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.

Carrier Benefits

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.

Broker Benefits

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.

Easy Money. Since most direct programs still provide attractive compensation to the original or servicing agent, most view it as revenue they would not have earned without the program.

New Leads. We have seen many instances where a direct marketing program for something as simple as a rider generates calls and inquiries to the agent, resulting in new core product sales opportunities.

Key Issues for Consideration

Product Selection. It is important to assemble the right menu of benefits for the direct marketing program. The general rule with direct marketing is “the simpler the offer, the better the result.”

Benefits that can be offered on a guaranteed or simplified issue basis are ideal. Term, accidental death, spousal coverage, guaranteed insurability, annuity rollovers and critical illness all offer high probabilities of success. Offering some benefits post-issue may raise underwriting concerns, but one often can address these by carefully controlling the timing and amount of the offer.

Also, while most benefits can be offered as a “stand alone” product rather than as a rider, our experience suggests that a rider configuration will yield two to three times the result.

Technology Requirements. To conduct direct policyholder marketing efficiently, a true marketing database must be deployed. It is hard to handle this type of “continuous stream” marketing with legacy administrative systems.

Additionally, because business rules and eligibility requirements often dictate policyholder marketing, a flexible rules engine should be deployed to allow the ability to test eligibility for a large number of policyholders easily and efficiently.

Distribution Channel Options

Direct mail, telemarketing (inbound and outbound), advanced premium statement marketing and the Internet all are viable direct marketing options. Each offers its advantages and disadvantages:

Direct Mail. This method is unobtrusive and, generally, will provide acceptable levels of profitability. However, direct mail is capital-intensive and the capital is required before the first policy is written.

Outbound Telemarketing. This method can generate very high response rates and profitability. If managed properly, telemarketing can be done with few customer complaints. It also allows you to make adjustments throughout a campaign based on experience.

Advanced Statement Marketing. With todays technology and sophisticated laser printing capabilities, marketing within the premium billing statement is more advanced than the simple inserts used in the past. In fact, this distribution channel is perhaps the most powerful because it combines personalization with low-cost economics. However, it does require modification to existing remittance handling processes.

These channels are not mutually exclusive. We have found that the most successful programs blend a combination of channels.

While direct marketing to existing policyholders does not address all of the challenges posed by traditional distribution systems, it can be a viable part of the solution.

Michael Levison is CEO of ReMark Americas, a unit of Amsterdam, Netherlands-based ReMark Group with offices in Atlanta, San Francisco and Minneapolis. You may e-mail him at michael.levison@remarkgroup.com.


Reproduced from National Underwriter Edition, April 8, 2005. Copyright 2005 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.