In literal terms, the act of converting or transforming raw inputs into finished products is known as production. The sales and marketing division of an insurance company is its production department. It se- lects and trains the agents in order to boost sales. The activity of sales and marketing is called production in the insurance industry. Insur- ance is an intangible product that does not come into existence till the time a proposer purchases a policy. Thus, the act of selling can be compared to an insurer’s production in its true sense.
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There may be numerous insurance products that may have different objectives, benefits and costs for which an insurer may adopt a variety of ways to market these policies.
Methods for Marketing Insurance Products
Direct response system
One of the commonly used methods in life insurance or term policies is the direct response system. This method seeks to generate business by telemarketing or the Internet. Consumers can easily draw comparisons between different products for their benefits and prices by making use of the Internet. This is one of the most cost-effective methods of marketing because there is no involvement of a network of marketing agents.
Moreover, an insurer can reach a large population provided they are connected via Internet or telephone. The direct response system of selling is more limited when selling general insurance policies because of their complex nature, such as motor or property insurance.
Non-building agency system
Insurers also make use of non-building agency system where independent agents are engaged in selling insurance policies. These independent agents are also known as Personal Producing General Agents (PPGAs). The remuneration model in this system is such that insurers appoint agents as contractors who conduct independent business and pay the agents a fixed amount of commission usually in a percentage of premium.
The non-building agency system is typically made up of agents who can manage their own affairs without any intervention or subsequent supervision from the insurer. Furthermore, the insurer is not liable to pay any expenses to such agents. This system is extremely useful where the insurer wants to quickly establish a market in a targeted geographic area where the insurer can legally sell.
Agency building system
This system involves recruiting new agents that represent only the insurer and subsequently training them as per the insurer’s requirements. This is beneficial as the newly recruited and trained agents help in augmenting the sales of the insurer. The agency building system is of two types, which differ on the extent of financial support provided by the insurer. These two types are as follows:
- General agency system: In a general agency system, the insurer hires an independent insurance salesperson who is usually experienced in the field of selling. He/she acts as the sole representative of the insurer. A territory is usually allocated to this agent, who, in turn, hires and trains new agents. The agent, in return for the extent of business generated by his/her team, receives a commission. Most or all of the expenses related to recruiting and training new agents, and certain miscellaneous expenses, are borne by the insurer.
- Managerial system: This is an expensive proposition for the insurer. In most cases, a branch office of the insurer is managed and run by a branch head or a manager, who is the insurer’s employee. The manager recruits, trains and manages new agents and other relevant staff to run the branch office. The manager is paid a salary and incentives for the amount of business generated by his/her sales team. All the expenses for the branch office are borne by the insurer.
In mass merchandising, an insurance company sells policies to a group of people such as employees belonging to a company. A single customised policy at discounted premiums is offered, and the premiums can be deducted directly from the salary of employees.
Depending on the company’s human resource policy, employees usually pay the entire premium; there is no contribution from the employer, or the employer may bear a part of the premium. Insurance is offered to employees who satisfy the underwriting conditions of the insurer.