Insurance.Com -- January 15-16, 1998 -- Channels of Distribution

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by Doug Simpson

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Effects of Direct Marketing   ||   New Strategy   ||   Company Structure

What are the channels of distribution most used in writing business and how will this mix change?

Channels of Distribution
We might think of the channels of distribution today as divided into four classes, each with its own particular issues. Some companies use more than one channel, depending upon the target market:
    Direct Marketing:
    Business is sold and serviced without involving any local agent.
    Company employees handle all sales and service.
    Exclusive Agent
    Business is sold and serviced through state-licensed local agents,
    each of which have authority to bind one company only,
    which company may be legally responsible for agent's actions.
    Independent Agent
    Business is sold and serviced through state-licensed local agents,
    which have authority to bind several competing companies,
    which companies may be legally responsible for agent's actions.
    Broker Marketing
    Business is sold and serviced through state-licensed brokers,
    which may lack binding authority for any company,
    but shop for quotes from many companies on behalf of insured.

"The rumors of my death have been greatly exagerated."
            Mark Twain
The developing success of direct marketers on the Net have led some to forecast the demise of agents and brokers in many areas of commerce. Others have forecast that the overwhelming volume and complexity of information accessible on the Net make the role of intermediary even more important.
    The Datamonitor study forecast that the numbers of independent insurance agents will decline as a result of the increasing use of the Net for the marketing and service of those lines insurance appropriate for Net marketing, sales and service. The study also predicts that exclusive agents, particularly those working as salaried employees of insurance companies, will increase in numbers as more are used by direct marketers to provide personalized service in conjunction with Net-facilitated direct sales channels. As more and more property casualty products are sold to groups, through employers, banks and affinity organizations, more and more of the functions traditionally performed by agents may be performed using low-cost and efficient Net tools and applications.

Islands in the Stream: The Community Channel
For generations, insurance agents and brokers have marketed themselves through involvement in community affairs and professional activities. They may volunteer with civic groups, speak on topics relating to business or retirement savings, organize, appear in or attend professional seminars like this. Will that channel of marketing not extend into Net-based communities and their activities?
    We see a youthful, but steadily developing constellation of communities that exist only on the Net, dedicated to specialized interests. They are as diverse as Purple Moon, GeoCities, Motley Fool and Bianca's. These communities encourage their members to contribute content from their own widely diverse experience and interests. Already, these developing communities are attractive targets for vendors of goods and services, and they can also become attractive venues for marketing and sales of insurance and insurance services. Just like in "3D" communities, there is already developing a social and services infrastructure in these "virtual" communities wherein the more experienced members perform services for other members, either for pay or just to develop good will and visibility.
    Beyond the banner ads for insurance-based investment products now beginning to appear on Motley Fool or Excite, there is the potential for insurance agents and company representatives to become formal and informal leaders in these developing communities of individuals and small businesses. As they demonstrate their experience and expertise in insurance and investment, they gain reputation as a reliable source for insurance and investment services among the individuals and small business persons involved in those communities.
    This visibility in the online community may prove to provide a toehold in the consciousness of a demographic segment that is technologically capable and entering a period of substantial accumulation of personal wealth.

Effects of Direct Writing  ||  New Strategy   ||   Company Structure