REPUBLIC OF TURKEY BANKING AND INSURANCE INSTITUTE INSURANCE DEPARTMENT METHODS OF DISTRIBUTION AND PROMOTION IN THE INSURANCE BUSINESS STUDY FOR MASTER'S DEGREE Adviser: Assoc. Prof. Dr. Osman GÜRBÜZ Prepared by: Banu GÖNENÇ ^ ISTANBUL -1994TABLE OF INDEX INTRODUCTION 1. DEFINITION AND SCOPE OF INSURANCE MARKETING 1 1.1 Policy and Strategies for Insurance Marketing 2 1.2 Place of Insurance Marketing Unit within Organization 3 1.3 Relation Between Promotion and Distribution Channels 4 2. INSURANCE DISTRIBUTION CHANNELS 5 2.1 Selection of Distribution Channels 5 2.2 Distribution Organization 6 3. DIRECT DISTRIBUTION 7 3.1 Distribution by Company's own Sales Personnel (Direct Sales) 7 3.2 Marketing through the Company's Means of Communication (Direct Marketing) 7 3.2.1 Marketing of the Service to the Public by means of Media 7 4. INDIRECT DISTRIBUTION 8 4.1 Intermediaries in Indirect Distribution 9 4.1.1 Agents 9 4.1.1.1. Market Analizing and Planning in the Service of Agency 9 4.1.1.2. Functions and Control of Agent 10 4.1.2. Producers 12 4.1.3. Brokers 12 5. TRAINING OF DISTRIBUTION CHANNEL INTERMEDIARIES 12 5.1 Agency Training 13 6. RELATION OF INSURANCE COMPANY WITH DISTRIBUTION CHANNEL INTERMEDIARIES 13 6.1 Relations between Insurance Company and Agent 13 6.2 Insurance Company - Producer and Broker Relations 15 7. DISTRIBUTION CHANNELS IN FOREING COUNTRIES IN GENERAL 16 7.1 Distribution Channels in Life Insurances 16 7.2. Life Insurance Distribution Channels in Countries of the European Community 178. PROMOTION IN THE INSURANCE 19 8.1. Importance of Promotional Activities in the Insurance Business 19 8.2. Determination of Promotional Strategies in Insurance Marketing 20 8.2.1. Determination of Target Mass 20 8.2.2. Selection of Promotional Means 20 8.2.3. Determination of Promotional Budget 20 9. METHODS OF PROMOTION IN INSURANCE MARKETING 21 9.1. Advertisements 21 9.1.1. Determination of Message 21 9.1.2. Selection of Media 22 9.1.3. Selection of Advertisement Agency 22 9.1.4. Determination of the Budget 23 9.1.5. Measurement of the Effects of Advertisement 24 9.2. Individual Sales 24 9.2.1. Quantifications of an Insurance Seller 25 9.2.2. Responsibilities of the Seller in Individual Sales 26 9.3. Public Relations and Introduction 27 9.3.1. Public Relations 27 9.3.1.1. Methods to be Followed in the Implementation of Public Relations 28 9.3.2 Introduction 29 9.4. Development of Sales 30 9.5. Fairs and Exhibitions 31 10. STATISTICS RELATED TO THE EXEMPLARY FOUR INSURANCE COMPANIES, 32 CONCLUSION 53INTRODUCTION The success in the marketing depends on the buying of the customer more than the efforts to sell good. Therefore, it is necessary for the insurance marketing activities to try to obtain profit by the satisfaction of the demands and requirements of the target consumers, customers and the public. Efforts are made in the insurance industry to reach every place and every body using any and all methods of promotion and to extend such activities rendering service for the customers. Therefore, I have aimed, in this study, to examine the distribution channels and the methods of promotion which are considerably distinguished within the marketing complex in relation with the insurance. Furthermore, I have generally dealt with the principles and ideas emphasized in my study,1. DEFINITION AND SCOPE OF INSURANCE MARKETING Marketing is an operating activity giving orientation for the true flowing of goods and services from producers to consumers and making easy the realization and finalization of variations. It is an integrated activities carried out for increasing sales before or after sales. Insurance is a service marketing and classified in two groups as the marketing of life insurances and elementary insurances. Instead of a concept orientated towards marketing, a concept oriented towards sale is valid in the insurance business. Lots of definitions have been made for marketing upto date. However, it is possible to classify these definitions in two main approaches: classic marketing and modern marketing. The classic marketing means the whole efforts and works carried out until the produced goods and services are received by end-consumer or user. The modern marketing is to determine the goods and services to be produced basing on the present and future requirements of consumers and to exercise all of the latest services and techniques which shall be used for the purpose of obtaining profit through the satisfaction of the customers. According to the modem marketing concept, the insurance marketing is an integrated series of activities related to the developing, pricing, promoting and distributing insurance policies whereby the risks are assumed by insurance companies in the direction of the requirements of the target consumers and the public and a process of obtaining profit as a result of the satisfaction and continued welfare of consumers, aiming the attainment of the objects and targets of the company.Considered with respect to insurance, the marketing components are explained as follows: (a) Product (policy): Concrete certificate of the service produced; (b) Price (premium): The amount received from the insured against the policy issued; (c) Promotion: Advertisements, individual sales, public relations, introduction, progressed sales and the like; (d) Distribution: Agencies, producers, brokers, banks, direct sales and direct marketing. The marketing activity should be treated in respect of buyer (customer) rather than product and service. The marketing manager may create optimal marketing components through the production of the most appropriate product for the target mass, the performance of the best advertisement and the determination of the most suitable price. 1.1 Policies and Strategies for Insurance Marketing The marketing policy is a way followed or a general plan implemented for attaining the objects which are divided in three categories as mission, long-term aims and short and medium term aims. In short-term aims, all efforts are oriented towards the products which are the latestly manufactured and towards the markete where then service rendered. However, the company should renew itself, increase its productivity, orientate towards new products and markets and attach importance on research & development studies in order to maintain its profitability in the long-term.The mission in the insurance companies is to maintain the continuity of the welfare and satisfaction of the potential insured by managing his (her) possible risks. The principal point determining the marketing policies of the insurance companies is to find the way how the persons encountered with miscellaneous risks are reached and which risks they will need to be covered. The marketing strategy indicates how the aims desired are reached by clarifying the ambiguities between various functions in the management of organization. The strategy includes foreseeing, forecasting and designing. It is a plan of distributing the sources at hand in order to reach at objects. The operating strategies are evaluated within the limits of sources, capacity and the marketing opportunities of the company together with the mission targets and marketing objects of the company. During the determination of a marketing strategy, such decisions as the development of the production, the transition from single branch to multi-branch, acceptance of reasurrance and/or extension to more than one market shall affect the marketing strategy. 1.2 Place of Insurance Marketing Unit within Organization The marketing unit should have a suitable position within organization in order to become successful and to conduct its activities. Marketing organization is formed depending on conditions and changes of the market. A single person should assume the responsibility of marketing activities.1.3 Relations Between Promotion and Distribution Channels The principal duty of the promotion is to inform the customers of the company and the products thereof, and to attract their interest in order to ensure that the goods are bought thereby. Meanwhile, it should protect the positive image of the company, ensure the thrust of the existing insureds and make them feel that they have made true decision by obtaining the policy issued by the company. It is necessary to prepare a planned and scheduled campaign for the advertisement of the product in order to ensure that the new product shall reach at the target. For example, it is not possible to become successful or to obtain a considerable share in the market when a new policy, that is for vehicle own damage, traffic or group individual accident insurance without the necessary advertisement campaign. Promotion plays an important role in order to ensure that the policy is bought by the insured. Irrespective of the good sold or the service rendered, the product should be found attractive by the customer which can only be realized through advertisement. Therefore, the present insurance companies assist their sales through promotional activities realized through distribution channels and thus try to carry out the desired sales. Since the promotion and distribution are such marketing components which are both supporting and preventing as well as positively or adversely affecting each other during the sales activities, the insurance companies should not neglect to take into consideration the importance of promotion in determining the mediators of their distribution channels. Since the successful mediators shall also have the same effect on promotion.2. INSURANCE DISTRIBUTION CHANNELS The distribution channel is the mean whereby the property of the good or service is transferred from the producer to the consumer. The distribution bears considerably importance for efficiency and successfully implementation of the other factors constituting the marketing components. The distribution channels are classified in various ways. By using the following method, the distribution channels in the insurance business may be divided as follows: 1. Direct distribution; 2. Indirect distribution. One of the most important decisions in entering the insurance business is the selection of the distribution channels. The selection of an effective distribution channel also means, in reality, the selection of the target markets of the company. The insurance companies wishing to attain definite objects by means of distribution channel should know the principal features of especially the consumers (policy buyer) and the policy itself. 2.1. Selection of Distribution Channels An insurance company has various alternatives for distribution channels in the selling of their policies. In the election of a distribution channel, the following factors should be taken into consideration. 1. The aims of the insurance company should be determined. The insurance companies must establish their objects by means of their distribution channels.2. The other factor which affects the selection of a distribution channel is the nature of the policy. 3. The socio-economical, cultural and geographical differences may prevent the utilization of a single distribution channel. 4. The insurance company should also obtain information about the mediators in order to select such a distribution channel matching with the aims of the company and the properties of the product to be insured. 5. Since the economical structure continuously varies, the researches related to the selection of a distribution channel should be performed without stopping. The abundance of the factors affecting the distribution channel requires permanent evaluation of changes in these factors. 2.2. Distribution Organization The exact aim of the insurance companies is to sell coverage. Therefore, it is necessary to contact with insurance buyers and continue the relations therewith. The distribution organization to be set-up within the company may be organized by establishing a distribution branch. The distribution branch should consist of such sections as market researches, sale service and advertisement, and managed by a manager who is capable and experienced in this business. The establishment of marketing policies related to various types of coverage, the preparation of a sales budget, the advertisement and the matching of the advanced types of coverage, the general management of the whole distribution channels and the realization of a coordination are among the duties of the manager of a distribution branch.3. DIRECT DISTRIBUTION 3.1. Distribution by the Company's own Sale Personnel (Direct Sale) Direct sale is such a selling whereby the policy is directly sold by the insurance company's own sale organization. This distribution channel is organized by the insurance company. The insurance company has full power of management and supervision over the whole production and marketing activities. 3.2. Marketing Carried Out Through Media (Direct Marketing) The direct marketing is the presentation of the insurance to the customer without using any intermediary. In other words, the direct marketing is a technique whereby the insurance company shall directly make contact with the public and the potential insured. Bu using media such as newspapers, magazines, TV, radio and the like, a direct relation is established with the insurance buyer. After this initial contact, any and all relations are conducted by mailing and in general, such relations do not require the existence and/or assistance of any agency, producer or broker. 3.Z1. Marketing of the Service to the Public by means of Media After having decided that this distribution technique is to be used for the marketing of the service to the public, there are certain factors ensuring the attainment of the aim, such as: - Public relations - Evaluation of public relations and/ or advertisement agency - Marketing plan - Marketing services and support - Analysis of marketing results.8 One of the natural means of marketing to the public is the employment of an advertisement agency. A successful consultant company may help the evaluation of the advertisement agency. The marketing plan should be prepared with priority. Some persons neglects the time factor, while some other inexperienced persons neglecting the fact of season. These factors may be summarized as the copy strategy, media strategy, product/profit strategy and realization strategy. It may be thought that the work to be performed is easy in this marketing activity. The completion of the work is more difficult than the definition of the work. Furthermore, there are additional marketing services and supporting functions. One of them is execution. Financial control, accounting, indemnification, the forwarding of notice, collection and services rendered to the holder of policy are among the other factors. 4. INDIRECT DISTRIBUTION The indirect distribution is to ensure the buying-selling relation between the insurer and the customer through intermediaries which are legal entity. The status of these intermediaries is defined in the Insurance Control Law No. 7397. The indirect distribution channels of the insurance companies may be collected in 3 main groups as follows: 1. Agencies 2. Producers 3. Brokers The brokers are such intermediaries which have not yet been defined by the laws in effect in Turkey.4.1. Intermediaries in Indirect Distribution 4.1.1. Agents In article 6 of the Regulation on Insurance and Reassurrance Intermediaries, agent is defined as follows: `Persons or corporate bodies who professionally undertake to act as intermediaries or execute contracts in the name of the company permanently, in insurance branches that the insurance companies are licenced for, in a particular place or territory basing on a contract, under any name whatsoever without being subject to insurance companies, are called insurance agents.` Agent is an important element of the insurance business, which assumes the job, issues policy and collects money on behalf of the company represented, but cannot pay indemnification. 4.1.1.1. Market Analysis and Planning in Agency Services An insurance company wishing to develop and establish the agency service in a certain market should take into account the various phases, which may be grouped under the titles of analysis and planning. For Analysis: - The market is defined by dividing geographical and/or social areas. - The potential demands should be evaluated by determining the number of potential customers and the average insurance capital for every policy. - The number of approriate agents to be appointed at the region should be determined. - The number of sales manager to be appointed at every region should be determined.10 - The possible expenses and the results to be obtained should be calculated approximately and the size of agent at every region should be determined. For Planning: - The rate of commissions payable to agents and the extra commissions payable to managers of sale units and the branch and regional managers should be determined. - An estimated sale table should be prepared and all expenses other than commissions should be calculated for every region. - The expected total production expenses should be compared with the economical possibilities at hand, and the adjustments, if necessary, should be made. - The development plan of the agency should be submitted to the management and the necessary corrections should be made taking into consideration the requirements of the management. - The policy mostly suitable to the market should be determined taking into consideration the product marketed. - The rules and regulations, and the texts for insertion in acency guideliness should be prepared and a price list should be established after consulation with actuary. 4.1.1.2. Functions and Control of Agent The functions of an agent are clarified by the duties of its personnel. The function of an agency is to orientate its personnel to provide more and qualified new jobs. These responsibilities may be enumerated as follows:11 (a) Qualified personnel should be employed and well trained with priority. (b) Especially those personnel who need help and who are inexperienced should be attached care. (c) The maintenance of the quality of the job gained is also important. (d) The people from among the public may demand information on matters related to insurance and in such cases, the duty of the personnel of the agency is to prove that they are provided with first quality service. (e) Special administrative works should also be performed in addition to the development of the relations between the customer and the insurance company. (g) One of the principal duties of the agency is to control the performance of the personnel and to supervise the expenses. (h) Regular meetings should be held. The controlling of the production quality of the agency is necessary for the determination of the standard of the seller and the sales department since they are directly related to the performance of the company. The performance of an agency may be evaluated on monthly basis by comparing the number of proposals which are allegedly finalized during that mont and within the relevant year passing upto the relevant month with the number of policies which are actually issued at the end.12 4.1J2. Producers In article 10 of the Regulation on Intermediaries of Insurance and Reassurance, the producer is defined as follows: `Real or legal persons who are not directly employed by any insurance company and who as intermediary, are authorised to prepare the insurance proposal in accordance with the subject and specific terms of risks, to negotiate the contract conditions, giving the prospective insured information on various insurance branches and receiving commission in return therefor, are insurance producers.` The producers cannot enter into agreement or collect premium or pay indemnification on behalf of the insurance company. 4.1.3. Brokers The most important characteristic of the business of broker is that a broker is not the representative of the insurance company. The broker is a representative who buys insurance on behalf of the insured, has the terms of the insurance determined and then rewrites, if necessary, those terms depending on requirements of the insured. Whereafter, the broker conducts a research to determine the insurance company where the insured can obtain the policy under the most appropriate conditions and takes the policy at the end. Therefore, the broker acts on behalf of the insured to determine the terms and price of the insurance, looks for an insurer and then makes a contract with the most appropriate insurer. Furthermore, the broker is an entity which makes the payment to the intermediary on behalf of the insured, collects the damages from the insurer and fully acts on behalf of the insured. 5. TRAINING OF DISTRIBUTION CHANNEL INTERMEDIARIES Training is the most important factor ensuring the attainment by the marketing unit and therefore die insurance company of their aims and objects. For this reason, the insurance companies have begun to attach more importance on training. There is one portion of the industry consisting of personnel, agencies and bank employees to be trained.13 The training activities in the insurance business should be conducted within the marketing unit or within a separate unit or as a separate center. 5.1. Agency Training The insurance companies should implement three common types of training which are consisting of: 1. Technical Training: The agency which has newly started its business shall acquire information on its products, the advantages thereof, the terminology used and which policy shall satisfy the requirements of customers. Moreover, it shall also collect information about social securities which shall affect the decision of the customer to buy the policy. 2. Sales Techniques: This training which is also important of the same degree consists of such aspects as how an appointment is arranged, how a sale negotiation is commenced, how the attraction or the interest of the customer is understood, how the objections are replied, how the sale is bound and as a most important factor, how the manpower is organized. 3. Company Procedures: In this phase, the agent learns how the premium tables shall be used, and how the proposal forms and the records are completed and maintained. 6. RELATION OF THE INSURANCE COMPANY WITH DISTRIBUTION CHANNEL INTERMEDIARIES 6.1. Relations Between Insurance Company and Agent The agent defends the rights of the insurance company against the customer and the rights of the customer against the insurance company, thus trying to establish a good dialouge between the insurance company and the customer.14 While the insurance agent assuming the above mentioned responsibilites, there are some other duties which should be performed by the insurance company. Here the most important function of the insurance companies is to become very careful in selection of an agent. If the insurance company and the agent commence a joint activity in cooperation shoulder to shoulder, then the result to be obtained shall be satisfactory in all respects. MARKETING COMPONENTS AGENT INSURANCE COMPANY PRODUCT (POLICY) PRICE ADVERTISEMENT To sell most compre- To develop and implement hensive and the most new insurance policies and appropriate policy insurance packages required which shall fully sat- by the market, isfy the requirements of the customer. To apply the tariff Providing the customers prices in the most cor- «** sPedal «`*» bv new rect manner. Prices to be is8ued after application filed with the Insurance Control Board. - Individual presenta- Mass advertisement (TV, tion (face-to-face sale) Press). - Regional introduc tion DISTRIBUTION To ensure that the policies prepared shall be supplied with the customer in due time at the place desired.15 The insurance company enhances its agent by means of its reputation, size and reliability, and the agent enables the insurance company to become prepared for the future by accurately following up, and timely informing the company of the developments and variations in the market, and acting as ear and eye of the company. 6.2. Insurance Company - Producer and Broker Relations Since the producers are not affiliated to an insurance company and are such distribution channels working on their own account, they should aim not to gain money rapidly, but to acquire reputation among their customers providing serious recommendations and rendering regular service. The insurance companies should especially take into consideration the professional knowledge and reliability of the producers they think to work with. A producer which does its job well shall satisfy the insured and thus the image of the insurance company shall be maintained. The providing by the broker itself of certain services to the insured shall, in fact, reduce the service volume and accordingly the expenses of the insurance company. One of the aspects which makes the broker attractive for the insurance company is the amelioration of the business load of the insurance company because of the services rendered by the broker. An insurance company wishing to work with a broker should, at first, make an investigation on which broker has what type of portfoilo.16 7. DISTRIBUTION CHANNELS IN FOREIGN COUNTRIES IN GENERAL The insurance marketing is in general carried out by way of agencies and brokers who are more preferred because of their professionalism. In the European countries, the number of insurance companies and intermediaries is much more than those in Turkey. Conciliation and training, and in case of training, the central and on-the-job training prior to becoming an agent should be given priority. The central control is possible. In general, the branc and training manager spends less time and retraining is possible. A licence should be obtained in order to become a broker or agent. The insurance education is in general at university and high school level. For example, such education is given in the universities of Madrid, Barcelona and Bilbao in Spain. The duties of the brokers and agents are to enable the potential insureds to become acquainted with insurance. 7.1. Distribution Channels in Life Insurances The most important question for a life insurance company should be : `How can we reach the product to the customer ?`. There are lots of ways therefor, the mostly known ones are: - Direct sale; that is the selling by the company's own personnel; - Direct marketing; that is the presentation of the insurance to the customer without any intermediary; - Insurance intermediaries; - Banks. The most common method of selling in the world life insurance market is, without no doubt, the making of an insurance by means of sellers supported by a sales organization.17 7.2. Life Insurance Distribution Channels in the Countries of the European Community The life insurances in the countries of the European Community are shortly summarized in the light of information obtained as a result of the studies on distribution channels. GERMANY: The 80 % of the distribution is performed by the producers, while the remaining is carried out by independent agents, brokers and direct sale channels. AUSTRIA: The distribution is in general performed by direct sales personnel of the company. The contribution of agents, brokers and banks is too low. BELGIUM: The distribution is performed by brokers and independent agents. The independent agents have 75 % share in the market together with their affiliates. The CGER which is a public organization makes sale in all deposit banks. The number of direct sale personnel is too low. The brokers are influential in the group business. DENMARK: The 95 % of the distribution is performed by producers, the 3 % is performed by banks and the remaining 2 % is performed by brokers and independent agents. FINLAND: The considerable portion of the distribution is performed by direct sale teams. Distribution through banks is under trial. However, the sales are not satisfactory. FRANCE: The 52 % of the distribution is performed by personnel and brokers, the 42 % is performed by banks and post-offices and the remaining 6 % is performed by direct sale teams.18 HOLLAND: The considerable portion of the distribution is performed by independent agents. The distribution by affiliated producers, banks or direct sale teams is performed at negligeable level. ENGLAND: The new business premiums in the year 1989 are obtained from brokers, agents and through direct sales by rates of 48 %, 50 % and 2 % respectively. Upon the execution of the Financial Services Agreement in 1986, the brokers and producers are obliged to recommend `the best proposal` to their customers. It compulsory for brokers to perform this obligation with respect to all products in the insurance business. SPAIN: The distribution is in general performed by affiliated producers. If the insurance company is owned by a bank, then the branches of that bank may also make sale. Direct sales and other channels are not so common. SWEDEN: The considerable portion of the distribution is performed by producers and the contribution of banks or brokers is not so high. The business of broker has taken legal effect in 1990. SWITZERLAND: The distribution is in general performed by affiliated producers. The share of direct sales is low. ITALY: 75 % of the distribution is performed by affiliated producers. Other distributions are carried out by brokers and banks which have newly started to make selling business. NORWAY: The distribution is performed by direct sales personnel of the company. Brokers are not entitled to enter the life branch. PORTUGAL: According to Portugal Insurance Institute, the producers, brokers and the personnel of an insurance company are accepted as intermediary. No commission is paid to banks or post-offices to increase the sales.19 TURKEY: The distribution is in general carried out by affiliated agents. In addition to the direct sale organizations established by some companies for their special products, the companies have in general neglected such performance. The distribution is in general performed by branch offices of banks which are at the same time the shareholder of the companies. The producer concept has not yet been established. GREECE: The distribution is performed by brokers, affiliated producers and banks supported by the state. 8. PROMOTION IN THE INSURANCE 8.1. The Importance of Promotional Activities in the Insurance Business By means of promotional activities, the interest of consumers and customers are drawn to a single good-service or brand and/or the goods and services are supplied to them. The promotional component which is one of the marketing components consists of various sub-components which can be distinguished as advertisement, individual sale, public relations and the like. It is very important in the marketing, to introduce the product to the public, to have the said product accepted and to create a positive image for the insurance company in the market. The insurance companies have to create, above everything, a positive company image in order to enter the targeted markets and to be able to make continuous business thereat. Such an image may be created by the information-providing nature of the promotional components.20 8.2. Determination of Promotional Strategies in the Insurance Marketing 8.2.1. Determination of Target Mass The insurance companies have to investigate, at first, such characteristics and qualifications of the targeted mass as age, culture, ecomocial and social life level. The successful strategies can be realized only when the targeted mass is satisfactorily defined. In is necessary to investigate the expectations of such targeted mass in order to be successfull in promotional activities. 8.2.2. Selection of Promotional Means The insurance company should plan, in advance, the selection of the means of promotion in the targeted market. It must determine which methods such as advertisement, individual sale or promotion of sales shall be used to increase the sales in the targeted market. 8.2.3. Determination of the Promotional Budget One of the important marketing decisions is the determination of the amount of funds to be allocated for promation. In determination of such a budget, four aspects shall be taken into consideration. Firstly, the company allocated the maximum amount within the limits of its capability for promotion. Secondly, the budget is realized the ration between the expected and the realized sales. Thirdly, the strategies of the competitors in this respect is determined. Fourthly, the budget is determined according to objective aims.. The budget which is ideally determined in marketing is the budget which is necessary for attainment of the targeted sales and objects of the insurance company.21 9. METHODS OF PROMOTION IN INSURANCE MARKETING 9.1 Advertisement Advertisement is a new method of media which now plays an important role in the trade and industry, and is the general definition of the various ways used to introduce a commercial or industrial corporation or to increase the sale of a good. Advertisement may be performed by meas of various media such as magazine, newspaper, radio, televizion or direct mailing. Some compulsory protective measures can be taken in advertisements. Such arrangements are tried to be realized by governmental authorities (legal or administrative), professional organizations, consumer associations and through responsibility programs. For example, the International Chamber of Commerce (ICC, 1987) has accepted the following principles in this respect : (a) Any and all advertisements (goods, services and activities) must be legal and in accordance with the general moral values of the public and should reflect the reality; (b) Every advertisement should be prepared in accordance with principles of social responsibility; (c) Advertisements should be in accordance with generally accepted fair competitive principles; (d) Advertisements should not be in the nature of reducing the thrust and confidence of the public for advertisements. 9.1.1. Determination of the Message An insurance company, agent, producer or broker aims with advertisement to communicate to the public an attractive message introducing a company or a definite product. However, the messages wished to be communicated by way of advertisement are evaluated according to two separate targets :22 1. A definite target type advertisement Advertisements of this type take as a target for example, construction or individual accident insurances or a definite section of insureds or the public. This type of advertisement should be taken into consideration by those companies or distribution channel intermediares wishing to be specialized in a definite branch of the insurance business. 2. Advertisements Taking Everything and Everybody as Target In such type of advertisements, the introduction of the company is important and thus they are of the general nature. Therefore, there is reason for any restriction with respect to insured or insurance subject. 9.1.2 Selection of Media Prior to advertisement campaigns, a detailed study should be made on which media can be used in the targeted market. In selection of the media, the advertising manager should take into consideration three points which are: the existence and availability of media, the product itself and media related habits of the public. 9.1.3 Selection of Advertisement Agency Professional advertisement agencies should be used in order for the advertisement to be successful. In making selection among advertisement agencies, the following factors should be taken into consideration : 1. If an active marketing effort shall be used and an intensive advertisement campaign is to be started, then it is more appropriate to select such an advertisement agency which is sufficiently big and financially powerful enough to realize such an advertisement.23 2. In selection of an advertisement agency, the range of its business scope should be determined. 3. The number of markets which may be covered is not sufficient. The effort itself should also be taken into consideration. 4. Advertisement agency may also be made use of for such other subjects as marketing researches, public relations and similar subjects. 5. The organization type of the company, whether centralized or decentralized, is also an important factor affecting the selection of an advertisement agency. 9.1.4. Determination of the Budget Three principal factors play an important role in the determination of a budget for administration. (a) Sales Percentage In determination of a budget for advertisement, one of the most easiest methods is to use the established sales percentage.. (b) Comparison with Competitors Another method used in determination of the expenses for marketing advertisements is the allocation of the budget for advertisements among markets in proportion with advertising expenses of the competitors. (c) Aims and Functions In this method, at first, the advertisement targets are determined in terms of sales volume and/or the number of policies. After having investigated the duties required to attain the determined objects, a plan is made for the realization of these aims and the estimated costs are calculated therefor.24 Upon the determination of the amount to be allocated for advertisement, the method how these expenses shall be made is found and after a total amount is allocated for the advertisement budget of the insuranca company or the agent, the said budget is allocated in assistance of the advertisement agency. 9.1.5. Measurement of the Effects of Advertisement It is very useful for the insurance company to establish, after the advertisement campaign, the results thereof to check whether the targets are reached. The experiences to be derived from the results may create very important consequences for the future of the insurance company. All insurance companies use efforts to measure the efficiency of the advertisement. This efficiency may be evaluated taking into consideration such matters as sales, attraction and profitability.. In tests aiming to see the efficiency of the advertisement, efforts are made to find out how a change has occurred in the sales as a result of the advertisement campaign. 9.2. Individual Sales Individual sale is to make a one-by-one negotiation, to discuss with lots of potential buyers and then to attain the aim for the purpose of making a sale. Individual sale requires certain qualifications : 1. Personal Meeting: Individual sale requires the establishment of a vivid, close and mutually affective relations between two or more than two persons. 2. Art of Persuasion: Individual sale allows the creation and development of any and all types of relations varying between just a sale relation and a deep friendship relation.25 3. Effect of Response: Contrary to advertisement, the individual sale forces the buyer to listen to talks of the seller or to think that the seller spends his (her) time for nothing. 9.2.1. Qualifications of an Insurance Seller In order to realize the sale, the insurance sellers should have some qualifications. In summary the insurance seller should : (a) aware of him (her) self and the customer and should develop his (her) ability of representation; (b) know very well the marketing program and the regulation on insurance business; (c) have acquainted with the customers and the decision makers of the potential customers; (d) be able to analyze types of risk, damages, insurance market, necessary statistics, regional properties, graphics and reports; (e) be well aware of the competiors and the policy features thereof; (f) develop the system of reference which system has provided more than satisfied for the insurance business; (g) be a professional, a diplomat, a teacher, a manager, a psychologist, an adviser and an insurer; (h) think positively; (i) be able to realize the happiness promised at the time of sale; (j) know to select the right person, the right time and an appropriate platform;26 (k) not use such phrases as `if you die` in presentation; (1) not become hurry if the customer has sufficient moner, or morality or payment ability. As a result, a sale transaction is a certain type of the art of persuasion which is possible only when the buyer is persuaded for the requirement of the thing to be sold. 9.2.2. Responsibilities of the Seller in Individual Sale The sale technique places certain responsibilites over the seller. These responsibilities may be enumerated as follows: (a) The names obtained during marketing researches should be evaluated and then enumerated in a list under target insureds; (b) After the determination of the requirements of the target insureds, they should be archived and then necessary visits and negotiations should be conducted. (c) During such visits, the seller should aim to create a material need in the mind of the target insured; (d) In explaining the needs of the target insured, the seller should also deal with the solution of these needs; (e) In presentation of the product, the seller should reveal his (her) knowledge, awareness of the fact and ability of persuasion. (f) In presentation of the product, the seller should motivate the target insured to buy the product attracting his (her) interest in the product;27 (g) In cases where the target insured feels hesitant, the seller should explain the dangers of delays; (h) The closing transaction of the visit is that phase where the presentation of the product is developed positively, an application form is completed and the premium decision was made in the direction of the policy of the company. Of course, the principal aim of the seller is to convert every visit into a actual sale. Otherwise, every visit which cannot be converted into an actual sale should be evaluated as an investment made for the future.. 9.3. Public Relations and Introduction Despite the developments experienced recently, the failure of the insurance industry in Turkey in developing sufficiently is closely related with the fact that the introduction and public relations are not sufficient. For this reason, the insurance industry has started to attach maximum importance on press and public relations in the contemporary meaning for establishment of a consciousness for the necessity of insurance, while efforts are continued to develop the agents in the business. In order to increase the consciousness of a required insured, the insurance companies should carry the insurance business towards the contemporary lines through an established cooperation in introduction and public relations. 9.3.1. Public Relations The public relations are such methods of internal and external communication which are necessary for creation of a positive company image and for advertisement of the company by the customers. The attaintment and realization of the marketing strategy of an insurance company requires mutual understanding, confidence and good will between the public and the insurance company.28 The most effective means of communications used in public relations are articles and news on the company published in newspapers or magazines and the interviews made through radio or Television for the same purpose. A well programmed public relations have an important place in increasing the sales and thus the productions of the insurance companies. For this reason, the insurance companies should attach importance also on public relations as the case with the advertisement. The appreciation of their friendly relations and efforts, aims and intentions by the public and the mass is extremely important for the future of the insurance company. 9.3.1.1. Methods to be Followed in Implementation of Public Relations For the implementation of effective public relations, the insurance companies should at first establish their places within the insurance industry, correct their mistakes, if any, and reach developing like a circle increasingly expanding from the close environment at their own environment and then other groups. The insurance companies should in their public relations take into consideration the following principles: 1. The requirement for a program for public relations should be adopted and supported by top management of the insurance company. 2. It should be prepared a good plan appropriate to the environment and the realities for public relations. 4. Public relations should be carried out in due time. 3. Studies for public relations should be continuously conducted.29 5. The companies should themselves prepare the program and images for public relations. 6. Such factors as environment, behaviours, opinions and the like should be taken into consideration in public relations. 7. There is no difficult or non-understandable issue in public relations. 9.3.2. Introduction Introduction is a marketing method informing the consumers of the goods produced or the services rendered, ensuring maintanence and development of the organization. The foundation of the insurance marketing is the introduction of the insurance and having its importance adopted. The purpose of the introduction should be to introduce the insurance at first and then the branches of insurance. Since the introduction of the insurance branches is similar to the introduction of a new good to the market, it should be implemented from time to time. During the introduction of the insurance, the insured should be made aware of the features of the product, the motivations which shall activate the people to procure an insurance policy should be correctly reflected and persuasive. The insurance industry is a sector where every company should introduce its own product because of competition and should make struggle to obtain a market share for its own product. This industry needs a different introduction program with respect to products and the creation of confidence on the part of the people. The periodically increasing requirements of the people require the satisfaction thereof by rendering service with the same determination.30 9.4. Development of Sales Development of sales is an important method of promotion in marketing. Any and all components other than advertisement, individual sales and public relations are called as promotion of sales. Efforts which may be used for increasing the sales are as follows: Brochure: Introduction of in insurance product for proposing to the customer. Premium return proposal: A proposal whereby the insurance taker shall be return certain portion of his (her) premiums paid if he (she) is not satisfied with the insurance product. Increasing the Sales by Reducing the Premiums: A certain amount of discount is proposed to the insurance taker. Additional Product: An additional product is presented to the insurance taker for ensuring the sale of the insurance product. Competition: Competitions arranged for providing the insurance takers with the opportunity of gaining small gifts or certain free tours. Fairs and Exhibitions: This method aims the sale in addition to the presentation of the product. Advance for advertisement An advertisement advance may be provided to the agents for advertisement of the product through television, newspapers or radio programs. Joint Advertisement: The insurance company and the agent may jointly cause to be made regional advertisements for the introduction of the insurance products.31 Sale Competitions: This method is used by insurance companies to encourage their agents, brokers, producers or the sales personnel to use more efforts. Premium: Cash payment to sales personnel for the success in addition to their normal wages. Sales Team Competitions: A competition prescribing the providing of gifts for those sales personnel who have doubled their efforts and reached at the highest level during a pre-determined period. Sales Meetings: Convention of sales personnel to discuss their sales techniques and to direct the sales team towards a harmonious work for the purpose of presenting their products. 9.5. Fairs and Exhibitions The insurance companies find opportunity to meet face-to-face with lots of customers thus providing the possibility of realizing promised sale contracts amounting to large numbers. On the other hand, through such organizations, the products are introduced and presented prior to entering the market leading to very useful results. Participation in exhibitions is a very useful method which should be frequently exercised in order to increase the sales and provide mutual relation for individual sales.32 10. STATISTICS RELATED TO THE EXEMPLARY FOUR INSURANCE COMPANIES: In this section, four insurance companies which were active in this business for a period of long years have been treated to examine the affects of the distribution and the promotion on premium collection. The tables are based on the sum total of the data related to life and non-life insurances received from the companies which could give a single figure as promotional expenses due to the difficulties they encountered in discriminating the expenses related to promotional components for every year. The companies have been examined one by one as follows: Insurance Company A: As seen in the Table 1 and Table 3, there is an increase in premium production and agency production as of the whole years. However, as shown in the Table 2 related to the real premium production where the affect of the inflation is eliminated, a large decrease has occurred in 1991 and despite the low rate of increase in 1992, its previous status could not be recovered. The increase gained in the years of 1990 was lost in 1991 and a little increase was realized in 1992. When the Table 5 is observed, it is seen that the 80 % - 90 % of the premium production is provided by the agencies. Accordingly, there is a direct proportion between the real premium production and the real agency production. In the Table 6, there is a parallellism between the increase in the real agency production and the increase in training. However, the real agency debts are not affected by the training. There is a parallellism between the real agency production and the real agency debts. In this case, we may say that the training program conducted by the company is primarily directed towards marketing. As seen in the Table 7, there is a parallellism between the number of the general agencies and the real premium production.-33- O o c/j z LU I H LL. T- O LUO 58 ?^ a. UJ oc a. h- o LU gç û (630I.88LULÜ (11 Nomıö a >- z o a [] o >- z o o t GQ >- z o o t < z o o +-34- T m o ıo g co n cvı cvı (630l.sauJLO (ıı Nomıa) Q z 2 o >- z s o ü t Z o ü t < >- z o o t-35- (630 1- S9LUJİ) (ıı Nomıa) Q >- z S o o [] o >- z s o o t >- 1 o o t < >- z o o t /-36- 9 Ş co o co t r mow cvı CM T- fe30l.88UJLÜ (11 Nomıö Q >- Z 5 o o t] o > Z o o t OD >? Z o o ı < >? z fi o o t37- (oııvy) a >? z o o [] o >- z <c CL o o GQ z o o i < ı OL 5 o o t-38- - ı 1 r O CO CD ^ CM CM T- T- T- T- CO CO (630 1. 89UJLL) (ıı Nomıa) `?8 03.03 03 O.03 03 03.CO 03 CO.CO 03 CM S3 LL O CD LU Q _J LU LU k S £ LU DC DL - I LU LU DC t Q 1 Q LU +-39- LU CE Q_ _l LU LU (T LU O Z LU LU X h- LL O it (63QLS3UJLL) (ıı Nomıa)-40- CVİ (M CD CD CVİ (630 1- sama) (nı Nomıa) ey LCD 05 -CD CD o LCD CD CD Loo ^CD CO Leo CD CO LU CE a. _J LU LU CE / a z LU CL o oc a. -j LU LU CE t41 As a result, the company prefers the agencies as distribution channel and the training effects the agency outputs and hence the totai premium production. However, the training program implemented by the company has no effect on the real agency debts. The effect of promotion on premium production attracts attention. Insurance Company B: When we look at the Tables 1 and 3, an increase is observed in premium production and the agency production by the whole years. In the Table 2, it is observed that the real premium production is retained during the first three years, but a decrease has occurred in 1991 and a considerable increase has occurred reaching at even exceeding its previous status in 1992. The same fact is also observed in the real agency production as indicated in the Table 4. No variation has occurred in the real agency production of the company during the first three years, a considerable decrease was observed in 1991, but a high rate of increase occurred in 1992 exceeding the real agency productions of the previous years. As seen in the Table 5, the 80 % - 100 % of the premium production of the company by the whole years is provided by the agencies. The ratio of the agency production in the total production increased continuously and there is a direct proportion between the real premium production and the real agency production. As seen in the Table 9, there is a decrease in the real agency production parallel to the decrease in the agency training. However, a considerable increase has occurred in the real agency production of the company as a result of the trainings provided by the company in 1992. Despite the said increase in the production, no increase has occurred in the real agency debts. These results indicate that the company has implemented a good training program in 1992. When we look at the Table 10, we may say that there is no considerable change in the number of agencies throughout all years, except 1988.-42- CM LCD 05.05 05 O.05 05 05.00 05 CO LCO 05 CO (630 1. saıuuJ di Nomıa) 3 LL O m LU Q -j UÜ LLI DC LU DC O. _J UJ UJ DC z S 1 3 Q UÜ43 -i 1 1 1 1 r WWWWWOJrrr-rrr LU DC EL -J LU LU DC ? C/3 LU O LU LU 1- ÜL o (630 L sauuıı) (11 Nomıs)-44- CM L-03 0).S 05 O.CD 03 0).CO 03 CO Leo 03 -i 1 1 1 1 r- CD 5f CVI O CO CD ^J- CVI CM CM CM t- t- r- CM -f- O CO 2 5 LU CE a. _j LJJ LU oc { a z LU QL a o DC GL _l LU LU DC I (630 l sauii) di Nomia)45 As a result, the company prefers the agencies as distribution channel and the training effects the agency outputs and hence the total premium production. Furthermore, the training program implemented by the company has positively affected the real agency debts. The promotional policy of the company had no effect on the total premium production. Insurance Company C: As seen the Table 1 and Table 3, there is increase in the premium production and the agency output by years. When we look at the Table 2, a considerable rate of increase is observed in the real premium production during the years following 1989. When we look at the Table 12, we may say that the real premiums increased parallel to the increase in the number of agencies in general. In the Table 4, a very high rate of increase is indicated in the real agency production during the years following 1989. As also seen in the Table 5, the 90 % - 100 % of the premium production is provided by the agencies throughout the all years. The share of agency has remained nearly the same during the period of 5 years. Accordinly, there is a direct proportion between the real premium production and the real agency production. As seen in the Table 13, the real agency production has increased parallel to the increase in the training provided. The increase in the real agency production has also affected the real agency debts, however the said increase has not realized as the case with the increase in the production. We may say that the company has implemented a good training program. When we look at the Table 14, it is indicated that the real promotional expenses of the company have rised by years. As a result, the company prefers the agencies as distribution channel and the training has affected the agency outputs and hence the premium production. The effect of promotion on premium production attracts attention.-46 oınoLOÖıoömo JB30L88LULÜ (11 Nomıa) LU 0C Q_ _J LU LU GC ? CO yj O z LU LU X I' ll O t47 9 -ı r Şın o lo o ıo o CO CO Ol CM t- -r- r (630 L S9iuuJ (ıı Nomıa) LL O m LU Q _J LU LU CE LU DC CL _J LU LU CE Z O o O LU48 şn m o m OJ W r CM L.05 05.05 O) O.05 05 05.00 05 00 (630I.S9UJJİ) (ıı Nomıa) 3 5 LU cc o. -J LU LU t D Z LU 0. S3 < 2 O CE O. S LU LU t49 Insurance Company D: In the Tables 1 and 3, there is an increase in the premium production and the agency production throughout the all years. As seen in the Table 2, the real premium production of the company has retained its level of the first years despite a little increase in the real premium production in 1990. However, a consistent increase is observed in the real premium production in 1991 and 1992. When we look at the Table 15, we may say that the real premium has increased parallel to the increase in the number of agencies in general. There is a consistent improvement in the real agency production as seen in the Table 4. The ratio of the agency production in total productions increased continuously, as seen in the Table 5, reaching at 60 % during the last two years and accordingly, has effected the increase in the premium production during the recent years. As seen in the Table 16, there is a parallelism between the increase in the real agency production and the increase in the training. While the increase in the real agency production, the real agency debts have arised and this rise has reached at a considerable level in 1992. As indicated in the Table 17, there is a continuous decrease in the real promotional expenses of the company. However, an increase has occurred in the real premium production in 1991 and 1992. The reason of this increase is the stopped decrease in the promotional expenses and the rise of the agency share in the real premiums. As a result, the company has preferred the agencies as distribution channel. There is a parallelism between the training and the real agency production. It cannot be said that the promotion has considerable contribution on the total premium production. When the whole results are observed in general, we may see that the share of agency in the total production varies between 80 % and 100 %. This indicates that the agencies are preferred as distribution channel by the companies.50- CM 05 cm.CD CO O Leo CO CD Leo CO ifSi 2R _oo CO 8 CO in CM o CM - i- io -r- O m (630 1. S9LUIİ) hi Nomia) LU CC DL _J LU LU CC t cn yu a z LU LU LL O t-51 Ol L.0) 0),0) 05 o.05 05 05 OD Leo 05 (630 1. sauuüJ (ıı Nomıa) 3 LL O DQ LU Q -I LU LU DC t & LU DC CL _J LU LU DC t Q 1 D Q LU t. 52' CD^J-CMQOOtO^-CJOOOCD COOCOCf3C/IC/IC/ICVIC/J'`-T- (630 1 saaııD (11 Nomia) UJ cc a. _J UÜ UJ DC I UJ Q_ < o DC DL -J LU UJ DC t53 CONCLUSION The insurance companies are obliged to implement an effective communication and sales promotion program in order to make sales more than the usual ones. The methods of promotion shall enable the insurance companies to realize their aims, and to become more effective on the target consumers. The methods of promotion are very important in order for the distribution channel to become more effective and to be implemented successfully. The insurance companies should also determine their strategies of promotion in their attempts to establish the most appropriate distribution channel strategy.
