1. Finance 341 Property and Liability Insurance
Marketing
Roger Schultz
FCAS, MAAA, CPCU, MBA
Guest Lecturer
January 28, 2003

2. Thesis
The marketing discipline is a concept that is foreign to the insurance industry.

3. A little about me... 1978 graduate of Drake University
FCAS, CPCU, MBA in Marketing
24 years with Allstate Insurance, 17 Assignments
Stints as a chief actuary, #2 underwriting officer, product management, special assignments:
CNA PI due diligence
Segmentation project
Reengineering
Focus of comments will be on personal lines...

4. Discussion Question
What is “Marketing”?

5. What is “Marketing”? Discussion Question
The process by which companies deliver value to customers.
“Marketing is everything”

6. MARKETING is everything!
What is Marketing?
MARKETING is everything!
Sales
Underwriting
Pricing
Claims
Operations

7. What do customers want from insurance? What is the value proposition
Discussion Question
What do customers want from insurance?
What is the value proposition
from their standpoint?

8. What do customers want from insurance? What is the value proposition
Discussion Question
What do customers want from insurance?
What is the value proposition
from their standpoint?

9. How do customers feel about personal lines insurance?
Discussion Question
How do customers feel about
personal lines insurance?

10. How do customers feel about personal lines insurance?
Discussion Question
How do customers feel about
personal lines insurance?
Low interest, low involvement, rather not be bothered, dislike the topic, necessary evil, costly, confusing, poor service, don’t like being required to buy something I don’t plan to use.

11. Why is there such low interest in insurance?
Low understanding of the insurance concept
Low understanding of the contract
Insurance is mandatory
Costly
Low usage rate
Customers are not sure what to expect
Service levels are low
Shopping of very hard
Pricing is complex
Aspects of insurance are personal
Companies are hard to tell apart

12. Marketing is all about the creation of value for customers!
Conclusion
It is hard to create a clear, compelling value proposition for insurance customers!
Marketing is all about the creation of value for customers!

13. Sidebar 1: Regulation Why so much? Complex product
Companies have advantage over customers
Cost is high for mandated product - must regulate!
Distrust of insurance industry
Financial stability of companies is of high public policy concern and hard to assure
To promote competition (really?)
Anti-trust exemption - “to extent regulated by states”
Politics

14. Sidebar 2: Industry attractiveness
Porter’s Five Force Framework can be used to assess attractiveness of the insurance industry.
Suppliers
Buyers
Substitutes
New Entrants
Rivalry
Goal:
Sustainable
Profitable
Growth

15. Sidebar 2: Industry attractiveness Personal lines
Personal lines market is unattractive due to rivalry and
modest supplier power.
Suppliers
MODEST
Buyers
LOW
Substitutes
Entrants
Rivalry
HIGH

16. Sidebar 2: Industry attractiveness Commercial lines
Commercial market is unattractive due to rivalry and
high supplier and buyer power and the threat of substitutes.
Suppliers
HIGH
Buyers
Substitutes
Entrants
MODEST
Rivalry

17. “4 P’s of Marketing”? Price Product Place Promotion “The Marketing
Mix”

18. Marketing is about value creation for customers...How so?
MARKETING is everything!
Sales
Underwriting
Pricing
Claims
Operations A
Strategy
Target
Price
Product
Place
Promotion
Positioning
Competition
Consumer
Company
Strategic Fit
Market Attractiveness B

19. Operational Excellence
MARKETING is everything!
Sales
Underwriting
Pricing
Claims
Operations
Most insurance company management attention today is focused on operational excellence.

20. Market AttractivenessB
Marketing Strategy
Strategy
Target
Price
Product
Place
Promotion
Positioning
Competition
Consumer
Company
Strategic Fit
Market Attractiveness
Little insurance company management attention today is focused on strategy. Few companies have Marketing Departments.

21. Market Positioning
What do customers want from their insurance company?
Price
Claim Service
Agent / Customer Service
Solid, Reputable Company

22. Price vs. Claim Handling
Market Positioning
Price vs. Claim Handling
USAA
Hartford
Met
Pru
Farmers
Bad Claim Handling
Good Claim Handling
High Prices
GEICO
AAA
Travelers
Nation
Wide
State Farm
Allstate
Liberty
Am Fam
AMICA
Low Prices
CNA
PROG

23. Market Positioning Price vs. Claim Handling
Hartford
Met
Pru
Bad Claim Handling
Good Claim Handling
High Prices
Travelers
Low Prices
Independent Agency Companies
CNA
PROG

24. Market Positioning Price vs. Claim Handling
USAA
Met
Pru
Farmers
Bad Claim Handling
Good Claim Handling
High Prices
GEICO
AAA
Nation
Wide
State Farm
Allstate
Am Fam
AMICA
Low Prices
Captive Agency Companies and Direct Writers
Liberty

25. Market Positioning
Marketing is about making choices - nobody can be all things to all customers
Marketing is about value creation for customers
Marketing is about being different than others - segmentation helps frame these choices
Market strategy informs market positioning.
Market positioning should be purposeful, it should not be an accident.

26. Market Segmentation Helps to frame marketing decisions
Possible segmentation dimensions
Geography
Service
Products / coverages
Channel
Demographics

27. Closing
Thesis: The marketing discipline is a concept that is foreign to the insurance industry.
Marketing is everything - beware of the misuse of the term in the insurance industry
Unattractive industry - being average and undifferentiated is a losing strategy
Marketing is about creation of value for customers. Shareholders and other interests follow.
Leaders job is to create and lead the development of strategy and oversee execution.

28. Questions?