Insurance Industry Falls Into DM's ArmsThe insurance industry is being dragged -- kicking and screaming -- into the 21st century. It's uncomfortable. It's painful. It's expensive. It's unnerving. Most of all it's unwanted! But, boy ... is it necessary.
The insurance industry has been bloated for decades. Back-room operations are populated by hundreds of thousands of workers who can be replaced by technology. Business-to-business and consumer marketing virtually doesn't exist. (Consider the fact that State Farm -- the largest of the P&C Companies -- established a marketing department this year.) The primary insurance distribution channel-agents are, relatively speaking, inefficient and overpaid for simply being order takers.
Plus, on the life insurance side of the business, billions of dollars has been forfeited to consumers, trial lawyers and regulators for agent market misconduct.
Insurance underwriters can't seem to figure out the metrics of their business. For example, they don't know how much it costs to acquire a customer. Nor how much it costs to keep them or service them.
In fact, the insurance industry has invested hundreds of millions of dollars to build brand and iconic images (Rocks and Stags and Umbrellas and what have you) and have come up woefully short of achieving any type of brand equity.
According to a study conducted by Harte-Hanks Market Research, San Antonio, 16 percent of respondents rated the auto insurance industry "excellent," while 11 percent rated the life insurance industry "excellent." The reciprocals are important. For all those advertising dollars spent, 84 percent of respondents thought the auto industry was less than excellent, and 89 percent of respondents thought the life insurance industry was less than excellent.
Pretty shabby brand-building performance.
Add to all of this a declining insurance agent base and a sharp decline in agent recruitment, plus two remarkable individuals, and you have a persuasive formula for change, according to Limra International, Hartford, CT, an information resource for insurance and financial services professionals.
The drive to insurance direct marketing. Change is most frequently propelled from outside an industry.
Warren Buffet and Jack Welch are two individuals driving change in the insurance business. They have much in common. Neither comes from the insurance industry. They each run hugely successful noninsurance operations, delivering mouthwatering shareholder value. Buffet and Welch clearly understand the customer lifetime value concept, and they each have amazingly deep pockets.
Case in point: Buffet's acquisition of Geico, Chevy Chase, MD. Simply put, Buffet and Berkshire-Hathaway, Omaha, NE., the investment company Buffet acquired several years ago, place no limit on the dollars they are willing to invest in Geico, so long as they create more than a dollar of value for each dollar invested.
With more than 3 million personal auto policies in force, and a 1999 advertising budget of approximately $190 million, Geico is rapidly becoming a brand leader in property and casualty insurance.
Not a dime of the advertising dollar goes toward building brand. Every dime is devoted to making a direct sale. And, in the process, Geico is breaking the back of its competition, dominating the airways and scooping up customers by the hundreds of thousands, while creating an insurance direct marketing brand that may well dominate the next decade.
Jack Welch, CEO of General Electric, Fairfield, CT, is different. Where Buffet is focused and brand building successfully, Welch is leveraging the GE brand.
General Electric Financial Assurance, Richmond, VA, is a broad-based conglomerate of insurance operations dedicated to delivering insurance protection to customers and prospects, the way the customer or prospect wants it delivered, when the customer or prospect wants it delivered.
What's more important is that direct marketing operations (Union Fidelity Life Insurance Co., GE/Colonial Penn Insurance Co. and the Signature Group Cos.,) produced $1.15 billion of in-force premium in 1997 and is producing at the rate of $1.5 billion in 1999.
Jack Welch takes no prisoners. In five years GEFA will be a dominant force in the insurance industry -- brought to you by a noninsurance guy. In 1997, 182 insurance companies were following the insurance direct marketing concept. In 1999, 340 insurance companies are following the insurance direct marketing concept. Some are well developed, others are testing, and several are in between.
The notion is that an 86.8 percent increase in companies utilizing the principles and practices of insurance direct marketing in just a three-year period is remarkable.
Do these companies want to do it? Not likely. They are being driven by competitive forces and the changing consumer market. Customers and prospects are no longer the docile consumers of insurance they once were.
Dynamic change in the marketplace, the demand for service round the clock, the advent of new technology and the Internet are all impacting in the boardrooms of the industry.
By the end of the year 2000, companies following the insurance direct marketing concept are poised to break through the $100 billion revenue barrier. The DMA's WEFA Study puts the growth of this business segment at a steady 10 percent through 2005.
Insurance direct marketing's share of market will more than double from 1997s estimated 6 percent to an estimated 13 percent by 2005.
The efficiency of the insurance direct marketing concept -- cost containment and control, consumer interaction and communication, and enhanced profitability -- is driving this stodgy industry to a revitalization.
Consumers may consider insurance a "necessary evil," but for those companies looking ahead and applying the direct marketing concept the business is going to be a bonanza.
Don Jackson is chairman of the Jackson Consulting Group Ltd., Middletown, DE.