The Distinctive Characteristics: the Characteristics of Life Insurance Operation

The distinctive characteristics of life insurance operation

Mr. Wan Feng Executive Director, Vice President May 2007, Nan Ning

Foreword

• The characteristics • Why we need to understand them • How we analyze them

The distinctive characteristics of life insurance operatoin

1. 2. 3. 4.

Products Premiums Marketing and sales Business operations

Products: 1. Life insurance is an intangible product

Insurance policies are the product A contract in nature Related to birth, aging, illness, death and injuries. Conclusion: A life insurance product is an intangible risk protection obligation. The business of a life insurance company involves risks related to birth, aging, illness, death and injuries. However, these risks may or may not materialize.

How do we understand “risks may or may not materialize”?

Products: 1. Life insurance is an intangible product

The meaning of “Intangible product”: •Insurance companies sell promises. An insurance policy is a proof of this promise. Therefore, credibility is the foundation of the business of an insurance company. •A customer experiences the benefit of insurance products through the service of the insurance company. Customer service is, therefore, the core business of an insurance company.

Products: 2. The need for insurance is not obvious to buyers.

• The insured risks involve events that may or may not happen. • Therefore, buyers can choose to buy or not to buy such products. • The risks borne by an insurance company will materialize.

Products: 2. The need for insurance products is not obvious to buyers.

Implications: • Most buyers are reactive. • Since risks may or may not occur, sales is more difficult. • Adverse selection may occur.

Products: 3. Sales of insurance products rely on sales people. • The ‘needs’ are not obvious. And the risk involved – birth, aging, illness, death and injuries – are not something people want to talk about. • Life insurance products need to be marketed by sales people.

Products: 3....