You are now the Chief Marketing Officer of a brand-new insurer in Hong Kong. As approaching to its 1-year birthday, a new product initiative and marketing program are agreed to launch in the next six

You are now the Chief Marketing Officer of a brand-new insurer in Hong Kong. As approaching to its 1-year birthday, a new product initiative and marketing program are agreed to launch in the next six
7/2/2021 How insurance can prepare for the next distribution model | McKinsey https://www.mckinsey.com/industries/financial-services/our-insights/how-insurance-can-prepare-for-the-next-distribution-model 1/9  Fin an cia l S erv ic es A s t h e CO VID 19 c ris is e vo lv e s, it w ill c o ntin ue t o a ect in su ra n ce d is tr ib utio n a ro un d t h e w orld . I n su re rs c a n p re p are b y b uild in g a s tr a te g y f o cu se d o n n ear- a n d lo ng -te rm im plic a tio n s. T he C O VID 19 p an d em ic is p ro fo un d ly a ectin g h ow p eo p le e n g ag e w it h o ne an oth er a cro ss in d ustr ie s a n d g eo g ra p hie s. P hys ic a l d is ta n cin g a n d o th er q uara n tin e m easu re s h ave s h if t e d a ctiv it ie s o nce c o nsid ere d c rit ic a l t o h ave in p ers o n to d ig it a l a n d r e m ote c h an nels . T h is c h an g e w ill a ect in su ra n ce d is tr ib utio n— both in t h e n ear t e rm , a s p hys ic a l d is ta n cin g m easu re s c o ntin ue, a n d in t h e lo ng er t e rm . In d eed , s o cie ty ’s r e la tio nsh ip w it h t e ch n olo g y a n d r e m ote in te ra ctio ns is c o ntin uo usly e vo lv in g a n d a cce le ra tin g a s w e m ove t o w ard t h e “ n ext n orm al .” S ave t h is a rtic le D O W NLO AD S  Artic le ( P D F6 31K B )  By S im on K ae sle r, M att L eo , S han non V arn ey , a n d K ait ly n Y o un gHow i n su ra n ce c a n p re p are f o r t h eH ow i n su ra n ce c a n p re p are f o r t h e nex t d is tr ib u tio n m od eln ex t d is tr ib u tio n m od el Ju n e 1 2 , 2 0 20Ju n e 1 2 , 2 0 20 | A rtic le| A rtic le 7/2/2021 How insurance can prepare for the next distribution model | McKinsey https://www.mckinsey.com/industries/financial-services/our-insights/how-insurance-can-prepare-for-the-next-distribution-model 2/9 Man y in su ra n ce c o m pan ie s h ave lik e ly a lr e ad y t a ke n s te p s t o a d dre ss s h o rt- te rm o r im med ia te im pacts o f CO VID 19 — movin g e m plo ye es t o a r e m ote s e tu p a n d e xp an d in g onlin e c u sto m er s e rv ic e c h an nels . N ow , in su re rs a re f o cu se d o n t h e n ext s e t o f ch alle n g es, in clu d in g h ow t o r e im ag in e d is tr ib utio n in a m ore r e m ote w orld . A n A pril 2 0 20 s u rv e y o f G erm an in su ra n ce a g en ts (c o nd ucte d f o ur w eeks in to lo ck d ow n) f o un d th at a b out h alf o f t h e a g en ts s a w a m ore t h an 4 0 p erc e n t d ecre ase in n ew b usin ess. A nd a M ay 2 0 20 s u rv e y o f U S a g en ts f o un d a s im ila r e ect: a lm ost 5 0 p erc e n t o f ag en ts c it e d r e m ote ly b uild in g n ew c u sto m er r e la tio nsh ip s a s t h e b ig gest c h alle n g e durin g CO VID 19 . M ean w hile , o nlin e in su ra n ce a g gre g ato rs a n d d ir e ct c h an nels a re re p ortin g s im ila r, if n ot g re ate r, v o lu m e . To a d dre ss t h ese c h alle n g es, in su re rs w ill n eed t o r e th in k th eir d is tr ib utio n m od el acro ss t h re e d im en sio ns: c u sto m ers , s a le s f o rc e , a n d e n ab le rs (s u ch a s in ve stm en t in d ata a n d d ig it a l t o ols ). D oin g s o w ill e m pow er t h em t o p re p are f o r t h e u n p re d ic ta b le . H ow d is tr ib ution i s c h an gin g Phys ic a l s a le s f o rc e s a n d in te rm ed ia rie s a re r e sp onsib le f o r t h e m ajo rit y o f in su ra n ce d is tr ib utio n a cro ss g eo g ra p hie s a n d lin es o f b usin ess. W hile t h e s h are o f b usin ess c o nd ucte d v ia t h ese c h an nels h as b een s h if t in g d urin g t h e p ast d eca d e a s s o m e cu sto m ers m ig ra te o nlin e, t h ey r e m ain t h e p rim ary c h an nels a cro ss lif e , c o m merc ia l, a n d p ers o nal lin es p ro p erty a n d c a su alt y . [1] [2]How  c o m pan ie s a n d  le ade rs  c a n  r e se t f o r  The N ex t N orma l Special  C olle ctio n 7/2/2021 How insurance can prepare for the next distribution model | McKinsey https://www.mckinsey.com/industries/financial-services/our-insights/how-insurance-can-prepare-for-the-next-distribution-model 3/9 But c o ntin ued p hys ic a l d is ta n cin g is h avin g d ra m atic a n d im med ia te im pacts o n in su ra n ce d is tr ib utio n. S hif t in g t o d ig it a l t o ols . A gen ts a ccu sto m ed t o in -p ers o n in te ra ctio ns a re r a p id ly r e ca lib ra tin g t o p ro vid e u n in te rru p te d s e rv ic e t o c lie n ts w ho m ay b e f a cin g s e ve re h ealt h o r e co nom ic c h alle n g es. T h ese a g en ts a re a ls o r e th in ki ng h ow t h ey b uild r e la tio nsh ip s w it h p ro sp ectiv e c lie n ts a s m ost r e ly o n in -p ers o n m eetin g s. I n o ur Ja n uary 2 0 20 U S a g en t s u rv e y, a b out 9 0 p erc e n t o f lif e in su ra n ce a g en ts ’ s a le s co nve rs a tio ns a n d n early 7 0 p erc e n t o f t h eir o ng oin g c lie n t c o nve rs a tio ns w ere c o nd ucte d in p ers o n. In a f o llo w -u p s u rv e y in M ay, le ss t h an 5 p erc e n t o f a g en ts h ad a n y in -p ers o n c o nve rs a tio ns. A la te -A pril 2 0 20 s u rv e y o f E uro p ean in su ra n ce e xe cu tiv e s f o un d t h at s o m e 8 9 p erc e n t o f r e sp ond en ts e xp ect s ig ni ca n t a cce le ra tio n in d ig it iz a tio n, a n d m ost a ls o a n tic ip ate f u rth er s h if t in c h an nel m ix . T h e CO VID 19 p an d em ic h as in cre ase d c u sto m ers ’, a g en ts ’, a n d in su re rs ’ d esir e f o r c o m fo rt a ro un d d ig it a l- a n d r e m ote -in te ra ctio n m od els a n d t o ols . M ovin g t o w ard s e lf – s e rv ic e . Cl ie n t d em an d f o r s e lf – s e rv ic e in t h e c u rre n t e nvir o nm en t h as o nly a cce le ra te d t h e im porta n ce o f d ig it a l. A r e ce n t c o nsu m er s u rv e y in S pain f o un d d ig it a l a cce ss in in su ra n ce h as in cre ase d a lm ost 3 0 p erc e n t s in ce t h e p an d em ic b eg an . B ut t h e s a m e s u rv e y a ls o f o un d t h e le ve l o f c u sto m er s a tis fa ctio n w it h d ig it a l d eliv e ry in in su ra n ce w as t h e lo w est c o m pare d w it h a ll o th er s e cto rs . T h e n um ber o ne r e aso n f o r d is sa tis fa ctio n w as “ h ard -to -u se t o ols .” T h us, in su re rs w ill n eed t o in ve st in e xp an d in g a n d im pro vin g s e lf – s e rv ic e t o o ls t o b ette r s u p port c u sto m er a n d a g en t sa tis fa ctio n. Tra n sit io n in g o in e p ro ce sse s o n lin e. A gen ts a re c u rre n tly n avig atin g le g acy p ro d ucts t h at s o m etim es r e q uir e o in e e xe cu tio n, s u ch a s p hys ic a l s ig natu re s a n d m ed ic a l u n d erw rit in g . O ur J a n uary 2 0 20 U S a g en t s u rv e y r e su lt s s h ow t h at a lm ost 5 0 perc e n t o f a g en ts w ere d is sa tis ed w it h t h e le ve l a n d fu nctio n o f s ig natu re c a p ab ilit ie s [3] [4] T he g oa l i s t o re tu rn t h e b u sin ess t o s c a le f a st, e sp ecia lly a s k n oc k-on eff ects o f th e v ir u s b ecome c le a r. 7/2/2021 How insurance can prepare for the next distribution model | McKinsey https://www.mckinsey.com/industries/financial-services/our-insights/how-insurance-can-prepare-for-the-next-distribution-model 4/9 at t h eir p rim ary c a rrie r. M an y c u sto m ers , m ean w hile , c u rre n tly d o n ot w an t t o e n g ag e in a p hys ic a l m ed ic a l- u n d erw rit in g p ro ce ss f o r f e ar o f c o nta g io n. I n su re rs m ust t h en ra p id ly nd w ays o f d ig it a lly u n d erw rit in g t h e b usin ess— su ch a s m aki ng b ette r u se o f exte rn al d ata , r e ly in g o n s ta te m en ts o f g ood h ealt h , a n d a d ju stin g uid le ss t h re sh o ld s to e xp an d t h e n um ber o f c u sto m ers w ho c a n f o rg o a p hys ic a l m ed ic a l e xa m — or r is k lo sin g it . Ch an gin g d is tr ib ution str a te g y i n t h e nea r t e rm By n ow m ost in su ra n ce c o m pan ie s a re t h in ki ng a b out h ow t h ey s h o uld p re p are d urin g th e n ear t e rm t o b e r e ad y f o r t h e n ext n orm al; m an y o f t h ese s te p s t o w ard d ig it a l d is tr ib utio n a re u n p re ce d en te d . T h eir f o cu s is m ostly o n d ig it a lly e n ab li n g s a le s f o rc e s an d e n han cin g t h e u se o f d ata a n d a n aly tic s— esp ecia lly f o r le ad g en era tio n— to s u p port c u sto m ers . In su re rs  c a n d i ere n tia te t h em se lv e s in t h e e vo lv in g d is tr ib utio n la n d sc a p e d urin g t h e n ext s e ve ra l m onth s b y m ovin g q uic kl y t o p il o t, t e st, a n d le arn r a th er t h an f o cu s o n m ult im onth s tr a te g y e orts ; g ettin g s ta rte d is b ette r t h an w ait in g f o r p erfe ctio n. T h e g oal is t o r e tu rn t h e b usin ess t o s c a le f a st, e sp ecia lly a s kn ock-o n e ects o f t h e v ir u s b eco m e c le ar. I n su re rs s h o uld f o cu s a ctio ns a cro ss t h re e a re as: c u sto m ers , s a le s f o rc e , an d e n ab le rs . T ak e c a re of y o u r c u stome rs To u n d ers ta n d h ow c u sto m er p re fe re n ce s h ave c h an g ed , in su re rs c a n u se z e ro -b ase d d esig n t o r e th in k exis tin g p ro ce sse s, e xp erie n ce s, a n d p ro d ucts t o b e m ore a p p ro p ria te fo r t h e n ext n orm al. T h is m ay m ean s im plif y in g p ro d ucts f o r r e m ote s a le s; f o r exa m ple , o ur r e se arc h h as f o un d t h at m an y t r a d it io nal in su ra n ce p ro d ucts a re t o o [5] 7/2/2021 How insurance can prepare for the next distribution model | McKinsey https://www.mckinsey.com/industries/financial-services/our-insights/how-insurance-can-prepare-for-the-next-distribution-model 5/9 co m ple x f o r d ig it a l s a le s (e ve n w it h in str u ctio ns). M ore b ro ad ly , u n d ers ta n d in g h ow t o r e -c re ate t h e e ectiv e n ess o f a n in -p ers o n, a d vic e -b ase d r e la tio nsh ip b etw een su cce ssfu l a g en ts a n d t h eir c u sto m ers in a v ir tu al e nvir o nm en t w ill b e k e y. I n su re rs  c a n lo ok to a d va n ce s in t e le m ed ic in e— whic h h ave s e en a d ra m atic u p tic k in r e ce n t w eeks— w it h r o ug hly h alf o f t h eir c u sto m ers in te n d in g t o c o ntin ue u sin g t h e s e rv ic e a ft er t h e cris is s u b sid es. Te le m ed ic in e t o ols (s u ch a s v id eo f o r c o nd uctin g a p poin tm en ts a n d p hoto – o r s c re en -s h arin g ) c a n h elp r e -c re ate c o m ple x, a d vic e -b ase d c o nve rs a tio ns vir tu ally w hile a ls o p ro te ctin g c o nsu m er p riv a cy a n d s e cu rit y . T ak e c a re of y o u r s a le s f or ce To p re p are t h e s a le s f o rc e f o r t h e n ext p hase , in su re rs  c a n f o cu s o n t h re e im pera tiv e s. L a u n ch a r e m ote -o n ly d is trib utio n f o rc e . I n te re st in r e m ote d is tr ib utio n f o rc e s h as in cre ase d in r e ce n t y e ars a n d is e ve n m ore r e le va n t n ow . R em ote s a le s f o rc e s h ave e co nom ic a d va n ta g es f r o m a n in su ra n ce p ers p ectiv e : t h ey g en era lly a llo w a g en ts t o s e rv e s ig ni ca n tly m ore c u sto m ers t h an t r a d it io nal a g en ts , r e su lt in g in lo w er co m mis sio n c o sts p er s a le . F urth er, r e m ote f o rc e s a ls o a llo w in su ra n ce c o m pan ie s t o o w n t h eir s a le s m essa g es m ore d ir e ctly , e n han cin g t h eir a b il it y t o r e sp ond c o hesiv e ly in a c ris is . I n d eed , in su re rs  c a n q uic kl y u p date r e le va n t s c rip ts a n d t a lki ng p oin ts a n d m ore c lo se ly m an ag e p erfo rm an ce t o e n su re c o m pli a n ce . I n su ra n ce c o m pan ie s t h at h ave e ectiv e h yb rid d is tr ib utio n f o rc e s m ay n ot n eed t o w orr y a b out in ve stin g in a s ta n d -a lo ne r e m ote s a le s f o rc e in t h e lo n g t e rm . B y u sin g in te rn al s a le s d esk s a n d hyb rid a g en ts ( t h at u se b oth in -p ers o n a n d d ig it a l c h an nels ) o r w ho le sa le rs , in su re rs th at d o n ot y e t h ave r e m ote o r h yb rid s a le s f o rc e s c a n t r a n sit io n r e m ote c a p ab ilit ie s t o t h eir s ki lle d eld s a le s t e am s t h at a re lik e ly m ore e xp erie n ce d in c lo sin g d eals a n d b uild in g r e la tio nsh ip s. E m phasiz e j o in in g a t e am . W hile t h ere is m uch d is c u ssio n a b out t e am in g b etw een in su re rs  a n d a g en ts , o ur J a n uary 2 0 20 U S a g en t s u rv e y f o un d a b out 2 0 p erc e n t o f lif e a g en ts h ave n eve r w ork e d w it h a n y t e am , d esp it e e vid en ce t h at a g en ts in t e am s a re [6] 7/2/2021 How insurance can prepare for the next distribution model | McKinsey https://www.mckinsey.com/industries/financial-services/our-insights/how-insurance-can-prepare-for-the-next-distribution-model 6/9 sig ni ca n tly m ore p ro d uctiv e . CO VID 19 h as s h ow ed t h e v a lu e o f s o m e s y ste m re d un d an cy ( t h at is , m ult ip le a g en ts a b le t o a cce ss in fo rm atio n o n o ne c lie n t) t o e n su re c o ntin ued o p era tio ns s h o uld a g en ts b eco m e s ic k. F urth erm ore , t e am in g b rin g s to g eth er a g en ts w it h d i ere n t p ro d uct e xp ertis e , w hic h h elp s s a le s f o rc e s b ette r s e rv e d iv e rs e c u sto m er n eed s. In su ra n ce c o m pan ie s s h o uld e n su re t h eir c o m mis sio n s y ste m s u p ports t e am in g b y allo w in g s p lit – c o m mis sio n p aym en t o r o th er in ce n tiv e s f o r jo in t w ork. I n su re rs a ls o n eed to m ake s u re d i ere n t a g en ts c a n a cce ss t h e s a m e c u sto m er d ata a n d c o lla b ora te t h ro ug h c u sto m er- in fo rm atio n-s h arin g t o ols . F in ally , in ve stin g in v ir tu al t r a in in g o n te am in g b est p ra ctic e s, s h arin g t h e nd in g s w it h a g en ts , o r a ski ng t o p a g en ts w ho alr e ad y w ork in t e am s t o s h are t h eir in sig hts w it h o th ers in t h eir n etw ork ca n a ls o h elp s u p port t h is e n d eavo r. E xp an d d is trib utio n p art n ers h ip s. A s t h e c u rre n t e nvir o nm en t p la ce s a n e ve n g re ate r p re ssu re o n m aki ng s a le s, n ow c o uld b e a g ood t im e t o t h in k ab out in su ra n ce m ark e tin g o rg an iz a tio ns o r a nit y r e la tio nsh ip s. E xp an d in g d is tr ib utio n p artn ers h ip s co uld h elp t h e s a le s f o rc e p ro vid e p ro d ucts t o m ore c u sto m ers in n eed w hile m ain ta in in g s a le s v o lu m e in a t im e o f c ris is . T h is a p pro ach b eco m es in cre asin g ly im porta n t a s a v ir tu al- a g en t m od el in cre ase s t h e p re ssu re o n a g en ts t o a d d v a lu e. I n vest in e n ab le rs In ve stin g in d ig it a l d is tr ib utio n n ow w ill h ave s e ve ra l im porta n t b en e ts f o r in su re rs , in clu d in g in cre asin g r e silie n ce t h ro ug h a p ote n tia lly p ro lo ng ed o r m ult iw ave c ris is , re sp ond in g q uic kl y t o c u rre n t a n d f u tu re c u sto m er a n d a g en t d em an d , a n d in cre asin g ag en t p ro d uctiv it y . A gen t a p petit e f o r d ig it a l t o ols h as n eve r b een g re ate r; o ur M ay su rv e y o n U S a g en ts d urin g t h e c ris is f o un d t h at 4 4 p erc e n t o f a g en ts r a te d e it h er ag en t d ig it a l t o ols o r c u sto m er t o ols a s t h e n um ber o ne c a p ab il it y in su re rs  c a n in ve st in t o s u p port t h em r ig ht n ow . I n su ra n ce c o m pan ie s c a n s u p port a g en ts in t h is a re a. 7/2/2021 How insurance can prepare for the next distribution model | McKinsey https://www.mckinsey.com/industries/financial-services/our-insights/how-insurance-can-prepare-for-the-next-distribution-model 7/9 Befo re in ve stin g in d ig it a l, in su re rs  s h o uld a sse ss a n d id en tif y g ap s in t h e id eal cu sto m er a n d a g en t jo urn ey f o r t h eir s p eci c b usin ess. T h e nd in g s w ill h elp t h em d eve lo p a n a g ile r o ad m ap t a ilo re d t o t h eir s tre n g th s a n d v u ln era b il it ie s s o t h ey c a n b eg in c lo sin g t h o se g ap s. A noth er im porta n t e n ab le r in d is tr ib utio n is d ata . I n su ra n ce c o m pan ie s t y p ic a lly h ave m assiv e a m ounts o f d ata lo ck e d in le g acy s y ste m s o r in p ap er le c a b in ets . T h e f a ste r in su re rs b uild o ut c a p ab ilit ie s t o m in e d ata s o t h at t h ey c a n id en tif y a n d r e sp ond t o c u sto m er t re n d s, t h e m ore r e silie n t t h eir d is tr ib utio n m ech an is m w ill b eco m e. T h e v a lu e of d ata -d riv e n le ad g en era tio n h as b eco m e in cre asin g ly c le ar in r e ce n t w eeks a s t h e ty p ic a l in -p ers o n le ad g en era tio n a p pro ach es ( in clu d in g in -p ers o n n etw orki ng e ve n ts a n d c o m mun it y e ve n ts ) o f m an y a g en ts a re n o lo ng er a n o p tio n. T o t a p in to t h e v a lu e o f th eir d ata , in su re rs  c a n b uild a d va n ce d a n aly tic s m od els t o id en tif y lif e tim e v a lu e-b ase d cu sto m er s e g m en ts w it h in t h eir c u rre n t p ortfo li o . T h ey c a n t h en b uild a d dit io nal m od els f o r e ach s e g m en t t o id en tif y c u sto m ers a t r is k of c h urn in g o r la p sin g a s w ell a s cu sto m ers w ho m ig ht b e c a n d id ate s f o r c ro ss-s e ll in g o r u p se ll in g o p portu n it ie s. T h e d ata c a n t h en b e in te g ra te d in to c a ll lis ts t o h elp a g en ts ( lo ca l o r r e m ote ) f o cu s t h eir a tte n tio n o n t h e h ig hest v a lu e le ad s. I n su re rs  s h o uld a ls o b uild a f e ed b ack m ech an is m to f u rth er r e ne t h e m od el b uild in g v ia q ualit a tiv e in p ut fr om a g en ts a s w ell a s co nve rs io n d ata . O ur J a n uary 2 0 20 s u rv e y a ls o r e ve ale d a lm ost 3 0 p erc e n t o f a g en ts s a id t h eir b ig gest c h alle n g e r ig ht n ow w as le ad g en era tio n , w it h ju st u n d er 6 0 p erc e n t o f a g en ts w illin g t o p ay b etw een 0 .5 a n d 2 .0 p erc e n t o f t h eir g ro ss in co m e f o r q ualit y le ad s. O nly 2 0 perc e n t o f a g en ts h ave s e en a n in cre ase in le ad s c o m in g fr om t h eir in su ra n ce co m pan ie s in A pril, s u g gestin g a n o p portu n it y f o r in su re rs  t o in ve st in d ata a n d p ro activ e ly ll t h at n eed f o r a g en ts . P la n nin g f or t h e long er t e rm 7/2/2021 How insurance can prepare for the next distribution model | McKinsey https://www.mckinsey.com/industries/financial-services/our-insights/how-insurance-can-prepare-for-the-next-distribution-model 8/9 Beyo nd t h e s h o rte r t e rm , in su ra n ce c o m pan ie s m ust c o nsid er t h re e a ctio ns a s t h ey re eva lu ate t h eir lo ng er- te rm d is tr ib utio n s tr a te g y a n d lo ck in d is tr ib utio n s h if t s t o w ard d ig it a l. D ecid e o n t h e o p tim al g o-fo rw ard c h an nel m ix . I n -p ers o n a g en t f o rc e s w ill r e m ain a n im porta n t p art o f t h e d is tr ib utio n la n d sc a p e in t h e y e ars t o c o m e, e sp ecia lly in lif e a n d la rg e c o m merc ia l. B ut in su ra n ce c o m pan ie s n eed a s e tu p t h at in clu d es d ig it a l- a n d re m ote -s a le s-fo rc e o p tio ns t o s e rv e c u sto m ers w ho p re fe r d ig it a l o r r e m ote in te ra ctio ns. H avin g t h is exib le w orkf orc e in cre ase s r e sil ie n ce in t h e f a ce o f a n u n kn ow n f u tu re . S ettin g u p a r e m ote a g en cy c a n b e d one q uic kl y t h ro ug h a p il o t- te st- a n d -le arn a p pro ach , g ettin g r e m ote a g en ts t o in te ra ct w it h c u sto m ers , a n d r e nin g p ro ce ss b ase d o n f e ed b ack. Id en tif y r e q uir e d m od i ca tio n s a n d n ew t e ch nolo g ie s t o s u p port t h e n ext n orm al. L ead in g c a p tiv e -d is tr ib utio n in su re rs t h at s e e t e ch a n d d ig it a l a s c o re d i ere n tia to rs o r th e e sse n ce o f t h eir v a lu e p ro p osit io n s h o uld c la rif y t h eir d esir e d a d ju stm en ts t o t h eir e xis tin g t e ch s e tu p . T h ese m od i ca tio n s a re e sp ecia lly im porta n t w hen e n ab li n g t h e ag en t c h an nel t o o p era te in a m ore d ig it a l p ostp an d em ic w orld . T o ols t o in cre ase d ig it a l p ro sp ectin g a n d b uild t r u st in in it ia l c o nve rs a tio ns a re k e y t o h elp in g a g en ts r e p la ce th eir t y p ic a l o in e in te ra ctio ns. T o d eve lo p t h e t e ch r o ad m ap t o t h e n ext n orm al, in su re rs s h o uld w ork wit h a g en ts t o id en tif y t h e b ig gest o b sta cle s t h at c u rre n tly im ped e p ro d uctiv it y a n d r a p id ly d eve lo p t h e m ost v ia b le p ro d uct s o lu tio ns t o c lo se th o se g ap s. O ur a g en t s u rv e y id en ti ed s ig natu re s, a p plic a tio n a n d s u b m is sio n f o rm s, a n d c lie n t o nb oard in g a s p ro ce sse s t h at a g en ts m ost w an t t o s e e d ig it iz e d . B e r e ad y t o m ake s tra te g ic M &A d ecis io n s t o a u g m en t d is tribu tio n . F in te ch s a n d in su rte ch s a re lik e ly t o b e m ore o p en t o c o nve rs a tio ns w it h in su re rs  w it h la rg e b ala n ce sh eets b eca u se o f t h e nan cia l im pact o f t h e c ris is . I n su ra n ce c o m pan ie s s h o uld p ro activ e ly id en tif y g ap s in t h eir d is tr ib utio n e co sy ste m a s w ell a s p ote n tia l p artn ers h ip s a n d a cq uis it io ns t h at c o uld o er a ve n ues t o n ew c u sto m er t y p es (s u ch a s d ig it a l n ativ e s), n ew p ro d uct t y p es (s u ch a s b ro ad er p ro te ctio n p ro d ucts ), o r n ew g eo g ra p hie s. 7/2/2021 How insurance can prepare for the next distribution model | McKinsey https://www.mckinsey.com/industries/financial-services/our-insights/how-insurance-can-prepare-for-the-next-distribution-model 9/9 1. M cK in se y G erm an I n su ra n ce A gen ts S urv e y, c o nd ucte d o nlin e in A pril 2 0 20 ; n = 1 0 0. 2. M cK in se y CO VID 19 U S I n su ra n ce A gen t P uls e S urv e y, c o nd ucte d o nlin e in M ay 2 0 20 ; n = 3 41. T h is s u rv e y w as a f o llo w -u p t o a J a n uary 2 0 20 s u rv e y o f 1 ,3 0 0 a g en ts ( b efo re CO VID 19 w as d ecla re d a p an d em ic ). B oth s u rv e ys in clu d ed in d ep en d en t a n d c a p tiv e a g en ts a cro ss c a rrie rs a n d b usin ess lin es ( p ers o nal, c o m merc ia l, a n d lif e a n d nan cia l p la n nin g ). 3 . M cK in se y U S I n su ra n ce A gen t S urv e y, c o nd ucte d o nlin e in M ay 2 0 20 ; n = 1 ,3 0 0. 4. M cK in se y M ark e tin g & S ale s CO VID 19 D ig it a l S en tim en t A naly s is f o r S pain ; n = m ore t h an 1,0 00, s a m ple d a n d w eig hte d t o e n su re r e p re se n ta tio n o f e xis tin g d ig it a l u tiliz a tio n. 5 . For m ore o n u sin g z e ro -b ase d d esig n t o im pro ve c u sto m er e xp erie n ce , s e e J P H ig gin s, E lix a b ete L arre a, S w ap nil P ra b ha, A le x S in g la , a n d R ohit S ood , “ H ow t o e xtr a ct m axim um v a lu e fr o m a z e ro -b ase d d esig n a p pro ach t o c u sto m er jo urn eys ,” J a n uary 2 0 19 . 6 . Forty -e ig ht p erc e n t o f c u sto m ers n ow u se a t e le m ed ic in e p la n t o c o ntin ue (a s o f A pril 2 6 , 20 20 ). F or t h e la te st o n U S c o nsu m er s e n tim en t d urin g t h e CO VID 19 c ris is , s e e “ S urv e y: U S co nsu m er s e n tim en t d urin g t h e c o ro navir u s c ris is ,” M ay 2 0 20 . A B O UT T H E A U TH O R(S ) Sim on K ae sle r is a p artn er in M cK in se y’s F ra n kf urt o ce , M att L e o is a n asso cia te p artn er in t h e N ew Y o rk o ce , a n d Sh an non V arn ey is a p artn er in t h e B osto n o ce , w here K aitly n Y o un g is a n a sso cia te p artn er. T h e a u th o rs w is h t o t h an k Ale x D’A m ic o , J o nath an G od sa ll, A rie lle P en sle r, N eh a S ah g al, a n d J ill Z uck e r f o r t h eir c o ntr ib utio ns t o t h is a rtic le . Ch an g in g t h e d is tr ib utio n o p era tin g m od el w ill t a ke t im e t o im ple m en t, s in ce it n ot o nly m ean s e m plo yin g n ew t o ols a n d a sse ts b ut a ls o r e q uir e s s u b sta n tia l c a p ab il it y b uild in g th at a ects o th er p arts o f t h e v a lu e c h ain , s u ch a s p ro d ucts a n d c la im s. T h e d is tr ib utio n le ad ers t h at w ill le ad in t h e n ext n orm al w ill b e t h e o nes b eg in nin g w ork on t h e lo ng er- t e rm im pera tiv e s t o d ay.
You are now the Chief Marketing Officer of a brand-new insurer in Hong Kong. As approaching to its 1-year birthday, a new product initiative and marketing program are agreed to launch in the next six
Module 5 Managing Channel Distribution First 2 Lectures Review Life insurance distribution channels Functions of distribution Corporate and marketing strategies Company products and target segments Market share and market mix Marketing channel strategy and role of distribution in corporate objectives and strategies Marketing channel strategy and marketing mix Lecture Topics 1 (Jul 9) Introduction to Distribution Insurance Channel Distribution Environment Corporate Strategy and Channel Distribution First 2 Lectures Review Personal selling system Electronic system Direct Response system Third -party system Channel characteristics Selection of other channels Distribution intensity Lecture Topics 2 (Jul 10) Insurance Distribution Systems Insurance Distribution Strategies Module Outline 3 lectures covering 7 big topics 6 hours for each lecture Teaching plan: Lecture Topics 1 (Jul 9) Introduction to Distribution Insurance Channel Distribution Environment Corporate Strategy and Channel Distribution 2 (Jul 10) Insurance Distribution Systems Insurance Distribution Strategies 3 (Jul 24) Managing Distribution Channels Managing Channel Conflicts Setting distribution objectives and tasks Target markets and channel design strategies Motivating and evaluating channel members Key issues of managing distribution channels Managing Distribution Channels Setting Distribution Objectives and Tasks In designing marketing channels, insurers struggle between what is ideal and what is practical. Objectives insurers commonly seek from channels would include: Ø Effective coverage of the target market Ø Efficient and cost -effective distribution Ø Ensuring that customers incur minimum exertion in procuring the product Ø Helping the insurer to carry on marketing activities uninterrupted, confident that the channels will take care of sales Managing Distribution Channels Activities involved in the channel are wide and varied through the basic activities revolved around these general tasks: Ø Ordering and display Ø Promotion selling Ø Information feedback How does a CDO set objectives and tasks among all available distribution channels? Setting Objectives and Tasks Channel systems often evolve to meet market opportunities and conditions. However, for maximum effectiveness, channel analysis and decision making should be more purposeful. Steps involved in designing a channel system are: Ø Analyzing consumer service needs Ø Formulating channel objectives Ø Analyzing product and linking channel design to product characteristics Ø Evaluation of distribution environment Target Markets and Channel Design Strategies Steps involved in designing a channel system are (cont’d): Ø Evaluation of competitors’ channel designs Ø Matching channel design to company resources Ø Identifying major channel alternatives Ø Evaluating major alternatives Target Markets and Channel Design Strategies Pattern of distribution channel and type of intermediaries Selection of channel members. How? Ø Market coverage Ø Sales forecast Ø Cost Ø Other resources Ø Profitability Ø Control Ø Motivation Ø Reputation Ø Competition Ø Contract Target Markets and Channel Design Strategies Guidelines for channel management: Ø Interdependence Ø Trust Ø Support Ø Goal setting and planning Ø Monitoring intermediary activities Ø Motivating intermediary Ø Conflict resolution Ø Evaluating performance Target Markets and Channel Design Strategies Target Markets and Channel Design Strategies Origins of customers Customers’ needs Youngsters vs. adults Sophisticated product for advanced function Compensation and incentive scheme Fixed location vs. mobility Non -F2F initiative Others … Target Market Channel Design Target Markets and Channel Design Strategies CASE STUDY Local insurer in 2016 Mainly agency and bancassurance channels Focusing on agency (your expertise!). Key initiatives: Ø Promotion of MDRT & IDA Ø Promotion of products with high profitability Ø Agency expansion Supporting strategies incl. marketing, product and training Case Study (1) Marketing Ø Competitor Analysis Ø Value Proposition Ø Branding and Marketing Theme Ø Marketing Initiative Product Roadmap Training Ø Qualification Framework Ø Training Plan and Preparation Case Study (1) Key issues Channels’ distribution focus Operating principles Management actions Ongoing monitoring Discussion European giant in 2014 Local development Ø Introduction of DM and affinity partnership model Ø Expansion of broker channel Competitor analysis Value propositions/ differentiation Key enablers, challenges and mitigations Case Study (2) Positive motivators: higher margins, special deals, premiums, cooperative advertising allowances, display allowances, sales contest etc. Negative motivators: threatening to reduce margins, to slow down deliveries, or to end relationship. Effective communication and information flow in both directions are necessary if the channel is to function properly. Motivating Channel Members Most insurers try to forge long term partnership with their distributors to create a marketing system that meets the need of both the insurer and the distributor. They jointly plan merchandising goals and strategies, inventory levels, advertising and promotion plans etc. The insurer must ensure a participative relationship for a mutually beneficial relationship to exist. Motivating Channel Members The insurer must regularly check the channel member’s performance against standards like: Ø Sales quotas Ø Customer delivery time Ø Cooperation in company promotion and training program Ø Services to customers Good performance: recognized and rewarded suitably; poor performance: assisted or as a last resort replaced. Evaluating Channel Members Insurer must be sensitive to intermediaries. Channels must be responsive to changing needs of customers and to the development of new channel systems by competitors. Ongoing monitoring of channel effectiveness and improvement of distribution network to match changing conditions and potential market opportunities. Evaluating Channel Members Consider the following situation regarding a life product with all -in FYC of: Ø 40% to salaried agent channel Ø Broker channel got the same rate as agent’s plus an override of 100%, i.e. 80% Ø Zero to digital channel APE(HK$) produced in the last quarter among three channels are as below: Ø Salaried sales: 10M Ø Broker: 15M Ø Digital: 6M Discussion Digital channel requires additional IT and marketing costs What are the key considerations of channel evaluation? How a CDO plans to do in next quarter? Discussion 1. Intermediary Compliance 2. Power in Distribution Systems 3. Conflict in Distribution Systems (see later) 4. Planning for Power Changes 5. Partnership Model Key Issues Licensed insurance agents Ø Insurance (Max Number of Authorized Insurers) Rules Ø Code of Conduct for Licensed Insurance Agents Ø GL3, 22 to 31 Licensed insurance brokers Ø Insurance (Financial and Other Requirements for Licensed Insurance Broker Companies) Rules Ø Code of Conduct for Licensed Insurance Brokers Ø GL3, 22 to 31 Others like PDPO, agency/broker contract, house rule of insurer etc. 1. Intermediary Compliance One channel member’s ability to get another member to act as it wants. Power A > Power B When an insurer is more powerful, it can impose demands. When it is having a weaker power position, strategic conflict may be initiated. Consider agency, broker and bancassurance channels. 2&4. Power (Change) in Distribution Systems When insurer exercises power, generates strategic conflict à zero -sum game Partnership model assumes possibility of positive -sum game Advantages: Ø Lower distribution cost Ø More efficient product sets Ø More effective promotions Consider broker, bancassurance and affinity partnership channels 5. Partnership Model A. Cognitive bias es 1. Overconfidence 2. Confirmation 3. Anchoring 4. Availability B. Emotional biases 1. Endowment 2. Status Quo Common Management Habits Unwarranted faith in own intuitive reasoning. Illusion of knowledge bias (overestimating knowledge levels, abilities and access to information) and hindsight bias (selective perception and retention). Consequences: blind to any warning sign, underestimate downside risk. A1. Overconfidence Bias Selective perception that emphasizes ideas that confirm our beliefs, while devaluating whatever contradicts our beliefs. Managers are often guilty of this bias when they frame their data in ways that tend to confirm their hypotheses. Consequences: blind to any warning sign, overconcentration. A2. Confirmation Bias How many in -force individual life policies were there in Hong Kong, as at the end of 2020? (14,793,632) A. < 5,000,000 B. > 5,000,000 How much in -force individual life premiums receivable were there in Hong Kong, as at the end of 2020? (492B) A. < HK$200 billion B. > HK$200 billion How much in -force individual life sums assured were there in Hong Kong, as at the end of 2020? (8.25T) A. < HK$800 billion B. > HK$800 billion A3. Anchoring Bias To estimate with unknown magnitude, people tend to begin with an “anchor”, then adjust up or down. Such adjustments seem to be insufficient and have biased approximations. Consequences: forecast or project a close -to – current level business or manpower or other parameters, and difficult in foreseeing tail events. A3. Anchoring Bias Consider the trend of RMB/USD exchange rate on the right diagram. What do you think about the trend in the forthcoming 6 months? A4. Availability Bias A4. Availability Bias People tend to make judgement about the possibility or frequency of an occurrence based on readily available information but not necessarily complete, objective or factual. Consequences: difficult in foreseeing tail events, overreact to instant/ sudden conditions. Consider the sales trends of your 2 channel members. A has steady sales production, while B has had seasonal peaks in June and December only for many years. Now is January, and Q1 is highly crucial to your insurer. How are your management towards A and B? A4. Availability Bias People tend to value an asset more when they hold it, i.e. “endow” with some added value. Consequences: holding bottom 20% too long. B1. Endowment Status quo bias, loss aversion bias and endowment bias often combine. Inertia! Consequences: doing nothing, holding bottom 20% too long. B2. Status Quo Managing Channel Conflict Channel conflict may result when channel members have mutually exclusive values, interests or goals. Insurers may want control of distribution channels for better execution of their marketing strategies, whereas intermediaries may not see the insurer -determined strategies as in their best interest. Managing Channel Conflict Distribution channel members often have multiple organizational relationships; hence, the potential for conflict is high. Operational conflict occurs daily and are annoying, frustrating, channel disrupting, so most members try to minimize them. Managing Channel Conflict Problem areas in insurer -intermediary relationship Service and technical assistance Direct customers Marketing information and feedback Training and support services Other product lines carried Other insurer -supplied channels competing with intermediary Prices and discounts Managing Channel Conflict Sometimes insurers take actions to generate strategic conflict, gain advantage. Strategic con – flict changes the dynamics between insurers and intermediaries. Upstream with insurer: Insurers go direct to end users, eliminate distributor. Downstream with customer: End users go direct to insurers — seek better prices, eliminate distributors Managing Channel Conflict Types of conflicts Conflict Magnitude Causes Consequences Management Managing Channel Conflict Vertical Horizontal Inter -type Multi -channe l Main Types of Conflicts Vertical Channel Conflict: Higher level enters into a dispute with lower level or vice -versa. Horizontal Channel Conflict: Conflict among the channel partners belonging to the same level. Main Types of Conflicts Inter -type Channel Conflict: Channel partner enters a product line different from usual product range, to challenge small and concentrated one(s). Multi -channel Conflict: Channel partners involved in a particular distribution channel encounters an issue with the other channel under multi -channel model run by insurer. Main Types of Conflicts Agent Incentive vs. Client Promotion? Client promotion sacrificed by agent compensation? Intermediary vs. digital? Push and/or pull strategies simultaneously executed in multi -channels? Same customers solicited by various channels? Any others? Main Types of Conflicts The level to which the conflict is considered critical or needs the attention of the channel leader, i.e., insurer, is known as its magnitude. The magnitude of conflict can be determined through the proper analysis of the change in market share and the company’s sales volume in a particular area or region. Conflict Magnitude Goal incompatibility between insurer and intermediary Ambiguity and confusion related to roles and responsibilities of insurer and intermediary Appointment of multiple intermediaries in the same territory, in particular with a narrow consumer base Lack of communication Competition between insurer and channel members in the same market Causes of Channel Conflict Channel members are margin -focused, while insurers would prefer mass production to reduce costs Marketing or strategic mis -alignment (consider promotion same product in different manners) Difference in market perception between insurer and intermediary Change resistant Causes of Channel Conflict Consequences of Channel Conflict Ways to Minimize Channel Conflict Whether between channel members or channel members and channel transaction facilitators, potential conflict is reduced by: Ø Relationship building and team management Ø Team -building efforts Ø Clear and complete contracts Ways to Minimize Channel Conflict CASE STUDY (Revisit) UK giant in 2007 Local and expatriate IFA and broker channels Different culture, style, management approach Regional and even international exposure for various channel members Product suite regionalized and internationalized Image and reputation of the local insurer and also the entire group Strategic alignment – credit booking, cost allocation, management reporting etc. Case Study (Revisit) Key issues Channels’ distribution focus Operating principles Resolution of development Management actions Ongoing monitoring Discussion Day 3 Learning Setting distribution objectives and tasks Target markets and channel design strategies Motivating and evaluating channel members Key issues of managing distribution channels Common management habits Managing channel conflicts Lecture Topics 3 (Jul 24) Managing Distribution Channels Managing Channel Conflicts GROUP PRESENTATION Each group represents the management team of an assigned insurer Duration: ~15 mins presentation + 5 mins. Q&A Areas to be covered: Current corporate and marketing strategies of your representing company Current product and market propositions of your representing company Current issues Any innovative channel strategies? Any challenges? How do you manage? Notes LET’S START… Module Outline Module Learning Outcomes Distinguish channel distribution features to support product sales Develop distribution strategies for individual business lines Review channel distribution strategies in light of corporate development and changing market environment Analyze potential synergies amongst channels and to formulate target channel mix AGAIN!!! Choose either one of two situations and write a report of 1500 to 2000 words (English). MUST submit on or before Aug 8 (Sun). Please submit your assignment to my email. For safety reason, please let me know after your submission via WhatsApp to my mobile. Assignment – Rules No receipt of your assignment and no mobile acknowledgement will be considered as missing to hand -in. Assignment handed in between Aug 9 and 14 will be deducted by 5% for each day delay (e.g. Aug 14: max -25%) ; additional 20% will be deducted for the submission from Aug 15 to 21. Assignment submitted after Aug 21 will be considered as record only and will not be graded. So, PLEASE BE PUNCTUAL!!! Assignment – Rules
You are now the Chief Marketing Officer of a brand-new insurer in Hong Kong. As approaching to its 1-year birthday, a new product initiative and marketing program are agreed to launch in the next six
Module 5 Managing Channel Distribution Module Learning Outcomes Distinguish channel distribution features to support product sales Develop distribution strategies for individual business lines Review channel distribution strategies in light of corporate development and changing market environment Analyze potential synergies amongst channels and to formulate target channel mix Module Outline 3 lectures covering 7 big topics 6 hours for each lecture Teaching plan: Lecture Topics 1 (Jul 9) Introduction to Distribution Insurance Channel Distribution Environment Corporate Strategy and Channel Distribution 2 (Jul 10) Insurance Distribution Systems Insurance Distribution Strategies 3 (Jul 24) Managing Distribution Channels Managing Channel Conflicts Introduction to Distribution Life insurance distribution channels Functions of distribution Distribution Channels Distribution is a major element of marketing mix. A right product at right price will not have any value if it is not made available at the right place . Distribution is the process of moving the product from the producer to the ultimate consumer . Introduction to Distribution At the same time mass production, decentralization of the market and small buying requirement of the consumers has made it difficult for the insurer to deal directly with the customers. Channel of distribution helps in bridging the gap between the manu facturer and consumer. It includes a number of intermediaries like wholesaler, retailer, brokers, sales agents, etc. Distribution Channels Philip Kotler, “Every producer seeks to link together the set of marketing intermediaries that best fulfil the firms’ objective. This set of market – ing intermediaries is called marketing channel also trade channel and channel of distribution.” William J. Stanton, “A channel of distribution for a product is the route taken by the title of the goods as they move from the producer to the ultimate consumer or the industrial user.” Distribution Channels In summary, a channel of distribution is a pathway directing the flow of goods and services from producer to consumer consisting of number of inter mediaries . It is an organized network which performs all the activities required to link producers with users to accomplish the marketing task. Distribution Channels How many of you saying that life insurance does not need intermediary to sell? Insurance Distribution Channels Insurance Distribution Channels Agency Survey 2019 Agency Survey 2019 Broker Survey 2018 Broker Survey 2018 Life Insurance Distribution Channels Distribution Channel How’s in HK? Tied individual agent Corporate/ company agent Broker Bank Direct Online/ digital Others Life Insurance Business (2019 – Q1 2021) 2019 2020 Q1 2021 SPx10%+RP SPx10%+RP SPx10%+RP Rank Name of Insurer (HK$’000) (HK$’000) (HK$’000) 1 China Life 24,548,158 13,895,216 4,436,818 2 BOC LIFE 13,805,808 11,344,368 3,968,455 3 HSBC Life 17,715,256 11,599,292 3,544,332 4 AIA International 17,192,582 7,254,380 1,605,048 5 Manulife (Int’l) 6,413,488 5,655,059 1,523,700 6 TPLHK 5,998,533 5,213,810 1,378,856 7 BEA Life 2,431,881 2,426,534 1,209,166 8 Hang Seng Insurance 4,456,101 3,092,273 1,104,030 9 Prudential (HK) Life 15,789,333 5,880,072 1,076,152 10 FWD Life (Bermuda) 3,292,530 2,727,804 785,855 11 AXA China (Bermuda) 3,737,922 1,837,248 577,004 12 Sun Life Hong Kong 1,946,728 2,457,629 488,220 13 FTLife 1,996,174 1,739,193 482,135 14 Hong Kong Life 556,033 435,895 257,434 15 Fubon Life Hong Kong 1,543,321 324,887 243,821 16 YF LIFE 1,420,968 884,801 175,162 17 HKMC Annuity 163,083 253,793 88,796 Life Insurance Business (2019 – Q1 2021) 2019 2020 Q1 2021 SPx10%+RP SPx10%+RP SPx10%+RP Rank Name of Insurer (HK$’000) (HK$’000) (HK$’000) 18 Chubb Life 511,396 285,614 66,191 19 Well Link Life 33,189 212,357 49,647 20 Generali Life (HK) 195,965 237,910 37,191 21 Blue 4,310 65,330 17,806 22 Quilter International 51,788 45,717 14,880 23 CIGNA Worldwide Life 52,551 64,271 14,060 24 SJPI(HK)L 50,764 35,888 12,601 25 Bowtie Life 2,776 24,647 10,829 26 Zurich International 32,579 20,561 5,651 27 Transamerica Life (Bermuda) 171,166 33,270 3,182 28 TLIC 1,730,985 805,353 2,788 29 Heng An Standard Life Asia 6,622 10,306 2,486 30 ZA Insure 0 6,821 2,413 31 AXA China (HK) 151 3,318 752 32 AXA Wealth Mgt (HK) 7,939 12,492 551 33 Liberty Int’l 1,212 995 348 34 Pacific Life 1,739 1,537 345 35 Zurich Life Insurance (HK) 0 273 185 Market Total Agents (2019 – Q1 2021) 2019 2020 Q1 2021 SPx10%+RP SPx10%+RP SPx10%+RP Rank Name of Insurer (HK$’000) (HK$’000) (HK$’000) 1 AIA International 11,425,668 5,835,577 1,373,626 2 Manulife (Int’l) 4,048,610 3,888,542 911,961 3 Prudential (HK) Life 12,481,577 4,294,769 651,613 4 AXA China (Bermuda) 2,453,205 1,264,642 402,565 5 China Life 1,852,434 1,033,782 286,842 6 FWD Life (Bermuda) 1,466,838 1,204,427 286,284 7 Sun Life Hong Kong 1,247,836 1,068,361 256,303 8 FTLife 1,102,521 921,918 228,478 9 BOC LIFE 1,574,125 695,035 210,493 10 YF LIFE 787,066 650,532 143,566 11 TPLHK 729,656 485,020 127,576 12 Chubb Life 339,292 215,874 58,979 13 Well Link Life 7,631 50,532 22,950 14 Generali Life (HK) 16,720 42,236 3,385 Market Total 39,826,926 21,712,534 4,968,211 Banks (2019 – Q1 2021) 2019 2020 Q1 2021 SPx10%+RP SPx10%+RP SPx10%+RP Rank Name of Insurer (HK$’000) (HK$’000) (HK$’000) 1 China Life 18,501,170 11,542,091 3,657,577 2 HSBC Life 17,583,365 11,506,860 3,532,410 3 BOC LIFE 8,027,660 8,851,034 3,288,504 4 BEA Life 2,431,881 2,426,534 1,209,166 5 Hang Seng Insurance 4,209,143 2,755,536 1,023,354 6 Prudential (HK) Life 2,601,473 1,404,433 407,098 7 Manulife (Int’l) 1,069,115 938,143 369,215 8 Hong Kong Life 556,033 435,895 257,233 9 AIA International 1,093,681 731,018 190,008 10 FWD Life (Bermuda) 770,510 686,476 182,510 11 Fubon Life Hong Kong 736,851 158,743 167,433 12 TPLHK 1,483,714 1,138,284 92,955 13 TLIC 923,358 725,044 797 14 YF LIFE 6,562 3,622 651 15 AXA China (Bermuda) 14,650 6,947 0 16 Zurich International 155 0 0 Market Total 60,009,321 43,310,658 14,378,912 Brokers (2019 – Q1 2021) 2019 2020 Q1 2021 SPx10%+RP SPx10%+RP SPx10%+RP Rank Name of Insurer (HK$’000) (HK$’000) (HK$’000) 1 TPLHK 3,785,093 3,585,249 1,150,450 2 China Life 4,031,140 1,312,939 492,145 3 FWD Life (Bermuda) 932,952 826,876 311,935 4 FTLife 893,653 817,275 253,657 5 Manulife (Int’l) 1,295,763 827,826 242,309 6 Sun Life Hong Kong 698,892 1,389,268 231,917 7 AXA China (Bermuda) 1,270,068 565,658 174,439 8 BOC LIFE 3,331,401 299,776 87,518 9 Fubon Life Hong Kong 795,137 165,958 75,678 10 AIA International 4,672,934 687,598 41,379 11 Generali Life (HK) 179,245 195,674 33,806 12 YF LIFE 624,810 229,775 30,850 13 Well Link Life 25,558 92,773 17,744 14 Prudential (HK) Life 706,282 180,871 17,441 Brokers (2019 – Q1 2021) 2019 2020 Q1 2021 SPx10%+RP SPx10%+RP SPx10%+RP Rank Name of Insurer (HK$’000) (HK$’000) (HK$’000) 15 Quilter International 51,788 45,717 14,880 16 SJPI(HK)L 50,759 35,888 12,601 17 HSBC Life 53,938 3,576 7,948 18 Chubb Life 172,104 69,740 7,211 19 Zurich International 32,424 20,561 5,651 20 Transamerica Life (Bermuda) 171,166 33,270 2,882 21 Heng An Standard Life Asia 10,306 10,306 2,486 22 CIGNA Worldwide Life 11,863 9,398 1,698 23 Liberty Int’l 1,062 911 294 24 Pacific Life 955 899 241 25 Zurich Life Insurance (HK) 0 273 185 26 TLIC 736,389 55,762 137 27 FWD Life (HK) 0 3,858 23 28 Friends Provident Int’l 25,496 16,197 0 29 MetLife 187,675 0 0 Market Total 24,748,852 11,483,873 3,217,504 Direct (2019 – Q1 2021) 2019 2020 Q1 2021 SPx10%+RP SPx10%+RP SPx10%+RP Rank Name of Insurer (HK$’000) (HK$’000) (HK$’000) 1 BOC LIFE 872,622 1,498,523 381,940 2 HKMC Annuity 163,083 253,793 88,796 3 Hang Seng Insurance 246,958 336,737 80,676 4 Blue 0 65,330 17,806 5 CIGNA Worldwide Life 40,688 54,873 12,362 6 Bowtie Life 2,776 24,647 10,829 7 Well Link Life 0 69,052 8,953 8 TPLHK 70 5,257 7,875 9 FWD Life (Bermuda) 119,385 9,560 4,863 10 HSBC Life 77,954 88,856 3,973 11 Zurich Assurance 0 6,821 2,413 12 China Life 163,414 6,404 254 13 Manulife (Int’l) 0 549 214 14 Liberty Int’l 103 79 42 15 AIA International 300 187 34 Market Total 1,774,310 2,467,407 621,031 “Direct” should include direct mail, telesales and internet sales Functions of Distribution A. Primary function: 1. To bridge the gap between production and consumption 2. To help complete transactions and fulfill the completed transactions B. Others: 1. Market study 2. Promotion of product 3. Creating contacts of prospective buyers and maintaining liaison with existing ones 4. Understanding the customer’s needs and adjusting the offer accordingly 5. Negotiate price and other offers related to the product as per the customer demand Introduction to Distribution Functions of Various Channels Distribution Channel Function (e.g. A1, B2 etc.) Tied individual agent Corporate/ company agent Broker Bank Direct Online/ digital Others Insurance Channel Distribution Environment Corporate and marketing strategies Company products and target segments Market share and market mix Corporate and Marketing Strategies – Key Components of Corporate Strategy Visioning – High -level direction of the organization Objective Setting – High -level (sometimes still rather abstract) objectives (3 to 5 years) Allocation of Resources – Efficient allocation of human and capital resources Strategic Trade -offs (Prioritization) – Arriving at the optimal strategic mix Insurance Channel Distribution Environment 3 Levels of Strategy Corporate Strategy Business Strategy (Senior management level to formulate abstract into practical strategic goals) Functional Strategy (e.g. Distribution and Marketing) Corporate and Marketing Strategies 3 Levels of Strategy (example) Corporate Strategy Ø To become one of the most well -known life insurer in Hong Kong! Business Strategy Ø To become top 5 life insurer in 5 years! Functional Strategy Ø To achieve APE HK$100 billion in the year of 2026! Corporate and Marketing Strategies CASE STUDY European giant in 2013 “Group strategy and vision for 2015” Problem: Loss in positions of market cap & ROE Vision: Reshaped approach to maximize value creation Group’s new strategy Ø Focus on core business Ø Stronger capital position and disciplined balance sheet management Ø Customer centric approach Ø Technical, operational and distribution excellence Case Study (1) Group’s new distribution strategy Ø Enhance multi -channel distribution Ø Leverage on direct channel expertise Ø Enhance current bancassurance cooperation Ø Tied agent excellence Case Study (1) Local insurer in 2016 Corporate strategies Ø Value creation Ø Expense Ø Solvency Ø Shareholder’s dividend Business strategies Ø Focus on profitability Ø Gain operating efficiency Ø Meet IA requirements, balance ability to withstand ST volatility and ROC Ø Conversion of value to cash – key indication Case Study (2) Functional strategies Ø Drivers of profitability Ø Growth of operating profit Ø APE sales growth Ø Product mix and profitability contribution by distribution channel Ø Budget of product mix Case Study (2) SWOT Analysis S trengths W eaknesses O pportunities T hreats Corporate and Marketing Strategies HOW IS YOUR AGENCY’S SWOT? HOW IS YOUR INSURER’S SWOT? Insurance Channel Distribution Environment Corporate and marketing strategies Company products and target segments Market share and market mix Company Products According to IA, life insurance include “long term insurance” and “linked long term insurance”. Under IIQE papers, they are divided into two groups, traditional and non -traditional. Ø Traditional: Term, endowment, whole -of -life Ø Non -traditional: Universal life, ILAS Under statistics, they are divided into “non – linked” and “linked” Insurance Channel Distribution Environment Non – linked Business (2019 – Q1 2021) 2019 2020 Q1 2021 SPx10%+RP SPx10%+RP SPx10%+RP Rank Name of Insurer (HK$’000) (HK$’000) (HK$’000) 1 China Life 24,550,289 13,897,151 4,437,112 2 BOC LIFE 13,752,177 11,344,838 3,968,845 3 HSBC Life 17,715,472 11,599,365 3,544,387 4 TPLHK 5,998,533 5,213,810 1,378,891 5 AIA International 17,162,286 6,990,403 1,373,532 6 Manulife (Int’l) 5,893,061 4,991,160 1,217,099 7 BEA Life 2,431,881 2,426,534 1,209,175 8 Hang Seng Insurance 4,456,103 3,092,273 1,104,030 9 Prudential (HK) Life 15,877,929 6,018,957 1,101,217 10 FWD Life (Bermuda) 3,267,616 2,697,304 776,698 11 AXA China (Bermuda) 3,578,815 1,621,450 492,589 12 Sun Life Hong Kong 1,906,099 2,372,836 422,146 13 FTLife 1,895,233 1,559,262 420,107 14 Hong Kong Life 556,068 435,895 257,434 15 Fubon Life Hong Kong 1,543,321 324,887 243,821 16 YF LIFE 1,415,901 876,774 171,581 Non – linked Business (2019 – Q1 2021) 2019 2020 Q1 2021 SPx10%+RP SPx10%+RP SPx10%+RP Rank Name of Insurer (HK$’000) (HK$’000) (HK$’000) 17 HKMC Annuity 163,083 253,793 88,796 18 Chubb Life 521,743 287,265 63,252 19 Well Link Life 33,189 212,357 49,647 20 Generali Life (HK) 195,965 237,910 37,191 21 Blue 4,310 65,330 17,806 22 CIGNA Worldwide Life 52,012 64,253 14,070 23 Bowtie Life 56 8,733 5,772 24 Transamerica Life (Bermuda) 171,166 33,270 3,182 25 TLIC 1,731,660 805,560 2,626 26 ZA Insure 0 6,821 2,413 27 AXA China (HK) 169 3,328 752 28 Liberty Int’l 1,212 995 348 29 Pacific Life 1,739 1,537 345 30 Zurich Life Insurance (HK) 0 273 185 31 Heng An Standard Life Asia 0 215 37 Market Total 125,378,888 77,518,984 22,405,112 Linked Business (2019 – Q1 2021) 2019 2020 Q1 2021 SPx10%+RP SPx10%+RP SPx10%+RP Rank Name of Insurer (HK$’000) (HK$’000) (HK$’000) 1 Manulife (Int’l) 604,029 709,582 311,527 2 AIA International 502,501 570,428 286,406 3 AXA China (Bermuda) 227,512 247,779 91,219 4 FTLife 177,791 246,796 78,261 5 Sun Life Hong Kong 56,596 92,899 67,418 6 Quilter International 51,788 45,717 14,880 7 SJPI(HK)L 50,764 35,888 12,601 8 FWD Life (Bermuda) 30,356 34,202 9,700 9 Prudential (HK) Life 7,237 17,211 7,067 10 Zurich International 27,522 18,806 5,651 11 Chubb Life 1,686 4,802 4,488 12 YF LIFE 3,518 5,299 2,803 13 Heng An Standard Life Asia 6,622 10,091 2,449 14 AXA Wealth Mgt (HK) 7,932 12,482 550 15 TLIC 35 83 209 16 CIGNA Worldwide Life 1,129 782 164 Market Total 1,778,933 2,066,166 895,391 Product Type QDAP? VHIS? Coupon? ROP? 大 U 、細 U ? PPLI? ILQDAP? Questions on Company “Product” Product Strategy Flexible withdrawal? Buy term invest the rest? Legacy planning? Mini – trust? With trust? Tax planning? Premium financing? Life settlement? Defining Target Market Identify customer needs Segment total market Profile target customer segment(s) Research and validate market opportunity Target Segment Target Segment Regular or single premium Regular or prepaid premium Origins of customers Premium term Policy currency Protection or savings oriented Product function Others … Product and Target Segment Product and Target Segment Product Target Segment Product/Market Expansion Grid Product and Target Segment Any innovative product idea to new/ existing market identified? Any product (mix) initiative to new/ existing market identified? Product and Target Segment Innovation/ Initiative New/ Existing Market Insurance Channel Distribution Environment Corporate and marketing strategies Company products and target segments Market share and market mix BCG Matrix Market Growth vs. Relative Market Share 4 quadrants of Strategic Business Unit (“SBU”) Market Share and Market Mix Four types of SBUs: Ø Stars: high -growth, high -share business or product requiring heavy investment to finance rapid growth. They will eventually turn into cash cows. Ø Cash cows: low -growth, high -share business or product that is established, and successful SBU requiring less investment to maintain market share. Market Share and Market Mix Four types of SBUs (cont’d): Ø Question marks: low -share business unit in high -growth market requiring a lot of cash to hold their share. Ø Dogs: low -growth, low -share business or product that may generate enough cash to maintain itself but do not promise to be large sources of cash. Market Share and Market Mix Build Divest Hold Harvest Market Share and Market Mix 4 imperatives: Ø Accelerate – evaluate the portfolio more often Ø Balance exploration and exploitation – increase number of question mark opportunities and extract values from dogs more rapidly before divesting Ø Select vigorously – leverage all available data when scaling up or divesting Ø Measure and manage experimentation – speed, cost, risk and return Market Share and Market Mix Market Share and Market Mix https://www.bcg.com/about/our -history/growth – share -matrix Value proposition Ø Product line planning Ø Geographical business analysis Ø Customer relationship management Ø Staff recruitment and engagement HOW IS YOUR AGENCY’S PROPOSITION? HOW IS YOUR INSURER’S PROPOSITION? Corporate Strategy and Channel Distribution Marketing channel strategy and role of distribution Marketing channel strategy and marketing mix 1. Trend of Channel Distribution Consolidation Globalization of purchasing Increasing customer emphasis on total value Distributor offerings becoming more sophisticated Distributors expecting more services from insurance companies Marketing Channel Strategy and Role of Distribution 2. Influential Factor Decision relating to channels of distribution involve decisions regarding type of channels, type of inter mediaries, channel strategies, motivation to channel members etc. These decisions are affected by various factors: Ø Product Characteristics Ø Market Characteristics Ø Middleman Characteristics Ø Insurer Characteristics Ø Environment Considerations Marketing Channel Strategy and Role of Distribution 2. Influential Factor (cont’d) Product Characteristics Ø Nature of the Product Ø Technical Nature of the Product Ø Market Position Market Characteristics Ø Size of the Market Ø Area or the Market Ø Concentration of Buyers Marketing Channel Strategy and Role of Distribution 2. Influential Factor (cont’d) Middlemen Characteristics Ø Availability of Middlemen Ø Competitors’ Channels Ø Type of Middleman Insurer Characteristics Ø Size of the Company Ø Financial Strength of the Company Ø Experience and Ability Environmental Considerations (e.g. COVID -19) Marketing Channel Strategy and Role of Distribution 3. Various Channel Strategies Push Strategy Ø Aiming at other channel members rather than the end consumer. Ø Attempting to entice other channel members to carry its product through trade allowances, pricing policies etc. Marketing Channel Strategy and Role of Distribution 3. Various Channel Strategies Pull Strategy Ø Aiming at the end consumer of a product. Ø Product is pulled through the channel by consumer demand initiated by promotional efforts etc. Marketing Channel Strategy and Role of Distribution 4. Role of Intermediaries Improvement of the efficiency of exchange process. Distribution without the presence of intermediaries becomes more complicated and costly. (True?) A part of indirect channel system and between insurer and consumer, these intermediaries help in: Ø Promotion Ø Negotiation Ø Payment Ø Information Marketing Channel Strategy and Role of Distribution Marketing Channel Strategy and Marketing Mix F our Cs (Robert F Lauterborn , 1990) Customer solution: what the customer wants and needs Communication: a two -way dialogue with the customer Convenience: an easy process to act or buy Cost: the customer ’s cost to satisfy that want or need Marketing Channel Strategy and Marketing Mix 4 Ps 4 Cs Product Consumer Solution Price Cost Promotion Communication Place Convenience Marketing Channel Strategy and Marketing Mix 4Ps and 4Cs Competitors will exert market pressures using strategies defined by their marketing alternatives. Marketing Channel Strategy and Marketing Mix Exercise: Marketing yourself as a new college graduate in the job market Marketing Channel Strategy and Marketing Mix CASE STUDY A gain: European giant in 2013 “Distribution strategy in Asia” Market overview and trend Ø Market growth, market share and growth driver Ø Existing marketing channel strategy Ø Competitor analysis, product and target segment Existing strategy in Asia Ø Journey to grow Ø Distribution capacity Ø Product portfolio and strategy Case Study Distribution re -strategization Ø Focus on growth Ø Strengthen existing channels Ø Multi -channel platform Ø Global partnership Ø Product strategy Alignment and integration of Group, Asia and local distribution strategy Case Study HOW TO MARKET YOUR INSURER? Day 1 Learning Life insurance distribution channels Functions of distribution Corporate and marketing strategies Company products and target segments Market share and market mix Marketing channel strategy and role of distribution in corporate objectives and strategies Marketing channel strategy and marketing mix Lecture Topics 1 (Jul 9) Introduction to Distribution Insurance Channel Distribution Environment Corporate Strategy and Channel Distribution
You are now the Chief Marketing Officer of a brand-new insurer in Hong Kong. As approaching to its 1-year birthday, a new product initiative and marketing program are agreed to launch in the next six
Module 5 Managing Channel Distribution GROUP PRESENTATION To be done in the last section of next lecture Each group represents the management team of an assigned insurer Duration: ~15 mins presentation + 5 mins. Q&A Areas to be covered Current corporate and marketing strategies of your representing company Current product and market propositions of your representing company Current issues Any innovative channel strategies? Any challenges? How do you manage? Notes Lecture 1 Review Life insurance distribution channels Functions of distribution Corporate and marketing strategies Company products and target segments Market share and market mix Marketing channel strategy and role of distribution in corporate objectives and strategies Marketing channel strategy and marketing mix Lecture Topics 1 (Jul 9) Introduction to Distribution Insurance Channel Distribution Environment Corporate Strategy and Channel Distribution Module Outline 3 lectures covering 7 big topics 6 hours for each lecture Teaching plan: Lecture Topics 1 (Jul 9) Introduction to Distribution Insurance Channel Distribution Environment Corporate Strategy and Channel Distribution 2 (Jul 10) Insurance Distribution Systems Insurance Distribution Strategies 3 (Jul 24) Managing Distribution Channels Managing Channel Conflicts Personal Selling System Electronic System Direct Response System Third -party System Insurance Distribution Systems In -person interaction Address buyer’s needs and preferences without making him or her feel pressured. Good salespeople offer advice, information, and recommendations, and they can help buyers save money and time during the decision process. Personal Selling System The seller should give honest responses to any questions or objections the buyer has and show that he cares more about meeting the buyer’s needs than making the sale. Attending to these aspects of personal selling contributes to a strong, trusting relationship between buyer and seller. Personal Selling System Common Techniques Sales presentations Conversations Demonstrations Addressing objections Field selling Retail selling Consulta tive selling Personal Selling System Proceeds of the person -to -person sales must cover the remuneration of the sales representative. Companies use personal selling when their products or services are highly technical, specialized, or costly. (Applying to life insurance?) Other conditions favoring personal selling: Ø Product situation Ø Market situation Ø Company situation Ø Consumer behavior situation Personal Selling System Types of sales persons Ø Order taker – inside order taker vs. outside order taker Ø Order getter – creative seller Ø Support personnel – missionary, trade and service sales person Management of salesforce Ø Agency : Your expertise!!! Ø Broker? Ø Bank? Personal Selling System Advantages High flexibility Minimizing wasted effort Measuring marketing effectiveness and determining ROI are far more straightforward Effectively respond to and overcome objections Able to offer many customized reasons that might spur a customer to buy Multiple tasks performance Personal Selling System Disadvantages High cost (consider further agent vs. broker vs. bank) Problem of finding and retaining high – quality people Message inconsistency Possessing different levels of motivation Personal Selling System Tied Individual Agent TR of Corporate/ Company Agent TR of Broker Bank to (with) Agent Bank to (with) Broker Affinity Partner to Agent Affinity Partner to Broker Personal Selling System Personal Selling System Electronic System Direct Response System Third -party System Insurance Distribution Systems Or “Digital Marketing” Digital marketing is an umbrella term for using a digital tools to promote and market products, services, organizations and brands. Unique capabilities: Ø Interactive Ø Mobile and portable Ø Highly measurable and data driven Ø Shareable Ø Synergistic with other marketing activities Electronic System Providing general information Expressing the brand Demonstrating products, services and expertise Proof points Lead generation Communities and forums Publishing value -adding content Communication Shopping Recommendations Sales Capturing customer feedback Electronic System – Website Electronic System – Website Consider the following strategies: Ø B2B (insurer’s digital platform connected with partner’s digital platform e.g. digital intermediary) Ø B2C (insurer’s digital platform directly connected with potential direct client) Ø B2B2C (mix of the above) Electronic System – Website Digital intermediary Ø Local intermediary( ies ) under insurer Ø SEA -based intermediary Discussion Ø Key issues Ø Channels’ distribution focus Ø Operating principles Ø Management actions Ø Ongoing monitoring B2B Case Advantages WE ARE HERE!!! Generating customer data and new business leads. Serving customers virtually anywhere in the world with internet access. Flexible and easy to alter. Trying out new strategies, content and tactics at relatively low cost Electronic System – Website Disadvantages Requiring some investment of time and money to set up and maintain. Costly to ensure their sites remain operational with good performance and uptime. Must be vigilant about information security to prevent hackers from stealing sensitive customer data. Electronic System – Website Search -engine Optimization (“SEO”) is the process of using Internet search engines, such as Google, Bing, and Yahoo, to gain notice, visibility, and traffic from people conducting searches using these tools. SEO: Boosting search rankings by identifying and applying SEO and content marketing strategies to the search terms. Content Marketing: Incorporating optimal search terms into the Web content. Electronic System – SEO & Content Marketing Electronic System – SEO & Content Marketing Advantages Easily tracking the results, see what works, and adjust course to improve outcomes. High -quality content leads to relatively inexpensive to achieve great results. Disadvantages Need ongoing feeding and care . Electronic System – SEO & Content Marketing 3 primary objectives: Ø Creating buzz (developing and publishing messages in a variety of formats, e.g. text, video, and images) Ø Fostering community ( building ways for fans) Ø Facilitating two -way communication ( promoting and encouraging user participation) Common social media marketing tools like Blogs, YouTube, Facebook, Instagram etc. Electronic System – Social Media Advantages Identifying and cultivating advocates Measurable and trackable Virtually unlimited audience Easy to target and test the effectiveness of content Electronic System – Social Media Disadvantages Heavy monitoring Difficult to continually create “share -worthy” content Challenge on which platforms to use Difficult to control communication Who “own” the platform Electronic System – Social Media Reasons for growth Social/technological reasons Ø The Internet Ø Fragmentation of society Ø Proliferation of media Ø Greater consumer sophistication Ø Consumers want to be in control Electronic System Reasons for growth (cont’d) Business reasons Ø Ever more competition Ø Criticism of traditional marketing methods Ø Interest in customer retention and loyalty Ø Continuing drop in computer processing costs Electronic System Direct (2019 – Q1 2021) 2019 2020 Q1 2021 SPx10%+RP SPx10%+RP SPx10%+RP Rank Name of Insurer (HK$’000) (HK$’000) (HK$’000) 1 BOC LIFE 872,622 1,498,523 381,940 2 HKMC Annuity 163,083 253,793 88,796 3 Hang Seng Insurance 246,958 336,737 80,676 4 Blue 0 65,330 17,806 5 CIGNA Worldwide Life 40,688 54,873 12,362 6 Bowtie Life 2,776 24,647 10,829 7 Well Link Life 0 69,052 8,953 8 TPLHK 70 5,257 7,875 9 FWD Life (Bermuda) 119,385 9,560 4,863 10 HSBC Life 77,954 88,856 3,973 11 Zurich Assurance 0 6,821 2,413 12 China Life 163,414 6,404 254 13 Manulife (Int’l) 0 549 214 14 Liberty Int’l 103 79 42 15 AIA International 300 187 34 Market Total 1,774,310 2,467,407 621,031 “Direct” should include direct mail, telesales and internet sales Digital/ virtual licensed insurers Ø ZA, Bowtie, Avo, OneDegree Traditional licence carrying out Ø Digital business Ø Digital procedures IA consideration (sandbox) Ø B2C Ø B2B Digital Insurance Personal Selling System Electronic System Direct Response System Third -party System Insurance Distribution Systems Direct Marketing (“DM”) Ø Going straight to customers Ø Traditional direct marketing activities include mail, catalogs, and telemarketing. Ø Today, direct marketing overlaps heavily with digital marketing, as marketers rely on email and, increasingly, mobile communications to reach and interact with consumers. Direct Response System Purposes and Uses of DM Ø To reach and appeal directly to individual consumers and to use information about them to offer products, services and offers that are most relevant to them and their needs. Ø Post -purchase interaction, confirm orders, send receipts or warrantees, solicit feedback through surveys, ask customers to post a social media recommendation, and propose new offers. Direct Marketing When using DM? Ø Primary distribution channel Ø Relying heavily on sales promotions or discounts, and it is important to spread the word about these offers to consumers Ø Standard advertising is not reaching its target segments Direct Marketing When using DM? (cont’d) Ø Better -targeted marketing communications are required to reach the right individuals; e.g. using direct mail to reach wealthier people Ø A company has a known “universe” of potential customers and access to contact information and other data about these customers Ø Heavily dependent on customer retention, reorders and/or repurchasing, making it worthwhile to maintain “permissioned” marketing interaction with known customers Direct Marketing Effectiveness: depending on using databases to capture the information of target customers (with electronic media, the information flow opens the floodgates) and the use of this information to extend ever -more – personalized offers and information to consumers (mobile marketing adds value). Electronic media: marketing databases capture when a consumer opens an email message and clicks on a link. Mobile marketing: Allowing the incorporation of location – sensitive and even activity -specific information into marketing communications and offers. Direct Marketing Advantages Tailoring customer experience in the market to things that most align with their needs and interests. A powerful tool for anticipating and predicting customer needs and behaviors. To understand their target audiences and market dynamics such that companies can develop more effective campaigns and offers. Easy to measure the effectiveness by linking it to outcomes. Mobile and email marketing tend to be inexpensive to produce once the underlying infrastructure is in place. Direct Marketing Disadvantages Cost of database and information infrastructure is not insignificant. Concerns about privacy and information security. People are only too willing to toss junk mail and unsolicited email into trash bins. Electronic spam filters screen out many email messages. Challenge of keeping databases and contact information up to date and complete. Costly to provide an acceptable level of customer service and interaction to win new customers and retain business. Direct Marketing Again: Direct (2019 – Q1 2021) 2019 2020 Q1 2021 SPx10%+RP SPx10%+RP SPx10%+RP Rank Name of Insurer (HK$’000) (HK$’000) (HK$’000) 1 BOC LIFE 872,622 1,498,523 381,940 2 HKMC Annuity 163,083 253,793 88,796 3 Hang Seng Insurance 246,958 336,737 80,676 4 Blue 0 65,330 17,806 5 CIGNA Worldwide Life 40,688 54,873 12,362 6 Bowtie Life 2,776 24,647 10,829 7 Well Link Life 0 69,052 8,953 8 TPLHK 70 5,257 7,875 9 FWD Life (Bermuda) 119,385 9,560 4,863 10 HSBC Life 77,954 88,856 3,973 11 Zurich Assurance 0 6,821 2,413 12 China Life 163,414 6,404 254 13 Manulife (Int’l) 0 549 214 14 Liberty Int’l 103 79 42 15 AIA International 300 187 34 Market Total 1,774,310 2,467,407 621,031 “Direct” should include direct mail, telesales and internet sales Personal Selling System Electronic System Direct Response System Third -party System Insurance Distribution Systems In cases involving an intermediary, there is a third -party sale. More difficult to understand and influence the sales process than direct response system. Third – party System Example: Nanette Lepore, a high -end clothing designer Both direct and third -party systems are executed: direct sales incentives vs. third -party sales incentives Direct: Entire sales system and compensation structure centering on Nanette Lepore Third -party: Carrying the most popular brands that are more likely to make the sale Producer loses significant control and influence in the third -party sale, while the third -party sales representative will gain control or power. Third – party System How can a marketer approach third -party sales most effectively? Ø Understand and align incentives (optimizing existing structure rather than creating new structure) Ø Provide exceptional sales support Ø Create demand for product Third – party System TR of Corporate/ Company Agent TR of Broker Bank to (with) Agent Bank to (with) Broker Affinity Partner to Agent Affinity Partner to Broker Individual Tied Agent? Third – party System Summary of Distribution Systems Insurance Distribution Systems Distribution System Intermediary? Personal Selling ü Electronic ü / û Direct Response ü / û Third -party ü CASE STUDY European giant in 2014 Local development Ø Introduction of DM and affinity partnership model Ø Expansion of broker channel “Favourable ” market analysis Numbers of hardware requirements Great team hired Regional exposure Certain degree of overlapping with other channel Group’s multi -channel strategy Case Study (1) Key issues Channels’ distribution focus Operating principles Management actions Ongoing monitoring Discussion Same European giant in 2013 Group’s multi -channel strategy Regional development in Asia Case Study (2) Region Existing Strategy Channel Initiative China Tied agent, bank, cap broker, GM, TM Worksite marketing, captive agency, CRM India Tied agent, corporate agent, digital Mallassurance Indonesia Bank, tied agent – Case Study (2) Region Existing Strategy Channel Initiative Philippines Bank, tied agent – Thailand TM, tied agent, DM, broker Bank Vietnam Tied agent, strategic partnership TM, bank Hong Kong Broker DM and affinity partnership Key issues Channels’ distribution focus Value creation Management actions Ongoing monitoring Discussion Insurance Distribution Strategies Channel Characteristics Selection of Channels Distribution Intensity Channel Characteristics Insurers normally use a number of marketing intermediaries for taking their products to users. Sole selling agents, marketers, wholesalers, distributors, retailers, authorized representatives, brokers / commission agents… Insurance Distribution Strategies Channel Characteristics The channels of distribution, thus, add the following characteristics in marketing: Ø Place utility Ø Time utility Ø Convenience value Ø Marketing tools Ø Supply -demand linkage Channel Characteristics Consider the representing capacity: Distribution Channel Representing Capacity Tied individual agent Insurer / Client TR of corporate/ company agent Insurer / Client TR of broker Insurer / Client Bank (to agent) Insurer / Client Bank (to broker) Insurer / Client Channel Characteristics Distribution Channel Characteristics Tied individual agent TR of corporate/ company agent TR of broker Bank (to agent) Bank (to broker) Channel Characteristics While choosing an appropriate channel of distribution the following factors should be considered: Ø Market -related factors Ø Product factors Ø Company factors Ø Channel -related factors Ø Environmental factors Selection of Channels Market -related factors Ø Customers Ø Competition Ø Existing Channels of Distribution Product factors Ø Nature of Product Ø Technicality Ø Seasonality Ø Variety Offered Selection of Channels Channel -related factors Ø Channel’s ability Ø Channel’s Financial Strength Ø Ability to Provide After – sales Service Environmental factors Ø Economic Situation Ø Legal Factors Ø Fiscal Structure Company factors Ø Company’s Financial Strength Ø Extent of Control Desired Ø Company’s Reputation Ø Company’s Marketing Policies Ø Pas t Experience Selection of Channels Once the channel level is decided by the firm, the next task is to choose the number of intermediaries i.e. specifying distribution intensity. It is concerned with the market exposure to be given to the product to meet the target consum – ers’ needs and wants. 3 types of distri bution intensity (channel width): Ø Intensive distribution Ø Exclusive distribution Ø Selective distribution Distribution Intensity Distribution Intensity Consider individual channel: Ø Rare in agency and bank environment? Ø How do you think for broker channel? How a CDO plans and decides the intensity strategy among all available distribution channels? Distribution Intensity Next level of strategic decisions concerning strategic relationships and partnerships. Two common strategies are: Ø Vertical Marketing Systems (“VMS”) – suppliers and intermediaries working closely together instead of against each other. Ø Horizontal Marketing Systems (“HMS”) – where organizations operating on the same channel level (e.g., two suppliers or two retailers) cooperate. Distribution Intensity VMS Ø They plan production and delivery schedules quality levels, promotions and sometimes prices. Ø Resources, like information, equipment and expertise, are shared. Ø E.g. Doctor Martens boot manufacturers own their own retail store. HMS Ø They then share their distribution expertise and distribution channels. Ø This can speed up the time taken to penetrate the market. Distribution Intensity CASE STUDY UK giant in 2007 Local and expatriate IFA and broker channels Different culture, style, management approach Regional and even international exposure for various channel members Product suite regionalized and internationalized Image and reputation of the local insurer and also the entire group Strategic alignment – credit booking, cost allocation, management reporting etc. Case Study Key issues Channels’ distribution focus Operating principles Resolution of development Management actions Ongoing monitoring Discussion Day 2 Learning Personal selling system Electronic system Direct Response system Third -party system Channel characteristics Selection of other channels Distribution intensity Lecture Topics 2 (Jul 10) Insurance Distribution Systems Insurance Distribution Strategies INDIVIDUAL ASSIGNMENT Choose either one of two situations and write a report of 1500 to 2000 words (English). MUST submit on or before Aug 8 (Sun). Please submit your assignment to my email. For safety reason, please let me know after your submission via WhatsApp to my mobile. Assignment – Rules No receipt of your assignment and no mobile acknowledgement will be considered as missing to hand -in. Assignment handed in between Aug 9 and 14 will be deducted by 5% for each day delay (e.g. Aug 14: max -25%) ; additional 20% will be deducted for the submission from Aug 15 to 21. Assignment submitted after Aug 21 will be considered as record only and will not be graded. So, PLEASE BE PUNCTUAL!!! Assignment – Rules Situation 1 You are now the Chief Distribution Officer of an insurer in Hong Kong. In the last year, the business productions of two channels (agency and broker) could not meet the targets. Currently three channels are under your management – namely agency, broker and bancassurance. Now is the beginning of the year. Your CEO wants a distribution and marketing strategic plan for his board meeting two weeks later. Based on what you have/ would have learnt from this module, write a proposal to him with the following hints: Assignment – Background Situation 2 You are now the Chief Marketing Officer of a brand -new insurer in Hong Kong. As approaching to its 1 -year birthday, a new product initiative and marketing program are agreed to launch in the next six months. Currently there is only one broker channel in your company. Write a distribution and marketing plan based on what you have/ would have learnt from this module with the following hints: Assignment – Background Outline and describe the current corporate and marketing strategies of your company. Analyze the current product and market propositions of your company. Be aware of the current distribution model and strategies of your company. Identify the current issues. Any innovative channel strategies you would think of? Any challenges you might be facing? How do you manage the distribution function? Assignment – Hints