Download Lecture 3 - College of Business

Finance 341
Property and Liability Insurance
Marketing
Roger Schultz
FCAS, MAAA, CPCU, MBA
Guest Lecturer
January 28, 2003
Thesis
The marketing discipline is a concept
that is foreign to the insurance
industry.
A little about me...
1978 graduate of Drake University
FCAS, CPCU, MBA in Marketing
24 years with Allstate Insurance, 17 Assignments
Stints as a chief actuary, #2 underwriting officer,
product management, special assignments:
CNA PI due diligence
Segmentation project
Reengineering
Focus of comments will be on personal lines...
Discussion Question
What is “Marketing”?
Discussion Question
What is “Marketing”?
The process by which companies deliver
value to customers.
“Marketing is everything”
What is Marketing?
Sales
Underwriting
Pricing
Claims
Operations
MARKETING is everything!
Discussion Question
What do customers
want from insurance?
What is the value proposition
from their standpoint?
Discussion Question
What do customers
want from insurance?
What is the value proposition
from their standpoint?
Discussion Question
How do customers feel about
personal lines insurance?
Discussion Question
How do customers feel about
personal lines insurance?
Low interest, low involvement, rather not be
bothered, dislike the topic, necessary evil, costly,
confusing, poor service, don’t like being
required to buy something I don’t plan to use.
Why is there such low interest in insurance?
 Low understanding of the insurance concept
 Low understanding of the contract
 Insurance is mandatory
 Costly
 Low usage rate
 Customers are not sure what to expect
 Service levels are low
 Shopping of very hard
 Pricing is complex
 Aspects of insurance are personal
 Companies are hard to tell apart
Conclusion
It is hard to create a clear, compelling value
proposition for insurance customers!
Marketing is all about the creation of value for
customers!
Sidebar 1: Regulation
Why so much?
Complex product
Companies have advantage over customers
Cost is high for mandated product - must regulate!
Distrust of insurance industry
Financial stability of companies is of high public policy
concern and hard to assure
To promote competition (really?)
Anti-trust exemption - “to extent regulated by states”
Politics
Sidebar 2: Industry attractiveness
Porter’s Five Force Framework can be used to
assess attractiveness of the insurance industry.
Substitutes
Goal:
Suppliers
Rivalry
Buyers
Sustainable
Profitable
New
Entrants
Growth
Sidebar 2: Industry attractiveness
Personal lines
Substitutes
LOW
Suppliers
MODEST
Rivalry
HIGH
Buyers
LOW
Entrants
MODEST
Personal lines market is unattractive due to rivalry and
modest supplier power.
Sidebar 2: Industry attractiveness
Commercial lines
Substitutes
HIGH
Suppliers
HIGH
Rivalry
HIGH
Buyers
HIGH
Entrants
MODEST
Commercial market is unattractive due to rivalry and
high supplier and buyer power and the threat of substitutes.
“4 P’s of Marketing”?
Price
Product
Place
Promotion
“The
Marketing
Mix”
Marketing is about value creation for
customers...How so?
Sales
Underwriting
A
Pricing
Claims
Operations
MARKETING is everything!
Company
Competition
Target
Consumer
Strategy
Strategic Fit
Market Attractiveness
B
Price
Product
Positioning
Place
Promotion
Operational Excellence
Sales
Underwriting
Pricing
Claims
Operations
MARKETING is everything!
Most insurance company management attention today
is focused on operational excellence.
A
Marketing Strategy
B
Company
Competition
Product
Target
Consumer
Strategy
Strategic Fit
Market Attractiveness
Price
Positioning
Place
Promotion
Little insurance company management attention today is focused
on strategy. Few companies have Marketing Departments.
Market Positioning
What do customers want from their insurance
company?
Price
Claim Service
Agent / Customer Service
Solid, Reputable Company
Market Positioning
Price vs. Claim Handling
Low Prices
GEICO
Hartford
CNA
Met
AAA
Bad Claim
Handling
AMICA
Liberty
Pru
Farmers
Travelers
Nation
Wide
Am Fam
Allstate
High Prices
State Farm
Good Claim
Handling
Market Positioning
Price vs. Claim Handling
Independent Agency
Companies
Low Prices
Hartford
CNA
Met
Bad Claim
Handling
Good Claim
Handling
Pru
Travelers
High Prices
Market Positioning
Price vs. Claim Handling
Captive Agency
Companies and
Direct Writers
Low Prices
GEICO
Met
AAA
Bad Claim
Handling
AMICA
Liberty
Pru
Farmers
Nation
Wide
Am Fam
Allstate
High Prices
State Farm
Good Claim
Handling
Market Positioning
Marketing is about making choices - nobody
can be all things to all customers
Marketing is about value creation for customers
Marketing is about being different than others segmentation helps frame these choices
Market strategy informs market positioning.
Market positioning should be purposeful, it
should not be an accident.
Market Segmentation
Helps to frame marketing decisions
Possible segmentation dimensions
Geography
Service
Products / coverages
Channel
Demographics
Closing
Thesis: The marketing discipline is a concept that is
foreign to the insurance industry.
Marketing is everything - beware of the misuse of the
term in the insurance industry
Unattractive industry - being average and
undifferentiated is a losing strategy
Marketing is about creation of value for customers.
Shareholders and other interests follow.
Leaders job is to create and lead the development of
strategy and oversee execution.
Questions?