Life and Health Marketing (LOMA) - Chapter 15

Life and Health Marketing (LOMA) - Chapter 15 - DISTRIBUTION CHANNELS

Overview

Distribution Channel - network of cos and people that performall mktg activities req'd to deliver products to customers
3 types: personal selling/financial institutions/direct response

Personal Selling Distribution Systems

Agnecy-Building Distribution Systems
- Ordinary agency distirbution system - full or part-time agents to sell/service ins pols
  - field force - agents in the system
  - career agent - full-time commissioned salesperson w/ agency contract
  - agency contract - agreement that defines roles/responsibilities/compensation/power of agency
  - power of agency - agents right to act for the insurer
  - Career Agents - independent agents, not employees
    - exclusive agent - tied/captive - not permitted to sell other insurers products
    - agent-broker - broker - places business w/ cos other than primary co
  - marketing territory - geographic area insurer distributes products
  - field offices - sales offices in marketing territory
    - considered a branch office or agency office
- Branch Office System
  - Branch manager responsible for increaing sales/recruiting and developing career agents/managing expenses for the co
  - Branch manager and office staff are ins co employees
  - Agent in branch office under contract to ins co, not branch manager
- General Agency System
  - Agency offices established, maintained and funded by general agents
  - General Agent - Independent agent under contract to insurer
    - primary funtion of GA is to build and manage an agency of career agents focused on distributing products of single insurer w/in defined territory
    - GA is agent of insured, not EE
    - office staff EE of GA, not insurer
- Comparison of Branch Office adn General Agency Systems
  - expensive to build field force from scratch so use GA system
  - GA bears some/all of agency startup costs incl office expenses/salaries
  - Insurer commission costs ~ sales
  - Branch office - high costs @ beginning even though sales low
  - Well established insurers prefer branch office
    - - greater control & flexibiltiy
    - - can transfer personnel between territory
    - - can transfer someone w/ experience vs training from scratch
    - - rewards good producers w/ better territories
  - under GA, need consent of GA to transfer people
  - distinction between GA and Branch office getting fuzzier
Multiple-Line Agency (MLA) Distribution System
- uses career agents to distribute life/health/p/c ins for group of commonly managed or financially related ins cos
- MLAs establish own office w/ little/no help from insurer
- benefits of MLA system
  - - efficiency in serving certain markets - one agent for all needs
  - - opportunities to cross-sell products
  - - persistency - more business and more satisfied = better persistency
  - - economies of scale for insurer
Home Service Distribution system
- exlusive agaents (home service agents/debit agents)
  - defined products/defined territory
  - autohorized ot collect renewals @ PO's home
  - employees of home service co
  - req'd to keep certain hours and may be transferred
- MDO policy (monthly debit ordinary) - prems collected monthly at PO's home
  - 1k-25k face amts typically
- PNO policy (premium notice ordinary)
  - $10k/$15k min face
  - prems paid via mail/payroll ded/mbd/eft but may be collected at PO's home
- usually a district office w/ district manager
- districts split into territorys - 1 agent/territory
Worksite Mktg Distribution System
- individual/grp ins distributed at place of work on voluntary, paryroll deduction basis
- advantages
  - - effective way to reach and meet the needs of mill/lower income mkts
  - - more cost effective than distribution of indiv plans of ins
  - - builds name recognition
  - - possible gateway to sell grp benefit products to employer
  - - payroll ded less likely to lapse that direct billed for EE who remain w/ company
- disadvantages
  - - two sales to make - one to employer, one to EE
  - - small face amounts and prems
  - - persistency problems in high turnover workplaces
Location-Selling Distribution System
- consumer initiated sales at kiosk/desk in other store
- may be agency building or direct response dpeending on staffing levels
- pre-need funeral is a specialized type of location-selling
Salaried Sales Distribution System
- relys on salaried sales reps to sell/service products
- employees of insurer and paid salary
- Group Representative - handle group sales - specially trained for groups
- Call and Contact Centers
  - call center - phonebank for support
  - contact center - like phone center but email/mail/phone/web chat
  - possible source of cross sells
Non-Agency-Building Distribution Systems
- Pros
  - - don't have to train/finance or provde office support
  - - less expensive to establish
  - - expenses linked directly to sales
- Cons
  - - agents not exclusive
  - - less control
- Brokerage Distribution System
  - uses agent-brokers and licensed brokers
  - licensed broker
    - - independent life broker
    - - licensed to sell but not under an agency contract w/ any insurer
    - - responsible for own office space and other expenses
  - producer group
    - - independent producers organized
    - - negotiates compensation/product/service arrangements w/ ins co
    - - normally focus on specific segment of mkt
  - soliciting brokerage business
    - Brokerage Rep
      - appointed to solicit brokerage business and appoint brokers on behalf of co
      - may be full-time salaried employee or soliciting agents
    - Brokerage General Agency
      - agency operated by Brokerage General Agent (BGA)
      - BGA - independent agent under contract w/ numerous insurers
      - BGAs have minimum production reqmts
      - primary function - encourage agents/brokers to sell products of cos BGA represents
    - Wholesaler - broker rep that solicits business for an insu co primarily from broker-dealers adn banks
- Personal-Producing General Agency (PPGA) System
  - PPGA - commissioned salesperson, not housed in insurer's field office, engaged primarily in personal production
  - most co's that licensse PPGAs have min prod reqs
  - soliciting PPGA business
    - Regional Officer - independt contractor or EE who recruits and manages PPGAs for only one insurer
    - Managing General Agent (MGA) - indepentd contractor typically recruits and manages PPGAs for # diff cos
  - primary advantange of PPGA system - tendency to hold down costs
- Professional Advisors Distribution System
  - Financial planners/CPAs/Attorney distributing life ins
  - sometimes fee based, sometime commissioned
  - laws and ethics codes are strict for these folks - lots of extra disclosures

Financial Institutions Distribution Systems

Broker-Dealer (B-D) Distribution System
- variable products can only be distributed through B-D
- if insurer want to distribute variable products
  - register ins co as B-D
  - establish sub that registers as a B-D
  - mkt prducts through affiliate that is a registerd B-D
Bank Insurance
- distribution of ins to bank customers through bank-affiliated insurer or ins agency
- authorized by Gramm-Leach-Bliley Act (GLB Act)
Insurance Companies
- nonproprietary products - products manufactured by another insurer
- common products - DI/Indiv Health/small group health
- done to keep agents/customers happy
- home-office-to-home-office arrangement
  - HO distributes specific product lines mfg by another insurer
- career agents allowed to broker on their own for products not carried
- in-house brokerage agency - solicits dist agreements w/ other cos for prodcuts not offered
  - keeps exclusive agents from dealing with other cos

Direct Response Distribution Systems

overview
- normally noface-to-face contact occurs - sometimes phone sales reps or agents
- Direct Response Mkts - using one or more media to elicit an immediate and measurable response from a customer
- Two types of direct response materials
  - Invitation to inquire - communications designed to generate interest in product/service and provide prospects w/ means to request and receive add'l info
  - Invitation to Contract - communicaton desited to solicit and close a sale
- fullfillment kit - package of materials designed to address customer's request
Products Distributed Through Direct Response Marketing
- generally simple to apply and pay for, u/w, administer
- typically non-med or guar iss basis
- non-med basis - sold w/o exam by doc/paramed - may have health questions on app
- guar-iss basis - no indiv u/w takes place - if an eligible member of group, apply and meets specified contitions, automatically issued a policy
Media used in Direct Response Marketing
- Direct Mail - generally print form via mail service - contains mail kit
  - mail kit
    - intro letter response device (application/form)
    - brochures business reply envelope
- Telemarketing - use telephone to produce sale
  - Outbound Telemarketing - co calls you
  - Inbound Telemarketing - cust call your - usually as a response for other ads
- Internet
  - Aggregator - site where users can comparison shop many co's for rates
- Type of Mailing Lists
  - House List - compiled from people who have shown interst in co or been referred by current customers - most productive list
  - Response List - people who have brough from another co through direct response - their house list - second most productive list
  - Compiled List - derived from direcories/newspapers/tradeshow registrations/ etc

Copyright © 2004 Steve Welander.
Permission is granted to copy, distribute and/or modify this document under the terms of the GNU Free Documentation License, Version 1.2 or any later version published by the Free Software Foundation; with no Invariant Sections, no Front-Cover Texts, and no Back-Cover Texts. A copy of the license is included in the section entitled 'GNU Free Documentation License'.