Distribution Systems
Life insurers use one or more of three general types of distribution systems:
- Personal Selling
Here commissioned or salaried salespeople sell products through oral and written presentations made to prospective purchasers. It accounts for majority of life insurance and annuity sales.
- Financial Institutions
Customer purchases products directly from a company by responding to direct mail offers, mass media advertisements, websites, and telephone solicitation.
- Direct response
Personal Selling Distribution Systems
An insurance salesperson typically enters into an agency relationship with at least one insurer. An agency relationship is a legal relationship in which one party-the principal-authorizes another party-the agent-to act on the principal’s behalf.
An agent’s authority to act for the insurer is typically specified in an agency contract, which is an agreement between an insurer and an agent that defines an agent’s role and responsibilities, describes the agent’s compensation, and specifically states what the agent can and cannot do on behalf of the insurer.
The Sales Process
Producers typically follow a process that consists of six primary tasks:
- Locate & contact a prospect
- Identify the prospect’s financial needs
- Develop a proposal that recommends one or more insurance products to meet the prospect’s needs.
- Make the sales presentation.
- Close the sale.
- Implement the proposal.
New producers rely heavily on cold calling, which is the process of telephoning or visiting prospects with which she has no prior contact.
Agency-Building Distribution Systems
An insurer recruits and trains producers and provides them with financial support & office facilities. Since establishing & maintaining an agency-building Distribution system usually requires an insurer to make significant investments of money & human resources, insurance companies are considered to own their agency-building distribution systems.
Career Agency Distribution System
Also called the ordinary agency system or the agency system, relies on company-affiliated insurance producers to sell & service life insurance and annuity products. The producers in a career agency system are collectively known as the insurer’s field force.
A career agent is a full-time commissioned salesperson who holds an agency contract with at least one insurance company. They’re legally considered to be independent contractors rather than employees of an insurance company.
An exclusive agent, also known as a captive agent, is a career agent who is under contract to only one insurer and who is usually not permitted to sell the products of other insurers.
An agent-broker is a career agent who can place business with his primary insurance company and with other companies. An agent-broker must enter into an agency contract with each insurer with which he places business.
The geographic area in which an insurance company distributes its products is known as the company’s marketing territory. Located throughout these marketing territory sales are sales offices known as field offices.
Branch Office System
An insurance company establishes and maintains field offices, known as branch offices, in key locations throughout its marketing territory.
The head of a branch office is a branch manager. His responsibilities include increasing the sales of the insurer’s products, recruiting & developing career agents to help the company achieve its corporate growth and managing expenses for the company.
An overriding commission is a sales commission that is paid to an agency manager on the business generated by a particular field office or group of producers under the supervision of the manager.
General Agency System
An agency office is a field office that is established, maintained & and funded by a general agent. A general agent (GA) is an independent businessperson who heads an agency office. His primary function is to build and manage an office of full-time career with a defined territory.
Multiple-Line Agency (MLA) Distribution System
Is an agency-building distribution system that uses career agents? One emphasis of the MLA system is for producers to engage in cross-selling, which is the process of identifying a customer’s needs for additional product when selling a primary product.
Cross-selling is believed to improve persistency, which is the retention of in-force insurance or annuity policies.
Home Service Distribution System
Relies on the use of exclusive agents-home service or debit agents-to sell specified insurance products and provide policy owner service within a specified geographic area or territory. This system primarily targets lower-income households.
Worksite Marketing Distribution System
Is a system of distributing individual or group insurance products to people at
their place of work on a voluntary, payroll-deduction basis.
Location-Selling Distribution System
Is designed to generate consumer-initiated sales at an insurance office or information kiosk located in a store, shopping mall, or other business establishment.
Salaried Sales Distribution System
Relies on the use of salaried sales representatives to sell and service insurance products.
A group representative is a salaried insurance company who is specifically trained in the techniques of marketing and servicing group insurance products. A group representative
- Solicits business from producers & benefits consultants.
- Finds group insurance & annuity prospects.
- Designs proposals for group annuities
- Installs group insurance & annuity contracts
- Renegotiates the contract at renewal.
Non agency-Building Distribution System
Is a personal selling distribution system in which the insurance company recruits producers who require little training, are financially self-supporting, and work out of independent offices? Salespeople who work in these systems are referred to as independent agents.
Brokerage Distribution System
Uses insurance brokers to distribute an insurance company’s products. A broker is an insurance producer who is independent of any particular insurance company and who offers products from a variety of insurers. A broker enters into a producer contract-although not an agency contract – with an insurer before submitting insurance applications to that insurer.
A licensed broker, also called an independent life broker, is a salesperson that is licensed to sell insurance products and is not under an agency contract with any insurance company. An insurance company that uses the brokerage system exclusively and does not establish a career agency force is usually referred to as Brokerage Company.
Some brokers join a producer group, which is an organization of independent producers that negotiates compensation, product, and service arrangements with insurance companies.
Personal-Producing General Agency System
Uses personal-producing general agents to sell and service insurance products. A personal-producing general agent (PPGA) is a commissioned salesperson who generally works alone, is not housed in an insurer’s field offices, and engages primarily in personal production.
A subagent is a full-time soliciting insurance producer recruited by PPGA.
Financial Planners
Is a professional who analyzes a client’s personal financial circumstances and goals and prepares a program, usually in writing, to meet the client’s financial goals?
Financial Institutions Distribution Systems
To sell variable life insurance or annuities, a person or firm must be registered with SEC as a broker/dealer. A broker/dealer is a person or firm that provides information or advice to customers regarding the sale and/or purchase of securities, serves as a financial intermediary between buyers and sellers of securities and supervises the sales process to make sure that sales people comply with applicable securities regulations.
To market variable insurance products in the US
- Register the insurance company as a broker/dealer
- Establish a subsidiary company that registers as a broker/dealer.
- Market its products through a firm that is a registered broker/dealer.
A registered representative is any person who is
- A business associate of an NASD member
- Engages in the securities business on behalf of the member
- Has passed a specified examination administered by the NASD.
Banks typically use one or more of the following strategies to market insurance products:
Third-party marketer (TPM) is an independent general agency that sells insurance products for one or more banks.
Platform employees are a bank’s own employees who are trained and licensed to sell insurance products.
A bank may buy an existing insurance agency or establish its own agency by hiring and training producers.
A bank may enter into a distribution agreement with an insurer under which the bank promotes the insurer’s products to the bank’s customers.
An insurance company can act as a distribution channel by selling nonproprietary products, which are products manufactured by another insurer.
Direct Response Distribution Systems
Customers purchase products directly from the insurance company by responding to the company’s advertisements or solicitations. Most insurers use this system in conjunction with various personal selling and financial institutions distribution systems.
Direct Response Distribution Activities
- Which prospects to target through direct response distribution?
- Which direct response media to use?
- What content to include in the communication.
- Which products to make available via direct response distribution.
A fulfillment kit is a package of materials designed to address the respondent’s request.
Distribution Channel Decisions
With so many distribution options, in order to determine which distribution channels are most appropriate, it considers several factors such as
- Characteristics of customers in insurer’s target markets.
- Characteristics of the products the insurer sells.
- Costs associated with each system.
- Degree of control the insurer intends to exercise over distribution.
- Characteristics of the insurer.
No comments:
Post a Comment