Educational Objectives

Transcription

1 AINS21 Property and Liability Insurance Principles Chapter 4 Marketing Presented by: Kay Ward, CPCU, CIC, AIS, ACS, AAI Educational Objectives 1. Describe the following factors that influence an agency relationship: Legal Roles Legal Responsibilities Scope of Authority 2. Summarize the various types of insurance distribution systems and alternative market channels. Educational Objectives 3. Describe the functions performed by insurance producers. 4. Describe the key factors an insurer should evaluate during the distribution-channel selection process. 5. Explain how states regulate insurance marketing activities in these areas: Licensing Compensation Unfair Trade Practices 1

2 Insurers and their Marketing Personnel Producers/Agents (Represent the insurer) Sell - Produce Brokers (Represent the insured) Sales Representatives Independent Agents Exclusive Agents Direct Writer Agents AGENCY RELATIONSHIP WITH INSURER (AKA PRINCIPAL) EO#1 Agency Relationship 1. Describe the following factors that influence an agency relationship: Legal Roles Legal Responsibilities Scope of Authority EO#1 Agency Relationship Agent -authorityto act for principal Agency Relationship Principal (Insurer) can control agent actions Authority & Control Essential Elements 2

3 EO#1 Agency Relationship Producer aka Agent Any of several kinds of insurance personnel who place insurance business with insurers and who represent either insurers or insureds, or both Agent In agency relationship, the party that is authorized by the principal to act on the principal s behalf Principal Party in an agency relationship that authorized the agent to act on that party s behalf EO#1 Legal Roles Agency Legal, consensual relationship that exists when one party, the agent, acts on behalf of another party, the principal Legal Role Absolute Trust Principal mayauthorize agent to do anything the principal can do Agent acts as insurer representative Written Agreement Scope of authority EO#1 Legal Responsibilities 5 Duties on ALLagents Agent to the Principal Be loyal to principal Obey principal s lawful instructions Reasonable degree of care act as reasonably prudent person Account promptly for principal s money Keep principal informed of all facts duty of relaying information 3

4 EO#1 Legal Responsibilities Principal to the Insurance Agent Pay commissions & other compensation Duty to indemnify, or reimburse for any losses that are not agent s fault Responsibilities to Third Parties When agent obligates principal they are also obligated to 3rd parties Law presumes knowledge by agent is knowledge to insurer EO#1 Scope of Authority Actual Authority conferred by principal to the agent via the contract Express principal specifically grants (i.e. Binding Authority example Pg 4.6) Implied Conferred by custom, usage or principal s conduct Apparent 3 rd party s reasonable belief that an agent has authority to act on principal s behalf EO#2 Distribution Systems / Channels 2. Summarize the various types of insurance distribution systems and alternative market channels. Direct Writer Exclusive Independent 4

5 EO#2 Distribution Systems Insurance Main Distribution Systems Insurers choose based on organizational structure, business and marketing plans, growth goals, tech capabilities, and staffing Independent Agency & Brokerage Marketing Systems Exclusive Agency Direct Writer Independent Agents Brokers Agency Clusters MGA s Managing General Agents Surplus Lines Brokers EO#2 Distribution Systems Independent Agency and Brokerage Marketing Independent Agents and Brokers Agents and Brokers are independent contractors Not employees of insurer Can represent as many insurers as they want Can be Sole Prop, Partnership or Corporation Brokers represent the insured (not insurer) Own their expiration list MOST VALUABLE ASSET Compensation? EO#2 Distribution Systems Independent Agency and Brokerage Marketing National and Regional Brokers Represent commercial insurance accounts Tailored programs Usually offer other services Sometimes negotiated fees vs. commission or both 5

6 EO#2 Distribution Systems Independent Agency and Brokerage Marketing Independent Agency Networks Aka: Clusters, Alliances Group of agencies that contractually link to share services, resources and insurers MGA s Managing General Agents Authorized agent of primary insurer Manage all or part of insurer s activities usually in specific geographic area Advantages for insurer: lower costs, specialty expertise and assumption of insurer activities EO#2 Distribution Systems Independent Agency and Brokerage Marketing Surplus Lines Brokers: Agents can only place business with admitted carriers To place with nonadmitted carrier must go through surplus lines broker Due diligence in placing with admitted markets EO#2 Distribution Systems Exclusive Agency Marketing System: Agents contract to sell insurance exclusively for one insurer Independent Contractors Not employees of insurer Greater control by insurer Some can place business elsewhere as well Do not own expirations (some get limited) Insurer does more administrative lower costs Compensation? 6

7 EO#2 Distribution Systems Direct Writer Marketing System: Uses sales agents (or sales reps) who are direct employees of the insurer Sales Agents ARE employees of insurer Do not own expirations Represent single insurer May broker business? Carrier handles administrative duties Compensation? EO#2 Distribution Channels Internet Call Center Direct Response Group Marketing Trade Association Financial Institutions Mixed Marketing EO#2 Distribution Channels Internet Exhibit Pg 4.12 Benefits Challenges Call Centers best equipped can duplicate a producer office Direct Response direct to customers, relies on advertising and target marketing, low commission, high advertising costs 7

8 EO#2 Distribution Channels Group Marketing to individuals or businesses that are members of same organization aka: Affinity Marketing (professions, hobbies) Mass Marketing/Mass Merchandising Worksite Marketing/Payroll Deduction Sponsorship Marketing Trade Association Exhibit Pg 4.13 IIABA/PIA, CIAB, AAMGA EO#2 Distribution Channels Financial Institutions i.e. Banks Like diversification Insurers like due to? Mixed Marketing insurer s use of more than one channel Consider: Consistent communications Consistent customer experiences Match type of insurance with appropriate distribution channel EO#3 Producer Functions 3. Describe the functions performed by insurance producers. 8

9 EO#3 Producer Functions Vary by marketing system and producer Producers are initial contact with customers Describe Functions: Prospecting Risk Management Review Sales Policy Issuance Premium Collection Customer Service Claim Handling Consulting EO#3 Producer Functions Prospecting: Referrals from? Advertising Interactive websites Telephone solicitations / Lead callers Cold canvass cold calls Others? EO#3 Producer Functions Risk Management Review: Principal method of determining needs Individual/Family Interview or questionnaire Risk Control, Retention and Insurance Businesses More complex Analyze loss exposures Loss Runs reporting showing history of claims or specific period 9

10 EO#3 Producer Functions Sales Most important activity Policy Issuance how this is changing in paperless environment and electronic copies Premium Collection Agency Bill producer bills insured, collects premiums and then sends to insurer less commission Methods of sending to carrier: Item Basis, Statement Basis and Account Current Basis Direct Bill carrier bills the insured and collects and send commission to agent EO#3 Producer Functions Customer Service: Day to day servicing Advice Endorsement changes Certificates of Insurance Facilitator Claim Handling: Producer is insured s primary contact Agent may have claims department May have insured contact carrier directly or transfer Claim handling authority or draft authority? EO#3 Producer Functions Consulting: Value added services? Fee based services? Law regarding charging commission plus fees vary by state 10

11 EO#4 Distribution System / Channels Evaluation Factors 4. Describe the key factors an insurer should evaluate during the distribution system/channel selection process. EO#4 Distribution System / Channels Evaluation Factors Distribution system/channel selection Communication between insurer and insured Selected before it begins writing business To change later is very difficult and expensive Key Factors: Customers Needs and Characteristics Insurer s Profile EO#4 Distribution System / Channels Evaluation Factors Customers Need & Characteristics (Current and future) Products & Services Price Response Time 11

12 EO#4 Distribution System / Channels Evaluation Factors Insurer s Profile Strategies and Goals Direction for market size, share, sales, service Changes can push to reexamine distribution Strengths Internal/External environments SWOT Analysis Financial Resources Core Capabilities Expertise and Reputation of producers EO#4 Distribution System / Channels Evaluation Factors Insurer s Profile (Cont d): Existing and Target Markets Do agents own expirations? To change channels proceed with caution Losing business to competitor? Geographic Location key concern High expense to open new territories Degree of Control Required EO#5 State Regulation 5. Explain how states regulate insurance marketing activities in these areas: Licensing Compensation Unfair Trade Practices 12

13 EO#5 State Regulation All carriers must be approved before operating in a state However, they also regulate: Producers Claim Reps Other Insurance personnel EO#5 State Regulation Licensing Licensing: Producer must be licensed in state where they want to sell insurance Some States separate licenses for agents, brokers, solicitors, consultants Agents represent insurer Brokers represent insured/client Solicitors can solicit business but not bind carrier Office Employees?? Process: Pass examination Pay fee License term 1-2 years Appointed by carrier Continuing education State can suspend or revoke agent license EO#5 State Regulation Licensing Licensing: Insurers Meet minimum standards of financial strength, competence, integrity and complied with laws Insurer Licensing Standards Pg 4.25 Domestic Foreign Alien NonAdmitted RRG Risk Retention Groups 13

14 EO#5 State Regulation Licensing Licensing: Insurance Personnel States may also license: Claim Reps may include exam, background check and ethics requirement, continuing education Consultants EO#5 State Regulation Compensation Compensation:(to producers) Sales commissions percentage of premium that insurer pays to agency or producer for new or renewal policies Contingent Commissions insurer agrees to make supplemental payments to producers based on profitability alone or on a combination of profitability, volume, and growth in agency book of business Incentive Based on premiums and losses incurred Encourages agent to sell profitable business Come under regulatory scrutiny EO#5 State Regulation Unfair Trade Practices Unfair Trade Practices Prohibited business practices Apply to producers, underwriters, claim reps and other guilty of misconduct Vary by state Misrepresentation and False Advertising Tie-in Sales Rebating Other deceptive practices 14

15 REVIEW Agency Relationship Insurance Distribution Systems Insurance Marketing Channels Functions of Insurance Producers Keys factor to evaluate when choosing distribution systems/channels State Regulation Prepare for Chapter 5 Underwriting and Ratemaking Homework: Look up your state s guidelines on cancellation and nonrenewal of either personal lines policy or commercial lines policy We are all inventors, each sailing out on a voyage of discovery, guided each by a private chart, of which there is no duplicate. The world is all gates, all opportunities. Ralph Waldo Emerson 15