitant belief that a high initial commission is essential if agents are to have
sufficient motivation to sell.
The belief that consumers will not purchase life insurance on their own
volition or, as a variation of this theme, except through a commissioned agent, is today
open to question. It is probably true that the great majority of consumers need not be a
commissioned agent, and if the person is an agent, he or she need not necessarily be

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compensated through a heaped commission structure. Moreover, it is not self-evident that


the only way to motivate agents to sell life insurance. Moreover, it is not self-evident that
the only way to motivate agents to sell life insurance is through the heaped commission
approach.
This emphasis on new sales can encourage a short-run perspective one that
many executives believe is compatible with building long-term customer relations (and
trust) for the insurer and the agent. Ill-advised replacement and churning are the
unfortunate but not expected consequences.

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Possible Compensation Solution


Many life companies have turned to compensation-based solutions rather
than making more fundamental and, therefore, more difficult changes in their distribution
systems. Many others are exploring the use of alternative distribution channels consistent
with a market-driven marketing philosophy. Some insurers will use alternative
approaches to complement existing distribution channels, either to generate leads or to
provide product to market segments not reached by agents. Other insurers may take more
drastic actions, spurred on by financial institution and direct-response distribution
successes.
Agent commissions are perhaps the most visible form of distribution costs
and, thus, receive the most attention. Yet other distribution costs often exceed the cost of
agent commissions. These include but are not limited to field manager income and
agency expenses, marketing support, and field benefits.

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Current efforts in compensation, however, still aim at reducing the more


visible agent commission. Ultimately, total product margins are driven by the perceived
by the agent. Increased sophistication of both consumers and insurers should produce a
closer alignment of agent compensation with the value of services delivered.
Insurers and distributors of life insurance are exploring the following
nontraditional approaches to agent and manager compensation:
Salary plus bonus
Partnering
These alternatives relate mostly to agency-building distribution systems
because companies selling through non-agency-building distribution channels have less
leverage to affect agent compensation. However, other channels will inevitably be
affected.

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Salary Plus Bonus


Under salary plus bonus plans, individuals responsible for the sale of life
insurance receive a salary with an incentive bonus tied to performance. Several
commercial banks consider this approach desirable. Even though such plans probably
more applicable to home office direct sales personnel than to field agents, more
organizations are considering this approach.
In situations in which the organization generates leads (e.g., bank annuity
marketing to customers with maturing CDs), the overall payout is reduced to reflect the
value created through lead generation. Incentive bonuses can be based on multiple
factors, including gross revenue, net or gross profit, cross selling acquisition and
retention.

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Partnering
Some agencies and producer groups have adopted the concept of partnering.
In such an arrangement, senior members of the group receive percentages of cases or
percentages of profits. Although compensation still tends to be variable, these plans
recognize that much of the revenue generated by a marketing organization is attributable
to the marketing effort and infrastructure support of the organization as a whole. Thus,
more of the revenue is allocated for these purposes. This approach lends itself to the
division of labor, as specialty roles within a selling and planning organization.

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Choosing the Right Distribution Model


An effective life company distribution model should be customer focused. It
should also reflect both company goals and customer needs. That is, it should be
consistent with the company strategy, supportive of its values, and economically viable,
while satisfying customer demands for value. The model should provide the company
adequate control of sales activities to ensure they are consistent with company goals and
objectives and meet compliances standards. It should also include appropriate incentives
to produce desired behaviors. Most importantly, it should be cost-effective.

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The marketplace eventually determines what amounts will be paid for


products and services. As consumers become better informed, their purchasing decisions
regarding financial products and services will be increasingly influenced by the level and
pattern of sales compensation priced into products loads. However, many life insurance
products are less transparent, which somewhat disguises the loads for distribution costs.

BIBLIOGRAPHY

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Books / Articles / Journals: -

Life And Health Insurance [Third Edition]


By Kenneth Black Jr. & Harold D. Skipper Jr.

Web Sites: www.apa.co.uk [Association of Publishing Agencies]


www.icfai.org
www.estrategicmarketing .com

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TABLE OF CONTENT

INTRODUCTION TO INSURANCE MARKETING


MARKETING MIX
MARKETING OF LIFE INSURANCE
DISTRIBUTION CHANNELS
DIRECT RESPONSE DISTRIBUTION SYSTEM
THE FUTURE OF LIFE INSURANCE MARKETING
BIBLIOGRAPHY

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