What are the various channels of distribution of Insurance products in the US?

21.07.2020
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Insurance distribution Channels:

Distribution is the process of delivering your products or services into your target markets. Distribution channels are key to success for all insurance companies. They ensure that products and services provided by insurers reach target customers in the most linear and cost-efficient manner. A variety of distribution channels with various strategies and positions are available in the market. Distribution channels are divided into the following two types:

  1. Direct channels:

    These channels make direct contact between insurers and customers. In the direct channel total control over how the product is marketed and sold is in the hands of the insurer.

  2. Indirect channels:

    Indirect channels are those in which there is no direct contact between insurers and customers. It includes insurance brokers, reinsurance brokers, financial organizations, independent financial advisers, managing general agents, retail organizations, affinity groups, peer-to-peer, broker networks, and aggregators.

In today’s world, Insurance companies have a lot of delivery methods for their products and services. Digital marketing is substantially on the rise but along with this, we can’t undermine the efforts of agents or brokers in insurance marketing. A variety of distribution channels are currently used in the marketplace, and some insurers utilize a combination of distribution channels. The following are some distribution channels of insurance products in the US:

  • Bank-led channel

    The bank-led distribution channel is also known as ‘Bancassurance’. In this channel, banks and insurance carriers join together to sell insurance products to consumers. The passage of the Financial Modernization Act of 1999, was predicted for the U.S. market which ensured the growth of the bank-led channel in the U.S. The channel utilizes the strengths of both the insurance carriers and banks to not just distribute insurance policies but also to increase customer satisfaction and maximize their own profits by minimizing the costs. Banks with their expanded reach in the financial services market were the perfect vehicle to assist the insurance carriers. Thus bancassurance channel appeared like a boosting fuel for insurance companies.

  • Peer to peer(P2P) groups

    Peer to peer(P2P) group is a recent innovation in the insurance industry which attracts many customers towards itself. P2P insurance is a risk-sharing network where a group of people pools their premiums together to insure against a risk. Peer-to-Peer Insurance reduces the conflict that inherently arises between a traditional insurer and a policyholder when an insurer keeps the premiums and it doesn’t pay out in claims. The P2P insurance pool is comprised of family members, friends, or individuals with similar interests who team up to contribute to each other’s losses. This type of insurance may also be known as “social insurance.”

  • Direct response marketing

    Direct response marketing may be defined as the use of mass media advertising to generate inquiries directly to insurers. It does not involve the sale of insurance through local agents. In direct response marketing, employees of the insurer deal with applicants and customers through telephone, by personal meeting or more frequently via the Internet. Direct selling continues to be the dominant channel of distribution for insurance companies.

  • The Internet channel

    The Internet is likely to be the latest and important of the new forms of insurance distribution channel. It is already apparent that customers are using new Internet technology in almost all business fields. Web technology supports multiple marketing channels, including agents, sales of insurance products and call centers. However, insurers have been slow to get to this distribution channel.

  • Direct mail marketing

    It means selling insurance products by dealing directly with consumers rather than through intermediaries. Direct mail campaigns deliver better overall response than digital channels. In this marketing channel, there is no need to share profit margins and the insurer has complete control over the sales process.

Branch offices, one of the direct channels of insurance marketing, has also continued to be a key element in the distribution systems of both life and non-life insurance companies. All insurance companies have an agency-building distribution strategy under which they recruit, train, finance, and oversee their agents/advisors. Through these offices, personal contact and relationship can be established with the customers. The insurance industry is witnessing a growing trend in adopting alternate channels of distribution to fuel business growth. An innovative idea of distribution is the new mantra and insurers are aligning their business strategy in line with changing customer requirements and preferences. It is imperative for them to strike the right balance between traditional and modern models to survive for a longer period of time.

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