Lingnan University MBA 655 Business to Business Marketing

Lingnan University MBA 655: Business to Business Marketing The insurer between agencies and reinsurance: different priorities in the supply chain A B 2 B scenario Studied by Joni Yau Polly Iu Detloff Rump 13 December 2008 1

What is life insurance? Risk transfer solution for end-customers through risk sharing, organized by insurance companies and reinsurers 2

The life insurance supply chain Customer Agent/distribution Life insurer Retrocessionaire 3

Reinsurance provides to insurance companies: Risk coverage Financing solutions Guidelines, training and other services Commissions and other payments. . and receives reinsurance premiums in return 4

Insurance provides to Agencies: Products to sell / innovative products Product and sales training /professional development Financial and operational support Commissions and perks Customer service (post sales) …and receives premiums (from customers) in return 5

Financial Priorities in Reinsurance Long term profitability Stable portfolio Organic growth 6

Financial Priorities in Direct Insurance Growth / market share Immediate balance sheet profitability Operational efficiency 7

Financial Priorities for Agents Income maximization 8

Priorities compared Whilst priorities of reinsurers and insurers appear to be largely aligned, there can be vast differences, depending on market conditions and strategic direction. Priorities of insurers and agents appear to be in stark contrast. 9

Another angle: risk transfer Insurers tend to have a considerable risk appetite, as they have to sustain growth in a competitive environment Reinsurers tend to have limited risk appetite, as their game is pooling large numbers of risks with a smooth risk profile Agents/distributors couldn’t care less 10

How can the parties react (in general)? Exit? Voice? Loyalty? Aggression? Neglect? 11

What can be done (in general)? Referees? Third party mediation? Emphatic mechanisms? 12

Ways to overcome differences in objectives and risk appetites 1. Between insurers and reinsurers (examples) Profit sharing Recapture clauses Reinsurance financing Operational consultancy Sponsorship Regulation 13

Ways to overcome differences in objectives and risk appetites 2. Between agents/distributors and insurers (examples) Committees to exchange views Training with emphasis on communalities Commission structure and other reward systems Regulation of sales process (e. g. accreditation, code of practice) 14

Conclusion 15

Trucks, cars and motorbikes using the same roads. They move at different speeds and have different objectives to be there. They need to respect each others needs and priorities. If they fail to do so, accidents happen…. 16

. . in insurance speak… Reinsurers, insurers and intermediaries are all involved in delivering risk transfer solutions to the end-customer. They have different business objectives and different business concepts. They need to respect each other’s mind set and goals. If they fail to do so, the business can crash… 17

Conclusion Conflicts between members of the supply chain are common. These conflicts may arise from needs, wants, strategic views, objectives, cultures etc. These conflicts have to be addressed Otherwise the supply chain may break 18

Comments or questions? 19