Marketing and Distribution SystemsProperty-Liability Insurance ProductKey Marketing DecisionsMarketing ObjectivesMarketing StrategiesMarketing Functions and Special ConstraintsDistribution SystemsAttributes of Insurance IntermediariesTypes of Insurance Distribution SystemsAlternative Marketing SystemsSlide 11Marketing Management and Agent FunctionsDistribution System DecisionsComparison of Distribution SystemsMarketing and Distribution SystemsMarketing - developing strategies to get and keep customersMeasuring the market (1995)Premium volume $260 billion Number of insurers 3,340 Measuring market shareCompany NWP (Net Written Premium)/Total NWP-by line, by stateMeasuring competitivenessConcentration ratio4 firm market share (1995)Total Property-Liability 27%Auto Insurance 38%Homeowners 45%Property-Liability Insurance ProductProduct differentiationContract - restricted by state regulationPriceServicePhilosophies of Marketing ManagementProduction Concept - costProduct Concept - qualitySales Concept - sales effort (needs of the seller)Marketing Concept - market segments (needs of the buyer)Key Marketing DecisionsWhom to serveProduct market specializationProduct specializationMarket specializationSelective specializationFull-service multi-product/multi-market insurerWhat products and services Product life cycleProduct development processMarketing ObjectivesGrowthProfitabilityInnovationDiversificationSatisfactionMarketing StrategiesCompetitive positioningMarket leaderMarket challengerMarket followerMarket nicherGrowth 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 ConstraintsFunctionsMarketing researchMarkets developmentMarketing informationMarketing planningAdvertisingSales promotionMarketing administrationCustomer relationsConstraintsMature productIntangibleService intensiveLow customer involvement~30% of customers shopRegulatedDistribution SystemsInsurance Market IntermediariesUnique characteristics of insurance marketingLegal status of agentAgent - represents insurerBroker - represents policyholderPowers and duties of agentListed in contractPowers - Lines written, binding authorityDuties - Accounting, rulesApparent authorityAttributes of Insurance IntermediariesTies to insurersCompensation methodsSalaryCommissionsContingent commissionsOwnership of expirationsTypes of Insurance Distribution SystemsIndependent Agency SystemAgents own expirationsExclusive Agency SystemDirect WriterDirect ResponseCombination SystemsINA - 1970sAllstate - currentlyExpense differencesAlternative Marketing SystemsInvoluntary MarketAutoAssigned Risk PlansJoint Underwriting Associations (JUAs)Auto Reinsurance PlansState FundsPropertyFAIR PlansBeach and Windstorm PlansWorkers’ CompensationAlternative Marketing SystemsGovernmental InsuranceState insurance fundsWC -25 statesAuto - MarylandFederal FloodCrime insuranceFAIR plansInsurance exchangesIllinois - surplus linesRisk Retention GroupsNeed approval only in one state1981 Product Liability1986 CommercialLiability (except WC)Purchasing GroupsExempt from Fictitious Group lawsMass merchandisingMarketing Management and Agent FunctionsBranch Office SystemManaging General Agency SystemIndependent businessPerforms branch office functionsAppoints agentsPrimarily excess and surplus lines and specialty areasFunctions Performed by AgentsProspectingSalesRisk analysisPolicy issuanceCollectionClaims handlingConsultingDistribution System DecisionsGeographic locationExpertise and reputation of producersNature of existing businessAbility to service productsMarkets to be targetedInsurer characteristicsDegree of control required or desiredComparison of Distribution SystemsIndependent Agency System ~ 51% of P-L marketHigher in commercial linesLower in personal linesSlower growth rateHigher expense ratiosExamples of successful exclusive agency insurersState