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Big Bucks in Insurance — You Bet!

By the beginning of 2000, companies following the insurance direct marketing concept will generate revenue streams in excess of $100 billion. Considering that number was $35.1 billion at the beginning of the decade, the industry has come a long way in a relatively short period of time.

In 1997, the insurance direct marketing concept produced $82.4 billion in revenues. In 1998, it is projected that insurance direct marketing revenues will top $92.8 billion. The growth rate is projected at 9 percent to 10 percent annually for the foreseeable future, according to the DMA Economic Impact: U.S. Direct Marketing Today (WEFA study). This is, officially, a trend.

At the end of the decade, why are so many insurance companies (more than 300 at last count) mounting initiatives using the direct marketing concept? The answer is at once simple and complicated.

First, the simple answer: Insurance consumers are demanding that insurance be sold to them the way they choose to buy it. Insurance groups like Conseco, Progressive, AIG, Aegon and GE Financial Assurance have recognized this fact and are positioning themselves to deliver services to satisfy this consumer demand.

The more complicated answer?

The insurance industry is product oriented. Every product is governed by a complicated series of metrics, which measure revenue, expenses and interest earned on prepaid policy costs over long periods of time (up to 20 years into the future.) The problem is that most of the numbers used in insurance product profit studies are a voodoo version of economics. These numbers are high on assumption and generalized statistics. As a whole, the industry does not keep very good records. The insurance direct marketing concept requires specific metrics that measure everything accurately. And that is greatly appealing to the minds of noninsurance-type executives who are becoming CEOs of some major players.

Also, there is a shift from selling insurance to marketing insurance to the consumer markets. Unified, measurable messages requiring an action are becoming the norm. Another factor is distribution channel conflict.

Fortunately the insurance industry only has four distribution channels: agents, brokers, direct sellers and mail order. This is a result of the regulated licensing environment that exists. Insurance agents dominate as the intermediaries between the insurance company and the consumer.

But, the number of insurance agents has dwindled over the last decade, and fewer insurance agents mean fewer opportunities to service the 100 million U.S. households. The results are neglected market segments. Consumers are becoming more self directed and they have less time to sit and listen to an in-home sales pitch or travel to their local agent's offices. These time-starved and smarter consumers are prepared to research information on their own schedules and make spot buying decisions.

Fertile ground for the insurance direct marketing concept. Nowhere is this confluence of simple and complex reasoning more apparent than in the property and casualty segment of the business.

The growth of companies offering personal auto insurance — and other products — directly to the consumer has been dramatic. In 1990 there were eight identified companies offering this product category directly to consumers. In 1999 there are 30 companies doing so. An increase of 275 percent.

Who are they? See Sidebar below.

Eleven of these companies have started operations in the last three years! Now here is the secret of why.

In property and casualty insurance, the combined ratio acts as a surrogate for profitability. The combined ratio measures losses plus costs as a percentage of insurance premiums.

Over time, companies using the direct marketing concept average a 96 percent combined ratio. Captive agency companies (like Allstate) average 104 percent and independent agency companies average 110 percent. This simply means that from every premium dollar collected, companies following the direct marketing concept spend 96 cents and keep 4 cents as profit. The others have to make up the deficit by investing surplus and tapping the investment earnings.

Put another way, sales expenses, on average, make up 29 percent of the combined ratio for independent agency companies. Sales expenses for captive agency companies average 23 percent. For direct marketing companies, that average is 15 percent.

Lower sales expenses mean lower prices.

You don't have to be a math wiz to figure out that the numbers favor the mail-order distribution channel. And, once critical mass is reached, the same concept applies to all forms of insurance. Couple that notion with the insurance direct marketing system's intense focus on metrics, and its process-driven, information-rich environment and the bigs are starting to lose share.

It's no wonder old line insurance companies are developing direct marketing initiatives. And, with every new company using the concept the revenue generated by the insurance direct marketing concept nudges close to the $100 billion mark.


20th Century


American Horizon

American Express Group

Amica Mutual

Armed Forces Insurance


Colonial Penn Insurance Co.,

Convenient P&C

Direct Auto Insurance Co.

Direct Choice

Response Insurance Co.

Homeowners Direct

Drivers Direct

Fireman's Fund Direct



Great American

Reliance Direct

Kemper Auto & Home


Metropolitan P&C

Millers Classified Insurance Co.

National Alliance

National General


Progressive Direct

Providian P&C

The Hartford


Don Jackson is chairman of The Jackson Consulting Group, Odessa, DE, as well as founder and leader of the DMA/Insurance and Financial Services Council Advanced Insurance Direct Marketing Symposium and chairman of Bermuda Executive Workshops.

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