Wednesday, January 21, 2009

Insurance – Affinity Marketing Explained

In terms of insurance, AARP has one of the largest affinity marketing programs in the United States. Indeed, if you read their literature, access to their insurance programs is one of the "benefits" they brag about when they try to get people to join. It has P&C programs through The Hartford, life insurance programs through New York Life, health plans, and long-term care insurance. Not a senior citizen? You probably qualify for an affinity insurance product from your church, university, professional association, union, and so on and so on. They are everywhere.

With this post, I will provide simplified information on how affinity marketing works and how it benefits/harms consumers.

  1. The Sponsor Organization: The foundation of any affinity marketing insurance program is the sponsoring organization. The Sponsor Organization provides the insurance company with access to its membership base. The larger the membership, the more value the sponsoring organization brings to the table.
  2. The Pitch: through the sponsoring organization, the insurance company will pitch the benefit of coming to them for insurance products. Typically, they will pitch a combination of discounted premium, special coverage terms, or guaranteed issue.
  3. What the Sponsor Organization Gets: MONEY. The sponsor gets a royalty/commission for bringing the consumer to the insurance company. In return for the royalty/commission, the insurer will get some combination of 1) the membership list, 2) inclusion on the website, 3) inclusion in written materials (ex. Newsletter, the bill), and 4) access to the sponsor's logo. Think about it, AARP is not going to let NY Life use their logo for free. If the sponsor organization uses this money to benefit members, it is certainly understandable.
  4. Do you get a discount? Probably Not. The fundamental basis behind insurance rates is loss ratio (how much do they pay in claims) + expense ratio (policy acquisition costs and overhead). Unless the relationship between the insurer and the sponsor organization reduces costs, there will be no discount.
  5. What do you get?
    1. If the sponsor organization does a good job, they will select a good carrier with good customer services.
    2. Products: Good sponsor organizations will make sure its members have access to good products that meet its members' needs.
    3. For groups with special underwriting problems, the Sponsor Organization can really provide value. Example: you are a member of the American Skydiver's Association. If they find a life insurance company that will write members at reasonable rates, they have done a good job for their members.


Bottom Line: Affinity marketing is not a panacea for consumers. Although Affinity Marketing does not offer huge discounts, good programs do exist. You just need to be careful when you choose one. Some are good, some are bad, and some are an abomination.


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