UNIVERSITY OF MUMBAI
ICLES MOTILAL JHUNJHUNWALA
COLLEGE,
VASHI, NAVI MUMBAI
COLLEGE CODE
PROJECT REPORT
ON
MARKETING IN INSURANCE
SUBMITTED BY
AKASH ZOTE
PROJECT GUIDE
MR. SHASHANK
IN PARTIAL FULFILMENT FOR THE COURSE OF
BACHELOR OF COMMERCE (BANKING & INSURANCE)
T.Y.B.Com. (BANKING & INSURANCE) (SEMESTER VI)
ACADEMIC YEAR 2014 - 2015
Acknowledgement
I, Akash Zote would take this opportunity to thank the Principle sir for providing me an
opportunity to study on a project on Banking. This has been a huge learning experience for
me.
With great pleasure I take this opportunity to acknowledge people who have made this project
work possible.
First of all I would sincerely like to express my gratitude towards my project Guide Mr.
Shashank for having shown so much flexibility, guidance as well as supporting me in all
possible ways whenever I needed help. I am thankful for the motivation provided by my project
guide throughout and helped me to understand the topic in a very effective and easy manner.
I would like to thank Principal Sir. Ramesh Yamgar and the coordinator of the course Mrs.
B.V. Laxmi for her indirect support throughout.
I would also like to thank, other teaching faculties of the college, my colleagues, Library staff
and other people for providing their help as when required to complete this project.
I acknowledge my indebtedness and express my great appreciation to all people behind this
work.
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DECLARATION
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Executive Summary
There are insurance marketing strategies that can take any insurance agency
from mediocre to success when utilized correctly. Breaking into a new business climate
and finding customers is hard work, but when equipped with innovative ideas and proven
techniques, financial markets sales personnel can become extremely successful. Getting
an education and training is very important in every industry, sales is certainly no
exception. Those selling insurance will want begin their careers with the very best tools
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of the trade and those with already established businesses that are in need of a
motivational push will also gain great benefits by researching and learning new insurance
marketing tips. This article serves to give a few helpful hints and to encourage those in
this career to seek further and find the right system or push for their business.
Key insurance marketing strategies will always include an in-depth review
of a value of follow-up. All successful sales agents understand that consumers need to be
contacted again and again in order to make a vital connection. Also, great follow-up
protocol lets the potential customer know that good, solid customer service will be part of
the over-all package. Follow-up says to a consumer that they are important, thought of,
and that their business would be greatly appreciated. The consumer today not only wants
a product at a great price, they also want a personal relationship, especially when it
comes to financial system sales, such as various insurances. Letters and phone calls are
gentle reminders that the salesperson intends to serve with his or her whole heart. And,
once a sale is secured, a thank you call is strongly advised.
Those in this industry will also want to keep constant contact with existing
customers, too. The competition is fierce today, and no one wants to loose a customer to
the next guy or service to come along. Clients that have had no contact for a period of
time loose loyalty. Keep birthday and anniversary postcards going into the home on a
regular basis. Keeping a name before a consumer will keep a name in their conscience.
The scope of the project The Study of Role of Marketing in Life Insurance Sector has
been restricted to some extent i.e. the project does not include the following:1. Study of Customer Relationship Management (CRM) program.
2. Study of insurance marketing in global market.
3. Study of role of marketing in general insurance sector.
4. Study of comparison of life insurance marketing and general insurance marketing.
MARKETING MIX
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The term marketing mix refers to the four major areas of decision making in the
marketing process that are blended to obtain the results desired by the organization. The
four elements of the marketing mix are sometimes referred to the four Ps of marketing.
The marketing mix shapes the role of marketing within all types of organizations, both
profit and nonprofit. Each element in the marketing mixplace, price product promotion,
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PRODUCT
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The first element in the marketing mix is the product. A product is any combination of
goods and services offered to satisfy the needs and wants of consumers. Thus, a product
is anything tangible or intangible that can be offered for purchase or use by consumers. A
tangible product is one that consumers can actually touch, such as a computer. An
intangible product is a service that cannot be touched, such as computer repair, income
tax preparation, or an office call. Other examples of products include places and ideas.
For example, the state tourism department in New Hampshire might promote New
Hampshire as a great place to visit and by doing so stimulate the economy. Cities also
promote themselves as great places to live and work. For example, the slogan touted by
the Chamber of Commerce in San Bernardino, California, is "It's a great day in San
Bernardino." The idea of wearing seat belts has been promoted as a way of saving lives,
as has the idea of recycling to help reduce the amount of garbage placed in landfills.
Typically, a product is divided into three basic levels. The first level is often called the
core product, what the consumer actually buys in terms of benefits. For example,
consumers don't just buy trucks. Rather, consumers buy the benefit that trucks offer, like
being able to get around in deep snow in the winter. Next is the second level, or actual
product, that is built around the core product. The actual product consists of the brand
name, features, packaging, parts, and styling. These components provided the benefits to
consumers that they seek at the first level. The final, or third, level of the product is the
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staple, impulse, and emergency goods. Staple goods are products, such as bread and milk
that consumers buy on a consistent basis. Impulse goods like candy and magazines are
products that require little planning or search effort because they are normally available
in many places. Emergency goods are bought when consumers have a pressing need. An
example of an emergency good would be a shovel during the first snowstorm of the
winter.
Shopping goods are those products that consumers compare during the selection and
purchase process. Typically, factors such as price, quality, style, and suitability are used
as bases of comparison. With shopping goods, consumers usually take considerable time
and effort in gathering information and making comparisons among products. Major
appliances such as refrigerators and televisions are typical shopping goods. Shopping
goods are further divided into uniform and no uniform categories. Uniform shopping
goods are those goods that are similar in quality but differ in price. Consumers will try to
justify price differences by focusing on product features. No uniform goods are those
goods that differ in both quality and price.
Specialty goods are products with distinctive characteristics or brand identification for
which consumers expend exceptional buying effort. Specialty goods include specific
brands and types of products. Typically, buyers do not compare specialty goods with
other similar products because the products are unique. Unsought goods are those
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products or services that consumers are not readily aware of or do not normally consider
buying. Life insurance policies and burial plots are examples of unsought goods. Often,
unsought goods require considerable promotional efforts on the part of the seller in order
to attract the interest of consumers.
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PRICE
The second element in marketing mix is price. Price is simply the amount of money that
consumers are willing to pay for a product or service. In earlier times, the price was
determined through a barter process between sellers and purchasers. In modern times,
pricing methods and strategies have taken a number of forms.
Pricing new products and pricing existing products require the use of different strategies.
For example, when pricing a new product, businesses can use either market-penetration
pricing or a price-skimming strategy. A market-penetration pricing strategy involves
establishing a low product price to attract a large number of customers. By contrast, a
price-skimming strategy is used when a high price is established in order to recover the
cost of a new product development as quickly as possible. Manufacturers of computers,
videocassette recorders, and other technical items with high development costs frequently
use a price-skimming strategy.
Pricing objectives are established as a subset of an organization's overall objectives. As a
component of the overall business objectives, pricing objectives usually take one of four
forms: profitability, volume, meeting the competition, and prestige. Profitability pricing
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objectives mean that the firm focuses mainly on maximizing its profit. Under profitability
objectives, a company increases its prices so that additional revenue equals the increase
in product production costs. Using volume pricing objectives, a company aims to
maximize sales volume within a given specific profit margin. The focus of volume
pricing objectives is on increasing sales rather than on an immediate increase in profits.
Meeting the price level of competitors is another pricing strategy. With a meeting-thecompetition pricing strategy, the focus is less on price and more on nonprice competition
items such as location and service. With prestige pricing, products are priced high and
consumers purchase them as status symbols.
In addition to the four basic pricing strategies, there are five price-adjustment strategies:
discount pricing and allowances, discriminatory pricing, geographical pricing,
promotional pricing, and psychological pricing. Discount pricing and allowances include
cash discounts, functional discounts, seasonal discounts, trade-in allowances, and
promotional allowances. Discriminatory pricing occurs when companies sell products or
services at two or more prices. These price differences may be based on variables such as
age of the customer, location of sale, organization membership, time of day, or season.
Geographical pricing is based on the location of the customers. Products may be priced
differently in distinct regions of a target area because of demand differences. Promotional
pricing happens when a company temporarily prices products below the list price or
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below cost. Products priced below cost are sometimes called loss leaders. The goal of
promotional pricing is to increase short-term sales. Psychological pricing considers prices
by looking at the psychological aspects of price. For example, consumers frequently
perceive a relationship between product price and product quality.
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PROMOTION
Promotion is the third element in the marketing mix. Promotion is a communication
process that takes place between a business and its various publics. Publics are those
individuals and organizations that have an interest in what the business produces and
offers for sale. Thus, in order to be effective, businesses need to plan promotional
activities with the communication process in mind. The elements of the communication
process are: sender, encoding, message, media, decoding, receiver, feedback, and noise.
The sender refers to the business that is sending a promotional message to a potential
customer. Encoding involves putting a message or promotional activity into some form.
Symbols are formed to represent the message. The sender transmits these symbols
through some form of media. Media are methods the sender uses to transmit the message
to the receiver. Decoding is the process by which the receiver translates the meaning of
the symbols sent by the sender into a form that can be understood. The receiver is the
intended recipient of the message. Feedback occurs when the receiver communicates
back to the sender. Noise is anything that interferes with the communication process.
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There are four basic promotion tools: advertising, sales promotion, public relations, and
personal selling. Each promotion tool has its own unique characteristics and function. For
instance, advertising is described as paid, nonpersonal communication by an organization
using various media to reach its various publics. The purpose of advertising is to inform
or persuade a targeted audience to purchase a product or service, visit a location, or adopt
an idea. Advertising is also classified as to its intended purpose. The purpose of product
advertising is to secure the purchase of the product by consumers. The purpose of
institutional advertising is to promote the image or philosophy of a company. Advertising
can be further divided into six subcategories: pioneering, competitive, comparative,
advocacy, reminder, and cooperative advertising. Pioneering advertising aims to develop
primary demand for the product or product category. Competitive advertising seeks to
develop demand for a specific product or service. Comparative advertising seeks to
contrast one product or service with another. Advocacy advertising is an organizational
approach designed to support socially responsible activities, causes, or messages such as
helping feed the homeless. Reminder advertising seeks to keep a product or company
name in the mind of consumers by its repetitive nature. Cooperative advertising occurs
when wholesalers and retailers work with product manufacturers to produce a single
advertising campaign and share the costs. Advantages of advertising include the ability to
reach a large group or audience at a relatively low cost per individual contacted. Further,
advertising allows organizations to control the message, which means the message can be
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can enhance the credibility of a product. Public relations activities have the drawback that
they may not provide an accurate measure of their influence on sales as they are not
directly involved with specific marketing goals.
PLACE
The fourth element of the marketing mix is place. Place refers to having the right product,
in the right location, at the right time to be purchased by consumers. This proper
placement of products is done through middle people called the channel of distribution.
The channel of distribution is comprised of interdependent manufacturers, wholesalers,
and retailers. These groups are involved with making a product or service available for
use or consumption. Each participant in the channel of distribution is concerned with
three basic utilities: time, place, and possession. Time utility refers to having a product
available at the time that will satisfy the needs of consumers. Place utility occurs when a
firm provides satisfaction by locating products where they can be easily acquired by
consumers. The last utility is possession utility, which means that wholesalers and
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A life insurance companys success reflects the consolidated effort of all its
activities. These activities may be arranged into three major functional classifications
marketing, investments and administration. Of these three areas, marketing is the largest
in terms of both personnel requirements and costs and is critical to success.
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DISTRIBUTION CHANNELS
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distribution systems found in life insurance suggests that insurers continue to strive
toward this elusive goal.
In this section, we present the major distribution channels found in life
insurance. As will be seen, life insurers have evolved an almost bewildering array of
distribution systems. To simplify this complexity, we structure our discussion around
three broad categories of distribution channels:
Marketing intermediaries
Financial institutions
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sale. Agents and brokers are marketing intermediaries. Most life insurance worldwide is
sold through new individual life insurance sales and for majority shares of other life and
health insurance sales.
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Agency-Building Distribution
Most students of the industry agree that life insurers utilizing the agency-building
distribution strategy have been responsible for the widespread acceptance of life
insurance. These insurers have provided the initial training essential to successful
intermediary marketing. Four types of agency-building distribution channels exist:
1. career agency
2. multiple-line exclusive
3. home service
4. salaried
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The branch office system. Under the branch office system, also called the
managerial system, the insurer establishes agencies in various locations, each headed by
an agency manager who is an employee of the insurer. The largest life insurers worldwide
tend to use the branch office system. The agency manager is charged with the
responsibility of recruiting new agents within a given territory and training and otherwise
helping and encouraging them in their work as solicitors.
Agency managers may be assisted by an office manager, assistant managers,
supervisors, specialist unit managers, or district managers. Assistants are responsible for
specific functions or for units of agents, or they may provide overall assistance to the
head of the agency. The office manager is particularly important in the branch office
system. He or she is expected to keep all office records; look after all correspondence in
connection with applications and policies; assist in filing proofs of loss, applications for
policy loans, and payment of cash values on surrenders; answer all communications from
policy owners not sufficiently important to be referred to the home office; and supervise
the clerical staff.
Agency-building systems (either general agency or managerial) also are
used by fraternal organizations that offer life and health insurance to their members. The
agents of these religious and social groups may sell policies only to members of the
fraternal society.
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The general agency system. The general agency system, which, in its pure form, is only
theoretical today in the United States, is the older of the two career agency systems and
aims to accomplish through agency managers. The company-appointed general agent
(GA) typically represents the company within a designated territory over which he or she
is given control. The general agents contract requires that the insurer pay a stipulated
commission on the first years premiums plus a renewal on subsequent premiums. In
return, the general agent agrees to build the companys business in that territory.
The GA is responsible for agent recruitment, training, and supervision, as
with the agency manager. Agents contract with the insurer through the GA and are paid a
commission by the insurer for their sales. The GA also receives a commission on agents
sales, called an override or overriding commission.
In the past, the GA operated more or less as an independent entrepreneur,
managing his or her agency and meeting all operational expenses from override
commissions. Routine administrative matters today usually are handled by a separate
group of persons located in the general agents office or in separate offices throughout the
country and are directly responsible to the home office. It is also now common for the
insurer to pay the office rent directly. This is done to discourage the closing of the office,
which would leave the insurer without representation. In addition, companies now make
substantial expense reimbursements allowances.
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Most of the smaller-sized cases are sold through career agents, either the
insurers own career agents or agents of other companies. Sales to other employeremployee cases and association groups tend to be made through specialized brokers or, in
some instances, written directly with the employer. Many of the recent developments in
distribution systems reflect a continuing effort to find more effective ways to deliver
insurance products and service larger numbers of customers.
In addition to group insurance as such, various forms of mass marketing
have developed, frequently involving an agent. Association group, credit card
solicitations, and worksite marketing are examples.
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Agency Management.
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agency head has to replace a fourth of the agencys sales force each year just to maintain
the agencys size. Recruiting is not one activity but a process, the steps of which include
1.
2. determining acceptable qualifications
3. approaching prospective agents
4. using selection tools
5. interviewing candidates
6. contracting with qualified individuals
The manager may attempt to locate several (three to five) prospective agents
at one time. As there is always fallout in the selection process, the group techniques
usually allow some recruits to be added to the agency from each recruiting effort.
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Non-Agency-Building Distribution
The other major classification of life insurance marketing channels relying
on marketing intermediaries is called non-agency-building distribution, as noted earlier.
Four common non-agency-building distribution channels are:
brokerage
personal-producing general agents
independent property and casually agents
producer groups
Agents selling through these channels are always nonexclusive; they sell for
more than one insurer. Not all of these channels exist in every country, with some
countries having no parallel to the non-agency-building system. In markets where they
exist, terminology may differ; for example, the U.K. concept of independent financial
advisors (IFAs) is akin to U.S. brokerage.
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agent.
Personal-producing
general
agents
(PPGAs)
are
independent,
commissioned agents who typically work alone and focus on personal production. Some
PPGAs appoint subagents, although most do not. PPGA insurers gain access to producers
through an organizational structure that is similar to the one used by brokerage insurers:
(1) company-employed regional directors of PPGAs, (2) independent contractorsmanaging general agents, and (3) direct contracting with individuals identified through
trade press advertising. Both regional directors and managing general agents are
authorized to appoint PPGAs.
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The PPGA strategy has two variations. In the more traditional regional
director approach, experienced life agents are hired under contracts that provide both
direct and override commissions plus some type of expense allowance. For this, the
PPGAs supply their own office facilities and receive technical assistance in the form of
computer services and advanced sales support. Although personal-producing general
agents usually have contracts with more than one insurer, companies using the traditional
approach try to be the PPGAs primary carrier. The managing general agent approach
typically specializes in single products, such as universal life or disability income, and is
essentially franchised to appoint PPGAs for the company in a territory.
Although there are philosophy differences in approach, a clear difference at
the producer level between the brokerage and the PPGA strategy is in the commission
schedule. The former resembles a career agent contract and the latter has elements of
general agent contract. Another difference is that brokerage business from a single agent
often is sporadic, whereas PPGA business is intended to be continuing. Both strategies
can operate simultaneously in the same insurer, along with others.
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Producer Groups:
distribution strategy has been the development of producer groups, which are
independent marketing organizations that specialize in the high-end market. Producer
groups are distinguished by three characteristics:
1. Membership is composed of independent life agents who specialize in high-end
markets.
2. The group is self-supporting, having negotiated special commission rates with
several insurance companies.
3. Minimum production requirements apply to members.
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marketing
can
be
accomplished
through
several
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seven agents to yield one productive agent four years later. Insurer investment in a new
career agent can easily exceed $100,000. This low retention rate puts enormous cost
pressure on the system. Moreover, even those who survive to their fourth year often leave
as their value to other insurers, especially those relying on a non-agency-building
distribution strategy, rises enormously.
The size of a companys investment in new agents and the period of time to
recover it depend on several factors such as agent productivity, persistency, inflation, and
most importantly, retention. Although improving agent retention is more difficult than
improving persistency and productivity, capital spent in this area has the potential for
much higher returns.
An even greater distribution issue relates to the appropriate alignment of
customer, agent, and insurer interests. The traditional heaped first-year commission
arrangement has been the norm for decades. Its rationale stems from the belief that life
insurance has to be sold-it is not bought (voluntarily) by consumers and the
concomitant belief that a high initial commission is essential if agents are to have
sufficient motivation to sell.
The belief that consumers will not purchase life insurance on their own
volition or, as a variation of this theme, except through a commissioned agent, is today
open to question. It is probably true that the great majority of consumers need not be a
commissioned agent, and if the person is an agent, he or she need not necessarily be
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Partnering
Some agencies and producer groups have adopted the concept of partnering.
In such an arrangement, senior members of the group receive percentages of cases or
percentages of profits. Although compensation still tends to be variable, these plans
recognize that much of the revenue generated by a marketing organization is attributable
to the marketing effort and infrastructure support of the organization as a whole. Thus,
more of the revenue is allocated for these purposes. This approach lends itself to the
division of labor, as specialty roles within a selling and planning organization.
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BIBLIOGRAPHY
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TABLE OF CONTENT
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