CHANNEL SELECTION AND

EVALUATION: AN OVERVIEW

DRUELLA ______________
DPGD/JAN13/0704
SPECIALIZATION: HR

PRIN. L. N. WELINGKAR INSTITUTE OF MANAGEMENT & DEVELOPMENT RESEARCH

YEAR OF SUBMISSION: JAN 2013

ACKNOWLEDGEMENT

Concentration, dedication and application are necessary but not sufficient to achieve any goal. They must
be awarded by guidance, assistant and cooperation of some people to make it enable. Gratitude is short
lived but when put it blank and white; one hopes it to enjoy a longer life. Many people have given their
valuable time and ideas to enable us to complete our project and project report. I am deeply indebted to
all for their ideas and assistance, and I bear the entire responsibility for weaknesses in the project, if any. I
am highly obliged to express my praise and profound thanks to ___________________ (Project Guide)
for his expert guidance and cooperation and also to ______________ (HOD), _____________
(Colleague), & ______________ (Colleague) for their supervision, encouragement and valuable advice.
Lastly I would like to thank all those, who have, directly or indirectly, helped me in making the project.

DECLARATION
I hereby declare that project entitled CHANNEL SELECTION AND EVALUATION:
AN OVERVIEW is a bonafide and authentic record of work done by me under

supervision of Mr. ________ during academic session 2013-2014.

The work presented here is not duplicated from any other source & also not
submitted earlier for any other degree/diploma to any university.
I understand that any such duplication is liable to be punished in accordance with
the university rules.

Place: MUMBAI

Mr. ____________

CERTIFICATE

This is to certify that the Project work titled Personnel Selection

Techniques in Mahindra International Ltd is a bonafide work carried out
by DRUELLA __________ (Roll No. DPGD / JL13/ 0704), a candidate
for the Post Graduate Diploma examination of the Welingkar Institute of
Management under my guidance and direction.

Signature of Guide
Name:
Designation:
Address:

Date:

Place:

INDEX

SR.NO

TOPIC

PAGE
NUMBER

CHAPTER 1

INTRODUCTION

CHAPTER 2

BACKGROUND

CHAPTER 3

RESEARCH

12

METHODOLOGY
CHAPTER 4

LITERATURE REVIEW

18

CHAPTER 7

DATA ANALYSIS

20

CHAPTER 8

CONCLUSION

42

CHAPTER 9

BIBLIOGRAPHY

44

Introduction

This chapter serves as an introduction to the topic of this management project., which is to
explore how different market needs different marketing channels, where each channel has its
own advantages and disadvantages.

A marketing channel is a set of practices or activities necessary to transfer the ownership of

goods, from the point of production to the point of consumption. It is the way products and
services get to the end-user, the consumer; also known as a distribution channel. A marketing
channel is a useful tool for management, and is crucial to creating an effective and well-planned
marketing strategy. The aim of this project is to understand the different marketing channels and
its evaluation. Basically there are two types of marketing channels available, direct marketing
channels and Indirect marketing channels. The sources or the product differentiate the channels.
Market channel analysis is used to compare the costs and returns to the sale of products through
different market outlets. By comparing these costs and returns and the relative risks associated
with each channel, growers can make informed decisions about primary and secondary channels
for their products.
Another less known form of the marketing channel is the Dual Distribution channel. This
channel is a less traditional form that allows the manufacturer or wholesaler to reach the end-user
by using more than one distribution channel. The producer can simultaneously reach the
consumer through a direct market, such as a website, or sell to another company or retailer that
will reach the consumer through another channel, i.e., a store. An example of this type of channel
would be franchising.

1.1 Project Background

Since the mid 1990,s, the internet becomes an accepted medium by the general public providing
the modernized world tremendous opportunities and challenges, for individual, (local) businesses
and (multi)-national corporations. Because of the internet, new business models are being
explored, new market have become available, marketing as a whole has changed, worldwide
networks and connections are made, and the end consumer received a powerful voice. The
internet has made it possible to reach a large audience without the requirement of a physical
presence, making location and time irrelevant for both seller and buyer. These factors are
combined in the unique platform forbuying and selling, named e-commence. E-commerce can be

described as the process of buying and selling or exchanging goods, services and information via
the internet.
Although direct sales has always been around, not requiring a physical presence to reach a large
audience and the potential and benefited of e-commerce provide additional ingredients for
manufacturer of business of to consumer goods to get involved with selling direct to their end
consumers. This way market serves with different combination of channels and the main aim to
reduce the time and cost associated with the product.
1.2 Objectives of the Project
This project report provide an insight of different marketing channel, selection of channel for an
insurance company and the evaluation of the channel on the basis of different criterions.
The primary objective of the project is

To understand the basic concept of an insurance product

To know the available marketing channels for insurance
To select any one channel and evaluate it on the basis of cost

This management project will help both stakeholders in identifying a verify of aspects that could
be taken into account when developing and implementing marketing channels for the insurance
product.

Background

Life is full of surprises, some pleasant and some not so pleasant. Our families and we have to
live with these uncertainties. Preparing for the uncertainties of life is what Insurance is all about.
Why waste precious moments contemplating tomorrow, when we have to live today? Insurance

is a tool, a solution for delegating the worries concerning tomorrow onto a trustworthy institution
so that you can start living today.
In other words, Insurance is a legal contract that protects people from the financial costs that
result from Loss of life, loss of health, lawsuits, or property damage. Insurance provides a means
for individuals and societies to cope with some of the risks faced in everyday life. People
purchase contracts of insurance, called policies, from a variety of insurance organizations.
Almost everyone living in modern, industrialized countries buys insurance, for instance, laws in
most states require people who own a car to buy insurance before driving it on public roads.
Lenders require anyone who finances the purchase of a home or car with borrowed money to
insure that property.
Business partners take out life insurance on each other to make sure that business will succeed
even if one of the partners dies. The primary purpose of life insurance is therefore protection of
the family in the event of death. Today, insurance is also seen as a tool to plan effectively for the
future years, retirement, and for children's future needs. Today, the market offers insurance plans
that not just cover the life and but at the same time grow wealth too. When we insure our life, in
effect what we are doing is insuring our earning capacity. This guarantees that our dependants
will be able to continue living without financial hardships even in case of our demise.

The main purpose of this project is to identify the trends, progress and performance of marketing
channel in insurance industry. Deregulation in India as resulted in increased number of players in
the market and hence the competition. This competition has brought about a change in the
existing distribution channels. The new types of distribution channels are wider and are expected
to be more technology oriented for the urban population in future. There also exists a vast
potential for new types of companies coming into the market that support the existing structure
of the industry such as agency management systems and the brokerage firms.

Life Insurance Facts:

What Is Life Insurance?

Life insurance provides protection against financial loss resulting from death. It is an insurance
company's promise to pay a beneficiary a specific amount of money when an insured dies in
exchange for timely payment of premiums. The primary purpose of life insurance is therefore
protection of the family in the event of death. Insurance is also seen as a tool to plan effectively
or future years, your retirement, and for your children's future needs. Today, the market offers
insurance plans that not just cover your life and but at the same time grow your wealth too.
What Is It Intended To Do?
Life insurance offers security in the event of the insureds death. Life insurance offers financial
protection to survivors. It provides dependents with the necessary funds to settle financial
obligations and to cover the loss of income created by the insureds death. Life insurance policies
are usually purchased with a specific intention in mind - to protect a mortgage or an estate, to
provide for educational costs, for retirement or for charity, etc.

Why is Life Insurance Necessary?

People carry life insurance for many reasons. Among the most common are to pay off a
mortgage, or personal debts (car loan, credit cards), educational costs for young children, for
beneficiaries to be able to maintain their current standard of living, for child care, for immediate
financial needs, and medical or funeral costs.
How Might Life Insurance Needs Change Over Time?
If an individual has finished raising their family, has paid off their mortgage and no longer has
major financial obligations, then their life insurance needs will be lower than when they were
younger. An individual may choose to no longer carry their insurance or to reduce their coverage
amount to a level just sufficient to ensure that their survivors have enough money to pay final
expenses (burial, medical, estate taxes).

How Does Life Insurance Work?

All aspects of life involve risk, e.g., fire, theft, auto accidents, injury. Insurance provides a means
of transferring the financial consequences of certain risks from the individual to an insurance
company. When an individual buys life insurance, they are grouped together with other people
who are similar in age, sex, and health. Actuaries calculate how many people in each group are
likely to die in a period of time. The more deaths there are in a group, the more money will be
needed to pay death claims, and therefore, more money will have to be collected as premiums.
Since younger people are less likely to die than older people, insurance premiums are generally
lower at younger ages. Each year, the insured pays the insurance company for their insurance
policy. This money is called a premium. The insured also informs the insurance company who
should get the insurance money if they (the insured) die. This is a called designating a
beneficiary. If the insured dies while their policy is active, the insurance company will pay the
beneficiaries the insurance money. Insurance companies can do this because only a small number
of people die each year, while many more people pay those premiums. The risk of death is
spread out among many people in order to prevent a financial loss to the beneficiaries of the few
who will die.

Distribution Channel
The insurance marketplace is undergoing a transformation that may eventually lead to significant
changes in how consumers purchase insurance products. A variety of distribution channels are
currently used in the market place and some insurers utilize a combination of distribution
channels. These include the Internetled channels, company led channels, bank-led channels, and
agent-led channels. While it is true that insurance purchasers today have more options available
than they did five years ago, it is unclear if and when these channels will dominate existing
insurance distribution channels. Several obvious factors that impact on a channels adoption are
consumer attitudes and preferences. In particular, it may be that consumers consider insurance
products to be more complex than originally thought. Consumers still do not view even personal
lines insurance products to be commodity products. The experience of insurance agents has been
much different. Although there have been some changes in the areas of commissions and
production requirements, agents continue to be the primary distribution channel for insurance
products. To gain a better understanding of what factors tend to drive the adoption of one channel

over another, it is helpful to examine some of the existing literature on innovation adoption and
insurance distribution channels. To date, there are several factors that may explain the low rate of
adoption of alternative distribution channels, it may in part reflect the consumers
perception that insurance is a complex product. As noted earlier in the paper, complexity is one
explanation for why different distribution systems co-exist.
Given the low adoption rates for sales via the life advisor, perceived complexity across insurance
lines (personal and commercial) may continue to serve as a deterrent to adoption. If the advisor
has to experience significant gains as a distribution channel, then perceptions regarding product
complexity will have to change.

Insurance Product

Term Insurance Policy

A term insurance policy is a pure risk cover for a specified period of time. What this means is
that the sum assured is payable only if the policyholder dies within the policy term. For instance,
if a person buys Rs 2 lakh policy for 15-years, his family is entitled to the money if he dies
within that 15-year period. What if he survives the 15-year period? Well, then he is not entitled to
any payment; the insurance company keeps the entire premium paid during the 15-year period.
So, there is no element of savings or investment in such a policy. It is a 100 per cent risk cover. It
simply means that a person pays a certain premium to protect his family against his sudden
death. He forfeits the amount if he outlives the period of the policy. This explains why the Term
Insurance Policy comes at the lowest cost.

Whole Life Policy

As the name suggests, a Whole Life Policy is an insurance cover against death, irrespective of
when it happens. Under this plan, the policyholder pays regular premiums until his death,
following which the money is handed over to his family. This policy, however, fails to address
the additional needs of the insured during his post-retirement years. It doesn't take into account a
person's increasing needs either. While the insured buys the policy at a young age, his
requirements increase over time. By the time he dies, the value of the sum assured is too low to
meet his family's needs. As a result of these drawbacks, insurance firms now offer either a
modified Whole Life Policy or combine in with another type of policy.

Endowment Policy
Combining risk cover with financial savings, endowment policies is the most popular policies in
the world of life insurance. In an Endowment Policy, the sum assured is payable even if the
insured survives the policy term. If the insured dies during the tenure of the policy, the insurance
firm has to pay the sum assured just as any other pure risk cover. A pure endowment policy is
also a form of financial saving, whereby if the person covered remains alive beyond the tenure of
the policy; he gets back the sum assured with some other investment benefits. In addition to the

basic policy, insurers offer various benefits such as double endowment and marriage/education
endowment plans. The cost of such a policy is slightly higher but worth its value.

Money Back Policy

These policies are structured to provide sums required as anticipated expenses (marriage,
education, etc) over a stipulated period of time. With inflation becoming a big issue, companies
have realized that sometimes the money value of the policy is eroded. That is why with-profit
policies are also being introduced to offset some of the losses incurred on account of inflation.
A portion of the sum assured is payable at regular intervals. On survival the remainder of the sum
assured is payable. In case of death, the full sum assured is payable to the insured. The premium
is payable for a particular period of time.

Annuities and Pension

In an annuity, the insurer agrees to pay the insured a stipulated sum of money periodically. The
purpose of an annuity is to protect against risk as well as provide money in the form of pension
at regular intervals. Over the years, insurers have added various features to basic insurance
policies in order to address specific needs of a cross section of people.

Types of Marketing Channel

zero-level channel

One-level channel

Two-level channel

Three-level channel

strategic channel alliance

Marketing Channels

Fig: Marketing channel for consumer products

1. Producer to consumer
The producer sells the goods or provides the service directly to the consumer with no
involvement with a middle man such as an intermediary, a wholesaler, a retailer, an agent, or
a reseller. The consumer goes directly to the producer to buy the product without going through
any other channel.
2. Manufacturer - Retailer - Consumer
Retailers, like Wal-Mart and Target, buy the product from the manufacture and sell them directly
to the consumer. This channel works best for manufacturers that produce shopping goods
like clothes, shoes, furniture, tableware, and toys. Since consumers need more time with these
items before they decide to purchase them, it is in the best interest of the manufacturer to sell
them to another user before it gets into the hand of the consumers. It is also a good strategy to

use another dealer to get the product to the end-user if the producer needs to get to the market
more quickly by using an established network that already has brand loyalty.
3. Manufacturer Wholesaler Retailer Consumer
Wholesalers, like Costco, buy the products from the manufacture and sell them to the consumer.
In this channel, consumers can buy products directly from the wholesaler in bulk. By from the
wholesaler the prices of the product are reduced. This is because the wholesaler takes away extra
costs, such as service costs or sales force costs, that customers usually pay when buying from
retail; making the price much cheaper for the consumer. However, the wholesaler does not
always sell directly to the consumer. Sometimes the wholesaler will go through a retailer before
the product gets into the hands of the consumer. Each dealer (the manufacture, the wholesaler,
and the retailer) will be looking to make a decent profit margin from the product. So each time
the buyer purchases the merchandise from another source, the price of the product has to
increase, in order to maximize the profit each person will receive. This raises the price of the
product for the end-user.
4. Manufacturer - Agent Wholesaler Retailer Consumer
This distribution channel involves more than one intermediary before the product gets into the
hands of the consumer. This middleman, known as the agent, assists with the negotiation
between the manufacturer and the seller. Agents come into play when the producers need to get
their product into the market as quickly as possible. This happens mostly when the item
is perishable and has to get to the market fresh before it starts to rot. At times the agent will
directly go to the retailer with the goods, or take an alternate route through the wholesaler who
will go to a retailer and then finally to the consumer.

Marketing Channels Middleman

Agents
Agents do not take ownership or physical possession of the products they represent. They act on
a producer's behalf and take a commission on any sales they negotiate with a third party.
Producers agent
Producers' agents tend to work for a bigger amount of different producers and with noncompetitive or complementary products in a specific geographic area. They are normally
involved in delivering the sales function.
Sales Agent
Sales agents usually deal with one producer and have to deliver a full range of marketing
activities for this concrete client (e.g. creating distribution, pricing and promotional policies).
These agents are commonly used by small companies with limited resources or by producers that
are moving into an unknown market, especially which is located overseas (here: the sales agent
can provide essential local knowledge).
Brokers
Brokers strive to bring potential buyers and sellers together by negotiating specific contracts.
They are supposed to not have a long-term relationship. Brokers, like agents, do not take
ownership, nor do they physically handle the product and they act on a commission basis.
Wholesalers
Wholesalers, on the contrary, take title to the goods they handle and are involved in the physical
distribution of those products. They sell mostly to other middlemen or directly to industrial,

commercial or institutional customers rather than individual consumers. There are two types of
wholesalers: full service wholesalers and limited service wholesalers. The first ones offer a broad
range of marketing activities for their suppliers and customers (purchasing, sales, warehousing
and transportation of goods). The latter ones cut out non-essential services and as a result are
able to offer cost savings to customers.
Retailers
Retailers sell goods and services directly to the end consumer. Retailers take title to the goods
they stock which.

Research Methodology

The principal method of acquiring knowledge and uncovering causes of a behavior is research.
We identify a problem and systematically set out to collect information about the problem and
develop explanations. Research is, thus, an original contribution to the existing stock of
knowledge, whether the knowledge aids in construction of theory or in practice of an art.

Research design
Research design adopted by us is descriptive research where we used secondary resources for
data analysis.
Channel Selction/Design Procedure
Channel design is the dynamic process of developing new channels where none existing and
modifying existing channels. The business marketer usually deals with modification of existing
channels, although new products and customer segments may require entirely new channels.
Channel design is best conceptualized as a series of stages that the business marketing manager
must complete to be sure that all important channel dimensions have been evaluated. The result
of the process is to specify the structure that provides the highest probability of achieving the
firms objectives. Channel structure refers to the underlying framework: the number of channel
levels, the number and types of intermediaries and the linkages among channel members.

Fig: Channel Selection Pyramid

Stage 1 Channel objectives
Business firms formulate their marketing strategies to appeal to selected market segments, to
earn targeted level of profits, to maintain or increase sales and market share growth rates, and to
achieve all this within specified resource constraints. It is the reason, why whether the business
marketer is designing a totally new channel or redesigning the existing one, the first step of
channel design is to comprehend fully the marketing goals and to formulate corresponding
objectives.
Stage 2 Channel Design constraints
Frequently, the manager has little flexibility in the selection of channel structures because of
trade, competitive, company and environmental factors. The variety of constraining factors is
almost limitless. The most relevant to the business marketer are the following:

Availability of Good Intermediaries

Competitors often lock up the better intermediaries; Established intermediaries are not always
receptive to new products.

Traditional Channel Patterns

Established patterns of distribution are difficult to violate; Large customers may demand direct
sales.

Product Characteristic

Technical complexity dictates direct distribution; Extensive repair requirement may call for local
distributors to service the product line.

Company Financial Resources

Capital requirements often preclude direct distribution

Competitive Strategies

Direct service by competitors may force all firms to sell direct.

Geographic Dispersion of Customers

A widely dispersed market of small customers often requires low-cost representation afforded by
intermediaries.
Stage 3 Pervasive channel tasks
The business marketing manager must creatively structure the tasks necessary to meet customer
requirements and company goals rather than merely accepting existing channel structures or
traditional distribution patterns. Increasing manufacturer power may diminish the distributors
role in the channel as the manufacturer assumes more channel activities; the distributors share of
profits and revenues could be reduced accordingly.
Stage 4 Channel alternatives

There are four primary issues in specification of channel alternatives:

1. The number of levels in the channel (that is, the degree of directness [a] ).
2. The types of intermediaries to use.
3. The number of channel intermediaries at each level of the channel.
4. The number of channels to use.
The decisions made for each are predicated on the objectives, constraints, and activities
previously analyzed.

Stage 5 Channel selection

Most channel design decisions are only slight modifications of the channel structure in response
to changing markets, expanding geographic coverage, new customer requirements, or new
products. Selection of the appropriate modification in channel structure may be fairly
straightforward; in fact, the range of choices may be quite limited.

A useful approach to evaluating channel options is provided by Louis Stern and Frederick
Sturdivant. The focus on their approach is to create an ideal channel system that fully
addresses customer needs; once this system is specified, it is compared with the feasible
channel system created on the basis of management objectives and constraints. The crucial
element is to compare both systems on the basis of customer service performance, structure and
costs. Channel selection is facilitated by looking at gaps that may exist between the systemsexisting, ideal, and feasible. One of three conclusions could emerge:

1. All three systems resemble each other. In this case, the existing system is about as good
as it can be.
2. Existing and feasible systems are similar, but differ from the ideal. Management
constraints and objectives may be causing the gap.
3. All three systems are different. If the feasible system lies between the ideal and existing
system can be changed without sacrificing management goals.
The channel decision maker must consider qualitative as well as quantitative factors. Given two
channels with similar economic performance , the critical factor may be the degree to control the
business marketer can exercise over the channel.

LITERATURE REVIEW

Insurance intermediary plays a very important role. The classical literature specifies two main
insurance distribution channels: direct and intermediate. In order to achieve an advantage on
market, insurers have to pick that distribution channel or channels which are preferred by their
clients. Each country is characterized by they own distribution profile. In life branch direct
writing play an important role in countries like Croatia, Ireland and Slovakia. Distribution
channel like agents dominate in Germany, Slovenia and Romania. Brokers have biggest market
share in United Kingdom and Netherland. Bancassurance is predominate distribution channel in
Malta, Italy, Austria, Spain, France, Portugal and Turkey. In non-life branch direct writing
dominate in Croatia. Agents play an important role in Italy, Luxembourg, Poland, Portugal,
Turkey, Slovakia, Slovenia. Brokers are predominant channel in United Kingdom, Belgium and
Ireland. There is currently no country where bancassurance is an important distribution channel.

The report called Trends in Insurance Channels defines four trends which could change the
insurance market. One of them is easy access to the online world via computers, mobile phones,
tablets and other hand-held devices which is nowadays a strong part of peoples everyday life. It
is highly probable that products like motor and home insurance will be sold online much more
often than it is today. The second trend which was defined considers use of the social media as a
distribution channel. Sites like Facebook and Twitter has grown over the last few years and today
many insurers relate to the social media as it is an ideal mass marketing tool.

The social media can help to gain customer feedback, provide product updates or even answer
clients questions in real-time. The next trend is concerned around the usage of SaaS solutions in
order to enable the insurance distribution process. Is has resulted in growing number of
distribution channels. Insurance firms are therefore leveraging SaaS solutions to speed up
insurance distribution processes across multiple channels. The final trend talk about about using
technological solutions to automate the underwriting process and increase direct sales.

Availability of newer electronic applications help insurers to automate the selection and pricing
of risk, and reduce the distribution cycle time. To remain competitive in the marketplace, insurers
need to redesign their business processes to facilitate speeding up of the automation process and
automated underwriting solutions

DATA ANALYSIS

Over the last few decades, continued environmental, operational, and technological changes have
led to the development of multiple distribution channels in the insurance industry. Insurers no
longer rely solely on traditional channels such as agents and brokers, but have developed new
alternate channels to drive growth at lower costs. As competition in insurance markets is
intensifying, cost savings and customer retention has become critical, forcing insurers to look for
ways to drive sales and customer convenience while keeping costs low and maintaining
profitability. These factors are leading to the emergence of additional channels such as call
centers, mobile, and web. Changes in customer behavior and preferences around products,
distribution channels, and processes are also acting as catalysts for the development of
alternative channels. For example, insurers are now partnering with banks and affinity groups to
help drive policy sales. While these trends began in the more mature insurance markets,
developing markets have been following suit.

With advancements in technology, insurers have started exploring ways to develop newer
distribution channels in the online space. As customers continue to integrate the use of the
internet in their daily lives, this has become an attractive medium through which firms can
advertise and distribute insurance products. We are already witnessing a gradual change in the
buying habits of customers as they make use of the internet in the decision making and product
buying process. Insurance companies are also effectively using technology to better meet
customer demands by better integrating technology with the whole policy sales cycle. They are
focusing on speeding up the complete insurance distribution process while also identifying
processes that can be automatedimproving efficiency and profitability. These initiatives are
enabling insurance firms to scale up their business models by strengthening their internal
processes with a goal of better customer service.

Global Financial Background

Global insurance industry premium volume returned to positive growth in 2010, after declining
for two years during the financial crisis. Total premium volume rose to US$4.3 trillion in 2010, a
growth of 5.6% over 2009. The rise in premium volume was aided by the overall improvement in
the global economy in 2010, with growth witnessed across both life and non-life insurance.
While the growth has been higher in Asian and other emerging markets, it was relatively lower in
the U.S. and Western European markets. However, the insurance industry once again faced
difficult market conditions in 2011 and this trend has continued in 2012, as global financial
markets have turned volatile and the future macroeconomic scenario looks uncertain.

Fig: World Insurance figures

Key Developments across Insurance Channel

Insurers today leverage multiple distribution channels to reach and engage with their customers.
While insurers have traditionally sold insurance products through brokers and agentscompanyemployed as well as independent other distribution channels such as call centers, bancassurance,
internet, and mobile have been rapidly gaining momentum.
While the general trend has been a declining market share for agents except in a few regions
such as some Middle and East European countries, they still hold a dominant position in the
industry. In certain segments of the insurance markets in the U.S., Europe, and also in Asia,
agents still hold the highest market share which signifies their importance. Insurers are therefore
taking care to reduce channel conflicts with agents when developing their own direct channels.
Bancassurance has also emerged as an important channel across different regions, and is now
among one of the most important channels in Europe. Success of the bancassurance channel in
some products and markets may have been aided by banks. Facing a challenging operating
environment of their own, banks have been motivated to generate additional non-interest income
by selling additional risk-based/wealth management products and services like insurance to their
customers. Insurance firms are also focusing their efforts on the development of alternate
channels by partnering with supermarkets and affinity groups in the form of joint-ventures or instore sales. Insurers benefit from these relationships by being able to reach a wide potential
customer base at reduced cost, and also by being able to leverage established brand names in the
market. This pattern is more evident in the North American insurance markets.
Customers are also using multiple channels for buying insurance products. While online channels
are gaining prominencethough somewhat less than initial industry expectationsin many
markets, customers still tend to approach agents when looking for life insurance policies. A
common trend witnessed across regions is that customers now search for information on

insurance products online before approaching their agents or insurers. Customers are also
leveraging social media platforms to obtain product feedback from others. As such, insurers are
now striving to provide a consistent consumer experience across all of these channels.

Key Emerging Trend in Insurance Channel

Increased competition and noticeable changes in customer behavior and preferences paved the
way for the growth of newer channels for policy sales. Many of these channels evolved as a
result of insurers efforts to improve their operational efficiencies, aided by technological
advancements. These channels now help insurers directly reach their target customers, bypassing
traditional intermediary channels. Initially these channels were used to provide only product- or
policyrelated information and to advertise, however insurers now leverage these channels to
directly communicate with customers and sell suitable insurance products. With these new
developments, customers ethods of researching and buying insurance products also changed
over time. With the increased penetration of the internet and smart phones, customers now prefer
to gather information on various products and services offered by multiple insurers and tend to
compare before making a final decision. The internet has developed into an important channel to
gather information on insurance products, and the increased popularity of social media is also
expected to affect how customers buy insurance products. Many customers now seek feedback
on insurance products on social media sites and include the feedback in their decision-making
process.
On the business front, insurers are reacting to these trends and are coming up with solutions that
attempt to better meet customer expectations. They are also effectively leveraging technology to
reach customers and quickly incorporate their feedback. They are focusing on building an
effective and comprehensive distribution network while also working to break-down the
complete policy sales process to identify components that can be automated. Four such trends
witnessed across insurance channels that are explained in detail in this paper are:
1. Rise in customers use of the internet to buy insurance products
2. Increased use of social media as a distribution channel

3. Rise in usage of SaaS solutions to enable the insurance distribution process across
multiple channels
4. Rise in usage of technological solutions to automate the underwriting process and
increase direct sales

Trend 1
Rise in customers use of Internet to buy Insurance Product
Key Drivers
Easy access to the internet via computers, mobiles, and other hand-held devices has made it a
part of peoples everyday lives. Customers now use these devices to easily obtain information
and updates on insurance products and servicesa trend that is expected to continue to grow in
the near future. While penetration of these devices is higher in the developed western economies,
it is rising at a rapid pace in developing economies such as India and China.
In fact, lack of proper distribution networks in the developing economies have forced insurers to
come up with innovative ways to leverage the mobile and internet channels to sell their products
and also to better attract the millennial generation customers. Enhanced capabilities of browsers
and websites help create better product illustrations and help in easy retrieval of policy
information. Also, making insurance product information available online increases transparency
of the costs associated with each policy. The online channel is attracting both insurers and
customers and is expected to have a long-term impact on how information is gathered and how
products are sold. Even agents are now demanding better internet and mobile channel
functionalities from insurers to increase their ease of doing business. Insurers are thus leveraging
the online channel to help increase direct sales opportunities.

Analysis

With the rise in penetration of the internet, there has been a gradual change in customer
preferences around buying insurance products. This change has been both behavioral and
attitudinal in nature, and is more prominent among younger customers. Customers currently use
the internet primarily to research and compare various policies, view policy details, make policy
changes, pay premium bills, and contact agents/brokers. Most of their activities are focused
towards interacting, communicating, and transacting with insurance providers. Such behavior
signified tremendous growth opportunities ahead for this channel as customer penetration
increases and as more insurance-related activities is carried out via this channel. The internet also
helps insurers provide a robust self-service portal for its customers, which serves the dual
purpose of increasing customer satisfaction while reducing operational workload. However,
trends in internet usage vary across life and non-life insurance products. While customers still
value agents advice when buying life insurance products, they are increasingly using online
channels to buy non-life products. Market segments like motor and home insurance have become
commoditized and require less advice when buying these products, making them more suitable to
be sold over the internet. While sales via online channels have been slower than initial
expectations, they are still expected to continue growing in the future.

Implications
The online sale of insurance products has tremendous potential for distributing policies while
keeping overall costs low. Insurers should focus on increased adoption of this channel to
generate new product sales and also to provide related services to their customers. They should
also use it to provide customer service and collect customer feedback. The online channel can
also be leveraged to provide claims management and related services to customers. Products that
have achieved high market penetration and for which there is intense competition within the
industryleading to lower profitabilityare more likely to be the ones that can be sold online.
Insurers should identify these products and develop the necessary systems to sell them online.
Insurers also need to study the typical profile of a customer who is more likely to use the internet
to get information on insurance products, and then create targeted online sales strategies. While

developing an online portal, insurers should make sure that the portal works as an integrated part
of the whole multi-channel distribution network.

Trend 2

Increased Use of Social Media as a Distribution Channel

Key Drivers
Social media platforms such as Facebook, LinkedIn, and Twitter have witnessed rapid growth
over the last few years. Many of these platforms have matured, and feature embedded
functionalities that better help businesses to reach out and interact with their target audience
base. At the same time, many other new social media platforms, such as Google+, are also trying
to establish themselves in the marketplace. With the rise in penetration of smartphones with
enhanced social media applications, more customers now carry these platforms with them
wherever they go.
Social media is now acknowledged as a growing phenomenon for the insurance industry.
Customers increasingly use social media platforms to obtain sales-related advice from their
friends, family and other contacts, and gain feedback on various products and services, including
those in the insurance domain. They also expect insurance companies to have a presence on
social networking sites. Customers are also having some of their insurance related queries
resolved by sharing their concerns publically on these platforms, pushing companies to respond.
Analysis
Social media channels have significant applicability to the insurance industry and are likely to
have a long-term impact on how insurers gain and react to feedback from the marketplace.

However, there is still a need for further understanding regarding how this channel can be best
leveraged to engage with customers and how to address any potential concerns that may arise
such as miscommunication and regulations.
The initial focus of insurers social media strategies has been aimed at low-level communication
and marketing of new products and services. While many insurers now relate social media to a
mass marketing tool, there are many other applications as well including: gaining customer
feedback; resolving queries in real-time; providing product updates; and as an information source
for insight generation and fraud investigation. Social media platforms along with the online
channels can also help remove geographical limitations that agents face when serving their
clients.

Implications
As social networking sites continue to gain ground in the insurance industry, insurance
companies will need to broaden their internet-based strategies to include social media platforms.
They should help their agents understand the implications of this trend on their role as advisors
and how to best leverage it. Social media channels can also be used to assess the needs of
customers and the standard of services being offered. This can be done with the help of focus
groups and discussion forums where customers interact with each other and also with company
experts. The channel can also be used to launch media campaignsincluding education and new
product launchestargeting the customer segment that has an extensive online presence.
While social media platforms provide insurers with multiple benefits, these platforms also
expose the industry to greater transparency and scrutiny. Even relatively small mistakes
regarding information presented on these platforms tend to be picked by the media and can bring
embarrassment to the involved firms. As such, the long-term implications of increased
transparency on these platforms need to be considered, and it is imperative that insurance firms
understand how to best leverage their social media platform in a way that generates maximum
value while avoiding risks. To accomplish this, firms need to define a corporate level policy that

outlines usage and management of social media platforms. The policy should also outline the
level of disclosures that would be made available on these platforms, and how customer
feedback/queries would be handled. Firms will also need to provide training for agents and
employees to ensure prudent usage of social media by all stakeholders.

Fig: Social Media Platforms Benefits for Insurers

Trend 3
Rise in Usage of SaaS Solutions to Enable the Insurance Distribution Process
across Multiple Channels
Key Drivers
As the number of distribution channels used for policy sales rise, and as newer technology
platforms emerge, insurers now strive to provide consistent customer experience across these
channels. This requires significant investments in information technology to enhance capabilities
and streamline processes across these channels.
In addition, increased competition in the market place requires accelerated deployment of
products and services which are possible through SaaS-based solutions. Insurance firms are
therefore leveraging SaaS solutions to speed up insurance distribution processes across multiple
channels. Another key driver for usage of SaaS solutions is its usability to develop pricing
models that can be directly related to extent of system usage.

Analysis
SaaS-based solutions help enable speedy execution of pilot projects and faster deployment of
new technology for insurance distribution. By centralizing the technology development function
and distributing just the user interface and other minimal capabilities, SaaS-based solutions help
reduce the burden on internal IT spending. Using a SaaS model, insurance companies can

provide agents and brokers with a fee-based common technology platform which would
otherwise be costly for agents to develop on their own. Such collaboration also helps reduce
conflicts with existing traditional channels that may arise from increased direct sales by the
insurer.
A SaaS model also assists insurers in pilot testing the usage of new technologies such as mobile
and social media channels as a pre-cursor towards understanding the respective impact of these
channels. Such capabilities can help design a comprehensive strategy around development of
each new platform/channel. Insurance firms are now also looking to combine the capabilities of
SaaS as well as cloud computing to leverage opportunities presented by both these technologies.

Fig: Benefits Provided by the SaaS Model to Insurers

Implications
While the usage of SaaS-based solutions by insurance companies is still in its initial stages,
insurers need to understand the importance and utility of the SaaS model to analyze how it can
be leveraged to extract maximum value across multiple channels. Firms should also explore the
possibilities arising from SaaS-based solutions to better collaborate with agents and brokers and
to provide them with a robust platform for better customer relationship management. Delivering
applications using the SaaS model while supporting it with cloud computing will help insurers
provide a strong value proposition to its agents and brokers. At the same time, insurers should
also understand the data security and regulatory risks that arise from usage of the SaaS model.
Currently, these serve as biggest impediments to increased adoption of the SaaS model by
insurers and need to be explored as an industry.

Trend 4
Rise in Usage of Technological Solutions to Automate the Underwriting
Process and Increase Direct Sales
Key Drivers
Availability of newer electronic applications and the increased sophistication of rules engines are
helping insurers automate the selection and pricing of risk and reduce the distribution cycle time.
Insurers are also using automation to facilitate human underwriters in improving their decision
making process and make it more robust. Automated underwriting is now common in property
and casualty for personal lines, and even in some lower-value, well- efined commercial lines and
life/health for low-face amount policies.
Analysis
Insurance firms face the need to constantly come up with improved products in the marketplace
to differentiate them from competition. At the same time, insurers also need to ensure that they
are complying with existing regulations. Automated underwriting solutions help insurers achieve
both these objectives while keeping overall costs lowa factor that is driving the use of
automated underwriting in insurance. Insurers are currently using automated nderwriting for
commoditized business segments where keeping costs low is an important driver to improve
profitability.
Life insurers also now offer pre-underwritten products such as traditional term insurance plans
and mortgage protection plans to their customers. Under currently developed automated

underwriting systems, insurers aim to achieve straight-through processing of transactions while

maintaining transparency throughout the process. Insurers also prioritize integrating the
automated systems with their existing systems. A critical feature to developing a successful
underwriting system is to correctly assess risk and accordingly calculate pricing for each policy,
a process that requires extensive historical data on similar products and policies and extensive
analytical capabilities. Insurers are leveraging their proprietary data to facilitate their
underwriting systems with as much data as possible to correctly asses risk in each policy.

Fig: Functionalities Embedded in Automated Underwriting Systems

Conclusion

Insurers need to:

o Identify additional market segments that are conducive to automated underwriting
o Create tools to aid brokers and agents in increased rule based underwriting
o To remain competitive in the marketplace, insurers need to redesign their business
processes to facilitate speeding up of the automation process and also develop predictive
analytics and automated underwriting solutions.
o Insurers would also need to collaborate with vendors to share more information and agree
upon commercial risk reward models.
o Developing platforms that help to integrate agent and broker channels to better leverage
benefits of automated insurance solutions should also be on the priority list.

Bibliography
Website
o http://www.irisro.org/economics2014january/13MartaZieniewicz.pdf
o http://www.slideshare.net/adidasgupta/marketing-channels-tppa?qid=a17b4353-41904afe-b9a9-6248f185b682&v=default&b=&from_search=1
o http://en.wikipedia.org/wiki/Marketing_channel

Books
1. Managerial economics, R.L.Varshney&K.L.Maheshwari, Nineteenth edition,
2. Marketing Managemant Kotler ,Keller,Koshy,Jha, 13 edition
3. Economic times