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CIA Annual Meeting Session 1101: Non-Traditional Distribution Through The Eyes of a Direct Writer CIA Annual Meeting Session 1101: Non-Traditional Distribution Through The Eyes of a Direct Writer Geoff Clarke VP Direct Marketing AIG Assurance Canada LOOKING BACK…focused on the future

CIA Annual Meeting Session 1101: Non-Traditional Distribution Topics to cover: • • • What CIA Annual Meeting Session 1101: Non-Traditional Distribution Topics to cover: • • • What do we mean by non-traditional distribution? How does it differ from traditional distribution? How are products distributed? Which product features work? What do actuaries have to consider? How can we manage the risk? LOOKING BACK…focused on the future

CIA Annual Meeting Session 1101: Non-Traditional Distribution What is Direct Marketing? A system of CIA Annual Meeting Session 1101: Non-Traditional Distribution What is Direct Marketing? A system of marketing designed to solicit a direct and measurable response from a consumer using one or more media. It is a marketing and distribution channel in one LOOKING BACK…focused on the future

CIA Annual Meeting Session 1101: Non-Traditional Distribution Why do people buy Direct? • • CIA Annual Meeting Session 1101: Non-Traditional Distribution Why do people buy Direct? • • • Personal preference Small/Simple policies Medical reasons No intermediary Cost LOOKING BACK…focused on the future

CIA Annual Meeting Session 1101: Non-Traditional Distribution Broad Market • • Direct to the CIA Annual Meeting Session 1101: Non-Traditional Distribution Broad Market • • Direct to the Canadian public No broker involvement Affinity or Sponsored Market • • Direct to customers of affinity partner Compensation to partner in return for • access to customer base • improved response LOOKING BACK…focused on the future

CIA Annual Meeting Session 1101: Non-Traditional Distribution Key Differences: Distribution Products Underwriting Acquisition Costs CIA Annual Meeting Session 1101: Non-Traditional Distribution Key Differences: Distribution Products Underwriting Acquisition Costs Traditional Non-Traditional Broker Various Complex Simple Full Guaranteed or Simplified issue Non-linked LOOKING BACK…focused on the future

CIA Annual Meeting Session 1101: Non-Traditional Distribution • • Insurance has to be sold CIA Annual Meeting Session 1101: Non-Traditional Distribution • • Insurance has to be sold Direct Marketing promotion: • • Media – method of distribution and target market Offer – Value proposition and positioning Creative – presentation of the offer Relative split: • 50% Media / 35% Offer / 15% Creative LOOKING BACK…focused on the future

CIA Annual Meeting Session 1101: Non-Traditional Distribution techniques • • • DRTV Direct Mail CIA Annual Meeting Session 1101: Non-Traditional Distribution techniques • • • DRTV Direct Mail Telemarketing Print Internet LOOKING BACK…focused on the future

CIA Annual Meeting Session 1101: Non-Traditional Distribution DRTV: • Hard costs: • • Variable CIA Annual Meeting Session 1101: Non-Traditional Distribution DRTV: • Hard costs: • • Variable costs • • • DRTV production Media Talent costs Key metrics: • • Cost per lead Cost per dollar of premium LOOKING BACK…focused on the future

CIA Annual Meeting Session 1101: Non-Traditional Distribution Telemarketing • Hard costs: • • Variable CIA Annual Meeting Session 1101: Non-Traditional Distribution Telemarketing • Hard costs: • • Variable costs • • TSR / agent training Script development Statement inserts Telemarketing costs Key metrics: • • Sales per hour Cost per dollar of premium LOOKING BACK…focused on the future

CIA Annual Meeting Session 1101: Non-Traditional Distribution Direct Mail • Hard costs: • • CIA Annual Meeting Session 1101: Non-Traditional Distribution Direct Mail • Hard costs: • • Variable costs • • Creative development Printing List rental Postage Key metrics: • • Response rate Cost per dollar of premium LOOKING BACK…focused on the future

CIA Annual Meeting Session 1101: Non-Traditional Distribution Successful direct marketing products are: • • CIA Annual Meeting Session 1101: Non-Traditional Distribution Successful direct marketing products are: • • • Simple and easily understood Easy to obtain Affordable Provide supplementary coverage Cover specific circumstances Provide high perceived value LOOKING BACK…focused on the future

CIA Annual Meeting Session 1101: Non-Traditional Distribution Product Features that Work: • • • CIA Annual Meeting Session 1101: Non-Traditional Distribution Product Features that Work: • • • Wow factor - big numbers impress! • Common Carrier - $1 million • PTD - $100, 000 30 or 60 day complimentary coverage Thank You benefits Risk free: • Free look • Money back guarantee Premium guarantees LOOKING BACK…focused on the future

CIA Annual Meeting Session 1101: Non-Traditional Distribution Actuarial Considerations • • • General Affinity CIA Annual Meeting Session 1101: Non-Traditional Distribution Actuarial Considerations • • • General Affinity Underwriting Lapses Expenses: • maintenance • acquisition LOOKING BACK…focused on the future

CIA Annual Meeting Session 1101: Non-Traditional Distribution Actuarial Considerations - General • Age: • CIA Annual Meeting Session 1101: Non-Traditional Distribution Actuarial Considerations - General • Age: • • Definition – last birthday Banding Issue & Termination ages Price Points Price vs Benefit Premium guarantees Individual / spouse / family LOOKING BACK…focused on the future

CIA Annual Meeting Session 1101: Non-Traditional Distribution Actuarial Considerations - Affinity • Affinity Markets: CIA Annual Meeting Session 1101: Non-Traditional Distribution Actuarial Considerations - Affinity • Affinity Markets: • • Variations in design Compensation Recovery of Acquisition Expenses Demographic skew LOOKING BACK…focused on the future

CIA Annual Meeting Session 1101: Non-Traditional Distribution Actuarial Considerations –Underwriting • • • Mortality CIA Annual Meeting Session 1101: Non-Traditional Distribution Actuarial Considerations –Underwriting • • • Mortality / Morbidity Incidence rates Anti-selection Product design Exclusions Pre-ex clauses Target market LOOKING BACK…focused on the future

CIA Annual Meeting Session 1101: Non-Traditional Distribution Actuarial Considerations - Lapses • Varies by: CIA Annual Meeting Session 1101: Non-Traditional Distribution Actuarial Considerations - Lapses • Varies by: • distribution technique • • • Telemarketing Direct Mail marketing offer product billing method LOOKING BACK…focused on the future

CIA Annual Meeting Session 1101: Non-Traditional Distribution Actuarial Considerations Maintenance Expenses • Large volume CIA Annual Meeting Session 1101: Non-Traditional Distribution Actuarial Considerations Maintenance Expenses • Large volume of homogenous policies: • • • Economies of scale Efficient systems Billing method: • • • credit card PAC Direct bill LOOKING BACK…focused on the future

CIA Annual Meeting Session 1101: Non-Traditional Distribution Actuarial Considerations - Acquisition Expenses • The CIA Annual Meeting Session 1101: Non-Traditional Distribution Actuarial Considerations - Acquisition Expenses • The key differences between traditional and non-traditional distribution are the techniques used to manage acquisition costs LOOKING BACK…focused on the future

CIA Annual Meeting Session 1101: Non-Traditional Distribution Traditional Business: • Acquisition costs: • • CIA Annual Meeting Session 1101: Non-Traditional Distribution Traditional Business: • Acquisition costs: • • Internal marketing departments Internal sales force for recruitment, education and retention of brokers Brokers are only compensated when policies actually sold Acquisition expense control revolves around management of internal costs and recovery of commission advances on early termination LOOKING BACK…focused on the future

CIA Annual Meeting Session 1101: Non-Traditional Distribution Non-Traditional Business: • Acquisition costs: • • CIA Annual Meeting Session 1101: Non-Traditional Distribution Non-Traditional Business: • Acquisition costs: • • Creative development - print, brochures, direct mail packages, DRTV, scripts Media costs – list rental, TV commercials, postage, telemarketers All costs incurred before any sales are made There is no direct link between money spent and volume of sales LOOKING BACK…focused on the future

CIA Annual Meeting Session 1101: Non-Traditional Distribution Marketing Profit • • • The excess CIA Annual Meeting Session 1101: Non-Traditional Distribution Marketing Profit • • • The excess of Acquisition loading over actual acquisition expenses The challenge is to acquire business within the acquisition loadings Once issued, traditional techniques used to manage risk LOOKING BACK…focused on the future

CIA Annual Meeting Session 1101: Non-Traditional Distribution Management of Acquisition Costs • • Mix CIA Annual Meeting Session 1101: Non-Traditional Distribution Management of Acquisition Costs • • Mix of business by product and distribution Client Lifetime Value Predictive Modelling Segmentation LOOKING BACK…focused on the future

CIA Annual Meeting Session 1101: Non-Traditional Distribution Mix of Business • Acquisition costs vary CIA Annual Meeting Session 1101: Non-Traditional Distribution Mix of Business • Acquisition costs vary by: • • • Product Distribution Customer type LOOKING BACK…focused on the future

CIA Annual Meeting Session 1101: Non-Traditional Distribution Client Lifetime Value • • • Costs CIA Annual Meeting Session 1101: Non-Traditional Distribution Client Lifetime Value • • • Costs most to acquire a new policyholder Costs less to sell an additional product to existing customers Balance mix of business to achieve marketing break-even LOOKING BACK…focused on the future

CIA Annual Meeting Session 1101: Non-Traditional Distribution Predictive Modelling / Segmentation • • Identify CIA Annual Meeting Session 1101: Non-Traditional Distribution Predictive Modelling / Segmentation • • Identify top performing deciles Maximize response by limiting depth of media spend Segment data to identify most likely respondents Risk can be minimized by testing, tracking and analyzing results LOOKING BACK…focused on the future

CIA Annual Meeting Session 1101: Non-Traditional Distribution Some Final Thoughts: • Keep an open CIA Annual Meeting Session 1101: Non-Traditional Distribution Some Final Thoughts: • Keep an open mind • • Just because you wouldn’t buy it, doesn’t mean it won’t work – you are NOT the target audience for most direct marketing We are trained to expect the worst – but if a product is broadly distributed, anti-selection will be less than you might expect Direct marketing is 70% science, 30% art With experience, testing and proper controls, non-traditional distribution is no more risky that traditional distribution …. AND IT’S FUN! LOOKING BACK…focused on the future