The Death of Telemarketing Has Been Exaggerated ... Or Has It?

The Death of Telemarketing Has Been Exaggerated ... Or Has It?

By Jon Hamilton

It has been over three years since the national Do Not Call (DNC) registry went into effect. At its inception in October 2003 there were already 30 million phone numbers on the list with the projection that it would eventually grow to more than 50 million. Today, there are over 110 million numbers on the list, with more being added every month. While this represents listed phone numbers, not households, studies suggest that more than 60 percent of households in the United States are now covered under the federal or a state list.

The suggestion has been made that this equates to the death of telemarketing, and there's no question that there have been significant changes. But, as this article will show, the telemarketing channel is clearly not dead. In fact, for those of us who view telemarketing as a profession, the case can be made that it is healthier than ever. Many of the less professional elements have been weeded out and, for the insurance industry, what is left is a void with a great deal of potential.

The Numbers Tell the Story

According to the DMA's WEFA Study, insurance telemarketing is credited with generating $79 billion in revenue among insurance companies and agents during 2006. While that number may be arguable, there is no question about the enormous impact the medium has had on this vertical industry sector.

Telemarketing, when executed correctly, has allowed insurance companies, and especially insurance companies using the direct marketing concept, to emulate as closely as possible the one-to-one sales advantage normally enjoyed only by the insurance agent. But the notion is a two-edged sword.

On the one hand the efficiency of the telemarketing process depends on large calling volumes. On the other it is hampered by complex licensing regulations and relatively high turnover. Currently, according to JCG Group Ltd., there are 15 firms identifying themselves as providing outsourced outbound telemarketing services to the sector. These 15 active service provider firms deliver something more than an estimated 3.0 million out-bound calling hours per year for approximately 10 insurance operations.

Some programs are large–in excess of 50,000 calling hours per month. Others are relatively modest–less than 5,000 calling hours per month. As well, programs fall into both business-to-business and business-to-consumer categories.

Insurance companies invest an estimated $221.4 million in outbound telemarketing generating $2.3 billion in annualized new business premium. This is down a considerable amount from the "heyday" of the medium in the late '90s, when one company alone sold over 300,000 new policies per month via the telemarketing medium.

Then, beginning with the introduction of the DNC, the business shrank. From approximately 4500 licensed insurance agents employed by 22 outbound insurance telemarketing service providers in 2001, the trend has continued to where in 2006, there were 10 outbound telemarketing service providers employing approximately 464 licensed insurance agents.

This shrinkage is the result of both regulatory and market forces. The State and National DNC lists, as well as the revised telemarketing sales rule, forced many insurance company marketing partners (banks and credit card issuers) to restrict calling activity.

For example, Capital One was a heavy user of outbound telemarketing until the first quarter of 2005. The bank used more than 1.5 million outbound telemarketing hours per year. In 2005 all insurance outbound operations–as well as direct mail offers and other media–were suspended. The insurance operations unit was dismantled and shut down.

On the outbound acquisition side, the "existing business relationship" (EBR) exemption has allowed several insurance underwriters, marketing companies and selected partners to continue their telemarketing programs.

There has also been a migration of marketing dollars from pure outbound telemarketing in the insurance sector to composite telemarketing through the Internet (live chat and on-line quoting) and other lead generation activity, which drives prospects to inbound call centers to process business.

Hence, although there has been significant shrinkage in outbound telemarketing, those underwriters and marketing companies engaged in the process have been able to meet specific ROI goals. They have done this by using the EBR of the financial institution (although the legality of this is questionable), by transferring customer sales calls to a sales call center to make an offer, by Internet and e-mail marketing to generate immediate leads, and by only calling those who are not on the DNC.

So Is Telemarketing Dead?

In a word... no. While a much-maligned medium, telemarketing remains a very effective marketing channel in the insurance business. It is being profitably used by those who understand that its power comes not from the ability to "push" unneeded products, but from a company's ability to offer products that once were sold by Agents to a now underserved marketplace.

Jon Hamilton is president of JHA Telemanagement, Inc. and a senior associate of JCG Group Ltd. a horizontally integrated international insurance and financial services direct marketing consulting group, based in Middletown, DE. He can be reached at 610.347.0724 or via e-mail at jhatelemgt@aol.com