MARKET SEGMENTATION FOR INSURANCE:

USERS OF INSURANCE SERVICE:

MARKETING INFORMATION SYSTEM:

OVERVIEW:
A common perception about insurance in most African countries is that carriers generally fail to honor
policy contracts when insured losses occur, and in most cases resort to fine prints embedded in these
insurance contracts to either deny claims or substantially reduce claim payments. Such is the refrain
heard not only among insurance policyholders and customers but with alarming regularity from the
general public, thus resulting in the adverse and low penetration rate of insurance products and services
in most African countries.

Though several factors can be readily identified as drivers of this perception including the lack of
adequate understanding of the insurance contract, its terms and conditions, limitations, coverages,
exclusions and deductibles including the legal and regulatory framework in various countries; the focus of
this article is how the role of insurance marketing and sales, including its technological, regulatory and
management strategies, can be utilized as an effective educational vehicle in changing not only the above
perception but making the claims process more transparent and beneficial to the policyholders.

There is thus a direct corollary between the marketing of insurance, the technical knowledge of the agent,
the types of coverages and policies available and whether a claim is denied or underpaid in the event of
an insured loss.

THE SIERRA LEONE CASE STUDY:

For decades the marketing of insurance products and services in Sierra Leone has hinged primarily on
the “direct agency” method, wherein companies employed agents earning salaries or as independent
contractors being paid commissions on sales to merely sell and market their products. The marketing of
life insurance products, property and liability policies such as fire, marine, accident and allied policies
were always mostly marketed by these company agents.

For example, while I was employed at the National Insurance Company (NIC) 1981-1985, the company’s
sales cadre was its marketing officers who sometimes with little or no technical knowledge of the
intricacies of risk management and the insurance products coverages merely sold policies as
commodities. The unpleasant task most often in advising policyholders that their claims were not covered
under the terms of the insurance contract generally was our responsibility in the claims department. By
then, it had become too late to remedy as the right coverage was not either sold to the policyholder by the
agents or alternative umbrella policies that could have covered whatever gaps existed in the sold policy
were not made available or explained to the policyholder. Mostly issues of lack of coverage, adequacy of
coverage for the losses claimed resulted in denial or underpayment of claims.

The sales function of these agents revolved mainly around the marketing of products or policies with little
or no product differentiation or creativity in their design and marketing to meet the contemporary risks
confronting a country such as Sierra Leone, emerging from a decade long civil war and longing for
creative policies to address her developmental aspirations.

For example, the old “Kebbay” insurance syndrome, practiced in Sierra Leone where an insurance
company became so notorious in the practice of collection of motor premiums from customers without any
concomitant claims payout when accidents occurred. Such a practice as prevalent in the Sierra Leone
Insurance marketplace of the 1970’s through 1990’s most be prevented from rearing its ugly head in
today’s marketplace.

Marketing as defined by the American Marketing Association (AMA), is the performance of business
activities that direct the flow of goods and services from the producer to the ultimate consumer. Property,
casualty and liability insurance marketing however not only includes the traditional marketing sales
function but incorporates services such as customer needs analysis, market segmentation, product
development and distribution that must be incorporated into a successful marketing mix.

INSURANCE MARKETING:
A fundamental principle of insurance marketing dictates that insurance products and policies must be
marketed and sold primarily on the basis of the need for security and the ability of the insurance product
and policy to provide adequate financial security from fortuitous losses. Moreover, new sources of
production of business that includes new ways of selling old traditional insurance policies and products, in
conjunction with the marketing of new services, such as risk management, loss control and loss
adjustment services should be pursued by insurance companies.

However, in some lines of insurance, a governmental-legal or regulatory compulsion to insure is the

driving factor. For example, purchase of automobile liability insurance is required by law in most
jurisdictions the world over. The recently advocated proposed requirement of a title insurance policy in
real estate transactions in Sierra Leone and a national health insurance or workers compensation
insurance policy are all examples of such a legal mandatory requirement.

To a large extent these have and continue to be the principles and services absent in the marketing mix
of insurance products in Sierra Leone, thus resulting in recent spectacular failures in the introduction of
new products and or failures in the market penetration of various new diverse policies into the insurance
marketplace. As an example, the failure of various insurance companies including the spectacular failure
of the country’s largest insurance company, the National Insurance Company (NIC) to effectively
introduce and market a national health insurance policy (NICARE) since 2004 is a case study of a
monumental marketing failure requiring analysis in a future article.

THE SALES FUNCTION:

To be successful however an insurance producer/agent must develop other skills in addition to
the sales skills to include:

1) Technical expertise in insurance principles and coverages- as customers usually depend on

their agents for guidance in selecting the proper combination of insurance products and
identification of gaps in coverages.

2) Skills in the analysis of consumer needs through risk management identification techniques
and the tailoring of insurance programs are a prerequisite.

The first step in managing a consumer’s risk needs is through the identification and analysis of
the loss exposures to which a customer is exposed or subjected to through an insurance survey.
The agent must educate and be able to impact sufficient knowledge of the client’s loss exposures
and available coverages and other non-insurance transfer mechanisms to the customer.

SALES MANAGEMENT:

Generally, the concept of sales management in insurance involves the active participation and
direction accorded the sales force by management in ensuring the nature and amount of business
desired by the insurance carrier. This entails the determination by management of:

1) The segments of the available market that can be reached most effectively by the company’s
agents.

2) The nature of the product/policy that will be most appealing to the selected market segments
and most profitable to the insurer.

3) How best to select, train and motivate producers/agents to sell to the selected market
segments.

The selection of geographic, demographic and or industrial segments of the market to target in
the marketing of insurance products ensures effective market segmentation and effective use of
resources. The demographic groupings may be further delineated by such characteristics as age,
income, occupation and sex.

With the utilization of such a technique for example, diverse insurance policy coverages covering
health, medical, accident, disability and workers compensation to name but a few, could be
tailored and offered to such segments as civil servants, parliamentarians, teachers, college
lecturers, healthcare providers, Okada riders and farmers throughout the country. The same could
apply to the security segment including policies specifically designed to meet the needs of the
military and police forces.
Moreover, through utilization of product differentiation techniques in its marketing mix, an
insurance carrier can maintain and increase its market share. These can be accomplished by
changing the standard coverage provisions in the contract; charging a different price and by
providing a different level of service than the competition.

TECHNOLOGIES:
With the gradual installation of computers in insurance companies in Sierra Leone, new
technologies are poised to play a major role in the coordination of marketing strategies, planning
and studies including new products and services, consumer attitudes, market potentials and
sales forecasting. The use of computers for not only accounting, statistical analysis and rate
making and issuance of policies and endorsements but also insurance marketing must be
vigorously pursued by individual companies.

The establishment of a marketing database by insurance companies separate and apart from the
underwriting and claims databases must a step in the right direction in implementation the new
marketing strategy.

MARKETING CHALLENGES:

The challenge thus facing the local industry is the need for diversification of insurance products
better tailored and suited to meet the needs and development of the country. For while the
insurance industry can play a very significant and critical role in a nation’s developmental
process, the challenge currently being faced is how our insurance professionals respond by
creatively introducing insurance policies, instruments and marketing techniques to serve as a
basis for the country’s sustained economic development.

In the United States there are four distinguishable systems for marketing property and liability
insurance. These include:

Independent agency system.

The exclusive agency system (also known as the captive agency system).

The direct writing system.

The direct mail system.

The system primarily in use in the Sierra Leone insurance market is the direct writing system
wherein individual carriers employ their paid agents and employees to exclusively market only
their policies. However, if the insurance market in Sierra Leone is to survive and grow, as new
players and products such as the national health insurance scheme and the national title
insurance scheme are introduced into the marketplace, then the development of a new bred of
producers, agents and marketing systems must be pursued to forestall the failures of recent new
policy introductions. These must include and incorporate the direct mail, agency and technology
systems.

To effectuate this new marketing goal a sales force must be recruited and trained into the
intricacies of the insurance business and policies being introduced and marketed with realistic
production objectives, marketing policies and strategies and implementation of an advertisement
and promotion campaign.

Marketing mix

Wherever there is uncertainty there is risk. We do not have any control over uncertainties which
involves financial losses. The risks may be certain events like death, pension, retirement or
uncertain events like theft, fire, accident, etc.
Insurance is a financial service for collecting the savings of the public and providing them with risk
coverage. The main function of Insurance is to provide protection against the possible chances of
generating losses. It eliminates worries and miseries of losses by destruction of property and death.
It also provides capital to the society as the funds accumulated are invested in productive heads.
Insurance comes under the service sector and while marketing this service, due care is to be takenin
quality product and customer satisfaction. While marketing the services, it is also pertinent thatthey think
about the innovative promotional measures. It is not sufficient that you perform well butit is also important
that you let others know about the quality of your positive contributions.
The creativity in the promotional measures is the need of the hour. The advertisement, publicrelations,
word of mouth communication needs due care and personal selling requires intensive care

Marketing Mix in Insurance Industry (7 P's) - 1 Week Ago

Q. Services Marketing Mix for Insurance (15 marks)
⇒→ INTRODUCTION:
Wherever there is uncertainty there is risk. We do not have any control over uncertainties which
involves financial losses. The risks may be certain events like death, pension, retirement or
uncertain events like theft, fire, accident, etc.
Insurance is a financial service for collecting the savings of the public and providing them with risk
coverage. The main function of Insurance is to provide protection against the possible chances of
generating losses. It eliminates worries and miseries of losses by destruction of property and death.
It also provides capital to the society as the funds accumulated are invested in productive heads.
Insurance comes under the service sector and while marketing this service, due care is to be takenin quality product
and customer satisfaction. While marketing the services, it is also pertinent thatthey think about the innovative
promotional measures. It is not sufficient that you perform well butit is also important that you let others know about
the quality of your positive contributions.
The creativity in the promotional measures is the need of the hour. The advertisement, publicrelations, word of
mouth communication needs due care and personal selling requires intensive care.
→  INSURANCE MARKETING:
The term Insurance Marketing refers to the marketing of Insurance services with the aim to createcustomer and
generate profit through customer satisfaction. The Insurance Marketing focuses onthe formulation of an ideal mix
for Insurance business so that the Insurance organisation survivesand thrives in the right perspective.
→  MARKETING –MIX FOR INSURANCE COMPANIES:
The marketing mix is the combination of marketing activities that an organisation engages in so as
to best meet the needs of its targeted market. The Insurance business deals in selling services and
therefore due weightage in the formation of marketing mix for the Insurance business is needed.
The marketing mix includes sub-mixes of the 7 P’s of marketing i.e. the product, its price, place,
promotion, people, process & physical attraction. The above mentioned 7 P’s can be used for
marketing of Insurance products, in the following manner:
1.PRODUCT:
A product means what we produce. If we produce goods, it means tangible product and when we
produce or generate services, it means intangible service product. A product is both what a seller
has to sell and a buyer has to buy. Thus, an Insurance company sells services and therefore
services are their product.
In India, the Life Insurance Corporation of India (LIC) and the General Insurance Corporation (GIC)
are the two leading companies offering insurance services to the users. Apart from offeringlife
insurance policies, they also offer underwriting and consulting services.
When a person or an organisation buys an Insurance policy from the insurance company, he notonly buys a policy,
but along with it the assistance and advice of the agent, the prestige of theinsurance company and the facilities of
claims and compensation.
It is natural that the users expect a reasonable return for their investment and the insurance
companies want to maximize their profitability. Hence, while deciding the product portfolio or the
product-mix, the services or the schemes should be motivational. The Group Insurance scheme is
required to be promoted, the Crop Insurance is required to be expanded and the new schemes and
policies for the villagers or the rural population are to be included.
The Life Insurance Corporation has intensified efforts to promote urban savings, but as far as ruralsavings are
concerned, it is not that impressive. The introduction of Rural Career Agents Schemehas been found instrumental in
inducing the rural prospects but the process is at infant stage and requires more professional excellence. The policy
makers are required to activate the efforts. It
would be prudent that the LIC is allowed to pursue a policy of direct investment for rural
development.

Investment in Government securities should be stopped and the investment should be channelizedin private sector
for maximizing profits. In short, the formulation of product-mix should be in theface of innovative product strategy.
While initiating the innovative process it is necessary to takeinto consideration the strategies adopted by private and
foreign insurance companies.
2.PRICING:
In the insurance business the pricing decisions are concerned with:
i) The premium charged against the policies,
ii) Interest charged for defaulting the payment of premium and credit facility, and
iii) Commission charged for underwriting and consultancy activities.
With a view of influencing the target market or prospects the formulation of pricing strategy
becomes significant. In a developing country like India where the disposable income in the hands of
prospects is low, the pricing decision also governs the transformation of potential policyholders into
actual policyholders.
The strategies may be high or low pricing keeping in view the level or standard of customers or the
policyholders.
The pricing in insurance is in the form of premium rates. The three main factors used for
determining the premium rates under a life insurance plan are mortality, expense and interest. The
premium rates are revised if there are any significant changes in any of these factors.
• Mortality(deaths in a particular area):
When deciding upon the pricing strategy the average rate of mortality is one of the main
considerations. In a country like South Africa the threat to life is very important as it is played by
host of diseases.
• Expenses:
The cost of processing, commission to agents, reinsurance companies as well as registration are all
incorporated into the cost of installments and premium sum and forms the integral part of the
pricing strategy.
• Interest:
The rate of interest is one of the major factors which determines people’s willingness to invest in
insurance. People would not be willing to put their funds to invest in insurance business if the
interest rates provided by the banks or other financial instruments are much greater than the
perceived returns from the insurance premiums.
3.PLACE:
This component of the marketing mix is related to two important facets –
i) Managing the insurance personnel, and
ii) Locating a branch.
The management of agents and insurance personnel is found significant with the viewpoint of
maintaining the norms for offering the services. This is also to process the services to the end user
in such a way that a gap between the services- promised and services – offered is bridged over. In a
majority of the service generating organizations, such a gap is found existent which has been
instrumental in making worse the image problem.
The transformation of potential policyholders to the actual policyholders is a difficult task that
depends upon the professional excellence of the personnel. The agents and the rural career agents
acting as a link, lack professionalism. The front-line staff and the branch managers also are found
not assigning due weightage to the degeneration process. The insurance personnel if not managed
properly would make all efforts insensitive. Even if the policy makers make provision for the quality
upgradation, the promised services hardly reach to the end users.

It is also essential that they have rural orientation and are well aware of the lifestyles of the
prospects or users. They are required to be given adequate incentives to show their excellence.
While recruiting agents, the branch managers need to prefer local persons and provide them
training and conduct seminars. In addition to the agents, the front-line staff also needs an intensive
training programme to focus mainly on behavioral management.
Another important dimension to the Place Mix is related to the location of the insurance branches.
While locating branches, the branch manager needs to consider a number of factors, such as
smooth accessibility, availability of infrastructural facilities and the management of branch offices
and premises. In addition it is also significant to provide safety measures and also factors like office
furnishing, civic amenities and facilities, parking facilities and interior office decoration should be
given proper attention.
Thus the place management of insurance branch offices needs a new vision, distinct approach andan innovative
style. This is essential to make the work place conducive, attractive and proactive forthe generation of efficiency
among employees. The branch managers need professional excellenceto make place decisions productive.
4.PROMOTION:
The insurance services depend on effective promotional measures. In a country like India, the rate
of illiteracy is very high and the rural economy has dominance in the national economy. It is
essential to have both personal and impersonal promotion strategies. In promoting insurance
business, the agents and the rural career agents play an important role. Due attention should be
given in selecting the promotional tools for agents and rural career agents and even for the branch
managers and front line staff. They also have to be given proper training in order to create impulse
buying.
Advertising and Publicity, organisation of conferences and seminars, incentive to policyholders are
impersonal communication. Arranging Kirtans, exhibitions, participation in fairs and festivals, rural
wall paintings and publicity drive through the mobile publicity van units would be effective in
creating the impulse buying and the rural prospects would be easily transformed into actual
policyholders.
5.PEOPLE:
Understanding the customer better allows to design appropriate products. Being a service industry
which involves a high level of people interaction, it is very important to use this resource efficiently
in order to satisfy customers. Training, development and strong relationships with intermediaries are
the key areas to be kept under consideration. Training the employees, use of IT for efficiency, both
at the staff and agent level, is one of the important areas to look into.
6.PROCESS:
The process should be customer friendly in insurance industry. The speed and accuracy of payment
is of great importance. The processing method should be easy and convenient to the customers.
Installment schemes should be streamlined to cater to the ever growing demands of the customers.
IT & Data Warehousing will smoothen the process flow.
IT will help in servicing large no. of customers efficiently and bring down overheads. Technology can
either complement or supplement the channels of distribution cost effectively. It can also help to
improve customer service levels. The use of data warehousing management and mining will help to
find out the profitability and potential of various customers product segments.
7. PHYSICAL DISTRIBUTION:
Distribution is a key determinant of success for all insurance companies. Today, the nationalized
insurers have a large reach and presence in India. Building a distribution network is very expensive
and time consuming. If the insurers are willing to take advantage of India’s large population and
reach a profitable mass of customers, then new distribution avenues and alliances will be necessary.
Initially insurance was looked upon as a complex product with a high advice and service component.
Buyers prefer a face-to-face interaction and they place a high premium on brand names and
reliability. As the awareness increases, the product becomes simpler and they become off the shelf commodity
products. Today, various intermediaries, not necessarily insurance companies, are selling insurance. For example, in
UK, retailer like Marks & Spencer sells insurance products.
The financial services industries have successfully used remote distribution channels such as
telephone or internet so as to reach more customers, avoid intermediaries, bring down overheads
and increase profitability. A good example is UK insurer Direct Line. It relied on telephone sales and
low pricing. Today, it is one of the largest motor insurance operator.
Technology will not replace a distribution network though it will offer advantages like better
customer service. Finance companies and banks can emerge as an attractive distribution channel for
insurance in India. In Netherlands, financial services firms provide an entire range of products
including bank accounts, motor, home and life insurance and pensions. In France, half of the life
insurance sales are made through banks.
In India also, banks hope to maximize expensive existing networks by selling a range of products. Itis anticipated
that rather than formal ownership arrangements, a loose network of alliance betweeninsurers and banks will emerge,
popularly known as bancassurance.
Another innovative distribution channel that could be used are the non-financial organisations. For
an example, insurance for consumer items like fridge and TV can be offered at the point of sale.
This increases the likelihood of insurance sales. Alliances with manufacturers or retailers of
consumer goods will be possible and insurance can be one of the various incentives offered.

INTRODUCTION:
Over the last ten years, advertizing spending rose significantly but the spend slowly shifted from the traditional print
and broadcast media, to niche marketing and the internet. This general growth was fueled by competition for market
share and, because the insurance industry was highly profitable, more money could be diverted to the marketing
budget. Today, the level of spending cannot be maintained. In fact, it has slowed quite significantly over the last
eighteen months. There are two reasons for this. The market for insurance has peaked and is starting to contract in
all segments as a looming recession forces policy holders to trim their budgets. Secondly, the price competition
between the major insurers has reduced the level of profitability at a time of slowing revenue growth.

Despite this, the four leading insurers – Allstate, GEICO, Progressive and State Farm – have maintained brand
awareness and their marketing activities pressure their smaller rivals to maintain their marketing momentum to avoid
losing market share. However, there is a potential problem. The growth of the internet has turned the standard
policies of auto, health and homeowners into commodities. It has become easy for policy holders to obtain
comparative quotes through sites like this. Policies can be written over the internet without the parties ever having to
meet (whether directly or through an agent). So the advertising has to shift to differentiate the insurers and their
policies. Price on its own is not a key feature given the ease with which prices can be compared. That means a focus
on other elements such as claims handling and customer service. The internet is not passive. There are now
customer sites which carry stories of poor service. The insurance industry is therefore having to spend less on
marketing and more on actually delivering better service.

This has serious implications for media that have traditionally relied on advertising revenue from the advertising
industry. Newspapers in particular have seen a dramatic drop in their insurance ad revenue. The new campaigns
focus on market segments where growth is predicted. More speciality products are being offered and Spanish
language advertising to the Latino market has been growing. We can therefore expect to see a further reduction in
marketing spend as the reality of a recession bites into consumer confidence.