Thursday, August 20, 2009

CCID Consulting: An Analysis on the Distribution Models of Life Insurance Phone Sales – The Branch Operation Model

China’s leading research, consulting and IT outsourcing service provider, and the first Chinese consulting firm listed in Hong Kong (Hong Kong Stock Exchange: HK08235), released its article on the distribution models of China's life insurance phone sales.

CCID Consulting has paid close attention to the insurance E-commerce area in the past years. The organization has conducted enormous research into the distribution and management models of property insurance and life insurance phone sales, and has also carried out evaluations on each of the models. Currently the insurance companies are adopting different distribution and management models of phone sales in line with their specific requirements. The evolution of these models is set to accelerate the development of the phone sale channel of the insurance industry.

Among all the models, the branch operation model is the most popular among the insurance companies.

Under the branch operation model, each branch company owns a phone sales division which executes sales activities. The phone sales division, led by a corresponding vice president or a senior executive from the branch company, is designed to execute and manage the specific operations, while the phone sales department in the parent company determines development strategies and management models for the branches' phone sales operations.

Figure: The Branch's Independent Channel Management Model


Source: CCID Consulting, May 2009

In terms of supports

The branch's independent channel management model involves multiple-region operations, with the branch's phone sales division directly reporting to the general manager's office of the guideline-issuing parent company. A branch company may not direct sufficient resources to phone sales due to the lower premium revenue generated by the division. This problem can be alleviated by two means employed by the mentioned model. First, the premium revenue generated though phone sales is counted as contribution to both the phone sales goal and the individual distribution goal, which will encourage the branch company to support the phone sales division so as to increase its individual distribution revenue. Second, the parent company will take into consideration the composition of costs in different channels when deciding the expense ratio for each channel. For instance, the individual distribution features high costs due to its plenty of procedures, while the bank assurance channel features low cost, with the phone sales channel in between. The calculated expense ratio will guarantee a proper funding support for each channel to meet its actual demand.

In terms of deployable resources

Difficult to make full use of the sub-branch's customer service resources

The branch's independent channel management model, similar to the branch exclusive sales model, puts its phone sales division and its sub-branches at the same level, and allows certain business competition between them. As a result, the phone sales center can hardly use the sub-branch companies' customer service and customer care resources under the model, while it has to either operate independently or use the shared resources provided by the parent company.

Likely to be neglected in the allocation of human, fund and material resources

As a newly incorporated division, the phone sales center generates a much smaller premium revenue than the mature business lines. Therefore the branch company is likely to give priority to the other business lines in the process of allocating the human and financial resources, while either consciously or unconsciously reducing the resources allocated to the phone sales center, which may affect the development rate of the center.

In terms of business incentives

The phone sales center independently develops its business to increase the premium revenue, it independently covers the expenses, and it is highly free to allocate its funds to meet its demand. Therefore, under the branch's independent channel management model, the phone sales center of the branch has considerable enthusiasm to develop its business. However, as the funds required by the center are distributed by the parent company at a fixed ratio, it has a weaker planning power over funds compared with the exclusive sales model.

Regarding the incentive mechanism, the parent company sets the quarterly incentive scheme, while the phone sales center of the branch company may set monthly incentive plans for teams or individuals, which is of great help to boost the enthusiasm of the employees in the phone sales center.

In conclusion, shortages still abound in the branch operation model for the insurance companies. However, while evolving towards an integrated model, the branch operation model may help the companies gain experience in preparation for future development of the channels, and it will play an important role at the early stage of the life insurance phone sales development.

About CCID Consulting

CCID Consulting Co., Ltd., the first Chinese consulting firm listed in the Growth Enterprise Market of the Stock Exchange (GEM) of Hong Kong (stock code: 8235.HK), is directly affiliated with China Center for Information Industry Development (hereinafter known as CCID Group). Headquartered in Beijing, CCID Consulting has so far set up branch offices in Shanghai, Guangzhou, Shenzhen, Wuhan and Chengdu, with over 300 professional consultants after many years of development. The company's business scope has covered over 200 large and medium-sized cities in China.

Based on major areas of competitiveness: industrial resources, information technology and data channels, CCID Consulting provides customers with public policy establishment, industry competitiveness upgrading, development strategy and planning, marketing strategy and research, HR management, IT programming and management. CCID Consulting's customers range from industrial users in electronics, telecommunications, energy, finance, automobile, to government departments at all levels and diversified industrial parks. CCID Consulting commits itself to becoming the No. 1 advisor for enterprise management, the No. 1 consultancy for government decisions and the No. 1 brand for informatization consulting.

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