The essence of insurance marketing
Marketing is a philosophy of the underwriter, determining the strategy and tactics of his activities in the conditions terms of competition. Marketing simultaneously combines market research, new product development, distribution, advertising, promotion, product improvement and so on.
The Insurance service is the specific goods the sale of which is quite difficult. The central part of the underwriter’s marketing is sales activity, oriented to the sale or the insurance services promotion from the underwriter to the insurer.
The sales activity is a range of the insurance company’s action that may be taken as two important tasks – to form the demand for the insurance services and to satisfy the insurance client’s interests of a company.
The demand formation is a goal-oriented influence on potential clients with one purpose to raise the achieved demand level by the insurance company up to the wished level. It influences potential insurer with the help of advertising, forming a positive image of the underwriter, holding the meetings for concluding the insurance agreements, differentiation of tariffs for the insurance services, combination of the insurance services with different forms of trade and juridical service.
The second important task of marketing is satisfaction of insurance interests. It is noted that the level of the insurance of the client’s service influences the demand, i.e. the higher the service level, the bigger demand for his insurance services.
If the insurance services demand goes down, the leaders should find out the reasons and take measures directed to their elimination.
Practically marketing is oriented to:
- reasons of the necessity and goal-orientation of rendering some kinds of the insurance services;
- demand formation on the insurance services;
- satisfaction of the clients insurance interests;
- price forming;
- regulation of the insurance activity;
- pure organisation of the insurance services promotion;
- coordinating and planning the production, sales and financial activity of a company;
- organising new insurance services, corresponding to the insurers’ demands;
- regulation and orientation of the company’s activity;
- current operative leadership of the insurance services’ realisation and achievement of goals.
However, the specific marketing functions are: collecting and analysing the information about the market, making contacts with the insurers, managing the assortment of insurance services.
Strategic marketing solves the following tasks: the selection of the perspective company activities, orientation and kinds of the insurance services, making image and prestigious marking, definition of the price policy.
Tactical marketing is oriented to form the system of relations of the services consumers, interaction with public, providing forms and methods of sales, sales management in accordance with the strategic goals.
Methods of promotion of insurance services
There are three main methods of insurance services promotion: extensive, exclusive and selective.
Extensive method is using services of any go-between company, capable to conclude one or more insurance contracts.
Exclusive method is used when the insurance company counteracts with only one general insurance agent, which has an exclusive right to conclude insurance contract in a given region. This contract should be concluded in favour of the above-mentioned insurance company.
Selective method is used, when the insurance company counteracts with two or more general agents in a given region.
Insurance service promotion is connected with the process of forming demand for the insurance services. Promotion includes any kind of informing people about insurance services or an insurance company. There are two basic and two auxiliary kinds of promotion. Basic kinds of promotion include advertising and personal contacts, auxiliary kinds of promotion include publicity and stimulation.
Advertising is any paid form of impersonal providing the insurance service.
Personal contact is oral communication with one or more insured persons in order to conclude the insurance contract.
Publicity is impersonal and unpaid stimulation of the demand for the insurance product by means of making people aware of it with the help of mass media.
Stimulation is short-term measures of encouraging purchase or sale of an insured product and various non-repeated techniques, which are not included in the traditional promotion.
Actually insurance companies seldom use only one way of promotion, because any way has its own advantages, disadvantages and fields of application.
Advertising has the following advantages:
- attracts a large geographically spread insurance market;
- informs potential insurers about services, it may be many times repeated for the same audience;
- the potential insurers have a possibility to compare the offers of this company with those of the competitors’;
- gives a certain idea about the underwriters and their services;
- may change when necessary.
Advertising has also some disadvantages:
- the dialogue with the audience is impossible;
- neither an individual approach to each insurer is possible;
- it requires big charges.
A Personal contact has the following advantages:
- it provides the dialogue with the insurers, raises a counter reaction of the customers;
- the costs are lower than those for the advertising;
- it holds regular insurers, helps hesitating insurers to take decisions.
- it is ineffective for informing the insurers as a personal contact is possible only with limited members;
- the costs for one consumer are higher;
- doesn’t cover a big, geographically spread market.
Publicity has the following advantages:
- it gives the audience more reliable information, covers a bigger number of citizens;
- like advertising it has better possibilities for the presentation of the insurance company and its products;
- it is relatively cheap.
- inability of the company to control;
- non-guarantee of positive reaction of mass media;
- mass media may accentuate the customer's attention on feedback, essential characteristics of the underwriter and his services;
- non-regularity of publications.
Stimulation of the insurer has the following advantages:
- it leads to a short-term increase of the contracts’ conclusion;
- is supplementary to advertising and personal contacts;
- attracts attention and holds the information that can attract the potential insurer’s interest;
- has a certain incentive to conclude a contract.
- it may be used only as an additional means of promotion;
- can not be regularly used.
The essence of marketing is that operating by different means of promotion it chooses the one that has to be accented.
In the process of carrying out their activity, the insurance company has the right to use the middlemen’s services – insurance agents and brokers.
The insurance broker is a juridical or a physical person registered in the right order as an entrepreneur, realising the intermediary’s activity on insurance on their behalf under the instructions of the insurer or underwriter. Brokerage on insurance that is effected by a physical person must be stipulated in the document about its validity. A physical person that has become an insurance broker, can not be the employee of any insurance company.
The insurance agent is a physical, sometimes juridical person fulfilling, on behalf of the underwriter, the operations of concluding the contract with the population about the sole and property insurance and insurance payments for them.
The insurance agent is a part-time worker of an insurance company. He gets his commissions for collecting insurance duties, for serving the insurer on the basis of the contract concluded. Insurance agent bears complete material responsibility to the underwriter.
The most important difference between the insurance agent and the insurance broker is that the broker works as an independent qualified expert for the insurer.
The insurance broker fulfils the following basic functions:
- appreciates the subject of the insurance, i.e. he defines what kind of insurance the potential insurer needs and what exact risks are to be insured from;
- makes a comparative analysis of the financial health of a number of underwriters;
- selects the most profitable underwriter for the client;
- legalizes insurance agreements agreed with the insurer;
- controls duly received insurance fees from the insurer to the underwriter;
- renders advice and assistance in receiving insurance sum of money by the insurer or the insurance compensation when the insurance accident happens.
The insurance broker is not entitled to:
- fulfill other kinds of activity;
- take part in the authorized capital of the insurance companies, hold stocks, shares and other rights of participation.
The insurance broker is responsible for:
- the fulfillment of liabilities stipulated in the agreement;
- reliability, objectivity, completeness and due information is given to the client and controlling authorities;
- the secrecy of the information, that is the commercial secret of a client.
The detailed list of the insurance broker’s liabilities and the responsibility to the insurer or the underwriter for their fulfillment are given in the agreement concluded between them.
The essence of the insurance market
The insurance market is a socio-economic area where the insurers that need insurance services operate, underwriters (insurance companies) satisfying the demand for them and insurance middlemen.
The first section of the insurance market is an insurance company. That is the very place where the process of creation and usage of the insurance fund is exercised, some economic relations are formed and others appear; personal group and collective interests are interconnected.
Insurance Company is an isolated structure, affecting the conclusion of the insurance agreements, and their fulfillment. Economically isolated insurance companies build their relations with other underwriters on the basis of reinsurance and co-insurance.
Classification of the insurance market is carried out according to the branch reasons and scales.
According to the branches reasons we differ the market of life insurance and markets of property insurance, responsibility insurance and accident insurance.
According to scales, we differ national, regional and international insurance markets.
National Insurance Market is a field of the insurance organization’s activity in a particular country. It consists of insurance companies, specialized reinsurance organizations, insurance middlemen. All the insurance activities on the national market are effected within the framework of the National Insurance Legislation, the control under the fulfillment of which is charged with the State Insurance Inspection. The bigger National Insurance market has been formed in the USA, Great Britain, Germany and other countries.
Regional Insurance Market unites insurance companies, National Insurance markets of some separate regions, connected with tight integration relations between them. The biggest regional market is the North American Insurance Market (USA, Canada).
International Insurance Market is a total combination of the National and Regional Insurance markets. In the narrow sense the local insurance markets, which are characterized by high specific share of International Insurance operations (New York, London), is called International market.
Insurance market includes many kinds of potential clients of insurance services with different interests and demands. The market segment is clients of insurance services similarly reacted to these or those suggestions of insurance companies. Market segmenting is a process of dividing consumers into groups according to any sign actual for the realization of an insurance service (age, sex, financial sufficiency, profession, etc.).
Insurance Company must choose what kind of exact service it will offer and towards what kind of group it will be orientated. The segmentation is spread according to geographic and demographic signs, the level of income, etc.
Geographic segmentation is built according to regional signs: republic, district, city, land, region.
Demography is built on age, sex, level of the family income.