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Pricing strategies in the insurance industry

Introduction
The insurance industry is involved in the establishment of protective policies to the consumers such that the two parties create a binding contract. The insurance company binds itself to provide insurance cover to the consumer while the consumers bind themselves to pay the premiums. There are different pricing strategies and tactics used by the insurance companies. The chain of distribution used by the insurance companies is simple since the main objective is to create a binding contract between the two parties. Few participants are involved in the chain since there is no value addition to the products offered by the insurance companies which may necessitate the inclusion of many distributors. The paper will discus the various pricing strategies used by insurance companies, the legal and ethical issues involved in pricing strategies by the insurance companies as well as the nature and characteristics of the chain of distribution.
Pricing strategy
A pricing strategy is a policy used by a marketer to establish the best prices of the products depending on the market conditions. The marketers choose the most applicable pricing strategy depending on the level of competition in the market as well as other market conditions. The penetration pricing strategy is used by companies which are entering the market for the first time. The prices are maintained as low as possible to capture the attention of the consumers. After the company has acquired some amount of market share they hike the prices. A skimming pricing strategy is used when a company has a high competitive advantage which is not sustainable. High prices are charged and this attracts new participants in the market, hence forcing the marketer to reduce the prices (Marketing Teacher Ltd 2010). The insurance industry is very dynamic since new products are being invented each day. This is creating very high competition causing the insurance agencies apply different pricing strategies for the different products. Both price penetration and price skimming strategies are being used by the insurance agencies.
Pricing tactics
Pricing tactics determine the best prices to offer customers in a particular market segment. Product line pricing is applied where a marketer is dealing with a variety of products. Insurance agencies have variety of policies to market and they need to offer different prices to the different products. Value pricing is applicable where the marketer wants to maintain the value of the products sold. Products with a high value require high prices since the consumers have a high demand for such products. Insurance policies with a very high value have high prices attached since consumers have a very high demand for them. Differential pricing is applied where the consumers have different levels of knowledge about the market conditions. Consumers with a better understanding of market prices are offered discounted prices while the others are offered full prices. In the insurance industry some consumers do not have full knowledge about the prices of similar products in the market. This enables the marketer to differentiate the prices according to the knowledge a [person has about particular products in the market. When marketers are competing against private brands they tend to offer competitive prices to capture as many consumers as possible. The insurance industry has experienced the innovation of a wide range of private brands and this is forcing the existing companies to offer favorable prices to capture as many consumers as possible (Peter, 2010).
Legal and ethical issues related to the pricing tactics
The ethical issues related to pricing tactics include factors such as social equity, potential exploitation, the impacts and fairness of public shame, and full disclosure of the costs incurred. Social equity requires the marketer to offer fixed and flexible prices depending on the conditions and social class of the consumers. Potential for exploitation is determined by the benefits accrued by the consumers compared to the price provided for the products. Public shame is an ethical consideration where the marketer establishes the prices which do not drive all other firms in the market. Full disclosure of costs is required where the firm has made a partnership with the consumers such that a certain percentage of profits is agreed. The marketer must disclose all the costs to ensure the prices are fair. Legal issues relating to pricing tactics include the establishment of price floors and price ceiling. The legal; systems may establish the lowest price to be offered (price floor) to protect the firms and ensure their survival in the market. Price ceiling are established to protect the consumers from exploitative prices. These are the highest prices that the marketers can offer in the market (Kotler, 2007).
Marketing distribution channel analysis
The insurance products do not require a long chain of distribution. The main company may open up various branches where it can access the consumers directly. Another option involves the use of insurance brokers who sell the policies to the consumers. The brokers act like the retailers and they serve the purpose of linking the consumers and the main insurance company.
How the distribution strategy fits the products/services, target market, and overall marketing objectives for the company
The chain of distribution used by the insurance industry fits this environment since the services provided to the consumers are simple and there is no need to add value by increasing the number of participants in the chain of distribution. The companies can reach the consumers directly without incurring extra costs. The overall of objective of the insurance policies is to establish a binding contract between the insurance company and the consumers. When the insurance company uses a broker, the main aim is to bring together the two parties (the company and the consumers) to create a contract. This nature of the insurance industry makes it possible to involve a few parties in the distribution channel.
Conclusion
The insurance industry has encountered an increase in the level of competition leading to different pricing strategies. The agencies apply the most suitable pricing strategies according to the prevailing market conditions. The prevailing market conditions determine the best prices to be offered by a marketer. A competitive market environment requires the marketers to use favorable pricing strategies and tactics in order to maintain the market position in the turbulent market. Price floors and price ceiling are legal structures which are put in place to determine the pricing tactics to be used by the marketers. The marketers should also observe ethical issues relating to pricing strategies. Insurance companies do not require long chains of distribution and a few organizations are involved in the chain of distribution. The insurance companies should improve their commitment towards fulfilling their part of bargain in the insurance contract since the industry has been having the challenge of failure to fulfill the provisions of the contract. The government should issue more regulations on the industry since many companies are exploiting their consumers in terms of failure to fulfill the contracts, exaggerated prices and exploitation b7y insurance brokers.

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