cia annual meeting session 1101: non-traditional distribution looking back…focused on the future...

CIA Annual MeetingCIA Annual MeetingSession 1101: Non-Traditional DistributionSession 1101: Non-Traditional Distribution

LOOKING BACK…focused on the futureLOOKING BACK…focused on the future

Non-Traditional Distribution Through The Eyes of a Direct

Writer

Geoff ClarkeVP Direct Marketing

AIG Assurance Canada

Non-Traditional Distribution Through The Eyes of a Direct

Writer

Geoff ClarkeVP Direct Marketing

AIG Assurance Canada



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?

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?



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

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



Why do people buy Direct?• Personal preference• Small/Simple policies• Medical reasons• No intermediary• Cost

Why do people buy Direct?• Personal preference• Small/Simple policies• Medical reasons• No intermediary• Cost



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

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



Key Differences:

Traditional Non-Traditional

Distribution Broker Various

Products Complex Simple

Underwriting Full Guaranteed or

Simplified issue

Acquisition Costs Linked Non-linked



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

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



Distribution techniques• DRTV• Direct Mail• Telemarketing• Print• Internet

Distribution techniques• DRTV• Direct Mail• Telemarketing• Print• Internet



DRTV:• Hard costs:

• DRTV production• Variable costs

• Media• Talent costs

• Key metrics:• Cost per lead• Cost per dollar of premium

DRTV:• Hard costs:

• DRTV production• Variable costs

• Media• Talent costs

• Key metrics:• Cost per lead• Cost per dollar of premium



Telemarketing• Hard costs:

• TSR / agent training• Script development• Statement inserts

• Variable costs• Telemarketing costs

• Key metrics:• Sales per hour• Cost per dollar of premium

Telemarketing• Hard costs:

• TSR / agent training• Script development• Statement inserts

• Variable costs• Telemarketing costs

• Key metrics:• Sales per hour• Cost per dollar of premium



Direct Mail• Hard costs:

• Creative development• Variable costs

• Printing• List rental • Postage

• Key metrics:• Response rate• Cost per dollar of premium

Direct Mail• Hard costs:

• Creative development• Variable costs

• Printing• List rental • Postage

• Key metrics:• Response rate• Cost per dollar of premium



Successful direct marketing products are:

• Simple and easily understood• Easy to obtain• Affordable • Provide supplementary coverage• Cover specific circumstances• Provide high perceived value



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



Actuarial Considerations • General• Affinity• Underwriting• Lapses• Expenses:

• maintenance• acquisition

Actuarial Considerations • General• Affinity• Underwriting• Lapses• Expenses:

• maintenance• acquisition



Actuarial Considerations - General • Age:

• Definition – last birthday• Banding • Issue & Termination ages

• Price Points• Price vs Benefit• Premium guarantees• Individual / spouse / family

Actuarial Considerations - General • Age:

• Definition – last birthday• Banding • Issue & Termination ages

• Price Points• Price vs Benefit• Premium guarantees• Individual / spouse / family



Actuarial Considerations - Affinity • Affinity Markets:

• Variations in design• Compensation• Recovery of Acquisition Expenses• Demographic skew

Actuarial Considerations - Affinity • Affinity Markets:

• Variations in design• Compensation• Recovery of Acquisition Expenses• Demographic skew



Actuarial Considerations –Underwriting

• Mortality / Morbidity Incidence rates• Anti-selection• Product design• Exclusions• Pre-ex clauses• Target market

Actuarial Considerations –Underwriting

• Mortality / Morbidity Incidence rates• Anti-selection• Product design• Exclusions• Pre-ex clauses• Target market



Actuarial Considerations - Lapses• Varies by:

• distribution technique• Telemarketing• Direct Mail

• marketing offer• product• billing method

Actuarial Considerations - Lapses• Varies by:

• distribution technique• Telemarketing• Direct Mail

• marketing offer• product• billing method



Actuarial Considerations - Maintenance Expenses• Large volume of homogenous

policies:• Economies of scale

• Efficient systems• Billing method:

• credit card• PAC• Direct bill

Actuarial Considerations - Maintenance Expenses• Large volume of homogenous

policies:• Economies of scale

• Efficient systems• Billing method:

• credit card• PAC• Direct bill



Actuarial Considerations - Acquisition Expenses• The key differences between

traditional and non-traditional distribution are the techniques used to manage acquisition costs

Actuarial Considerations - Acquisition Expenses• The key differences between

traditional and non-traditional distribution are the techniques used to manage acquisition costs



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

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



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

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



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

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



Management of Acquisition Costs• Mix of business by product and

distribution • Client Lifetime Value• Predictive Modelling• Segmentation

Management of Acquisition Costs• Mix of business by product and

distribution • Client Lifetime Value• Predictive Modelling• Segmentation



Mix of Business• Acquisition costs vary by:

• Product• Distribution • Customer type

Mix of Business• Acquisition costs vary by:

• Product• Distribution • Customer type



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

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



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

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



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!

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!

cia annual meeting session 1101: non-traditional distribution looking back…focused on the future...

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