You are now the Chief Marketing Officer of a brand-new insurer in Hong Kong. As approaching to its 1-year birthday, a new product initiative and marketing program are agreed to launch in the next six

Ø Effective coverage of the target market Ø Efficient and cost -effective distribution Ø Ensuring that customers incur minimum exertion in procuring the product Ø Helping the insurer to carry on marketing activities uninterrupted, confident that the channels will take care of sales Managing Distribution Channels Activities involved in the channel are wide and varied through the basic activities revolved around these general tasks:

Ø Ordering and display Ø Promotion selling Ø Information feedback How does a CDO set objectives and tasks among all available distribution channels? Setting Objectives and Tasks Channel systems often evolve to meet market opportunities and conditions. However, for maximum effectiveness, channel analysis and decision making should be more purposeful. Steps involved in designing a channel system are:

Ø Analyzing consumer service needs Ø Formulating channel objectives Ø Analyzing product and linking channel design to product characteristics Ø Evaluation of distribution environment Target Markets and Channel Design Strategies Steps involved in designing a channel system are (cont’d):

Ø Evaluation of competitors’ channel designs Ø Matching channel design to company resources Ø Identifying major channel alternatives Ø Evaluating major alternatives Target Markets and Channel Design Strategies Pattern of distribution channel and type of intermediaries Selection of channel members. How?

Ø Market coverage Ø Sales forecast Ø Cost Ø Other resources Ø Profitability Ø Control Ø Motivation Ø Reputation Ø Competition Ø Contract Target Markets and Channel Design Strategies Guidelines for channel management:

Ø Interdependence Ø Trust Ø Support Ø Goal setting and planning Ø Monitoring intermediary activities Ø Motivating intermediary Ø Conflict resolution Ø Evaluating performance Target Markets and Channel Design Strategies Target Markets and Channel Design Strategies Origins of customers Customers’ needs Youngsters vs. adults Sophisticated product for advanced function Compensation and incentive scheme Fixed location vs. mobility Non -F2F initiative Others … Target Market Channel Design Target Markets and Channel Design Strategies CASE STUDY Local insurer in 2016 Mainly agency and bancassurance channels Focusing on agency (your expertise!). Key initiatives:

Ø Promotion of MDRT & IDA Ø Promotion of products with high profitability Ø Agency expansion Supporting strategies incl. marketing, product and training Case Study (1) Marketing Ø Competitor Analysis Ø Value Proposition Ø Branding and Marketing Theme Ø Marketing Initiative Product Roadmap Training Ø Qualification Framework Ø Training Plan and Preparation Case Study (1) Key issues Channels’ distribution focus Operating principles Management actions Ongoing monitoring Discussion European giant in 2014 Local development Ø Introduction of DM and affinity partnership model Ø Expansion of broker channel Competitor analysis Value propositions/ differentiation Key enablers, challenges and mitigations Case Study (2) Positive motivators: higher margins, special deals, premiums, cooperative advertising allowances, display allowances, sales contest etc. Negative motivators: threatening to reduce margins, to slow down deliveries, or to end relationship. Effective communication and information flow in both directions are necessary if the channel is to function properly. Motivating Channel Members Most insurers try to forge long term partnership with their distributors to create a marketing system that meets the need of both the insurer and the distributor. They jointly plan merchandising goals and strategies, inventory levels, advertising and promotion plans etc. The insurer must ensure a participative relationship for a mutually beneficial relationship to exist. Motivating Channel Members The insurer must regularly check the channel member’s performance against standards like:

Ø Sales quotas Ø Customer delivery time Ø Cooperation in company promotion and training program Ø Services to customers Good performance: recognized and rewarded suitably; poor performance: assisted or as a last resort replaced. Evaluating Channel Members Insurer must be sensitive to intermediaries. Channels must be responsive to changing needs of customers and to the development of new channel systems by competitors. Ongoing monitoring of channel effectiveness and improvement of distribution network to match changing conditions and potential market opportunities. Evaluating Channel Members Consider the following situation regarding a life product with all -in FYC of: Ø 40% to salaried agent channel Ø Broker channel got the same rate as agent’s plus an override of 100%, i.e. 80% Ø Zero to digital channel APE(HK$) produced in the last quarter among three channels are as below:

Ø Salaried sales: 10M Ø Broker: 15M Ø Digital: 6M Discussion Digital channel requires additional IT and marketing costs What are the key considerations of channel evaluation? How a CDO plans to do in next quarter? Discussion 1. Intermediary Compliance 2. Power in Distribution Systems 3. Conflict in Distribution Systems (see later) 4. Planning for Power Changes 5. Partnership Model Key Issues Licensed insurance agents Ø Insurance (Max Number of Authorized Insurers) Rules Ø Code of Conduct for Licensed Insurance Agents Ø GL3, 22 to 31 Licensed insurance brokers Ø Insurance (Financial and Other Requirements for Licensed Insurance Broker Companies) Rules Ø Code of Conduct for Licensed Insurance Brokers Ø GL3, 22 to 31 Others like PDPO, agency/broker contract, house rule of insurer etc. 1. Intermediary Compliance One channel member’s ability to get another member to act as it wants. Power A > Power B When an insurer is more powerful, it can impose demands. When it is having a weaker power position, strategic conflict may be initiated. Consider agency, broker and bancassurance channels. 2&4. Power (Change) in Distribution Systems When insurer exercises power, generates strategic conflict à zero -sum game Partnership model assumes possibility of positive -sum game Advantages:

Ø Lower distribution cost Ø More efficient product sets Ø More effective promotions Consider broker, bancassurance and affinity partnership channels 5. Partnership Model A. Cognitive bias es 1. Overconfidence 2. Confirmation 3. Anchoring 4. Availability B. Emotional biases 1. Endowment 2. Status Quo Common Management Habits Unwarranted faith in own intuitive reasoning. Illusion of knowledge bias (overestimating knowledge levels, abilities and access to information) and hindsight bias (selective perception and retention). Consequences: blind to any warning sign, underestimate downside risk. A1. Overconfidence Bias Selective perception that emphasizes ideas that confirm our beliefs, while devaluating whatever contradicts our beliefs. Managers are often guilty of this bias when they frame their data in ways that tend to confirm their hypotheses. Consequences: blind to any warning sign, overconcentration. A2. Confirmation Bias How many in -force individual life policies were there in Hong Kong, as at the end of 2020? (14,793,632) A. < 5,000,000 B. > 5,000,000 How much in -force individual life premiums receivable were there in Hong Kong, as at the end of 2020? (492B) A. < HK$200 billion B. > HK$200 billion How much in -force individual life sums assured were there in Hong Kong, as at the end of 2020? (8.25T) A. < HK$800 billion B. > HK$800 billion A3. Anchoring Bias To estimate with unknown magnitude, people tend to begin with an “anchor”, then adjust up or down. Such adjustments seem to be insufficient and have biased approximations. Consequences: forecast or project a close -to - current level business or manpower or other parameters, and difficult in foreseeing tail events. A3. Anchoring Bias Consider the trend of RMB/USD exchange rate on the right diagram. What do you think about the trend in the forthcoming 6 months? A4. Availability Bias A4. Availability Bias People tend to make judgement about the possibility or frequency of an occurrence based on readily available information but not necessarily complete, objective or factual. Consequences: difficult in foreseeing tail events, overreact to instant/ sudden conditions. Consider the sales trends of your 2 channel members. A has steady sales production, while B has had seasonal peaks in June and December only for many years. Now is January, and Q1 is highly crucial to your insurer.

How are your management towards A and B? A4. Availability Bias People tend to value an asset more when they hold it, i.e. “endow” with some added value. Consequences: holding bottom 20% too long. B1. Endowment Status quo bias, loss aversion bias and endowment bias often combine. Inertia! Consequences:

doing nothing, holding bottom 20% too long. B2. Status Quo Managing Channel Conflict Channel conflict may result when channel members have mutually exclusive values, interests or goals. Insurers may want control of distribution channels for better execution of their marketing strategies, whereas intermediaries may not see the insurer -determined strategies as in their best interest. Managing Channel Conflict Distribution channel members often have multiple organizational relationships; hence, the potential for conflict is high. Operational conflict occurs daily and are annoying, frustrating, channel disrupting, so most members try to minimize them. Managing Channel Conflict Problem areas in insurer -intermediary relationship Service and technical assistance Direct customers Marketing information and feedback Training and support services Other product lines carried Other insurer -supplied channels competing with intermediary Prices and discounts Managing Channel Conflict Sometimes insurers take actions to generate strategic conflict, gain advantage. Strategic con - flict changes the dynamics between insurers and intermediaries. Upstream with insurer: Insurers go direct to end users, eliminate distributor. Downstream with customer: End users go direct to insurers — seek better prices, eliminate distributors Managing Channel Conflict Types of conflicts Conflict Magnitude Causes Consequences Management Managing Channel Conflict Vertical Horizontal Inter -type Multi -channe l Main Types of Conflicts Vertical Channel Conflict: Higher level enters into a dispute with lower level or vice -versa. Horizontal Channel Conflict: Conflict among the channel partners belonging to the same level. Main Types of Conflicts Inter -type Channel Conflict: Channel partner enters a product line different from usual product range, to challenge small and concentrated one(s). Multi -channel Conflict: Channel partners involved in a particular distribution channel encounters an issue with the other channel under multi -channel model run by insurer. Main Types of Conflicts Agent Incentive vs. Client Promotion? Client promotion sacrificed by agent compensation? Intermediary vs. digital? Push and/or pull strategies simultaneously executed in multi -channels? Same customers solicited by various channels? Any others? Main Types of Conflicts The level to which the conflict is considered critical or needs the attention of the channel leader, i.e., insurer, is known as its magnitude. The magnitude of conflict can be determined through the proper analysis of the change in market share and the company’s sales volume in a particular area or region. Conflict Magnitude Goal incompatibility between insurer and intermediary Ambiguity and confusion related to roles and responsibilities of insurer and intermediary Appointment of multiple intermediaries in the same territory, in particular with a narrow consumer base Lack of communication Competition between insurer and channel members in the same market Causes of Channel Conflict Channel members are margin -focused, while insurers would prefer mass production to reduce costs Marketing or strategic mis -alignment (consider promotion same product in different manners) Difference in market perception between insurer and intermediary Change resistant Causes of Channel Conflict Consequences of Channel Conflict Ways to Minimize Channel Conflict Whether between channel members or channel members and channel transaction facilitators, potential conflict is reduced by:

Ø Relationship building and team management Ø Team -building efforts Ø Clear and complete contracts Ways to Minimize Channel Conflict CASE STUDY (Revisit) UK giant in 2007 Local and expatriate IFA and broker channels Different culture, style, management approach Regional and even international exposure for various channel members Product suite regionalized and internationalized Image and reputation of the local insurer and also the entire group Strategic alignment – credit booking, cost allocation, management reporting etc. Case Study (Revisit) Key issues Channels’ distribution focus Operating principles Resolution of development Management actions Ongoing monitoring Discussion Day 3 Learning Setting distribution objectives and tasks Target markets and channel design strategies Motivating and evaluating channel members Key issues of managing distribution channels Common management habits Managing channel conflicts Lecture Topics 3 (Jul 24) Managing Distribution Channels Managing Channel Conflicts GROUP PRESENTATION Each group represents the management team of an assigned insurer Duration: ~15 mins presentation + 5 mins. Q&A Areas to be covered:

Current corporate and marketing strategies of your representing company Current product and market propositions of your representing company Current issues Any innovative channel strategies? Any challenges? How do you manage? Notes LET’S START… Module Outline Module Learning Outcomes Distinguish channel distribution features to support product sales Develop distribution strategies for individual business lines Review channel distribution strategies in light of corporate development and changing market environment Analyze potential synergies amongst channels and to formulate target channel mix AGAIN!!! Choose either one of two situations and write a report of 1500 to 2000 words (English). MUST submit on or before Aug 8 (Sun). Please submit your assignment to my email. For safety reason, please let me know after your submission via WhatsApp to my mobile. Assignment – Rules No receipt of your assignment and no mobile acknowledgement will be considered as missing to hand -in. Assignment handed in between Aug 9 and 14 will be deducted by 5% for each day delay (e.g. Aug 14: max -25%) ; additional 20% will be deducted for the submission from Aug 15 to 21. Assignment submitted after Aug 21 will be considered as record only and will not be graded. So, PLEASE BE PUNCTUAL!!! Assignment – Rules