Direct Marketing To Policyholders: A Win-Win For Carrier And Broker There are more orphaned policyholders than most data suggest
By Michael Levison
It is no secret that the traditional agent/broker distribution system is becoming increasingly challenging. In our discussions with carriers, two fundamental issues are raised frequently.
First, fewer qualified agents are entering the marketplace. Those who do, usually do not stay in the business long. Indeed, the four-year agent retention rate now stands at only 11%.
A second, but related, challenge for life insurance companies is that most brokers who do stay for an extended period usually have refocused their efforts on the more affluent segments of the population. Often, the “middle market” clients they generated in the early stages of their career are left out in the cold.
As they relate to a companys existing policyholder portfolio, these two trends result in many orphaned customers. The phenomenon was highlighted in consumer research that NewLink Consulting, Toronto, Ont., conducted last year on behalf of my firm, ReMark Americas. A key objective of the research was to gain a better understanding of how consumers viewed their current provider relationships.
The study revealed the orphan issue is bigger than most companies realize. More than 29% of 1,000 U.S. life insurance policyholders interviewed indicated they had lost contact with the agent who had sold them the policy. If the original policy was purchased from an agent/broker (as opposed to a financial planner), 41% had lost contact. Both figures are materially higher than most insurance companies data would suggest.
Regardless of whether the policyholder has been orphaned because the broker has too many customers or has left the business, a well-crafted direct marketing program can address the issue effectively.
In addition to strengthening the relationship with the orphan policyholder, the insurer benefits from such a program in several ways:
Greater Product Penetration. This is the key objective of any policyholder marketing program. It also will give the company greater control over customer communication.
Improved Persistency. Hard data supports the fact that additional product sales improve the underlying persistency on the base product.
Enhanced Agent Productivity. Agents struggle to service a large book of business properly. A well-designed and executed direct marketing program, aimed at the “B, C and D” clients, will allow the agent to focus on the bigger opportunities.
Better Orphan Management. As agent retention rates plummet, the ranks of orphaned policyholders grow rapidly. Many policyholders who are assigned to an agent still characterize themselves as not having an agent. A direct marketing program may provide the only realistic way to maintain a relationship with policyholders, thereby improving profitability and increasing embedded value.
If handled correctly, agents can benefit from a company-sponsored direct marketing program in several ways:
Better Service. Concerned agents see this type of program as a way to provide a reasonable level of service to the majority of their portfolios that they cannot properly reach.