Keep in touch: deploying marketing that focuses on the life cycle of the policyholder keeps agents connected.The insurance industry is facing serious challenges within its traditional distribution systems. These challenges cover an array of issues, including revenue growth, profitability, market conduct compliance and orphan orphan: see adoption; foundling hospital; guardian and ward. See widow & orphan. Orphan See also Abandonment. Adverse, Anthony finally, at middle age, discovers origins. [Am. Lit. management. All of these issues have become more complex in recent years as the industry has shifted toward a broker-dominated distribution model. Insurers that have eliminated their tied sales forces in favor of upon the side of; favorable to; for the advantage of. See also: favor a brokerage model must differentiate themselves in a way that builds loyalty among distribution partners and generates profitable growth. But in too many cases, that differentiation strategy has been based primarily on compensation levels. This approach has rarely proven sustainable in other industries, especially industries with fairly homogenous homogenous - homogeneous products. There have been notable efforts by many companies to develop differentiated products in the marketplace. However, those that have met with some success are quickly copied and improved upon. The broker model has been successful in shifting acquisition costs from a largely fixed to a largely variable structure; but in doing so, most carriers have lost the ability to build a deeper and more profitable relationship with their policyholders. Today's technology and marketing techniques make it much easier to identify and meet customer needs, but in most cases, the carrier has no real ability to take advantage because of the broker's control over the business. The Orphan Challenge Orphan management is perhaps the greatest long-term Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. strategic distribution challenge facing the industry. The percentage of policyholders that no longer have a relationship with their original agent is much larger than most companies realize, and it is getting bigger by the day. There are two phenomena that are creating the problem. One is the "out-of-sight, out-of-mind factor" that many agents have adopted. Those that have stayed in the business for more than a few years have generated too many customers to service properly given their focus on new business. Research by Covenant Group, a practice management firm, suggests agents can have meaningful client relationships with a maximum of 200 policyholders. Beyond that number, a mere product relationship exists. Research suggests agents who have been in the business for 10 or more years likely have accumulated ac·cu·mu·late v. ac·cu·mu·lat·ed, ac·cu·mu·lat·ing, ac·cu·mu·lates v.tr. To gather or pile up; amass. See Synonyms at gather. v.intr. To mount up; increase. 500 or more clients. Unfortunately, the vast majority of clients haven't heard from their agent in a long time. To be fair, many conscientious con·sci·en·tious adj. 1. Guided by or in accordance with the dictates of conscience; principled: a conscientious decision to speak out about injustice. 2. agents have tried to maintain proper contact and servicing through the use of assistants or informal direct marketing initiatives. But in most cases, these have been both poorly planned and executed. The other factor driving the growing orphan issue is that a small number of agents are staying in the business for the long term and few are qualified. Recent studies suggest that, if 100 agents are recruited into the business today, only 11 will be left after four years. When both of these factors are combined, a significant problem emerges. In 2003, research by the NewLink Group revealed the extent of the situation. It found that 29% of the life policyholders surveyed had totally lost contact with their original agent. This figure is considerably higher than most carriers would estimate as it relates to their policyholder Policyholder An individual who owns an insurance policy. base. Perhaps even more disconcerting dis·con·cert tr.v. dis·con·cert·ed, dis·con·cert·ing, dis·con·certs 1. To upset the self-possession of; ruffle. See Synonyms at embarrass. 2. is that the same research revealed 16% of the same policyholders expect to purchase an additional policy within the next two years. The key question is "from whom?" Many companies see a growing need to more closely monitor their agents' efforts to stay abreast of changing customer needs. Many lawsuits have been filed by consumers who felt their agent did not properly anticipate their changing needs. However, monitoring agent compliance in this area is difficult. The growing ranks of orphaned or·phan n. 1. a. A child whose parents are dead. b. A child who has been deprived of parental care and has not been adopted. 2. A young animal without a mother. 3. policyholders also create potential exposure as well. The Life Cycle Approach A well-designed and consistent policyholder marketing program effectively addresses many of these challenges.To reach its full potential, such a strategy must deploy a number of different distribution channels. Direct marketing techniques can play an important role here. Integrating the use of these alternative channels will help provide both the desired results and control. Relying solely on the traditional broker/agent channel to execute the strategy will likely yield disappointing results. To be effective, the policyholder marketing program must be continuous. Individual "one off" campaigns can be useful in terms of helping to validate To prove something to be sound or logical. Also to certify conformance to a standard. Contrast with "verify," which means to prove something to be correct. For example, data entry validity checking determines whether the data make sense (numbers fall within a range, numeric data the concept or to fill short-term revenue gaps, but such an approach is unlikely to generate meaningful impact. Designing the strategy around the logical life cycle of the policyholder provides an ideal framework for this approach. We look at this in the context of a typical term life policyholder. A variety of factors have reduced the margins on most term business to unattractive levels. Thus, the typical life cycle of that customer is a low margin return for the level period followed by an extraordinarily high lapse rate lapse rate n. The rate of decrease of atmospheric temperature with increase in altitude. lapse rate The rate of change of any meteorological phenomenon, especially atmospheric temperature with altitude. at the end of the period. To make matters worse, the opportunity to retain the customer rests solely in the hands of the agent, assuming the agent is still even in the business. A life-cycle approach instead suggests several logical opportunities to both enhance profitability and strengthen and sustain customer relationships. Upgrade at Issue--Underwriting an applicant for additional coverage and then offering a "one time only" opportunity to obtain the additional coverage, with no additional underwriting Underwriting 1. The process by which investment bankers raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt). 2. The process of issuing insurance policies. , is both easy to execute and highly profitable. It can be done on a direct marketing basis and still provides the broker/agent with a full commission on the incremental Additional or increased growth, bulk, quantity, number, or value; enlarged. Incremental cost is additional or increased cost of an item or service apart from its actual cost. sale. This one initiative should increase the amount of new business written by 8% to 12%. Upgrade Post Issue--The same concept can be applied to the existing portfolio at regular intervals. While underwriting rules have to be defined, there are usually ways to offer these upgrades via direct marketing, on a simplified issue approach by offsetting expense savings with higher mortality loads. Critical Illness Rider--Companies worldwide have reported success with selling riders that provide an advance of proceeds in the event of diagnosis of specified illnesses. Such a rider is relatively easy to develop and market. Renewal Strategy--Today, most companies make virtually no effort to retain a term life policyholder after the expiration EXPIRATION. Cessation; end. As, the expiration of, a lease, of a contract, or statute. 2. In general, the expiration of a contract puts an end to all the engagements of the parties, except to those which arise from the non- fulfillment of obligations created of the level period. Most rely on the hope that the commission structure on new business will entice the broker/agent to write the new policy. Obviously, such an approach does not provide much control over one's destiny. It also ignores the reality that a large percentage of those policyholders are really orphaned. These are a few examples of the logical components of a life cycle approach to policyholder marketing. Other possibilities likely exist depending on your portfolio of products. Execution Is Key Successful execution is largely a function of matching the channel to the offer being made and deploying the right technology solutions. Heavily underwritten, complex products generally require a face-to-face sale. Conversely con·verse 1 intr.v. con·versed, con·vers·ing, con·vers·es 1. To engage in a spoken exchange of thoughts, ideas, or feelings; talk. See Synonyms at speak. 2. , guaranteed issue and simplified underwritten products tend to work best through low-cost media, such as statement-based marketing, direct mail and telemarketing telemarketing, the practice of selling goods or services to customers by means of the telephone or of surveying consumer preferences in telephone conversations. . Ultimately, channel choice decisions come down to the type and premium level of the product being sold, the complexity of underwriting, channel volume restrictions, channel cost, expected response/ average premiums, and product profit margins. Deployment of the right technology also is critical to a successful strategy. Customer life-cycle marketing is largely driven by predefined business rules. It is absolutely essential that a true marketing database be used, initially to define and generate appropriate offers, but also to keep track of all of the previous marketing activity. Legacy administrative systems are not designed for this task. An effective policyholder marketing program will not solve all of the distribution challenges that your company faces, but it certainly can help in a meaningful way. Key Points * The broker model hasn't allowed most carriers to build a deeper and more profitable relationship with their policyholders. * Orphan management is perhaps the greatest long-term strategic distribution challenge facing the industry. * An effective policyholder marketing program must use a variety of distribution channels including direct mail and face-to-face sales. Life Cycle Marketing: What's It Worth? The answer is ultimately a function of many factors such as the scope of the program, new business volumes and underwriting requirements, but the following guidelines guidelines, n.pl a set of standards, criteria, or specifications to be used or followed in the performance of certain tasks. are indicative: * A 24- to 36-month program of upgrading "at issue" and "post issue" can generate a 10% to 15% increase in the overall premium base of the portfolio, and an 8% to 12% increase in annual new business production. * Constant policyholder communication will have a measurable, positive impact on overall retention. * Pro-active pro·ac·tive or pro-ac·tive adj. Acting in advance to deal with an expected difficulty; anticipatory: proactive steps to prevent terrorism. retention initiatives prior to the end of a level term period could reduce expected lapses by 20% to 40%. * Pro-active asset retention programs aimed at fixed annuity Fixed Annuity An insurance contract in which the insurance company makes fixed dollar payments to the annuitant for the term of the contract, usually until the annuitant dies. The insurance company guarantees both earnings and principal. portfolios nearing the end of a surrender charge Surrender Charge A fee levied on a life insurance policyholder upon cancellation of his or her life insurance policy. The fee is used to cover the costs of keeping the insurance policy on the insurance provider's books. period and "at risk" retained asset accounts could improve retention rates significantly. Garnering Agent Support Agents recognize the need to leverage other channels of communication to keep in touch with their policyholders. However, some agents may not have the expertise or economies of scale to properly support the effort. To ensure support for your efforts to integrate alternative channels, we have found that following a simple three-part formula is required: communication, control and compensation. Communication Proper communication begins with advance notification of any targeted marketing effort to an agent's policyholder base. Included in the communication would be samples of the offer, typical questions and answers, program timelines This article or section contains self-references. For other uses of "Timeline", see Timeline (disambiguation). The following is an index of timelines found on Wikipedia. , commissions, etc. The agent intranet site deployed by most companies is an ideal tool for this type of communication. Control Providing the agent with the ability to eliminate their policyholders from specific offers provides them ultimate control in the program.This step will generally eliminate any suspicion that the company is "going direct" to their customer. Historically, we have seen "opt-out" rates of less than 2%. Compensation Regardless of their involvement in the marketing campaign, it is imperative that the currently assigned as·sign tr.v. as·signed, as·sign·ing, as·signs 1. To set apart for a particular purpose; designate: assigned a day for the inspection. 2. agent participate in the commission revenue. Experience suggests 25% to 30% of normal commission will suffice suf·fice v. suf·ficed, suf·fic·ing, suf·fic·es v.intr. 1. To meet present needs or requirements; be sufficient: These rations will suffice until next week. , assuming that the offer does not cannibalize can·ni·bal·ize v. can·ni·bal·ized, can·ni·bal·iz·ing, can·ni·bal·iz·es v.tr. 1. To remove serviceable parts from (damaged airplanes, for example) for use in the repair of other equipment of the same their own sales efforts in which they would earn full commission. Properly addressing these three issues effectively positions the program as a value-added service A value-added service (VAS) is a telecommunications industry term for non-core services or, in short, all services beyond standard voice calls and fax transmissions. to the agent and not a direct initiative of the company. Contributors: Michael Levison is chief executive officer and Brad Smith Brad or Bradley Smith may refer to:
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