11

Outline

Markets and Marketing

A THIRTY-YEAR HISTORY                                                    474
   Fourteen-year Period of Steady Growth (1965 - 1978)
   Six-year Soft Phase (1979 - 1984)
   Two-year Market Crash (1985 - 1986)
   Four Years of Correction (1987 - 1990)
   Five Years of Consolidation (1991 - 1995)
THE DISTRIBUTION SYSTEM                                                481
   Buyers of Reinsurance (The Primary Insurers)
       Large Companies
       Small Companies
  Sellers of Reinsurance (The Markets)
       Broker Markets
       Direct Markets
SERVICES                                                                                    487
   Actuarial
   Reinsurer Financial Security
   Letters of Credit
   Contract Wording
   Claims Advice
   Accounting
   Information Systems
COMPARATIVE ADVANTAGES                                           490
   Price
   Underwriting Advice
   Capacity
   Contract Negotiation and Formation
   Reinsurer Financial Security
   Claim Payment
   Potential Conflicts of Interest
SUMMARY                                                                                494

11

Markets and Marketing

by Paul Davies *

      As someone once observed, nothing happens until the sale is made. That statement pinpoints the act of selling as the trigger of all transactions, commercial and otherwise. Of the three functions of any business — finding customers, persuading them to buy, and servicing their purchases — selling as a rule is given the highest value. Without it, there is no exchange of goods and there is nothing to service.

       In the narrow sense of business, selling is a part of marketing, a broader concept. Merriam-Webster's Collegiate Dictionary offers three definitions of marketing: "1) the act or process of selling or purchasing in a market; 2) the process or technique of promoting, selling, and distributing a product or service; or 3) an aggregate of functions involved in moving goods (or services) from producer to consumer."¹ This chapter treats the marketing of all reinsurance in the broader sense, as in the last two definitions, and focuses on the source of reinsurance from the individual supplier, known as a reinsurance market, or reinsurer.

     The marketing of reinsurance is primarily a marketing of financial services. While some may call the reinsurance contract a product, it is more aptly described as a promise to provide certain services if a particular event should occur. The unique characteristics of those services — and any services for that matter — necessitate a different consumer evaluation process from that used when assessing the value of goods. If goods and services are ranked by ease of evaluation, goods will receive a higher rating because it is easy to evaluate their style, color, or feel. Services are more difficult to evaluate because they cannot be displayed easily, demonstrated physically, or illustrated tangibly. The only visible criteria by which to judge the quality of services prior to purchase are their prices and the physical facilities from which they are supplied.

* Chairman of Aon Re Inc., Vice Chairman of Aon Re Worldwide, and Executive Vice President of Aon Group, Inc., 123 North Wacker Drive, Chicago IL 60606. An autobiography follows the chapter.
¹ Tenth Edition (Springfield, Massachusetts: Merriam-Webster, Inc.), 1993, p. 712.