distribution pluralism by neerjaur2


									          Distribution Pluralism

                    Rajendra P.Chitale
Managing Partner                   Chairman
M.P.Chitale & Co.                  Accrescent Consulting

 FICCI Sixth International Conference on Insurance
                    New Delhi
                15-16 October, 2001

          What Drives Distribution Pluralism?

          International Experience

          Multiple Distribution Channels : Challenges
           In Indian Market

© M.P.Chitale & Co.              2
                      What determines choice of
                       distribution channel…

       • Where are the Customers?

       • What are their life stage needs?

       • Which basic products and riders fulfill the need

       • Which distribution channel provides customer the
           best buying experience and value?

© M.P.Chitale & Co.               3
                      Market Pluralism

            Needs, values, buying preferences vary by
              market segment…
             geography
             age & income level
             Sophistication
            and market characteristics change over time

© M.P.Chitale & Co.            4
                Product & serivce continuum…
        Commodity/service continuum for retail insurance products
  Metals                                            Asset               Professional
                                Brokerage                               advice
       Petrol                                       Management
                                  most products move
   Pure                                                                        Pure
   Commodity                                                                 Service
                                  one way over time

 Motor           Household        Life          Life         Pensions   Health
 insurance       insurance        assurance     assurance               insurance
                                  (savings)     (protection)

         Direct        Direct mail,                       Face-to-
       telephone,       internet                       face sale, Click
        internet                                         & Mortar
          The primary distribution channel depends on the position of the
          product on this continuum - distribution is a key success factor
© M.P.Chitale & Co.                         5
                    Matching Products with Distribution
                  (The Product-Distribution Relationship)

                                              Increasing Gross
                                              Margins in Products

            Passive                                   Product
                      Simple                Complex

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    Product Complexity and Distribution Channels

  Complex Products                       Tied Distributors
  -Group Pension Plans
  -Investment Management                     Advisers)            Complex
  Demanding Products or             Independent Distributors
  Demanding Customers                      (Brokers)
  -Life Assurance (with profits,
  -Tax advantages etc.)                                           Product
  Ordinary Insurance Products
                                     Telemarketing, Internet,     and
                                         Bancassurance            level of
  -Unit Trusts                                                    Service
  -Mortgage Endowments
  Simple Products
  -Credit Insurance                Direct Mail, Affinity Groups   Simple
  -Loan Covers
  -Deposit Accounts
  -Term Cover
  -Unit-Linked Products

© M.P.Chitale & Co.                         7
   Products, Costs, Distribution: A Multi-Channel Model
           More Complex Products
                                                                                                                            Tied Agents, Advisors


                                   Increasing Product Complexity


                                                                                                                                           Cost per Client contact
                                                                                               Tele marketing
           Simple Products

                                                                                 Direct Mail

                                                                                        Distribution Models

                                                                   Mass Marketing Approach                      Customised Product Solutions

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                      Distribution Pluralism

     Face-to-Face                         Direct Response
      `Tied’ Distributors                 Mail (e.g. Direct, employer/
         (Agent/Consultant/Advisor)         Affinity Group)

      Independent Distributors            Telemarketing
       (Broker/Advisor)                    Internet
      Bancassurance
      Worksite Marketing
      Affinity Groups

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            What Drives Distribution Pluralism?

            International Experience

            Multiple Distribution Channels: Challenges
             In Indian Market

© M.P.Chitale & Co.              10
             Life Insurance Premium by Sales Channels :
                      Europe 1990-1999 (Contd..)
         Country                                                               Sales Channels

                          Agents        Financial   Brokers   Banks      Banks (Product         Employed   Direct   Others   Total        Other
                                        Advisors                            Types)              Salesmen                                 Remarks

   Spain (New      1999   61%       -               9%        27%     Tax        advantaged     2%         1%       -        100%    Career
   Business                                                           savings products with                                          agency
   Premium)                                                           insurance wrappers                                             system not

                   1999            21%              55%       20%     Single        premium     -          1%       3%       100%    -
                                                                      investment and pension
                                                                      product with insurance
   U.K. (Single
   Premium)        1994            26%              45%       23%     Single        premium     -          2%       4%       100%    -
                                                                      investment and pension
                                                                      product with insurance

                   1999            42%              41%       11%     Tax advantaged            -          4%       2%       100%    -
                                                                      insurance products
                                                                      with insurance
   U.K.                                                               wrappers
   Premium         1994            50%              26%       19%     Tax advantaged            -          3%       2%       100%
                                                                      insurance products
                                                                      with insurance

© M.P.Chitale & Co.                                                     11
             Life Insurance Premium by Sales Channels :
                          Europe 1990-1999
          Country                                                              Sales Channels

                           Agents       Financial   Brokers   Banks       Banks (Product        Employed   Direct   Others   Total    Other
                                        Advisors                             Types)             Salesmen                             Remarks
                    1999   9%       -               9%        60%     • Single      Premium     17%        5%       -        100%    -
                                                                        investment       and
                                                                        annuity     products
                                                                        with       insurance
                                                                      • Tax      advantaged
    France                                                              compared to bank
    (Total Life                                                         deposits
    Premium)        1990   18%      -               11%       39%     •Single      Premium      28%        4%       -        100%
                                                                      investment         and
                                                                      annuity products with
                                                                      insurance wrappers
                                                                      •Tax       advantaged
                                                                      compared to bank
    Germany         1999   54%      -               16%       19%     •Single      Premium      -          4%       7%       100%    -
    (Total Life                                                       investment         and
    Premium)                                                          annuity products with
                                                                      insurance wrappers
                                                                      •Tax       advantaged
                                                                      compared to bank
                    1999   27%      13%             1%        50%     •Single      Premium      -          9%       -        100%    -
                                                                      investment         and
                                                                      annuity products with
    Italy                                                             insurance wrappers
    (Total Life                                                       •Tax       advantaged
    Premium)                                                          compared to bank
                    1989   80%      12%             -         3%      -                         -          -        5%       100%    -

© M.P.Chitale & Co.                                                       12
                      International Experience:
                       Direct v/s Face-to-Face

       The large majority of consumers prefer to
        buy on a face-to-face basis (still as high as
        77% in North America & Europe)
       Personal contact may still be the best way to
        gain access to most markets
       In North America 95% of individual life
        business is still sold through agents

© M.P.Chitale & Co.              13
                      International Experience:

              bank “culture” often not “in synch” with pure
               protection products
              banks tend to sell to higher income customers,
               success has been primarily with investment and
               savings products
              statistics indicate more willingness for lower to
               middle income customers to buy insurance

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          Bancassurance: Two Basic Distribution

          Integrative                                Specialist
          Distribution           Model               Distribution Model

                                                    Distribute     products     through
        Distribution   through existing
         channel : platform selling and              specialists with platform bankers
         call centres                                identifying prospects who are then
        Productive way to reach simple              contacted by specialists. Generally,
         products to large, mid-market               specialists are representatives of
         and low-end of bank customers               insurance company
        European        experience      of
         integrative      model        very         Productive way to reach complex
         successful                                  products  to      bank’s    affluent
        In this model, role of technology           customers
         is    to    simplify    insurance
         purchase as much as possible,              In this model, role of technology is
         make it an easier, more                     to uncover customer buying habits,
         pleasant experience.         With           economic        status,     money
         point-of-sale         technology,           management practice, and economic
         customers could buy policy in
         less than 25 minutes and leave              behaviour from bank’s customer
         bank with policy cover in hand              data
© M.P.Chitale & Co.                           15
                      International Experience:
                         Worksite Marketing

        Worksite & direct response marketing … a
         growing proportion of written business in North
         America (total sales from 1992-97 were flat,
         while worksite sales increased 36%)
        Appear to substitute for, not compete with, face-
         to-face agent contact (especially for lower and
         middle income customers)
        Need for simple products and promotion/
         educational materials

© M.P.Chitale & Co.              16
                      International Experience:
                           Direct Response

        Better-informed, technologically savvy consumers
         (e.g. internet)
        Accustomed to making their own financial/
         investment decisions (e.g. on-line trading
        Trust themselves over advisors (69% of those
         under the age 30)
        Global concern over agent market conduct issues

© M.P.Chitale & Co.               17
                 International Experience:
               Comparative Distribution Costs

        It is not the channel that determines
         whether a distribution system is high cost
         or low cost…
        It is the management of the system.
        Need to focus on adequate product pricing,
         productivity, retention, persistency

© M.P.Chitale & Co.          18

            What Drives Distribution Pluralism?

            International Experience

            Multiple Distribution Channels: Challenges
             In Indian Market

© M.P.Chitale & Co.              19
                                Life Insurance :
                         Distribution & Intermediaries

               Distribution Channel/         Indian Practice            International
                      Intermediary        Present      Expected           Practice
         1. Agents                         Yes           Yes      Yes
         2. Brokers                         No           Yes      Yes
         3. Bancassurance                   No           Yes      Yes
         4. Telemarketing                   No           Yes      Yes
         5. Web Enabled Distribution by     No           Yes      Yes (e.g. QuickQuote,

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                      The Divided Market Place
           `Upper Crust’ Metros            Urban Semi-Urban Rural
                 Market                         `Mass’ Market
     • Relatively Sophisticated          • Unsophisticated customers
       Customers                         • Relatively less informed
     • Better informed                   • Volumes driven, mass
     • Value driven, rather than           market
       volumes driven                    • Small ticket size
     • Lower servicing cost per          • Higher policy servicing cost per
       customer                            customer

     What will drive channel             What will drive channel
      selection:                          selection:
     • Superior product & service        • Low cost delivery of
       delivery                            commoditised products &

© M.P.Chitale & Co.                 21
            Indian Bancassurance: Challenges
    • Core distribution challenge for public sector banks very
      different from the challenge facing foreign banks and new
      private sector banks
    • The real challenge is in implementation planning and execution
    • Building congruence of interest between insurance selling and
      retail banking units is vital for success
    • For complex products, leads generation possible but fulfillment
      difficult without life office specialist support
    • IRDA Amendment Bill referral to Standing Committee would
      delay implementation of life insurance distribution by banks
    • Conclusion: Terrain demanding for all, but too challenging for
      public sector banks to cope. Market should see islands of
      success. Banks with established Personal Financial Services
      (PFS) SBUs far better placed than others

© M.P.Chitale & Co.                22
         Indian Independent Distributors (Brokers)
                   Channel : Challenges

      • Most non-bank retail distribution intermediaries sell
        only investment products
      • Leading non-bank distribution franchises would see
        life insurance selling as cross-sell opportunity
      • Selling complex life insurance products would be
        challenging and would require building team of in-
        house life office specialist
      • Easier success would be in selling unit linked

© M.P.Chitale & Co.             23
              Indian Direct Tele-marketing Distribution
                        Channel : Challenges

     Three possible Roles:
      Call Centres as leads routers
      Call Centres as leads convertor
      Call Centres as service support to Agency and other Sales
      Call Centres as leads routers: Reasonable potential in urban market
      Call Centre as leads convertor: Too ambitious Limited chances of success
       for simple products only
      Call Centres as service support to agency and other sales forces: Can vastly
       help to maintain and enhance quality of sales process

© M.P.Chitale & Co.                        24
        Indian Worksite Marketing Channel : Challenges

         • Antecedent relationship with employer beneficial
         • `Employee Education’ on personal financial planning as
           an entry platform
         • Success would require face-to-face one-to-one
           interaction by agents or direct sales-force with
         • Can provide window of opportunity for `group products’
         • Conclusion: Opportunity demanding, but worthwhile

© M.P.Chitale & Co.                 25
                      The Challenge…

       Develop efficient and cost-effective
         distribution systems that …
        are integrated fully with a sound mission/
         strategy and the product offering
        reflect an intimate knowledge of your
         target customers
        match their desired product experience

© M.P.Chitale & Co.          26
                      The Challenge…

        Sustained success will require:
             Continual environmental scanning &
             Effective management of sales force and
             Strong commitment to selection, training and
              professional development
             Compensation system that rewards desired

© M.P.Chitale & Co.              27
                 Other Critical Components

        Information technology system that works
         for people
        Corporate communications that supports
         adequately your distribution systems and
         corporate vision
        Commitment to quality in every aspect of
         your business

© M.P.Chitale & Co.         28
                      The Promise…

        Distribution will differentiate you in your
         customers’ minds
        You will create value beyond the “product”
        Customers will become clients
        These clients will repay you many times
         over in productivity and profitability

© M.P.Chitale & Co.          29
                               U6/rpc/ficci distribution pluralism delhi 15-10-01rpc 6-10-01.ppt

                      Thank You

© M.P.Chitale & Co.       30

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