1 FINANCIAL MANAGEMENT OF INTEGRATED MARKETING PROGRAMS Jay Jaffe President Actuarial Enterprises, Ltd. Chicago, IL September, 2009

2 Integrated Marketing A marketing process which uses coordinated distribution channels, media and messages to improve profitability

3 The 5 Risk Elements of any Insurance Marketing Program  Claims  Persistency  Administrative Expenses  Investment returns  Marketing costs

4 The 5 Risk Elements of any Direct Marketing Program (in order) 1. Marketing costs 2. Persistency 3. Claims 4. Administrative Expenses 5. Investment returns

5 The Primary Risk Element of any Direct Marketing Program MARKETING COSTS

6 Why Marketing Costs are the #1 RISK ELEMENT

7  $$$ are spent < any policy is sold  When marketing costs > marketing allowances, it is unlikely that: u The costs will be recovered; and u The product will be profitable

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9 Integrated Marketing Introduces Complications as a Result of Multiple Distribution Channels, Media and Messages

10 (Internet) (Agents) (Worksite) (Telemarketing)

11 (Radio) (PDA) (TV) (Mail)

12 (Fear) (Free) (Family) (Action)

13 We’ve Created the Classic ….

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15 And, We Tend to Create a Mentality at Our Companies

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17 The Odd Couple Jack Klugman (Oscar) and Tony Randall (Felix)

18 Some Examples of Silos  Distribution systems within a company operate that independently  Media managers each having their own plans, budgets and bonuses  Underwriters only worrying about claims

19 The result is that very few insurers have a recognizable and consistent message --- which may mean they don’t have a picture of where they are going.

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21 The Secret to Financially Managing Integrated Marketing is ????

22 The Answer: Integrating Marketing

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24 INTEGRATED MARKETING = JIG SAW PUZZLE You need to look at both the BIG PICTURE and all the LITTLE PIECES in order to get everything to fit together

25 Lead Cost: An Example of Non-Integrated Marketing in an Integrated Marketing Program

26 Lead Program Facets  Multiple lead sources  Cost of leads varies dramatically by source  Paid policies (conversion) results are not uniform  Value of a “name” for “after sales” is not easily determined  Which area owns the leads?

27 Developing a Lead Program = An Investment Strategy The problem: All leads are not equal in cost --- so how do you chose which leads to acquire?

28 #1 LEAD SELECTION CRITERIA (theoretically) The leads that produce the lowest cost per paid policy!

29 But What About?  The cost of leads given to agents who don’t even use the leads?  Leads that can be recycled and produce other business?  The value of revenue from products marketed by other companies that are sold to your customers?

30 AND OTHER QUESTIONS

31 Modeling Integrated Marketing Activities is Very Complicated (Live Oak Tree)

32 Decision Making for Integrated Marketing Systems  Requires complicated analytic models  Calls for acquiring additional data but only when it will improve the quality of a decision and at an affordable cost  Is partly a scientific and partly a gut reaction process but decisions should be made using more than an “I think” basis

33 Some Things You Need to do if You Want to Make Quantitative Decisions  Create comprehensive data bases  Identify the key metrics that need to be tracked and understood  Start with simple models  Increase the complexity of models as you gain knowledge  Recognize the team aspects of Integrated Marketing

34 The Team  Multiple marketing types  Underwriters  Actuaries  Lawyers  IT people  Claim processors  Etc.

35 REMEMBER RULER #1: IF YOU CAN’T MEASURE IT, DON’T DO IT.

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37 EXAMPLES OF TARGETS  Profit  Claims (mortality, morbidity, etc.)  Lapses  Conversion rates  Expenses: u Marketing u Administrative

38 Actual to Expected Ratios  A/E rations are helpful because they give you an instant picture  If conversion rate A/E = 105%, then good  If lapse rate A/E = 105%, then bad

39 The new direct marketing is an information-driven marketing process, made possible by database technology, that enables marketers to develop, test, implement, measure, and appropriately modify customized marketing programs and strategies. From The New Direct Marketing, David Sheppard Associates, p. 3

40 NEW INSURANCE PROGRAM ASSESSMENT FORMULA  Excellent  Good  Average  Poor

41 THE ULTIMATE TEST OF A PRODUCT WILL THE EAT THE ???

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43 THE INSURANCE DIRECT MARKETING FORUM 2009