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TABLE OF CONTENT

1. INTRODUCTION TO INSURANCE MARKETING

2. MARKETING MIX
3. MARKETING OF LIFE INSURANCE
4. DISTRIBUTION CHANNELS
5. BANCASSURANCE
6. DIRECT RESPONSE DISTRIBUTION SYSTEM
7. THE FUTURE OF LIFE INSURANCE MARKETING
8. PRIMARY DATA & ITS ANALYSIS
9. SECONDARY DATA & ITS ANALYSIS
10 BIBLIOGRAPHY

EXECUTIVE SUMMARY

The primary data has been collected through questionnaire method. The
questions were asked to the employees of marketing department of SBI life insurance and

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ICICI prudential. The secondary data has been collected through various books related
to insurance marketing such as Marketing in Banking and Insurance and Services
Marketing, brochures collected from SBI life insurance and ICICI prudential, weekly
journals such as Professional Banker, Insurance chronicle, etc.
The project report contains 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. Bancassurance in
India is growing day by day and it can be used as better marketing tool in future also.
Direct marketing also helps the insurance company to promote their product in rural
market. Bancassurance and telemarketing helps the company to provide useful
information to their customer and to maintain proper database of the customer.

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CHAPTER NO. 1

INTRODUCTION TO INSURANCE MARKETING

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CH.1 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

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

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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. A

small gift or token of appreciation is also a means for keeping customers loyal. Christmas

goody packages or dinner out certificates will leave lasting impressions on consistent

customers.

Consumers today value information. We live in the information age, and the

savvy, faithful customer is one that has knowledge about the products and services

offered. The next most valuable insurance marketing tips include the salesperson being

the source of financial information for the client. Newsletters, email updates, and

notifications will keep customers informed about issues surrounding insurance and other

financial programs. There are creative ways to approach these insurance marketing

strategies. Newsletters could include contests, special interest areas for kids, safety

concerns, and economic updates. There could even be an area for customer spotlights, or

encouraging testimonies of how the customers were helped through the office. Of course,

all new products and services should be showcased in any informative hard copy or e-

mail communication.

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Community marketing is another great way to get advertising and name

recognition. Successful net workers join local community agencies, such as the local

Chamber of Commerce, and sign up to help in activities. This is a great way to get name

and photographs listed in newspaper articles and other media avenues. Also, charity work

cannot only be greatly beneficial to the community and those served, but may also open

doors to communicating with other volunteers, who could be potential clients. People

enjoy using services extended by like-minded providers. Creating a sense of community

is extremely important to insurance marketing strategies.

There are other insurance marketing tips and resources available and

insurance agents may find investigating several options to be beneficial. Many marketing

support companies offer email or publication updates, sharing information and techniques

that are proven to bring in success. Agents may want to browse the Internet and find a

few different insurance marketing tips programs to choose from. Not only will these

resources help keep salespersons abreast of the latest strategies, but these support

programs can also create a sense of community and an opportunity for agents to share

their own struggles and challenges with others in the field.

Perhaps the most important insurance marketing tips are tips that speak of

integrity and honest business dealings. There are so many scams in various industries

today; consumers are looking for products and services that they can trust. It is of the

utmost importance that Christian insurance agents conduct their businesses as unto the

Lord, himself. God's Word is extremely clear about how He feels when there is

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misconduct in business transactions. "Lying lips are an abomination to the Lord: but

they that deal truly are his delight."

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.

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3. To know about the promotional policies adopted by life insurance companies.

4. To know about insurance marketing in Indian environment.

5. To know about the bancassurance as a tool of insurance marketing.

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.

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3. Study of role of marketing in general insurance sector.

4. Study of comparison of life insurance marketing and general insurance marketing.

RESEARCH METHODOLOGY

COLLECTION OF PRIMARY DATA

The primary data has been collected from various sources which are as

follows:

• Questionnaire method

• Surveys in insurance companies

• Survey in insurance related offices such as agent’s office, franchiser’s office etc.

COLLECTION OF SECONDARY DATA

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The secondary data has been collected from various sources which are as follows:

• Various books related to insurance marketing.

• Brochures of various insurance companies.

• Weekly journals.

• Articles in newspapers.

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CHAPTER NO: 2

MARKETING MIX

CH. 2 MARKETING MIX

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 mix—place, price product promotion,

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

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

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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

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 used—durability—and 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,

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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

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.

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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

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.

Industrial goods are those products used in the production of other goods. Examples of

industrial goods include accessory equipment, component parts, installations, operating

supplies, raw materials, and services. Accessory equipment refers to movable items and

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small office equipment items that never become part of a final product. Office furniture

and fax machines are examples of accessory equipment. Component parts are products

that are turned into a component of the final product that does not require further

processing. Component parts are frequently custom-made for the final product of which

they will become a part. For example, a computer chip could be produced by one

manufacturer for use in computers of other manufacturers. Installations are capital goods

that are usually very expensive but have a long useful life. Trucks, power generators, and

mainframe computers are examples of installations. Operating supplies are similar to

accessory equipment in that they do not become part of the finished product. Operating

supplies include items necessary to maintain and operate the overall firm, such as

cleaners, file folders, paper, and pens. Raw materials are goods sold in their original form

before being processed for use in other products. Crops, crude oil, iron ore, and logs are

examples of raw materials in need of further processing before being used in products.

The last category of industrial goods is services. Organizations sometimes require the use

of services, just as individuals do. Examples of services sought by organizations include

maintenance and repair and legal counsel.

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

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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

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-the-

competition pricing strategy, the focus is less on price and more on nonprice competition

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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

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

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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.

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

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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

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. Trade-

promotion tools include discounts and allowances directed at wholesalers and retailers.

Business-promotion tools include conventions and trade shows. Sales promotion has

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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

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.

The last promotional tool is personal selling. Personal selling involves an interpersonal

influence and information-exchange process. There are seven general steps in the

personal selling process: prospecting and qualifying, pre-approach, approach,

presentation and demonstration, handling objections, closing, and follow-up. Personal

selling does provide a measurement of effectiveness because a more immediate response

is received by the salesperson from the customer. Another advantage of personal selling

is that salespeople can shape the information presented to fit the needs of the customer.

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Disadvantages are the high cost per contact and dependence on the ability of the

salesperson.

For a promotion to be effective, organizations should blend all four promotion tools

together in order to achieve the promotional mix. The promotional mix can be influenced

by a number of factors, including the product itself, the product life-cycle stage, and

budget. Within the promotional mix there are two promotional strategies: pull and push.

Pull strategy occurs when the manufacturer tries to establish final consumer demand and

thus pull the product through the wholesalers and retailers. Advertising and sales

promotion are most frequently used in a pulling strategy. Pushing strategy, in contrast,

occurs when a seller tries to develop demand through incentives to wholesalers and

retailers, who in turn place the product in front of consumers.

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

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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

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.

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CHAPTER NO: 3

MARKETING OF LIFE INSURANCE

CH. 3 MARKETING OF LIFE INSURANCE

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A life insurance company’s 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.

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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DEVELOPING AND MAINTAINING A MARKETING PROGRAM

We define marketing as the provision of products well suited to customers’

needs through effective, appropriate distribution channels. A distribution channel is

the means by which products or services are provided to customers and encompasses

the entirely of a company’s marketing network. Distribution channels are also called

distribution systems or marketing channels.

A marketing program is a tactical plan that deals primarily with the product,

price, distribution and promotion strategies that a company will follow to reach its target markets

and to satisfy their needs. The development and maintenance of a realistic marketing program is

the primary responsibility of senior marketing executives. The elements of a marketing program

include an analysis of the markets available to or desired by the insurer, identification of the nature

of the perceived competition, and determination of the distribution techniques to be used. Use of

sophisticated data warehousing, data mining, and database management techniques can materially

increase a marketing program’s effectiveness. A marketing plan must also include the design of a

sales compensation system, a basic pricing strategy, and the

special administrative systems and support needed by a particular market segments or products.

The marketing plan is then utilized to develop a product portfolio and project future production by

product and amount.

Once the insurer’s marketing plan is initially documented, management

evaluates its growth and profits goals, ad the capabilities and core competencies of the

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home office and marketing operations. The marketing plan should reflect a realistic

assessment of the company’s strengths and weaknesses in relation to factors

considered critical to the plan’s success. This assessment leads to broad or narrow

product portfolios, different distribution channel structures, geographic concentration,

and so on, that is, the search for a competitive advantage. It should be noted that, with

the competitive emphasis on rates of return for interest-sensitive products and for

separate-account business such as variable life and annuities, a close coordination

with the investment function is essential.

The results of this planning and development activity will be a quantification

of what the company wants to achieve, reflecting a balance between long-term and short-term

goals. With priorities established, specific goals set down, and a product portfolio established,

the stage is set for selecting and utilizing one or more distribution channels to deliver products

to the markets selected. Typically, however, the distribution channel comes first, and the

tentative decisions regarding distributions significantly influence the process of developing a

product portfolio.

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CHAPTER NO: 4

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DISTRIBUTION CHANNELS

CH.4 DISTRIBUTION CHANNELS

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

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

• Direct response

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Marketing intermediaries are individuals who sell an insurer’s products,

typically on a face-to-face basis with customers and usually for a commission on each

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 insurer’s 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.

These three categories of distribution systems are distinguishable based on

the life insurer’s relationship with the customer. Thus, with marketing intermediaries, the

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customer’s relationship with the insurer is direct but often closely identified with the

insurer. With financial institutions, the relationship also is indirect but usually with the

customer identifying more with the institution than with insurer. With direct response, of

course, the relationship is direct. Insurers often use many distribution channels, as we

discuss throughout this section.

The following discussion classifies all life insurance distribution into one of

these three categories. Our orientation is the United States. As a practical matter,

however, much overlap exists between the systems. Additionally, the distinctions

between the various channels are not always crisp because marketing evolution has

blurred formerly distinct demarcation lines.

DISTRIBUTION THROUGH MARKETING INTERMEDIARIES

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

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salespersons and avoids expenses associated with training, financing, and providing

office facilities.

Figure 24-2 shows the various divisions of agency-building and non-agency-

building 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.

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

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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 company’s 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.

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

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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.

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 agent’s contract requires that the insurer

pay a stipulated commission on the first year’s premiums plus a renewal on subsequent

premiums. In return, the general agent agrees to build the company’s 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 agent’s

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

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group of persons located in the general agent’s 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.

Multiple-Line Exclusive Agency. The second major agency-building life

insurance distribution channel is the multiple-line exclusive agents (MLEAs) are

commissioned exclusive agents who sell the life and health and property and liability

insurance products of a single group of affiliated insurers. In the United States, well –

known insurers using the multiple-line exclusive distribution channel include State Farm

and Alistate.

As contrasted with other agency-building distribution systems, MLEAs

often are not all housed in the same office. Rather each agent has his or her own office

with clerical support that services clients and supplements the agent’s personal sales

efforts.

Although other agency-building systems are stagnant or declining, multiple-

line riod from 1981 to 1996. One reason for this growth is the economies realized through

multiproduct distribution and through higher customer loyalty.

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

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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.

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

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group sales representatives who are salaried employees of the insurer charged with

promoting and possibly servicing the insurer’s group business. Group sales

representatives usually are also paid incentive bonuses based on achievement of

production goals.

The group representative’s responsibilities may be to sell group products

directly to customers or to promote the insurer’s group sales through its own or other

insurer’s 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.

Most of the smaller-sized cases are sold through career agents, either the

insurer’s own career agents or agents of other companies. Sales to other employer-

employee 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.

Agency Management. Effective field management is essential to the

success of agency-building distribution systems. An agency head’s responsibility is to

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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 agency-

building companies. Although it is usually permitted, the need for growth and the design

of the agency manager’s or GA’s compensation formula both mitigate against significant

activity of this type.

Agent recruiting usually is the agency manager’s or GA’s most important

responsibility. The turnover rate of agents in many markets is 25 percent per year, so the

agency head has to replace a fourth of the agency’s sales force each year just to maintain

the agency’s size. Recruiting is not one activity but a process, the steps of which include

1. finding sources of prospective agents

2. determining acceptable qualifications

3. approaching prospective agents

4. using selection tools

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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.

Recruiting a group rather than one agent at a time also is a more efficient use of a field

manager’s time.

Considerable effort has been made in raising the standards for new agents

and in increasing their productivity. One strategy that has proven helpful is precontract or

preappointment training. It refers to a period of time before the prospective agent is this

period is a full-time contract offered. Most insurers have become increasingly careful in

their selection of new agents. They also devote much attention to the training of their

agents in the nature and users of life and health insurance and sales methods.

In view of the broad range of interest-sensitive and traditional products on

the market today, the agency head has a significant challenge in adequately training an

agency force. Agency managers and Gas do, however, have access to a wealth of training

materials. In addition to those made available by the company, a wide array of material is

must maintain an appropriate and effective continuing education program for all agents,

those recently established as well as experienced professionals. One-half the U.S. states

require that agent pursue some form of continuing education to maintain their licenses.

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The level of supervision provided for agents is a function of the agent’s

experience and length of service. Close supervision is particularly helpful to a new agent

until he or she develops good work habits and feels comfortable in the working

relationship with the supervisor. Experience has shown that agents react positively to

supervision in which they will be with their agents. The relationship that develops

between an agent and the agency head is an important factor in the success or failure of a

new agent.

In the sales management process, an agency head provides the stimulus to

make an agent feel motivated to take action that results in sales and related goals. Agency

heads demonstrate personal interest in each agent, use formal in-depth reviews and group

meetings, encourage attendance at industry organization meetings, provide special office

privileges, and conduct sales contests, all to create an environment in which agents will

feel motivated. Each of these motivational activities is intended to demonstrate to agent

to higher production.

In addition to these basic activities, the agency head also must carry out

many normal business management activities including expense management, managing

the office, public relations activities, and interpreting company policy. As the agency

grows, the functions for which his or her personal involvement is not essential.

Otherwise, he or she will be unable to give adequate personal attention to matters that are

critical to the success of the agency.

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As the field office administers a broad range of financial products, the

agency head must provide increasingly management support and expertise as the agency

grows. To provide this support, some agencies have added functional specialists. Thus, an

agency might have a brokerage specialists in various product lines, or technical support

persons in specialized areas.

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

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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.

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 producer’s 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 insurer’s

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

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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.

The U.S. situation can be still more complex. The term broker can refer to at

least three different distribution channels. First, most career agents broker business. As

used as a verb in this way, it refers to the practice of full-time agents of one company

occasionally selling the policies of other insurers. Career agents may sell for other

insurers because (1) their primary insurer does not offer the policy or coverage needed by

the customer, (2) their primary insurer has declined or offered highly rated coverage, or

(3) the customer wants quotes from more than one insurer.

Second, the term broker refers to independent life insurance producers who

have primary affiliation with no particular insurer and who specialize in particular

products or (typically) high-end target markets. These brokers usually are former career

agents who have become independent producers, meeting their own office and other

expenses. Often they are among the most knowledgeable marketing intermediaries.

Third, the term broker refers to a salesperson whose primary products is not

insurance but who sells insurance as an ancillary service to his or her customers. This

category can include real estate agents, automobile dealers, accountants, lawyers, and

financial consultants.

At one time, insurers that utilized a brokerage strategy and sold through

independent life agents and representatives of other companies specialized in term and

sub-standard business. Today the range of products for which companies using the

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brokerage strategy compete has broadened to include almost all lines of insurance.

Innovative products, pricing commission and service are the competitive tools involved.

Companies seeking economic efficiencies through spreading their fixed cost

have increasingly looked at supplementing their traditional channels of distribution with

additional distribution outlets. Many insurers that traditionally have been career agent

“shops” exclusively are now aggressively pushing their brokerage business.

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 contractors-

managing 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.

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

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agents usually have contracts with more than one insurer, companies using the

traditional approach try to be the PPGA’s 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.

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.

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 (after submission) to 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.

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The M Financial Group is the oldest and largest producer group. Others

include The Partner Group, the Hemisphere Group, First Financial Resources, and Forth

Financial Resources.

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CHAPTER NO: 5

BANCASSURANCE

CH. 5 BANCASSURANCE

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The U.S. financial services business has traditionally been segmented,

principally because of legal restrictions. Today regulatory barriers are being dismantled,

with insurance and banking experiencing forces in market economies as the global

economy has evolved.

Today commercial and investment banks and other financial institutions

have become important marketing channels for annuities and some life and health

insurance products in the United States. More than 4,000 U.S. commercial financial

institutions holding 70 percent of all U.S. deposits are engaged in marketing insurance

products.

We classify life insurance distribution via financial institutions into three

categories as follows:

• Deposit-taking institutions

• Investment banks

• Other financial institutions

By deposit-taking institutions, we mean any financial intermediary engaged

in accepting deposits from and making loans to the pubic. This category includes

commercial banks, which are by far the most important such institution in terms of assets,

but it also includes thrifts, credit unions, and any other specialized deposit-taking

arrangement. By investment banks, we mean a financial intermediary engaged in

bringing together investors and issuers of securities. This category includes marketing

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intermediaries whose primary business is the sales of securities. Other financial

institutions include mutual fund organizations, pension funds, and insurers.

Deposit-Taking Institutions

U.S. deposit-taking institutions have been active in marketing annuity

products since the mid-1980s, producing significant growth in the last decade. The

Supreme Court’s unanimous decision in 1995 that annuities are financial products, not

insurance products, and can be sold by commercial banks stimulated their marketing

efforts. New individual annuity sales by banks are estimated to be at least 20 percent of

totals sales. More than one-half of the largest U.S. banks market annuities and the

proportion are growing. According to the Association of Banks-in-Insurance, 86 percent

of those who purchased annuities through financial institutions and 91 percent f those

who live in rural areas were first-time buyers.

U.S. deposit-taking institutions efforts to sell life and health insurance

policies have not been as successful as with annuities, with the changing regulatory

environment they will strengthen marketing efforts related to term life insurance, cash-

value life insurance, long-term care insurance, and disability income insurance.

Annuities and life and health products are distributed primarily by agents

employed by commercial banks or subsidiaries and by bank staff (e.g., branch managers

and customer service representatives). Many banks rely on various direct-response

techniques, often in addition to agents. Third-party marketers-sales representatives’

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employed by an outside marketing company-also are involved in bank annuity, life,

and health insurance product sales.

Investment Banks

Investment banks and their retail marketing divisions are important

distribution channels for variables and fixed annuities as well as some life and health

insurance. Stock-brokers often are classified and treated as insurance brokers because

their primary sales activity is other than insurance and they may often sell for multiple

companies.

It is estimated that they account for approximately one-third of new variable

annuity sales and 5 percent of variable life sales. One stockbroker firm already is the

second largest writer of single-premium variable life insurance in the United States.

Other Financial Institutions

We are witnessing the evolution of mutual fund organizations as a life

insurance distribution channel. Already, several no-load mutual fund organizations offer

life and health insurance with, for example, one such organization already being licensed

to sell life insurance in almost all states. Their Web sites invite inquiries regarding

insurance purchases, and we can expect sales transaction via the Internet soon.

This classification also includes insurers. An increasing number of

companies have discovered that it is not economical for them to manufacture all the

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products that their agents believe they need, or that they cannot be competitive in all

areas. They have sought to import certain products developed by other companies. The

result has been increased interest and activity in manufacturer-distributor relationships. In

one study, one half of the U.S. life insurance companies surveyed stated that they

distribute one or more products manufactured by other companies. These arrangements

are mostly to fill out a product line, as sales account for only 5 percent of new premiums.

Disability income insurance is the most commonly imported product. Such manufacturer-

distribution relationships are less common in other markets worldwide.

Financial institutions are gaining market share as more and more institutions

develop relationships with life insurance companies and strengthen their own distribution

system. Over time, as sectoral barriers continue to fail, more financial institutions will

undoubtedly develop or acquire life insurance companies and operate them as

subsidiaries (and vice versa).

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CHAPTER NO: 6

DIRECT RESPONSE DISTRIBUTION SYSTEM

CH.6 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. Also, an upsurge in telemarketing of life insurance products in the United

Kingdom has peaked the interest in the United States and elsewhere.

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 (i.e., it helped to fill the gaps in basic coverages). The products

were simple. They were easy to understand, required relatively small premium outlays,

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and were serviced through the economies of computerized solicitation, issuance, and

administration. This approach favors the sale of a large number of small policies.

More recently, companies have begun to offer comprehensive life and health

insurance protection, annuities, estate planning, and other products through direct-

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 direct-

response 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

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an association or similar group to offer products to its membership, is mailed

solicitations, or advertisements are placed in the association’s magazine or newsletter.

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. Opponent’s claims that the material

often is misleading and the products are high in price.

The prevalent direct – response media in use today (direct mail, print media,

and broadcast media) have begun to be combined with telemarketing – the use of the

telephone to solicit life and health insurance sales. The importance of this medium is

evidenced by the proliferation of toll-free numbers. Telemarketing is a high unit-cost

medium, but justification for this higher cost is found in relatively high response rates.

Telemarketing laso is personal once a consumer makes the initial telephone call.

Personalization and mass marketing are combined in telemarketing, thus improving

marketing effectiveness.

Much discussion centers on the concept of shopping for financial products

and services using electronic media. Commercial on-line networks and the Internet are

now utilized by all forms of marketing intermediaries as well as by financial institutions

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provide on-line premium quotations and accept applications for coverage. Most have

created sites on the Internet’s World Wide Web that perform some or all of these

functions.

Making and accepting payments cause concerns from the standpoint of

security – particularly on the Internet. Most knowledgeable observers believe that

network users will be content to make payments and receive delivery of products and file

claims electronically. As in other industries, the time lag between introduction and

widespread adoption of innovations in insurance tends to be long. The process of

adopting automated teller machines required more than a decade after their appearance.

Electronic banking and securities transactions already are a reality with lost

large firms, although usage is not yet widespread. Electronic sales of any but simple life

and health insurance products should not be expected to make significant competitive

inroads against other means of distribution in the near future. Meanwhile, networks will

play a significant role as sources for communication and information. The effects will be

felt in the other distribution channels through customers being better informed.

Life Insurance Distribution Worldwide

In Canada, about 60 percent of life insurance premium income is generated

by full-time career agents. Brokers account for approximately one-third of premium

income, independent marketing organizations for 4 percent, and multiple-line agents 3

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percent. As is true in almost all developed markets, brokers and independents are

taking market share from career agents.

Distribution channels in the United Kingdom have been in a state of flux

since the late 1980s because of regulatory changes. The Financial Services Act of 1986

resulted in a clear distinction between independent financial advisors (IFAs) and

appointed and company representatives. IFAs (insurance brokers, banks, building

societies, lawyers, and accountants) are required by law to survey the market to find the

best product to meet the needs of their clients. Appointed and company representatives

sell only their company’s products. Brokers have traditionally been stronger than in other

European countries, but they too are losing market share to banks and building societies.

As a result of fines, disclosure regulations, and adverse publicity, the traditional tied

agent sales force has been decimated, with the number of career agents having fallen by

more than 50 percent. Most insurers have switched to IFAs. There also has been a

significant increase in the use of the direct-response channel, particularly in personal

lines.

In France, market shares have changed dramatically with the development of

bancassurance. Today, more than 50 percent of life insurance policies were sold at banks,

the post office, or the Treasury compared with19 percent in 1983. Swiss and German life

insurers rely primarily on exclusive agents for distribution. In these markets, it is difficult

for a new entrant to again a significant market presence because there are relatively few

independent distribution networks. This has led to acceleration in the number of

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megamergers and acquisition within Europe among insurance companies as well as

between insurance companies and banks.

Distribution in Japan remains dominated by the industry’s large network of

female exclusively agents. Because agent commissions traditionally were set by the

Ministry of Finance (MOF), agent almost never left one company for another, although

this changing. Several companies recruit full-time university graduates and have been

modestly successful.

In most Latin American countries, career agents have been the traditional

distribution channel. In recent years, however, interdependent agents, brokers, marketing

organizations, and international brokers have developed. Distribution practices vary

widely.

In the Pacific Rim countries, as Japan, there is widespread use of exclusive

agents Both Taiwan and Korea recently have opened their markets to foreign insurers.

Nevertheless, the largest domestic insurers still dominate the market (e.g., in Taiwan the

three largest domestic companies maintain most of their 80 percent market share).

Although the 1990s witnessed a decline in the hiring of career agents in

several developed market economy countries, several emerging markets have

experienced strong growth in career agents. This is particularly true for China and

Indonesia and many Latin American and Eastern European Countries.

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CHAPTER NO: 7

THE FUTURE OF LIFE INSURANCE MARKETING

CH. 7 THE FUTURE OF LIFE INSURANCE MARKETING

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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.

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

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account for two-thirds to three-fourths of an insurer’s 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

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 company’s 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.

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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

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.

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

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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.

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:

• Level commissions

• Assets under management

• Salary plus bonus

• Partnering

These alternatives relate mostly to agency-building distribution systems

because companies selling through non-agency-building distribution channels have less

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leverage to affect agent compensation. However, other channels will inevitably be

affected.

Level Commissions

Many insurers are considering adoption of levelized commissions, which

can minimize the loss incurred on business not in force for a long enough period to

recover initial expenses. Level commissions also can achieve a better alignment of the

insurer’s agent’s, and consumer’s interest in it growing worldwide.

Whether levelized commission plans actually lead to increased value to the

company or to the consumer will depend on the way they are implemented. Transition

from the traditional to a level commission approach is not easy. Moreover, if the

discounted value of the levelized commission scale is the same as the value of the heaped

scale, the change will release little value.

Improved policy persistency could enhance value, allowing for a decrease in

omissions that could be shared between the company and the consumer. This may be

offset by lower sales (as agents have less immediate incentive), which would increase

distribution costs. Levelized commissions, in themselves, do not offer huge financial

benefits, so long as the total value of the commission paid is the same as under the

traditional scale.

Assets Under Management

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Traditional life and annuity commissions are based on premium. A

growing number of annuity contracts offer an asset-based commission option to the retail

distributor. However, aside from the financial institution distribution channel, most

distributors seem to prefer up-front commissions. Lately, however, agents have come to

see that asset-based payments can be quite attractive if the block of business grows with

sustained high investment returns.

Some insurers are now considering an asset under management (AUM)

approach for certain types of life insurance products. Their rationale is that the most

profitable business is that wherein the underlying assets remain with the insurer. Under

an AUM plan, agents and managers are paid to align their goals with those of the

company by customer approach than is implicit in traditional compensation approaches,

which have more of a transactional orientation. Although similar to levelized

commissions, an AUM approach offers greater potential for veteran agents. It may also

be more suitable for a multiproduct distribution. Future pay plans could combine

levelized commissions with an AUM design.

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

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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.

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 (such as a

financial services boutique) 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.

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,

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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.

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.

The Life Insurance Market of the Future

One fact with which insurers must deal is a decline in the households owing

individual life insurance in many developed markets, including the United States.

Although the number of U.S. households owing some form of life insurance has grown,

the proportion of insured households has dropped. This overall decline in the percentage

of insured is entirely due to a dramatic drop in ownership of individual life insurance. In

1960, almost three in four U.S. households owned agent-sold individual life insurance;

today, less than one-half do. During this same period, the percentage of households with

group life insurance grew dramatically.

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The primary mission of the life insurance industry is changing in most

developed nations. The focus of support and, thus customer service has shifted from the

insured’s’ heirs to the insureds themselves. Life insurers are increasingly being called on

to support an aging customer. The relatively recent practice of early payment of death

benefits to those terminal diseases underlines how much the focus has shifted.

It is clear that the public’s evolving security needs differ structurally from

those of previous decades. There is a clear trend toward increasing growth in spending to

guard against the risk associated with poor health and, outliving one’s assets in retirement

in contrast to protection against premature death.

The public sector provides more than 60 percent of the expenditure for

personal economic security in the United States and even higher percentages in many

other countries. Although concerns for retirement security, health, and long-term care

will continue to grow, the ability of governments to pay for them at current levels is

questioned. Increasing pressure for financial security can be expected if needs are to be

met through private-sector spending.

The U.S. public continues to believe that life insurance is the most

appropriate vehicle for the protection of the family in the event of the breadwinner’s

death. Life insurance, however, has lost ground in terms of its recognition by the public

as a suitable means of accumulating funds for children’s education and for retirement.

Many life insurers have responded to these shifts in public perceptions and preferences

by establishing broker-dealers to facilitate their marketing of investment products such as

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mutual funds, variable annuities, variable life, and variable universal life products.

Approximately 40 percent of all U.S. agents are licensed to sell variable products. More

than one-half of individual annuity premiums are from variable contracts sales.

The retirement and health care side of the life insurance industry is expected

to grow because a natural set of consumer needs remains unfulfilled. In fact, the real rate

of growth in market potential is expected to increase for several reasons:

1. Government’s reduced inclinations to assume full responsibility for

individual security have caused individuals to become more concerned about providing

independently for their personal financial security.

2. Growing proportions of the populations will be senior citizens. They are the

most security-conscious demographic segment.

3. Corporations will continue to be active in assisting employees in achieving a

measure of financial security at the employee’s expense. One reason is that corporations

will continue to seek ways to reduce their own employee benefit cost increases.

In the context of a growing market, there are reasons why the providers of

services could change, either in identity or in methodology. First, as noted earlier, the

industry is considered by many to be inefficient in its delivery of products. Second,

because of basic inefficiencies, many new products’ profit margins are believed by many

to be inadequate by historical standards. Third, many companies have focused their

efforts on the high-end markets. These markets may be oversold while unmet needs exist

in less upscale areas.

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As a result, it is likely that the successful insurer of the future will be

larger, more market focused, and more efficient. This means it is likely that some middle-

tier insurers will rise to the top via growth coupled with mergers or acquisition; that many

fringe companies will disappear; and that traditional agency insurers can remain

competitive only in defined niches. Furthermore, insurers are likely to make more use of

variable expense, non-agency-building distribution channels.

With respect to the upscale market – with a focus on planning and tax

implications- relatively little change is expected to occur in terms of the nature of

services demanded. This market will remain an agent-served market, and it will continue

to use a range of life insurance and other financial products. Agents may move to greater

fee based compensation as they emphasize advice and service more than the actual sale of

products. Its growth rate probably will not change materially (unless taxed away). The

new distribution model will likely be built around the concept that life insurance is part of

a broader plan integrating multiple financial products.

The size of the U.S. mid-scale market will probably grow materially for

many of the reasons indicated. Successful competitors will focus on needs and will

supplement and support their distribution systems effectively, using the Internet,

telemarketing, financial institutions, and other third-party intermediaries. Multiline

insurers that can effectively cross-sell multiple products will have a cost advantage in this

market. Current assumption and variable products should be featured, along with basic

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term insurance and cash value products with traditional guarantees. Annuities

supported by continued favorable tax treatment should continue to grow.

Downscale markets will probably be served by simple security products,

worksite marketing, possibly multiple-line exclusive agents, perhaps financial institution

marketing, and government programs. The home service business will probably survive,

but it will be in a continuing state of contraction. Direct-response marketing is expected

to play a more important role in the future, especially as relates to the Internet as an

information and advertising source and possibly as a source of sales.

It is believed that corporate markets will grow at a rate exceeded only by

that of the mid-scale market. There are an estimated 5 to 6 million firms in the United

States with less than 100 employees. Many have unmet needs for group insurance,

retirement plans, and business insurance. Many small firms do not offer their employees

any group products, and many business owners have no individual business life or

disability income insurance to insure business continuation in the event of death or

disability. Small business is served predominately by career agents.

Large corporations can be served directly by insurers. Their experience with

cost plus and administrative services only group plans taught them that direct contact is

possible and cost-effective. An extension of direct corporate purchase could be the

negotiation of rates and products for distribution directly to corporate purchase could be

the negotiation of rates and products for distribution directly to corporate employees.

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Most of these buyers will come from themed-scale segment. Advisors and consultants

could play a new, important role because of this major trend.

To address effectively the many productivity issues faced by life insurance

executives, consideration must be given to both agent and field management

compensation. Without alignment between the insurer’s goals and its compensation

package, it risks getting more of what it may not want, while paying a great deal for it. In

addition to the introduction and effective management of newer distribution channels,

alignment will be the most important force shaping trends in compensation and

distribution.

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PRIMARY DATA & ITS ANALYSIS

Q.1 Which strategy is most useful for sales promotion/marketing of product in the

market?

□ Direct response □ Bancassurance

□ Advertising □ Other (if other please mention)

TABLE: -

Insurance Direct Advertising Bancassuranc Other

company Response e

ICICI 65% 15% 20% 0%

Prudential

SBI life 70% 20% 10% 0%

Insurance

GRAPH: -

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0.8
0.7
0.6
0.5
ICICI Prudential
0.4
0.3
SBI life Insurance
0.2
0.1
0

er
e

sin
s

nc

th
on

ra

O
rti
sp

su

ve
Re

as

Ad
nc
ct
re

Ba
Di

EXPLANATION:-

The above table and graph tells us that approximately 65 to 70 % of products

are promoted through direct response strategy, 15 to 20 % through advertising and

remaining 10 to 20 % are promoted through bancassurance. Only 15 – 20 % of the

respondent says that advertising is most useful for sales promotion or marketing of the

product.

Q.2 To what extent the agent contributes (in Percentage) to the total sales of the co.?

□ 0 – 25 % □ 26 – 50 %

□ 51 – 75 % □ 75 – 100 %

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Insurance 0 – 25 % 26 – 50 % 51 – 75 % 75 – 100 %
company

ICICI 65% 15% 20% 0%

Prudential

SBI life 70% 20% 10% 0%

Insurance

GRAPH:-

0.7
0.6
0.5
0.4
0.3
0.2 ICICI Prudential
0.1
0
0 – 25 %

SBI life Insurance

26 – 50 %
51 – 75 %
75 – 100 %

EXPLANATION:-

The above table and graph tells us that approximately 65 – 70 % of the respondent

says that the agent contributes only 0 – 25 % of the total sales, 15 – 20 % says that agent

contributes only 26 – 50 % and 10 – 20 % says that agents contributes only 51 – 75 % of

the total sales.

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Q.3 Out of total profit how much amount is expended on marketing of product of the

co.?

□ 0 – 25 % □ 26 – 50 %

□ 51 – 75 % □ 76 – 100 %

TABLE: -

Insurance 0 – 25 % 26 – 50 % 51 – 75 % 75 – 100 %
company

ICICI 50% 25% 20% 0%

Prudential

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SBI life 60% 20% 10% 0%
Insurance

GRAPH: -

0.6
0.5
0.4
0.3
0.2
0.1 ICICI Prudential
0
0 – 25 %

SBI life Insurance

26 – 50 %
51 – 75 %
75 – 100 %

EXPLANATION: -

The above table and graph tells us that 50 – 60 % of the respondent says

that 0 – 25 % of total profit is expended on marketing of product, 20 – 25 % says that 25

– 50 % is expended on marketing of product and remaining 10 – 20 % says that 51 – 75

% is expended on marketing of product.

Q.4 Can bancassurance be used as better marketing tool in future?

□ Yes □ No

□ Can’t say □ To some extent

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TABLE: -

COMPANY ICICI PRUDENTIAL SBI LIFE INSURANCE

YES 60% 70%

NO 10% 0%

CAN’T SAY 10% 20%

TO SOME EXTENT 20% 10%

GRAPH: -

70% 70%
60% 60%
50%
40%
30%
20% 20%
10% 10% 20%
0% 10% 10%
0%
ICICI PRUDENTIAL
YES

NO

CAN’T SAY

TO SOME
EXTENT

ICICI PRUDENTIAL SBI LIFE INSURANCE

EXPLANATION: -

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The above table and graph tells us that 60 – 70 % of the respondent says

that the bancassurance can be used as better marketing tool in the future, 10 % says that it

cannot be used as better marketing tool in the future 10 – 20 % says can’t say and 10 – 20

% says to some extent.

Q. 5 Through which marketing strategy we can reduce the total cost of sales promotion?

□ Direct response □ Bancassurance

□ Telemarketing □ Other (if other please mention)

TABLE:-

Insurance Direct Advertising Bancassuranc Other

company Response e

ICICI 10% 10% 70% 10%

Prudential

SBI life 20% 0% 80% 0%

Insurance

GRAPH: -

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0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
ICICI Prudential SBI life
Insurance

Direct Response Advertising Bancassurance Other

EXPLANATION: -

The above table and graph tells us that approximately 70 – 80 % of the

respondent says that bancassurance can be used to reduce the total cost of sales

promotion, 10-20% says direct response marketing, 10% says advertising and 10% says

through other marketing strategies such as internet or e-mail.

Q.6 Which method of marketing helps the co. to sell life insurance products to illiterate

people or people from rural area?

□ Direct marketing □ Bancassurance

□ Telemarketing □ Other (if other please mention)

TABLE: -

Insurance company ICICI Prudential SBI Life insurance

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Direct response 10% 20%

Advertising 20% 0%

Bancassurance 70% 80%

Other 0% 0%

GRPAH: -

0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
Direct Advertising Bancassurance Other
response

ICICI Prudential SBI Life insurance

EXPLANATION: -

The above table and chart tells us that the 70 – 80 % of the respondent says

that bancassurance is the most useful marketing strategy to sell life insurance product to

the illiterate people or people from rural area, 10 – 20 % says direct response marketing,

and 20 % says advertising.

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Q.7 Which method of marketing is better with a view to provide information to

customer?

□ Direct marketing □ Bancassurance

□ Telemarketing □ Other (if other please mention)

TABLE: -

Insurance company ICICI Prudential SBI Life insurance

Direct response 10% 20%

Advertising 30% 20%

Bancassurance 60% 50%

Other 0% 0%

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GRAPH:-

0.6

0.5

0.4

0.3

0.2

0.1

0
ICICI Prudential SBI Life insurance

Direct response Advertising Bancassurance Other

EXPLANATION: -

The above table and chart tells us that approximately 50 – 60 % of the

respondent says that through bancassurance marketing strategy we can provide maximum

information to the customer, 20 – 30 % says advertising is a better source of information

and 10 – 20 % says in direct response marketing gives complete information to the

customer.

SECONDARY DATA & ITS ANALYSIS

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In today’s market, most producers do not sell their goods directly to the final

consumer. This is because direct distribution is so costly and it is beyond the reach of

marketers. Hence, marketers use different distribution channels to display, sell or deliver

the physical product or service to the buyers or users. They include distributors,

wholesalers, retailers and agents. Marketing channels are sets of interdependent

organizations involved in the process of making a product or service available for use or

consumption. A distribution system is a key external resource. The growth and

development of organizations to a large extent depends upon effective and efficient

distribution system due to the fact that distribution creates time value, place value and

utility value and utility value to goods and services.

Channel levels

Organizations have many alternatives for reaching a market. They can sell

directly to the buyers or use one, two or three level channels. There are basically four

consumer marketing channels such as zero level channels; one level channel; two level

channels and three level channels. A zero level channel also known as direct marketing

channel consists of a manufacturer selling directly to the final customer while a one level

channel contains one selling intermediary such as a retailer. On the other hand, in a two

level channel, there are two intermediaries. In consumer market, two level channels is

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widely prevalent. A three level channel contains three intermediaries. Channels

normally describe a forward movement of products/services from source to user.

There are distinct channel configurations, which one can notice in the

service sector. Rathmell has suggested the dominant channel configuration in the service

sector where agents and brokers play the key role in the distribution of services. The

major function of these agents and brokers is like any other intermediary – to bring the

producer of service and the user or consumer together. For certain services, agents can be

identified and deployed with selling as the chief function to be performed by them. These

agents can be compared with the agents of goods and they are classified as brokers or

sales agents. However, in some cases the agents may be trained in the creation and

production of services and then franchised to sell it. In case of certain services, actual

product is not transferable and therefore tangible representations are created and

transferred. This type of channel is used for marketing insurance services where a contact

document exists as a physical and tangible representation of the service.

Distribution Channels in the Insurance Sector

The Indian insurance industry relied heavily on the traditional distribution

channel, with a large number of varying levels of professionalism and productivity until

1999. For instance, LIC has developed a huge agency force of more than 10 lakhs in

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2004-05. With the entry of new players, alternative distribution channels have been

developed, which are cost-efficient and which can offer better benefits for policyholders.

Multi-channel distribution and marketing of insurance products have been the strategy of

new players in the Indian insurance market. The newly emerged channels in the insurance

sector of new players in the Indian insurance market. The newly emerged channels in the

insurance sector are corporate agents, brokers, referrals, and direct business besides the

traditional agency force. Though the LIC avails the newly emerged distribution channels,

its new business performance from these channels is quite miniscule. For instance, the

new business procured by the LIC through agents is as high as 98.79% while the business

procured through the newly emerged distribution channels is quite low at 1.21%. in view

of these facts, an attempt is made to assess the contribution of each channel to the overall

performance of the LIC.

Agents

Insurance business both life and non-life is procured through individuals

who are called as agents. This is one of the most popular ways to produce business

among insurers. Individuals who want to become insurance agents have to obtain license

from the controller of insurance. After obtaining the license, agents have to enroll with

the insurance company to be authorized to work as an agent. An agent is trained and

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qualified to advise on which policy is best suited for an individual. Agents help in

filling the proposal form and submit it to the insurance company. They also ensure that

policy documents are issued to policyholders. Sometimes, agents do remind

policyholders from time to time about when one is supposed to pay the first premium or

renewal premium. Agents also play an important role in assisting the insured in

completing the formalities for claims. This shows that agency force has immense

potential due too the fact that many of the insurance products are highly complex and the

marketing of these products require greater knowledge and understanding. These

products can be better marketed through certified insurance facilitators or agents. In

short, agents are the lifeline of LIC. The corporation has a huge agency force of

10,41,737 during 2004-05. These agents are dispersed throughout the country working

under the 2,048 branches of the corporation. The agents are highly qualitative in view of

their productivity or efficiency. For instance, of the total new business underwritten by

the LIC, the share of agents constitutes as high as 98.79% during 2004-05, which shows

that the major strength of LIC is its agents. Table is indicative of the new business

underwritten by the LIC through various intermediaries including agents.

Table 1: New Business (life) Underwritten through Various Intermediaries

by LIC
Agents Corporate agents Brokers Referrals Direct
Busine
Year Others ss
Banks

99.78 0.11 0.09 0.02 - -

2003-04

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2004-05 98.79 0.87 0.30 0.04 - -
Compiled from the Annual Reports of IRDA

Corporate Agents

IRDA introduced the Corporate Agency System during 2002-03. As per the

system, a bank can act as an agent on behalf of one life and non-life insurance company.

In other words, banks and other organizations such as Micro Credit Organizations plus

welfare organizations such as Help Age are also allowed to undertake insurance business.

In view of this, a brief discussion is made here under about corporate agents such as

banks and other organizations.

Bancassurance

Bancassurance has evolved as a strong distribution channel in many

countries including India. Bancassurance symbolizes the convergence of banking and

insurance. The term involves distribution of insurance products through a bank’s branch

network. In other words, banks help in fulfilling the banking and insurance needs of

customers at the same time. While bancassurance has become a success story in Europe,

it is relatively a new concept in Asia. However, bancassurance has grown significantly in

Asia due to the relaxation of rules and regulations. For instance, countries like Japan,

South Korea and Philippines, which prohibited bancassurance earlier recognized its

importance and allowed them to distribute insurance plans.

Banks and insurance companies in India have already learnt from European

bancassurance who have decades of experience in managing their subsidiaries. Insurance

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companies see bancassurance as a tool for increasing their market penetration and

premium income. Even the customers see bancassurance as a great benefit in terms of

availability and accessibility or service at doorsteps. Further, expense ratios in insurance

activities through bancassurance are very low. Having realized the importance of

bancassurance and also to overcome the threat from new entrants in the insurance

business, the LIC started channelizing sales through bancassurance partners such as

Corporation Bank, Central Bank, Oriental Bank of Commerce, among a host of others. In

fact, the LIC has tied up with as many as 31 banks to distribute its plans. But its business

from this channel is highly meager at 0.11% in 2003-04 and 0.87% in 2004-05, which

indicates that the LIC failed to utilize the bancassurance channel effectively and

efficiently.

Others/Third Parties

Distribution through others or third parties means it is those companies

rather than the insurers who often rep the benefits of customer loyalty. This accelerates

the shift of insurance to a commodity product. It is a fact that pure financial service

retailers are on the rise and most of the m do not have owned products. As such, they

offer a broad range of products from different insurers to consumers. It is a fact that

private insurers are relying heavily on others/third parties like Micro Credit Agencies and

even welfare organizations like Help Age. As such, they make a significant amount of

insurance business from this channel. For instance, private insurers made as much as

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6.86% and 7.75% business from other sources or third parties in 2003-04 and 2004-05

while the business of the LIC is abysmal at 0.09% and 0.30% respectively during the

same period. Table 2 presents the new business underwritten by players through various

intermediaries.

Table 1: New Business (life) Underwritten by Private Players Various

Intermediaries
Agents Corporate agents Brokers Referrals Direct
Busine
Year Others ss
Banks

60.39 10.57 6.86 0.31 7.50 14.37

2003-04
2004-05 59.30 15.42 7.75 1.23 6.25 10.05
Compiled from the Annual Reports of IRDA

Brokers

Insurance brokers are professional who assess risk on behalf of their clients,

provide advice on mitigation of the said risk, identify the optimum insurance policy

structure, bring together the insurer and the insured, carry out the preparatory work for

entering into the insurance contracts, and facilitate processing where claims arise. The

brokers are retained by the insured’s and are thus primarily responsible to them. In other

words, brokers represent the interest of the clients. The introduction of this intermediary

in the insurance market has resulted in improvement in customer service and transfer of

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international know-how on insurance into the country. Further, it has helped in

increasing the insurance penetration besides improving the retention levels within the

country.

Brokers are like agents, but with a difference. While agents the license to

sell policies of only one life insurance company and one non-life insurance company at a

time, a broker can sell policies of several life and non-life insurance companies at the

same time. Further, as per IRDA norms, minimum capital of Rs. 10 lakh is required for

undertaking brokerage in life insurance business. But the business of LIC through brokers

s very low at 0.02% in 2003-04 and 0.04% in 2004-05, which indicates that the newly

emerged channel (brokers) is not an effective channel for LIC.

Referrals

IRDA permitted banks to undertake referral business. As a part of this,

banks provide physical infrastructure and other facilities in their branch premises to

insurance companies so that the latter can market their insurance plans. While entering

into a referral, it is to be ensured that such arrangements are entered only with registered

groups subject to a written agreement, and with the sole purpose of making available

customer database for soliciting the business of their members only. A referral fee is

charged by the respective bank on the basis of premium collected. The referral fee is

subject to a ceiling rate, which should not exceed the agency commission allowed under

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the Insurance Act, 1938. The regulations also require banks to file referral

arrangements with the Reserve Bank of India and also with IRDA. With regard to new

business procured through referrals, private players are far ahead of the LIC. For

instance, private players captured 7.50% and 6.25% share of the total new insurance

business through referrals in 2003-04 and 2004-05 while the business of the LIC through

this channel is nil.

Direct Marketing Channel

Direct marketing channel or zero level channels consists of a company

selling directly to the final customer. In other words, service providers are more likely to

visit corporate customers at their premises due to the larger volume associate with

business-to-business transactions. The private players have adopted the direct marketing

approach and captured a significant chunk of the insurance market. It is evidence from

the fact that private players made 14.37% and 10.05% share of the total new insurance

business through direct marketing approach while the new business performance of the

LIC through this channel is nil.

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FINDINGS AND CONCLUSION

1. Direct selling strategy or direct response marketing strategy is most useful for sales

promotion / marketing product in the market.

2. Agents contributes 0 – 25 % of the total sales of the company.

3. Approximately 0 – 25% of the total profit is expended on marketing of product of

the company.

4. Bancassurance is growing day by day and it can be used as better marketing tool in

future also.

5. Direct marketing strategy can be used to reduce the total cost of sales promotion.

6. Direct marketing and Telemarketing helps the company to sell life insurance

products to illiterate people or people from rural area.

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7. Telemarketing is better with a view to provide information to customer.

SUGGESTIONS & RECOMMENDATIONS

1. To improve direct response marketing technique as companies marketing is mostly

depended on it.

2. To give more importance to bancassurance as the financial institution is directly

related to its customers.

3. To develop some innovative techniques of marketing.

4. To appoint qualified agents.

5. To examine marketing strategies adopted by the competitors.

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SUGGESTIONS FOR FUTURE RESEARCH

1. To study customer relationship management program.

2. To study insurance marketing in global market.

3. To study of role of marketing in general insurance sector.

4. To study marketing mix in general insurance sector.

5. To study bancassurance as a key distribution channel.

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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