MARMARA UNIVERSITY BANKING AND INSURANCE INSTITUTION INSURANCE DEPARTMENT DEVELOPING NEW PRODUCT AND ALTERNATIVE PRODUCT STRATEGIES IN INSURANCE COMPANIES MASTER THESIS by ZEYNEL ŞAHİN Supervisor: Assistant Professor Dr. Şahamet BÜLBÜL Istanbul - 1992CONTENT Sayfa No I CONCEPT OF INSURANCE MARKETING 1 II PROPERTIES OF FACTORS OF INSURANCE MARKETING 2 III DEVELOPING NEWPOLICY 4 A) DEVELOPING NEW POLICY AND POLICY MANAGER 4 B) IDEA SOURCES OF NEW POLICY 5 a) Domestic 5 b) Foreign 5 C) DEVELOPING NEW POLICY IDEA 7 a) Elimination of Unsufficient Ideas 7 b) The Analysis and Coordination of Successful ideas 7 i. Searching Properties of Needs of Probable and Present Insureds and Convenience 7 ii. Convenience for Product Lines, Marketeabiiity with the Current Products and Level of Domestic Competfoility 8 Hi. Accordance to Agent System 8 iv. Technically Productivity 8 v. Accordance to General Conditions and Regulations 9 vi. Risk Analysis 9 vii. Sale Potential and Profitability 9 viii. Placemend and Reinsurance 10 c) Analysis of Profit-Policy and Outside Competibility 10 d) Market Test 11 e) Marketeabiiity Decision and Timing 11 D) APPOINTING THE SECTION OF AIM AND TARGET 1 111 Sayfa No E) DEVELOPING THE STRATEGIES OF NEW POLICY MARKETING FACTORS 12 a) Policy Strategy 12 b) Premium Stratgey 13 c) Agent Strategy 13 d) Stability Strategy 13 i. Advertisement 14 ii. Individual Sale 14 Hi. Sale Promotion Functions 14 iv. Presentation and Public Relations 14 F) ANALYSIS OF RESULTS '14 IV AN APPLICATION AND EVALUATION OF APPLICATION 15 V CONCLUSION 16INTRODUCTION I - CONCEPT OF INSURANCE MARKETING Insurance is a service sector and altough the principles of marketing is similar in all sectors, there are some differences between the goods and service marketing. The consumer is, intrested in the advantage of the goods he can get, more than the good itself. So marketing is a whole of physical physcological and economical factors, not only a physical wholeness. In our country lock of supply and monoply competition are two general problems in economics and due to these problems marketing is almost totally concentrated an selling of goods. So service marketing is relatively underdeveloped. A person may face a lot of dangers from the day he borns till the end of his life. If he is aware of these risks he will try to find a way to protect himself. He can do it alone an prefer to share it. Insurance is a solution for the person to protect himself financially by sharing the possible risk. This will avoid a total disturption in consumers physical, physcological, social and cultural balance. The methods of insurance marketing should be developed on policy, premiums and strategies.II - PROPERTIES OF FACTORS OF INSURANCE MARKETING We can count the policy, Agency, prim and persistence as insurance market components. The Marketing function in insurance companies has not been developed as in the other service companies like the Banks and production managements From the various reasons, marketing components have not been taken care in the marketing activities and future analysis and sale planings of the marketing researches have not been developed enough. As a conclusion, naturally the insurance management amongst the marketing, other service managements have not had an important function. All the service managements will need to create a correct and effective marketing mixture so as to use the existed and scarce sources in the most fruitful way in order to get a place in this world. As a result of increasing concurrence and costs within the developing economic situation, the homogenous services made the managements research the marketing concepts and apply the new policies developing them. The matter is thee conveniency of the policy for the expectations and needs of the target market. c) The proper good ideas from the point of operational analysis, the operations begin at the product development department. There is always an idea at the base of the policy. The operations start so as to make the idea in concrete structure. This position of the product idea has an importance from the point of operation and divided in three groups :1) To make concretet the proposal of new product. 2) To make the necessary investment and timing for the new product. 3) To hiring the new product proposal perfect for the technical and marketing side.Ill - DEVELOPING NEW POLICY (A) Developing New Policy and Policy Manager Innovation in insurance is developing throughout the way of imitation. Existing policies of west is applied after they are adapted to the conditions of country. This choice is being supported because of the universality of insurance. Today, the efforts of developing new policy do not generally operate as a seperate function within management and there is not any understanding of responsibility in this subject. One way of competition among corporations is the efforts of developing new products. Corporations has to emphasize new products in their product strategy. There should be powerful 1 managers who will decide about new product and expert groups should be composed. The marketing understanding of technical departments has to be developed. In a place where such a development is absent, there can be an incoraplete application similar to beginning of marketing after production. Whereas, marketing of insurance should start before production. Since new policy is directed to consumer, we should know what consumer wants. However, the consumer generally does not know completely what he wants, too. Herein, the responsibility of product manager, like to help to consumer in the determination of his needs to clarify these needs, starts.The insurance kinds have risk and investment sides. Insurance manager should be talented in developing insurable risk in the insurance field and also investment fields. We may classify the interest fields of insurance as follows: * In individual dimension, the kinds of insurance can be seperated as loss of profit and of ownership besides the seperation through material and responsibility fields. Loss of profit can be seperated into two as individual and managerial. In the individual field, it can be talked about the kinds of policy like life, accident, health, pension, unemployment, etc. In the field of loss of ownership, it can be talked about fire, explosion, earthquake, loss of profit, theft, legal responsibility, illness, additional consumption, renewal, etc. Insurance corporations can present policy systems varied with different branches, besides taking only one branch of insurance and concentrating on it to present the components of under-policy. (B) Idea Sources of New Policy a) Domes til b) Foreign The first step of developing a new policy is create new ideas about the new product which concerns the whole company. Most companies do not take attention about creating or finding ideas. In a very important subject like this,satisfying with cincidences is keep the company away from success. There must be parallelism between product aim and company aim. During the new product developing period main aims are developing new products which will satisfy consumers and make the company profit. When the consumers needs change companies should spot neutrally the steps of new product developing period. Otherwise, it will not be possible for them to be popular even though they develop new products. Those steps have to be analised for the idea of new product change into the new product. Creating ideas, examining ideas, sifting failure ideas, analysing and coordinating of succesful ideas, productivity analysing of new product project, market trial and commercial step. During creating new policy ideas supervisors, medium level managers, department managers, sales managers, risk managers, consultants will be very helpful. For getting ideas, taking responsible a person or people in an organisation, will give succesful results. Generally this has to be in the responsibility of product manager or sales manager. a) Interior Sources-Supervisors, Branch Managers Department of marketing research and developing managers, risk managers, consultants, customer representatives.b) Exterior Sources -Agent s, Customers, Advertising agents, rival companies, universities, other countries. (C) Developing new Policy Idea a) The Elimination of Unsufficient Ideas At this position, it needs to evaluate the new product ideas which were wound from the various sources and eliminate the non convenient ones for the operational risk acceptance policies, possibilities and sources. So, the aim is to find the most convenient ones eliminating the number of the new ideas. The elimination is a duration that makes the top level management cooperate with the whole operation department. Product Development Department may know what to develop, Technical Department may know the technical convenience, Marketing Department may know what to sell. Finance Department may know the sources of the operation. Their cooperation only will enable the management to decide which idea will be the new product idea. b) After the fixation of the convenient product idea that is found necessary to develop, the following analysis and coordination positions will begin. i- The Conformity and the Research the Requirement and Particularity of the Possible and Existed Insured Up to the near future, in Insurance Industry, the market was seen as a whole. But now, this understanding has changed and the managements began the definition of the target markets and their profiles. The aim is to determine the needs, the level of perceive, attitudes, personality,level of learning, socio-cultural and demographic factors of the possible and existed insured. This will help to determine the marketing strategy. If the market is divided into groups and selected the target market from the point of possible and existed insured, policy kinds and messages will be differentiated against rivals. ii- Convenience for Product Lines, Marketeability with the Current Products and Level of Domestic Competibility An another facet on the phase of selection ol new policy development projects is that the effect of new policy on the current policies should be considered. In valuation of this effect which is called `domestic competibility level`, it could be necessary to adjust the prices and selling strategy of previous policies. iii- Accordance to Agent System With aiming to support the new policy project, company should have their agents got into the environment of the new policy; it should force them to accept the renewal. Because of this, with presentation and training programmes, agents should be informed. If the developed product is interested in a technical branch, more professional agents can be preferred firstly in marketing the policy. iv- Technically Productibility When saying the technically productibility of insurance policy, it means the risk, which is being considered to cover, is necessary to be defined and to be appointed it's limits as possible as clearly. Then explainingthe concept of risk is required here. Generally, risk is an event that it will probable occur eventually and will cause a loss. Any event which is subject to partners or especially the act of insured doesn't give rise a risk. Any risk that can't be expressed as money is being borne by insurer and/or insured. For instance; the virtue of a person, any attempt to threates the honour of a person are not covered by the insurance. v- Accordance to General Conditions and Regulations It is necessary for a product which is being developed to be in accord with general conditions and regulations. General conditions that are printed in the back page of insurance policy are prepared separately for each insurance branch and signed by the authority (Treasury and Foreign Trade). They display the rights of insured and insurer. vi- Risk Analysis It aims to get a product which will satisfy the aimed customer. In risk analysis, all risk threaten the aimed customers, are handled clearly and any of them which doesn't give rise any loss is omitted. Risk management becomes important in this phase. The main risk which has a great loss potential should be mandatory in the new product and the risk, whose occurrence frequency is low, can be considered as optional. vii- Sale Potential and Profitability The new product opinions which have just passed the selection, this time, should be subject to marketeability and profitability analysis. As a result, economical analysis, sales estimates. The aim of these analysis is to discover the10 offered products sale, profit and related ratios and to decide if they are concuring with the company's aims or nat. viii- Placement and Reinsurance Reinsurance itself is an insurance. As well as insureds, the insurance companies should take covers for their risks. Because of this, reinsurance is one of the main part of insurance. The loss dimension in the new product is important. According to risk dimension, risks can be accepted separately or as a sale risk. c) Analysis of Profit-Policy and Outside Compertibility The product which has gained over the election is now ready to be analysed according to outer competition and policy forms. Policy is the name of the bond to which the insurance aggerement is attached. The insurer gives an insurance policy which he has signed and which includes the two parties rights mentioned in the insurance agreement, to the insured. On the policy the name of the insurer company, its central address and capital and also the branch of insurance to which the policy belongs written. It is mountly prepared as three copies and some other knowledge about both the insurer and the insured parties are included. From a competitive point of view, it is very important that the policy is comparable to others of its kind.11 d) Market Test As many tests have been applied to the new product till this moment, the reaction of the potential buyers is not yet tested under normal market conditions. Various questions may be addressed to the potential customers to understand how they react to the qualifications of the product and how attractive is the promotion programme. The market test is a way, a preappl icat ion of the product, examining the product and the marketing programme in a well-chosen, similar to real, but small market conditions. e) Marketeability Decision and Timing For supplying the new product to the market completely, the deliverance type of the policy analysis of the company has already to be completed besides the completion of the market test with success. The necessary document and equipment home to be ready for the producing. Considering the date of the supply of the product, it depends on the completion of the whole work. The date of supply should not be informed out of the company just not to awoke the rivals and to maintain the surprising effect of the new product. (D) Appointing the Section of Aim and Target Company aim in developing new policies in to help the well-being of the insured and also publicy. In order to make this hoppen the insurance company will first of all have to live and make profit. So the primary aim for the company is to be able to serve. The secondary aim is to have a long and short term market share. The tertiary aim is to have power, prestige and a positive image.12 Staling the aim section it is important to clear up which kind of policies could be supplied to whom when and with law munch premium and how much a probable portfolio would be supplied. Stating the way of supply, policy and image of insurance... must be placed in the rivalry space. Starting from the reality that the whole of the... cannot be served, it is cnecessary to state a target market. Stating the target market subjects such as needs, how to satisfy needs,... of the market, premium to be paid, the portfolio to be reached, profitability etc. must be considered. (E) Developing the Strategies of New Policy Marketing Factors Components ; Strategies of new policy marketing components can be considered as an attitute to overcome within the rivals and in the minds of the aimed insured persons by the efficient use of the physical, human and financial sources related to the new policy marketing components in order to develope new policy marketing aim or aims. a) Policy Strategy: Policy, constructs the basis of the insurance marketing. If the product exists the works of marketing will begin. In case of the presentation of the policy, if the policy is not good enough it will be impossible for it to be sold for a long time although the bert decisions have been made. Does the policy fit the market? The siluation of the existing product line. Does the variety of the policy have to be increased or decreased? The patential of the market, the aimed potential etc.13 b) Premium Strategy: While the developement of the insurance policy, the pricing is made on the unit basis. However, it is not the some thing selling ten units or a hundred units of a kind of good. The insurance premium is constructed on probability basis, but not on cost basis. This brings up a type of pricing without considering the policy volume, the inactive capacity, the cost, the severity of the rivalvy, the comparative purchasing ability of the consumer or even his or her sociopsychological level. c) Agent Strategy: Agencies construct the deliverance system of the insurance comparies. Building up a place and time profit on the marketing of the insurance services is their basic function. Whether selling policies directly or by means of agency, the place where the insurance service is produced and marketed, becomes the most importance. Besides the territorial limits of the insurance comparies become wider with the agencie. d) Stability Strategy: An insurance consumer must be aware of and interested in the services and this interest must become desicion and action, before he or she decides to buy these services. And during this period the permonence strategies take an important role. In the modern marketing it is aimed that dif ferantiation and variation of the products and services as possible. Considering the services of the insurance companies are generally similar permanence strategies have to do a lot to create this effect. Permanence strategies have four types:14 a) Advertising, b) Personal purchase, c) Functions of purchasing enuy d) Introducing and Public Relations. (F) Analysis of Results Regarding the period of developing a new product, the activities from the idea of a new product to the presentation to the market are entirely connected to each other. If required any recalls within these stages are available. However the life story of the product wan't end in case of the actual presentation (of the product) to the market and frequent revisions will be needed.15 IV - AN APPLICATION AND EVALUATION OF APPLICATION In this last section, a project of Anadolu Insurance Corporation have been examined. The subject of this sample application is Anadolu' s Jewellery Insurance Policy. Gold, silver and the other valuable mines and stones are covered against all risks by this policy as first time in Turkey. n r YUKSBKoGBBOM KDMJW*
