Direct Coverage

IN CONSUMER INSURANCE, direct marketing has the smallest share of the pie, but it’s growing the fastest. Direct won’t ever completely replace agents, but it’s obviously making inroads. For one thing, it’s cheaper. But more importantly, consumers are more knowledgeable about the industry (partly because of the Internet) and are demanding multiple buying channels (partly because of changing lifestyles, especially the two-earner household).

Insurance companies have traditionally viewed the agent as their customers. That’s changing. They’ve discovered the consumer.

“People want more choice and better access,” explains Brian A. Smith, president of People’s Benefit Services Inc. (formerly old-line DMer National Liberty Insurance Co.), Baltimore, part of Dutch insurance giant Aegon N.V.

Insurance companies have been making the slow, deliberate move from a product focus to a customer focus. Also, insurers have traditionally concentrated on their operations, administration, actuarial, sales-anything but marketing. That’s changing, too.

In 1997-the latest figures available-direct marketed insurance amounted to $72 billion. That’s double what it was in 1990 and up from $66.2 billion in 1996, according to figures compiled by Don Jackson, chairman of The Jackson Consulting Group Ltd., Middletown, DE.

Last month, American Financial Group Inc., Cincinnati, which does only limited direct marketing, scooped up Worldwide Insurance Co. from Commonwealth General Corp., a subsidiary of Aegon, for about $160 million in cash.

Worldwide, formerly Providian Auto and Home Insurance Co., with about $121 million in premiums in 1998, is a direct marketing leader. Its DM expertise was the “primary reason” for the acquisition, says American Financial spokeswoman Anne N. Watson.

“Nearly all of our private passenger auto policies are written through agents,” she notes. “Consumers want different ways to deal with insurance companies and some want to go directly.”

In February, Montgomery Ward & Co., which has been in Chapter 11 bankruptcy for two years, announced that it would sell its DM subsidiary, The Signature Group, Schaumburg, IL, to its largest shareholder, GE Capital Services. In addition to trying to resurrect Ward’s, GE Financial Assurance (which owns 38 insurance organizations) wants Signature’s direct marketing know-how.

According to Jackson, in 1990 there were eight companies selling property and casualty insurance directly; now there are more than 30. Mail order sales of auto insurance will equal independent agent sales by 2005, according to a Tillinghast-Towers Perrin study. The study shows independent agents decreasing from 31% of the market in 1990 to 23% in 2005, while mail order increases from 10% to 23%.

Jackson even predicts that direct will reverse the downward trend of life insurance sales. Although the amount of annual new life insurance premiums has remained pretty flat (at about $10 billion) because of higher prices, the number of new policies has plummeted from about 15.5 million in 1987 to 11 million in 1997.

According to a new study by Limra International, Windsor, CT, 16% of households that bought life insurance bought direct. Most who purchase direct buy a small death benefit (median value $10,000). The typical direct buyer was a female head of household, had less formal education, lived in the South and in a large city rather than the suburbs or a small city, and had never had a personal insurance agent. And they’re satisfied customers-90% said they’d buy direct again.

Insurance direct mail typically runs the creative gamut from boring to deadly dull. The Limra study found that the most important aspect of a mailing’s effectiveness was its timing-the prospect was ready to buy. Other important factors were attractiveness, price, the clearness of the offer, familiarity with the company and that no medical tests were required.

Until three years ago, Boston-based John Hancock Mutual Life Insurance Co. had done some DM, but not much. Then it brought in a team to blast the company into the arena. Hancock’s direct program comes under the umbrella “MarketPlace by John Hancock.”

The unit sells term life insurance with a face value from $100,000 to $1 million or more (agents sell whole and universal life).

Hancock’s goal is to offer consumers the opportunity to buy its financial products through the channel they find most convenient and comfortable. The DM business has an integrated strategy that includes TV, mail, phone and Internet.

“The ultimate message is that you need to go after a multimedia approach,” says Catharine R. Sheehan, general director of retail direct marketing.

“Consumers want choice,” she explains. “They want to bounce back and forth between channels, get a piece of mail, then go on the Web and call and then maybe meet with an agent.” (The Web site includes an agency locator.)

Targeting Women Because women are working more, Hancock has gone after that market. “We try to tell them that their contribution to the family and the salary they bring in is as important as their husband’s,” says Sheehan.

(The Limra study found that one-third of households that bought direct were headed by females or were females alone).

Sheehan, who joined Hancock from Fidelity Investments, says the team has spent the last few years figuring out the mail program, and now feels it understands where the customers-and lists-are. It does a lot of testing along traditional DM lines-offer, message, creative, envelope. (It works with Ingalls One to One Marketing, the DM unit of Boston agency Ingalls.)

Hancock mails throughout the year, though after New Year’s and in the fall are the busiest seasons. “Our objective is to keep that call center busy 12 months out of the year,” Sheehan says.

Channel Conflict? The traditional reason put forth for insurers having cold feet when it comes to going direct is channel conflict-worries about what the agents will think. But experts say it’s just not a problem; the two channels are going after different markets.

The Limra study showed that 62% of households that bought direct never had a life insurance agent and only one-third of buyers had done business with the company before. The direct marketers are targeting an under-served market.

“Aegon has taken a pretty progressive view through the years that both channels can live in unison because they serve different parts of the market,” says Smith. “Some people prefer direct, others want to talk to agents.”

The insurance industry is far behind its financial services colleagues when it comes to the Internet. Insurers are just easing in now. It was only in late March that Prudential started offering quotes for car insurance on its Web site (www.prudential.com), and even then only for six states. The brokers, including start-ups like InsWeb, Quotesmith and Senior Quote (mostly only giving policy-premium quotes) are ahead of them.

Few sites are actually selling on the Web. There are some difficulties in closing the deal online because of states that require signatures and health insurance that requires physicals.

And of course there’s payment. “All the research we’ve done shows that payment [over the Web] is a non-issue,” says Greg Berardi, vice president of public and investor relations for InsWeb, which provides quotes from 30 companies. “The carriers are more concerned with just getting theirproducts up there. The consumers want to comparison shop.”

(Berardi says InsWeb had a credit card form but took it down because “no one was really interested.”)

There are a few companies doing it.

For example, HealthAxis.com (www.healthaxis.com) sells indemnity and preferred provider organization plans. And the Progressive Corp. (www.progressive.com) has been selling car and motorcycle insurance for certain states from its site for about a year (it’s been giving quotes for longer), including taking payment by credit card.