Chapter 8 Distribution Channels Flashcards

Discuss the operating environments in which health & care insurance products are traded.

1
Q

The main distribution channels

A
  • Insurance intermediaries (brokers)
  • Tied agents
  • Own salesforce
  • Direct marketing
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2
Q

Insurance intermediaries

A
  • Brokers should act independent of any individual insurer.
  • They should choose a product which best meets the clients needs in terms of premiums and benefits.
  • They may be remmunrated via commission by companies’ whose products they sold.
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3
Q

Tied agents

A
  • These are sales people tied to either one or a group of insurance companies.
  • They sell to their clients products only from these insurers.
  • Typically they may be employees of a bank.
  • Tied agents are also remmunerated via commission payments by companies the agent is tied to.
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4
Q

Own salesforce

A
  • Usually employees of an insurance companies hence will only sell products of this company.
  • Remmunerated by commission and/or salary
  • salesperson initiates sale using leads
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5
Q

Direct marketing

A
  • This takes four main forms:
  • mailshots
  • telephone selling
  • press advertising
  • internet advertising and comparison websites
  • In case of mailshots the insurer initiates the sale.
  • In case of telephone selling it could be either prospective policyholder or insurer.
  • IN case of press it is arguable who initiate.
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6
Q

Worksite marketing

A
  • this is a process by which an insurer obtains permission from an employer to access its worksforce and sell its products to them.
  • the distributor aims those employees may have cover for only themselves and not dependents or do not have adequate employer-paid cover.
  • this form of distribution in unlikely to be undertaken for LTCI products, but already part of health cash plan and simple PMI.
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7
Q

Different types of commission

A
  • Initial & renewal commission
  • Level commission
  • Alternative commission structures
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8
Q

Indemnity commission

A
  • A form of Initial commission
  • Lump sum paid by insurer to distributor for new business written.
  • May be expressed of sum insured or first premium.
  • this will involved the insurer in some form new business strain.
  • Indemnity commission may be paid to any distributor who needs cash up-front to develop his/her business.
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9
Q

Clawback arrangements

A
  • The adviser earns indemnity commission over a defined period which is normall stated in months.
  • if a policy lapse before the commission is fully earned then insurer may clawback a proportion of the commission from distributor, which is deemed unearned.
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10
Q

Renewal commission

A
  • commission payable upon policy renewal, usually lower than initial commission.
  • this encourages distributors to promote persistency.
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11
Q

Level commission

A
  • every premium paid by policyholders entitles the distributor to a proportion of premium.
  • level commission doesnt involve any new business strain.
  • it takes longer for distributor to earn their commission.
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12
Q

Alternative commission structures

A
  • Initial commission may sometimes be spread over a limited number of years.
  • commission is sometimes paid as a % of SI.
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13
Q

The effect of different channels

A
  • Demographic profile
  • Contract design
  • Contract pricing
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14
Q

Effect of different channels: Demographic profile

A
  • Different channels are likely to appeal to different people of sophistication and level of income.
  • this will be reflected in the experience of lives taking out contracts through each channel.
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15
Q

Effect of different channels:Contract design

A
  • The higher the level of client sophistication the greater the complexity of products sold.
  • Different methods of sale will suit different products.
  • An insurance using more than one distribution channel may sell more than one version of the same product, varying by channel sold.
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16
Q

Effect of different channels:Contract pricing

A
  • Two aspects
    1. effect on demographic assumptions, including the effect of underwriting.
    2. the effect on the need for competitive terms.
17
Q

Contract pricing: effect on demographic assumptions

A
  • level of underwriting will be linked to marketing
  • the level of underwriting will e reflected in the demographic assumptions used for pricing.
  • Persistency rates are likely to be affected by the level of financial sophistication of policyholder.
18
Q

Contract pricing: effect on need of competitive terms

A

-Insurance intermediaries will recommend to their clients insurer with most competitive rates, all else being equal.
-a bank will want products sold by its employees to be reasonably competitive or this could damage its name.
-Members of own salesforce will not be in a competitive situation.
-Worksite marketing enables premiums to be reduced because of homogeinity of risks and large pool of risks.
-There may be expense savings especially if employer allows premiums to be deducted from payroll.
-

19
Q

Group risks

A
  • Employer purchases group covers on behlaf of employees.
  • there generally both tax and risk-pooling reasons why this is efficient.

Smaller groups
-products may be distributed through insurance brokers.

20
Q

Groups risks: large groups

A
  • The role of the intermediary
  • responsible for most communication & data gathering
  • may be the conduit for money receipts & payments
  • insurer’s ability to influence risk attitudes of the employer directly is limited, since relationship is only with the broker.
21
Q

Benefits to the employer :Group insurance

A
  • Employer is assured good level of service if they deal with a national broker.
  • This will include an annual audit of appropriateness of protection levels & structures, comparative analysis in terms of securitym products available & price.
22
Q

Benefits to insurer: Group insurance

A
  • achieve of legal contract with minimum administrative expenses.
  • However insurer may be limited in other ways:
  • opportunity to build relationship firsthand with purchaser of insurance.
  • chance to influence retention of this business
  • opportunity to engage directly with responsible for the lives insured