A presentation on financial services distribution models (with an emphasis on Bancassurance and Life Insurance) that I gave a little while ago in Thailand. I\'m happy to discuss if any one is interested.
The third key factor driving the performance of the Bancassurance channel is the extent to which operational integration is possible. For example in the US; operational integration was not possible till very recently; because of the Glass Steagall Act which created barriers between banks and insurance companies. The data on the slide is room a 2002 JP Morgan report which survey Bancassurance partnerships in Europe. Of the 18 partnerships surveyed in 8 countries – and using the number of policies per agent per annum – as the benchmark, it is clear that integrated Bancassurance relationships lead to higher productivity. The low integration model involves a sales process where the bank serves more as a lead generator with the agents of the insurance company being responsible for closing the sale. A close parallel to this in the Indian market is the referral based relationships of ICICI Prudential. Among the companies surveyed, all the insurance partners had a multi channel strategy and relatively low levels of orientation towards the banking partner. Partial integration is a hybrid strategy. There are two parallel sales approaches mirrored by a two pronged product strategy. The sales approaches involve bank agents generate and close sales linked to simplified issue products with insurance company agents closing the sales of fully underwritten agency-type products. In both cases the bank is still responsible for lead generation. In the fully integrated model; the insurance company provides backstage support to the sales process; but is NOT involved in any part of the customer-facing sale. In most of the companies surveyed, the bank ’ s agents had been targeted as being the initial customers – via a discounted pricing policy. This served two purposes: one) it gave the life insurance company the opportunity to streamline its operational processing including medical uw and policy conversion and two) it gave the agents the chance to go through the buying experience and ensured that they were able to manage customer expectations in the future. Because they were convinced about the product and the process, this created a “ multiplier ” effect with the agents being able to empathise with customers as well as provide references to their own buying experience.
Doug Sumner Distribution Models Presentation
Distribution Strategies and Tactics Douglas Sumner
<ul><li>Retail financial services companies seek to differentiate </li></ul><ul><li>themselves through one or more of 4 key strengths: </li></ul><ul><li>use of diverse products and asset classes </li></ul><ul><li>focus on service needs </li></ul><ul><li>leverage of distributional strengths </li></ul><ul><li>promotion and sponsorship </li></ul><ul><li>This presentation discusses using distributional techniques to expand the opportunities for life insurance sales </li></ul>Distribution Strategy is a Key Success Factor….
..But companies are often slow to adapt What’s intriguing is the ‘internal focus’ and the low importance attached to channel strategy US Snr banking exec survey Source - LIMRA
Matching products with channels and markets <ul><li>Life insurers have expanded their value proposition to become ‘Wealth Managers’. </li></ul><ul><li>The same pressures that caused this revamp are driving the need to expand and restructure distribution channels. </li></ul><ul><li>Regardless of your current distribution strategy for your products you need to respond to a seemingly ever expanding range of distribution channels and understand their impact on product design and potential for further sales. </li></ul><ul><li>Distribution opportunities exists along a continuum of client types and there is no inherent reason why retail financial services co’s should only operate in, or profit solely from, face to face distribution to the ‘top end’ of the market – It all depends on how you define your business. </li></ul>
Distribution – choices (some of them anyway) <ul><li>Agency </li></ul><ul><li>Distribution ‘alliances’ </li></ul><ul><li>Bancassurance </li></ul><ul><li>Direct marketing </li></ul><ul><li>Telemarketing </li></ul><ul><li>Internet marketing </li></ul><ul><li>Statement marketing </li></ul><ul><li>‘ e’ mail marketing </li></ul><ul><li>Independent brokers/financial planners </li></ul><ul><li>Television </li></ul><ul><li>Workplace </li></ul><ul><li>Shop front </li></ul><ul><li>Kiosk </li></ul>
Agency <ul><li>Reports of its death around the region have been greatly exaggerated </li></ul><ul><li>But you will kill it – and it will kill you if you don’t both agree to let each other evolve! </li></ul><ul><li>Changing consumer preferences will lead to legislator action and regulator oversight. </li></ul><ul><li>You must have a ‘consumer first model in product design and pricing to ensure the long term viability of agency </li></ul><ul><li>Needs analysis is compulsory </li></ul><ul><li>Remember – your actions today will be judged by the compliance standards of 10 yrs hence! </li></ul>
AGENCY - tips <ul><li>Agency faces threats from : </li></ul><ul><li>Changing consumer preference/regulation </li></ul><ul><li>Bancassurance </li></ul><ul><li>Financial Planning </li></ul><ul><li>Margin squeeze </li></ul><ul><li>Extensive training is not the answer – consider an ‘ open architecture ’ approach that let ’ s them compete with these other rapidly developing channels – don ’ t condemn them (and don ’ t let them condemn you!) to yesterday ’ s business model. </li></ul>
Direct Marketing/Telemarketing <ul><li>Direct mailing and telemarketing to bank credit card databases has been common practice in many markets for a number of years. For banks, telemarketing of credit life policies (in particular, credit card protection plans) to their cardholder databases has been a highly lucrative source of income. </li></ul><ul><li>This activity is now common across virtually all retail databases within banks and many life companies – less so in funds mgt firms. </li></ul><ul><li>While this channel only accounts for a smaller proportion of the market, some companies have made notable progress, claiming penetration levels of up to 2.5 policies per customer and penetration of databases up to 65 per cent. </li></ul><ul><li>This style of distribution with the right products can be highly profitable and really should form a core of any distribution strategy. </li></ul><ul><li>Less well appreciated is how it can complement face to face strategies </li></ul>
Learn about your clients Analytics can provide significant insights into your clients that are often not undertaken in pure face to face.
Direct Marketing/Telemarketing – Tips <ul><li>Access to a database where their is high affinity and which has not been exhausted through over use are the keys to success in direct marketing </li></ul><ul><li>Data mining/propensity modeling can make improve the returns from this already profitable channel and can make even an exhausted base worth revisiting. </li></ul><ul><li>Telemarketing will increase the cost but can markedly increase the response </li></ul><ul><li>Specialist skills and expertise are also required and many banks outsource the distribution in the channel. </li></ul><ul><li>Test, test and test again in this channel </li></ul>
‘ e’ mail marketing <ul><li>More than anything, a successful email campaign hinges on it's content. A campaign is being sent to people who have requested information that is important to them. By creating a dialog that is targeted and on topic, readers will find value in your communications and find out that your business is a relationship that they want to continue. </li></ul><ul><li>Any good email marketing platform will give you a lot of valuable data such as read rates, forward stats, click-throughs and bounces. By carefully analysing this data, you can adjust your design and campaign for the best results. </li></ul><ul><li>Techniques include : </li></ul><ul><li>Viral email . Create an email campaign that will encourage your customers to send your messages onto their contacts. Designing the right viral email will allow you to gather names and addresses, which can be used later for direct marketing and can help boost your company's image within your marketplace. </li></ul><ul><li>Combining email marketing with traditional direct mail has boosted results by almost 80% in some cases </li></ul>
‘ e’ mail Marketing - tips <ul><li>The “From” line is the greatest driver in getting email opened, so it’s important to include a company name as well as the offer. Example: “A 10% savings from Thai Insurance”. </li></ul><ul><li>The longer the subject line, the higher the response. </li></ul><ul><li>The newsletter format — as opposed to the traditional letter or postcard — is the best performing email format for B to C. </li></ul><ul><li>The best performing emails contain more images and less text, or an equal balance of both. </li></ul><ul><li>When giving multiple links in an email, it’s good to assign each link a different color. </li></ul><ul><li>In B to C, links attached to images work better than text links. </li></ul><ul><li>Hard dollar discounts work better than percentage discounts. </li></ul><ul><li>Company logos should always appear above the fold (that section of an email the customer can see without scrolling downward) </li></ul><ul><li>An effective call to action can appear either above or below the fold. </li></ul>
Statement marketing <ul><li>Typically provides the client with a standard ‘A’ and an inexpensive ‘B” upgrade offer. </li></ul><ul><li>Statement marketing incorporates the offer directly on to the customer’s statement. It can give: </li></ul><ul><ul><ul><li>Much higher response rates – because clients respond ‘when they have the pen in their hand’ </li></ul></ul></ul><ul><ul><ul><li>More cost-effective campaigns - renewal notices are typically read rather than automatically thrown in the bin! </li></ul></ul></ul><ul><ul><ul><li>No additional postage or envelope costs – you’re mailing anyway </li></ul></ul></ul><ul><ul><ul><li>No need to model list down for high-propensity </li></ul></ul></ul><ul><li>A form of direct marketing that can very effectively deal with : </li></ul><ul><ul><ul><li>Declining cross selling results </li></ul></ul></ul><ul><ul><ul><li>Increasing customer opt-outs </li></ul></ul></ul><ul><li>Reported response rates of almost 50%.... </li></ul>
Independent brokers/financial planners <ul><li>Deciding to open up your product line to external 3 rd parties can be controversial within the organisation. </li></ul><ul><li>However, if you have the manufacturing capacity then it can be a profitable expansion of your distribution and cheaper and faster than growing your own agency force. </li></ul><ul><li>Many of the drivers that favour Bancassurance also favour this channel. </li></ul>
Independent brokers/financial planners - tips <ul><li>The quality of your ‘value add’ will go a long way in this channel – but don’t get used! </li></ul><ul><li>Beware a ‘race to the bottom’ as competition often revolves around lower prices and ever improving features and benefits </li></ul><ul><li>Understand that you will lose control of your marketing and pricing power – and maybe your agents </li></ul><ul><li>Effectively you are outsourcing your distribution – this expense will fall – others will rise </li></ul><ul><li>Experience shows you may end up wanting to buy your distribution back </li></ul>
Television <ul><li>Home shopping is taking off around the world. </li></ul><ul><li>For instance investment products being sold in Korea, </li></ul><ul><li>Funeral plans in Australia etc </li></ul><ul><li>Coming wave is interactive home TV shopping </li></ul>
Worksite Marketing <ul><li>Comprehensive worksite marketing can make considerable sense: </li></ul><ul><li>Product paid for through the salary is typically much ‘stickier’ </li></ul><ul><li>Can have taxation benefits when paid for by employer – a powerful incentive </li></ul><ul><li>Can effectively block out all the downstream product providers – provided you have more than a single product strategy </li></ul><ul><li>Long term strategic benefit in catching an aging workforce as governments are forced to help people save for their retirement – typically through their employer </li></ul>
Worksite Marketing - tips <ul><li>Broker market often controls </li></ul><ul><li>HR dept is the decision maker </li></ul><ul><li>Align your marketing message with employee benefits/organisational best practice aspirations – the language of the HR dept </li></ul><ul><li>Understand remuneration practices </li></ul><ul><li>Use DM/TM/Email for cross sell-upsell programmes </li></ul><ul><li>Keep the employer informed </li></ul>
Bancassurance <ul><li>In many Asia Pac countries, Bancassurance seems to have stagnated. (query those who say it is still ‘ immature ’ .) Much of what has been sold is single premium, guaranteed return deposit substitution product. </li></ul><ul><li>Savings products – single premium guaranteed products typically have very small profit margins and are sold as deposit replacement, so the pool of clients diminishes rapidly. These products also have the potential for considerable misselling. </li></ul><ul><li>European Bancassurers cite 25 percent to 30 percent of bank customers as holding an insurance policy bought through the bank, in many newly developing markets the figure would most likely be well below 5% </li></ul><ul><li>Le veraging existing clients through ‘ alternative distribution ’ techniques is key – not solely building a face to face channel. </li></ul><ul><li>The truth is, Bancassurance is a multi –channel distribution strategy- not just the one you understand! </li></ul>
Brand + Sales skill = Sales! <ul><li>Banks have brand strength but they can’t sell. </li></ul><ul><li>Life co’s can sell but they don’t have brand strength. </li></ul><ul><li>So – not surprisingly, most successful model seems to be to partner with (or buy) a sales oriented financial services co – typically one with strong life insurance experience – and build a sales force exclusive to the bank. </li></ul>
Typical Bancassurance distribution choices Tip - try and avoid the distribution agreement model
Distribution models 4 6 7 8 8 8 10 10 31 33 33 33 55 55 86 93 133 155 Full integration Partial integration Low integration No of policies per bank agent per year <ul><li>Insurance activities are fully integrated into banking operations </li></ul><ul><li>Insurance products are exclusively sold by bank agents </li></ul><ul><li>Employees of the bank are targeted as the “ first ” customers. They act as multipliers because they believe in the products being sold </li></ul><ul><li>Contracts are closed by insurance company sales agents after the initial contact has been established by bank ’ s agents </li></ul><ul><li>Insurer usually sells products via multiple channels – has relatively low orientation to the banking partner </li></ul><ul><li>Productivity improves when products are simplified and standardised for the bank </li></ul><ul><li>Bank staff sells simplified (non underwriting) products and the insurance company sales agent sells the more complicated products at the bank branch </li></ul><ul><li>Insurance co. supports bank sales employees </li></ul>Source: Bancassurance – Combining Strengths – J P Morgan 2002 There are many differing models but it seems clear that ‘full integration’ is the most successful approach
Checklist for a Bancassurance branch Q: Can we identify what a ‘good’ Bancassurance branch looks like? To answer the question we undertook a mystery shopper survey of 50 branches and completed a questionnaire about the experience 6 main issues 10 Sub-Issues 1. Entry experience 1.1 position of insurance advisors 2. sales 2.1 Lead Generation 2.2 Sales Person 2.3 Product 2.4 Handling objections 3. Marketing 3.1 Promotional Activity 3.2 Marketing Materials 4. Service 4.1 Service Quality 5. Systems 5.1 Sales System 6. Others 6.1 Customer Contact
Checklist for a Bancassurance branch <ul><li>We then correlated the results to identify if their were clear traits that separated ‘good’ from ‘bad’ branches – as measured by production. </li></ul><ul><li>We found their were clear differences that enabled us to conduct a checklist to help identify a likely productive branch. </li></ul>
Branch Checklist Good branch if ‘yes >5 Poor branch if ‘no’ greater >4 Main Does the target branch match the following description Yes Avg No 1. Entry experience Position of insurance advisors is easy to identify and an inviting and clear procedure is in place to hand clients to them 2. sales Advisors are skilled in identifying insurance needs Advisors are enthusiastic and professional in appearance and conduct Advisors clearly explain product recommendations and how they meet customers needs 2.4 Handling objections 3. Marketing Promotional activity is clearly displayed and advisors are aware of bank promotional programmes as they occur Marketing material are clearly displayed and actively used by advisors 4. Service Branch provides a comfortable ‘financial services’ environment, all services are easily accessible and fit out is modern and professional 5. Systems Advisors have CRM, Presentation and quotation systems to present financial services products 6. Others Sellers ensure to obtain consent for next appointment and have a procedure in place to ask for referrals
<ul><li>We interviewed 50 branch managers and again correlated the results to see if we could identify the traits of a ‘good’ branch manager – as measured against product sales </li></ul>Checklist for a good Bancassurance Branch Manager 7 Main issues 29 Detail Questions 1. Sales approach 5 2. Lead Generation 6 3. Performance metrics 4 4. Branch manager engagement 3 5. Other vendor information 3 6. Promotion and support 5 7. Other 3
Diff ’ rnt strokes <ul><li>The move to wealth management typically sees a singular focus on High Value Customers. However, in most institutions (and countries) , these customers typically represent a small proportion of the customer base and in any case are not the natural market of life companies </li></ul><ul><li>Consider the lower value customer types – the ‘middle market’. These customers are often overlooked when setting strategy despite the fact that they represent a large proportion of the available or potential customer base. Low value and large proportion can mean highly profitable – if done correctly. </li></ul>
Diff ’ rnt strokes <ul><li>Smart distribution companies know that many of the distribution techniques outlined here are designed to satisfy the majority of the market who typically consume high volumes of simple products which require little sales interaction – and that’s OK. </li></ul><ul><li>Smart distribution companies also know that these distribution techniques are designed to find and services those high value customers who have not yet been identified, whom are in channel search elsewhere or, increasingly, are savvy enough to use the tools of the internet to do it themselves. </li></ul>