General Effects of the Internet on Insurance Marketing with a Brief Look at Agricultural Insurance

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1 General Effects of the Internet on Insurance Marketing with a Brief Look at Agricultural Insurance Matthias Seitz Slovak University of Agriculture in Nitra Faculty of Economics and Management, Department of Statistics and Operations Research Tr. A. Hlinku Nitra, Slovak Republic m.seitz@ffponline.de Abstract Marketing plays a decisive role in an insurance company's success, because the industry specialises in immaterial, intangible products and is marked by sharp cut-throat competition. Online marketing opens new ways for companies to make contact with (potential) customers. It is quite significant that while nearly 40% of customers with internet access seek information in advance online, three quarters of these customers will then make out the policy in the conventional manner with an agent (Allianz Deutschland AG and Google Deutschland, 2011). Many insurance companies are adapting to these changes in consumer behaviour. There also remains potential for more and more policies to be taken out online. Many insurers have recognised the potential of the internet and are investing heavily in this medium. Various statistics indicate that the internet is likewise affecting the specialised field of agriculture-related insurance. However, because these policies are mostly quite complex and have wide ranges of coverage needs, most policies are still taken out with the help of an agent. Nevertheless, farmers are likewise using the internet to obtain information in advance of their meetings with their agents. Therefore, an insurance company specialising in this target group likewise needs an internet strategy. Keywords: agriculture insurance, insurance, online marketing, process of selling JEL Classification: D10, G22, Q13 1. Introduction [W]e're into a whole new world with the Internet, and whenever we sort of cross another plateau in our development, there are those who seek to take advantage of it. So this is a replay of things that have happened throughout our history. (Bill Clinton) This state reflects the current state of affairs quite well. The internet represents a major development in human history and is having an increasing influence on the lives of many people. On the other hand, there are also opportunities to take advantage of this development. Many companies are investing heavily in online marketing, to such an extent that the internet has long since become the most important advertising medium and consequently strongly influential in the marketing of insurance products. Insurance products, however, have peculiar features that make it difficult for customers to assess their comparative quality. Consequently, such products are the subject of more intensive sales and marketing efforts. In addition, this paper will consider whether there are significant differences in how agricultural insurance products are marketed. 2. Data and Methods This paper explains the general effect of the internet on insurance marketing with a brief look at agricultural insurance. The data is from different sources, especially a costumer survey published by Allianz Deutschland AG and Google Deutschland. The key questions, what distinguishes one insurance product from others, what is online marketing and how insurance 355

2 companies make use of it, what do people research online when looking at insurance and are there significant differences in how agricultural insurance is marketed, will be considered here. 3. Results and Discussion 3.1 The Insurance Market One particular feature of insurance is that as a product it is immaterial and intangible. Although it can be legally presented in a contract, it lacks any physical form. This is what makes it difficult to assess the quality of insurance as a product. (Altenähr, Diettrich, Hoffmann, and Shaukat, 2010, p. 6) The insurance market differs from other markets, such as those for foodstuffs or automobiles, because large segments of the population are not aware of their need for insurance coverage. The need for insurance coverage is often given the lowest priority, although protecting one's income and assets protection should be considered a basic need. The insurance market is a typical buyer's market where customers are courted by various players on the market (Koch, 2005, p ). In addition, the insurance industry is a competitive market, where business volume can be expanded only at the cost of other providers (VersicherungsJournal.de, 27/02/2012). The product's lack of tangible substance as well as consumers' inaccurate assessment of their need for such products leads to intense competition on a market where distribution and communication policies are important factors for success. 3.2 Marketing The stated primary objective of marketing is to generate long-term profits by building and maintaining suitable relationships between companies and the public by meeting consumer needs (Alpar & Wojcik, 2012, p. 35). The classic marketing mix is a goal-oriented, strategic combination of tools used for tactical and operational marketing. Thus the marketing mix is at the nexus between strategic planning and the eventual actual implementation of activities on the market. The four p's of marketing, made up of product, price, promotion and place, represents the most widely used approach (Pepels, 2009, p ). Although these traditional marketing strategies continue to set important control parameters, they need to be supplemented or even reformulated from the perspective of the digital economy (Kolibius, 2001, p. 163). Consequently, rethinking is necessary to perform efficient online marketing Online-Marketing The literature contains different definitions for online marketing. In some cases, the impact of the internet on marketing has been underestimated or was simply understood as a substitute for classical marketing. From today's perspective, this view can no longer be maintained (Lammenett, 2012, p. 21). It can be summarised graphically as follows: 356

3 Figure 1: Visualization of online-marketing tools. Affiliate-Marketing Search engine marketing (SEM) Online- Advertisement -Marketing Online-Public- Relations (Online-PR) Social-Media- Marketing Internet presence direct business indirect business Source: Own illustration based on Lammenett, 2012, p. 25 The main task of online marketing, therefore, is to draw attention to one's own web presence and to guide visitor behaviour through various tools. The tools vary and, depending on the goal, some may be more or less effective. A company should therefore define its online marketing strategy clearly and set quantified goals. Goals can include increased awareness or higher profits or revenues. Unlike traditional marketing, online marketing can often be much more precise, cost-effective and especially more effectively controlled (Lammenett, 2012, p. 294). As a rule, a balanced online marketing mix, based on the tools listed above, should be considered (Lammenett, 2012, p. 297) The Growth in Figures The development of information and communication technology is progressing rapidly. In 2012, 75.6 per cent of the German population was using the internet. This means that approximately 53.2 million people aged 14 and over were online in 2012 (Online Atlas, 2012). The rapid increase in internet usage will continue given increasingly powerful mobile devices and the ubiquitous availability of web access. This development is also being used by many companies. Business investment in online marketing is growing by double digits each year. This growth shows a concentration of advertising spending on online marketing. According to OVK (Online-Vermarkterkreis im Bundesverband Digitale Wirtschaft [OVK], 2013), a German online-marketing research group, investment in classical online marketing will equal 4.2bn in Approximately 2.5bn is being spent on search engine marketing and 400m on advertising in networks of partners. These statistics, however, only show the investment in affiliate networks, search engine marketing and classical online marketing. The costs of other corporate online marketing activities are not included here, such as expenditures for newsletters, search engine optimisation, smart phone applications, home pages, social networks, etc. All of these have long since made the internet the most important advertising medium for companies. Spending on online advertising will have grown to 7.1bn by 2013, far ahead of newspaper and television advertising revenues for the television advertising that has been dominant for decades will only be 4bn in Germany (PricewaterhouseCoopers [PwC], 2013, p. 80). The market research institute TNS Infratest already found in a 2011 study that more than twothirds of German internet users look online for information about products advertised on TV and a third had already used their smartphones to research products while shopping in a brick and mortar store (TNS Infratest Shared Services, 2011). 357

4 3.2.3 Online Marketing in the Insurance Industry This growth trend in online marketing is, naturally, of great significance to the insurance industry. The internet is already being heavily used to meet the high needs for information surrounding the insurance industry and such use can only be expected to increase. Every insurance company has a website, of course, and offers a variety of online information, even allowing customers to manage their policies and take out new ones online. Allianz Deutschland AG and Google Deutschland (2011) have commissioned the market research institute GfK Media Efficiency Panel to determine how consumers handle new business transactions online. They found out that, in 2009, nine per cent of all new insurance contracts were taken out online. Figure 2: New Business by Sales Channel (%) Source: Own illustration, following Allianz Deutschland AG and Google Deutschland, 2011, p. 16 It is also evident that a large proportion of insurance policies are still being sold in the conventional manner with an insurance agent. But the upward trend in taking out policies online is clear. Other statistics also show an upward trend. Although the proportion of policies taken out online may appear to be relatively low, the internet plays a major role in the insurance buying process. Internet users prefer general information sources such as Focus Money or finanztip.de when looking for insurance-related information. At the same time, 8.9% of all internet users visit the websites of traditional insurance companies (Allianz Deutschland AG and Google Deutschland, 2011, p. 10). The policies most frequently taken out directly online are those for foreign travel health insurance and car insurance. For more complex personal insurance coverage, such as life insurance, accident insurance and occupational disability insurance, this remains a marginal phenomenon (Allianz Deutschland AG and Google Deutschland, 2011, p. 17). 358

5 Figure 3: Percentage of insurance products sold via online channels Source: Own illustration, following Allianz Deutschland AG and Google Deutschland, 2011, p. 17. One significant change is the increased use of the internet to seek advance information prior to taking out policies in person with an insurance agent (Hönle, 2013, p.16). Almost 40% of customers with online access seek out information online in advance (Allianz Deutschland AG and Google Deutschland, 2011). This figure shows how important online marketing has become for the insurance industry. 75% of all online users see search engines as the most important starting point when searching for information, products and services (Schuhmacher, 2010, p. 386). Figure 4: Proportion of new business by sales and research channel Research Online Offline Purchase Online Offline 9,80% 3,50% 29,30% 57,40% Sum= 39,1% Source: Own illustration, following Allianz Deutschland AG and Google Deutschland, Many insurance companies are expanding their investments in online marketing and are planning to invest more money in their digital strategies (Versicherungsjournal.de, 27/11/2013). Important here is, of course, a well-developed website that not only provides customers with quick and clear information about certain products and the company, but also gives them options to initiate contact or even to take out a policy directly. The goal of online 359

6 marketing is to direct visitors to this specially prepared website called a landing page. In order to keep that visitor for as long as possible after clicking on the ad or search result, the design of the linked landing page plays a major role. (Schuhmacher, 2010, p. 383) Often the home page or secondary page on a website also serves as the landing page for an online marketing campaign. It should then be possible to initiate business transactions from this landing page. Potential buyers are looking for insurance-related information online which will constitute an important basis when they make their decision to buy. Therefore, the way the information is presented and the online PR is decisive. Many insurance companies are adapting to these changes in consumer behaviour. According to a study by AMC, insurance companies have significantly improved their web presence in 2013 (VersicherungsJournal.de, 27/11/2013). 3.3 Application to Agricultural Insurance There are risks in agriculture, as in any other business. To create a better understanding of insurance marketing, the typical risks within agriculture must first be analysed. Because farming is a business, it is subject to the ordinary risks facing any business. Such business risks are divided into risks to the business itself and financial risks (Hirschauer & Mußhoff, 2012, p. 9): Financial risks: regardless of revenue levels, a farm operation must be able to meet its payment obligations and fluctuating prices pose a risk to business assets such as the means of production, such as soil, buildings and machinery, which in turn also affects creditworthiness. The business risk (operational risk) is divided into price risks, risks of low yields, performance risks, and policy risks. The farmer, however, not only faces these business risks, but also personal risks. Indeed, in agriculture, there are no clear boundaries between the two types of risk. Illness, malicious acts of others, environmental events and liability for damages caused are a few sources of personal risk that ultimately will always risk the farmer's standard of living (Hirschauer & Mußhoff, 2012, p ). Insurance coverage does exist for the economic consequences of these risks, divided into personal, property, assets and liability insurance (Hirschauer & Mußhoff, 2012, p. 199) The insurance must be tailored to one's business. Property insurance is further subdivided into building insurance, machinery insurance, vehicle insurance, transport insurance and contents insurance. Liability insurance protects the insured from third-party liability claims. But it is also possible to take out policies against potential loss of earnings or to pay potential legal expenses. For any of these policies, determining the correct coverage amount depends on correctly valuing the premium basis, such as the value of the machinery or buildings, annual revenues, payroll or operating area, is required so as not to breach the pre-contractual duty of disclosure. Safeguarding against these risks is very complex and these policies are always taken out with the help of an insurance agent. In addition, the insurer will often want to get an overview of the farm operation and the risk being insured, which in turn makes it difficult to take our policies solely online. Nevertheless, the internet plays an important role as a source of information and research. The farmer is not only able to obtain an overview of the necessary insurance policies and existing risks, but also make direct contact with agents. Farmers also frequently seek information online before they buy insurance. Therefore, an insurance company specialising in this target group likewise needs an internet strategy. Insurance companies are indeed attempting to draw this target group to their websites through various measures. If one enters the terms "Versicherung" (in English: insurance) and "Landwirtschaft (in English agriculture) in the Google search engine, one will receive advertising offering special insurance for farmers. The google.de results show R+V Versicherung, Uelzener Versicherung and Hiscox Versicherungen (Google.de, 2013). All three insurers specialise in covering farm-related risks. 360

7 4. Conclusion Marketing plays a decisive role in an insurance company's success, because the industry specialises in immaterial, intangible products and is marked by sharp cut-throat competition. Online marketing opens new ways for companies to make contact with (potential) customers. It is quite significant that while nearly 40% of customers with internet access seek information in advance online, three quarters of these customers will then make out the policy in the conventional manner with an agent (Allianz Deutschland AG and Google Deutschland, 2011). Potential buyers are looking for insurance-related information online which will constitute an important basis when they take their decision to buy. Many insurance companies are adapting to these changes in consumer behaviour. The policies most frequently taken out directly online are those for foreign travel health insurance and car insurance. For more complex personal insurance coverage, such as life insurance, accident insurance and occupational disability insurance, this remains a marginal phenomenon (Allianz Deutschland AG and Google Deutschland, 2011, p. 17). There remains potential for more and more policies to be taken out online. Many insurers have recognised the potential of the internet and are investing heavily in this medium. Various statistics indicate that the internet is likewise affecting the specialised field of agriculture-related insurance. However, because these policies are mostly quite complex and have wide ranges of coverage needs, most policies are still taken out with the help of an agent. Nevertheless, farmers are likewise using the internet to obtain information in advance of their meetings with their agents. Therefore, an insurance company specialising in this target group likewise needs an internet strategy. References [1] Allianz Deutschland AG and Google Deutschland. (2011). Wie verhalten sich Kunden mit Neugeschäft im Internet - Das Informations- und Abschlussverhalten von Versicherungskunden. Retrieved January 15, 2014 from [2] Alpar, A., & Wojcik, D. (2012). Das große Online Marketing Praxisbuch (Vol. 1). Düsseldorf, Germany: DATA BECKER GmbH & Co.KG. [3] Altenähr, V., Dittrich, R., Hoffmann, A., & Shaukat, D. (2010). Erfolgsfaktor Vertrieb: Versicherungsprodukte - Vertriebswege - Vergütungssysteme (Vol. 1). Karlsruhe, Germany: Verlag Deutsche Versicherungswirtschaft [4] Braun, D.. (2012). Verdrängungswettbewerb verschärft sich. VersicherungsJournal.de, 2012, February 27. Retrieved December 12, 2013 from bewerb-verschaerft-sich php [5] Hirschauer, N., & Mußhoff, O. (2012). Risikomanagement in der Landwirtschaft. Clenze, Germany: Agrimedia Verlag [6] Hönle, J. (2013). Online beraten und verkaufen. Wiesbaden, Germany: Springer Gabler. [7] Koch, P. (2005). Versicherungswirtschaft: Ein einführender Überblick (Vol. 6). Karlsruhe: Verlag Versicherungswirtschaft [8] Kolibius, M. (2001). Online-Marketing for Organic Products (dissertation). University Sankt Gallen [9] Lammenett, E. (2012). Praxiswissen Online-Marketing: Affiliate- und -Marketing, Suchmaschinenmarketing, Online-Werbung, Social Media, Online-PR (Vol. 3). Wiesbaden, Germany: Gabler Verlag / Springer Fachmedien Wiesbaden GmbH. [10] Online-Vermarkterkreis im Bundesverband Digitale Wirtschaft (OVK). (2013). Bruttowerbeinvestitionen für Online-Werbung von 2004 bis 2012 und Prognose für 2013 nach Werbebereich (in Mio. Euro). Retrieved February 01, 2014 from Werbung/ [11] PricewaterhouseCoopers (PwC). (2013). German Entertainment and Media Outlook: PricewaterhouseCoopers (PwC) 361

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