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Marketing and Distribution SystemsMarketing - developing strategies to get and keep customers
Measuring the market (1995)
Premium volume $260 billion
Number of insurers 3,340
Measuring market share
Company NWP (Net Written Premium)/Total NWP
-by line, by state
Measuring competitiveness
Concentration ratio
4 firm market share (1995)
Total Property-Liability 27%
Auto Insurance 38%
Homeowners 45%
Property-Liability Insurance ProductProduct differentiation
Contract - restricted by state regulation
Price
Service
Philosophies of Marketing Management
Production Concept - cost
Product Concept - quality
Sales Concept - sales effort (needs of the seller)
Marketing Concept - market segments (needs of the
buyer)
Key Marketing DecisionsWhom to serve
Product market specialization
Product specialization
Market specialization
Selective specialization
Full-service multi-product/multi-market insurer
What products and services
Product life cycle
Product development process
Marketing Objectives
Growth
Profitability
Innovation
Diversification
Satisfaction
Marketing StrategiesCompetitive positioning
Market leaderMarket
challengerMarket followerMarket nicher
Growth Strategies1. Market penetration(Current products to current
markets)2. Market development(Current products to new markets)3. Product development(New products)4. Diversification(Correlated products)
Marketing Functions and Special ConstraintsFunctions
Marketing research
Markets development
Marketing information
Marketing planning
Advertising
Sales promotion
Marketing administration
Customer relations
ConstraintsMature product
Intangible
Service intensive
Low customer involvement
~30% of customers shop
Regulated
Distribution SystemsInsurance Market Intermediaries
Unique characteristics of insurance marketing
Legal status of agent
Agent - represents insurer
Broker - represents policyholder
Powers and duties of agent
Listed in contract
Powers - Lines written, binding authority
Duties - Accounting, rules
Apparent authority
Attributes of Insurance Intermediaries
Ties to insurers
Compensation methods
Salary
Commissions
Contingent commissions
Ownership of expirations
Types of Insurance Distribution Systems
Independent Agency System
Agents own expirations
Exclusive Agency System
Direct Writer
Direct Response
Combination Systems
INA - 1970s
Allstate - currently
Expense differences
Alternative Marketing SystemsInvoluntary Market
Auto
Assigned Risk Plans
Joint Underwriting Associations (JUAs)
Auto Reinsurance Plans
State Funds
Property
FAIR Plans
Beach and Windstorm Plans
Workers’ Compensation
Alternative Marketing SystemsGovernmental Insurance
State insurance funds
WC -25 states
Auto - Maryland
Federal
Flood
Crime insurance
FAIR plans
Insurance exchanges
Illinois - surplus lines
Risk Retention Groups
Need approval only in one state
1981 Product Liability
1986 Commercial
Liability (except WC)
Purchasing Groups
Exempt from Fictitious Group laws
Mass merchandising
Marketing Management and Agent Functions
Branch Office System
Managing General Agency System
Independent business
Performs branch office functions
Appoints agents
Primarily excess and surplus lines and specialty areas
Functions Performed by Agents
Prospecting
Sales
Risk analysis
Policy issuance
Collection
Claims handling
Consulting
Distribution System Decisions
Geographic location
Expertise and reputation of producers
Nature of existing business
Ability to service products
Markets to be targeted
Insurer characteristics
Degree of control required or desired
Comparison of Distribution Systems
Independent Agency System ~ 51% of P-L market
Higher in commercial lines
Lower in personal lines
Slower growth rate
Higher expense ratios
Examples of successful exclusive agency insurers
State Farm
Allstate
