Marketing insurance with a rifle instead of a scatter-gun pays off

Until a few years ago, many life insurance companies looked like "money machines." Agents sold the policies and their companies watched the money roll in.

But then high inflation struck. Insurance became harder to sell to financially squeezed consumers. Many of those insured borrowed money from their own policies at low interest rates. More people even let their insurance expire. The money machine began to break down.

So how does an insurance company get the machine running again?

Alvin Clemens believes the answer lies in the old maxim: "You can't be all things to all people."

Instead, Mr. Clemens, president of Academy Life Insurance Group Inc., says successful insurance companies should find a few narrow, specialized markets and aim their policies, sales, marketing, and service efforts at that group. Judging by Academy's performance, the man knows whereof he speaks.

Last year his company wrote $1 billion worth of new life insurance policies, up 48 percent from the previous year. Net income increased 182 percent on revenues that were up 35 percent, to $32.5 million.

One reason Academy hit this financial bull's-eye, Clemens says, is that it aimed its efforts at noncommissioned officers in the military, specifically members of the Non-Commissioned Officers Association of the United States (NCOA) , and at veterans. The NCOs come from all service branches, Clemens says. In the Army, this includes corporals and sergeants, "career NCOs below the rank of lieutenant."

The strategy, known as "specialized marketing," is fairly well known in the consumer products business: purveyors of laundry soap, breakfast cereals, books, and automobiles have tried to find particular markets for their products and aim their selling efforts at those groups. But the technique is fairly unusual in the insurance business.

"There aren't many [insurance] companies that do this," said Andrew Gold, an analyst with A. M. Best Company, a firm that evaluates the insurance industry.

"Specialized markets are absolutely the way to go," Clemens says enthusiastically. "I think other companies will be moving in this direction in the future."

One company he thinks is shwing some interest in this direction is the Prudential Insurance Company of America. "I think what they're doing in going after the AARP [American Association of Retired Persons] is a sign of this," he said. Prudential recently wrested the AARP group-insurance contract away from the Colonial Penn Group after Colonial Penn had carried it for several years. The two companies are still fighting for the retiree market.

However, Edward Price, of the insurance services department of Prudential, denies that his company is trying to become more specialized. "We want to sell our product to as broad a segment of the economy as can buy it," Mr. Price says. "And we try and have a broad range of products." Some agents, he acknowledged, to tend to specialize at times, more frequently serving clients from similar backgrounds, age groups, or income levels.

Academy's success, says Benjamin Weaver, the company's executive vice-president, is not just because it aimed at a specific group -- the Non-Commissioned Officers Association. The company actually helps enlarge the group. Many Academy agents are former NCOs themselves, he explained, and their first goal is to persuade the NCOs to join the NCOA. Currently, there are about 300,000 members of the NCOA.

A particular advantage in targeting the NCOs, Mr. Weaver believes, can be seen in difficult economic times: Military personnel are not hit as hard during inflation, because many of their needs, such as housing and clothing, are provided for them. And they are not laid off in a recession. All of this gives Academy a stable list of clients.

Reaching those clients -- both NCOs and veterans -- is another part of the reason for the growth, Weaver believes. Begining late in 1979, Academy began running television commercials featuring retired Gen. John Eisenhower (the son of President Dwight Eisenhower). It recently added commercials with Glenn Ford, the actor, who is a retired captain in the US Navy Reserve.

So far, Clemens says, a toll-free telephone number at the end of the commercials has generated some 1 million inquiries. About 10 percent of the people buy some form of policy immediately, and many of the others can be sold policies later.

Specialized marketing also helps cut the cost of selling all those policies, he said. By designing a basic policy that can meet the needs of most members of the targeted group, the "acquisition costs" -- including commissions and bookkeeping -- can be reduced. At most firms, these costs can run as high as 150 to 180 percent of the Premiums paid in the first year. Academy's acquisition costs are 110 percent, Clemens says.

Eventually, he says, Academy might expand into another specialized market, though one in which it would face more competition than it may be accustomed to: retirees.

of 5 stories this month > Get unlimited stories
You've read 5 of 5 free stories

Only $1 for your first month.

Get unlimited Monitor journalism.