An analysis of the ROPO effect in the field of agricultural insurance in Germany

Table of Contents

Abstract

List of illustrations

List of tables

1 Introduction
1.1 Motivation, Problem Statement and Objectives
1.2 The ROPO effect

2. Insurance marketing
2.1. How do private customers buy insurance?
2.2. How do farmers buy insurance?

3. Methodology

4. Results of the investigation

5. Summary and conclusion

Bibliography

Abstract

Since the digital transformation of our society, the Internet has proven to be the central factor influencing a purchase decision. This work has set itself the goal of analyzing the ROPO effect (research online, purchase offline) in the process of purchasing agricultural insurance products in Germany. The ROPO effect comes into play when customers check on the Internet before they make the purchase offline. The research includes the specifics of the product called "insurance" and the age structure of German farmers. Market studies of the ROPO effect in private insurances from 2012 have been analysed in order to obtain an up-to-date overview of the extent of the ROPO effect. The work is based on a quantitative analysis which is carried out by means of a telephone interview with 140 operations managers of German farms. It involves particular research of the buying behaviour and age of the farmers. The ROPO rate of German farmers amounts to 47.1%. The process of purchasing an insurance product can be considered as being related to the age of those seeking to purchase insurance. In comparison with older farmers, younger farmers increasingly search for information online in the preliminary stage prior to concluding a transaction of insurance. Overall, the results obtained lead to the conclusion that the Internet has a great influence on the decisions to purchase agricultural, insurances, and that this tendency will increase as agriculture passes from older to younger generations of farmers.

List of illustrations

Graph 1: Decision-making support for purchaser (in %)

Graph 2: ROPO segments of the research process before conclusion (in %)

Graph 3: Growth of online research (in %)

Graph 4: Age distribution of the sample

Graph 5: Boxplot graph of year of birth and purchase process

List of tables

Table 1: Age characteristics of the random sample

Table 2: Purchase process agricultural insurance

Table 3: Purchase process - agricultural insurance amp; age - cross tabulation

Table 4: Chi-squared test

1 Introduction

1.1 Motivation, Problem Statement and Objectives

Even at present, the insurance sector is undergoing an intense process of change. On the one hand, because of a Europe which is becoming increasingly closely interrelated, the existence of a system of uniform, harmonised regulation is establishing the basic precondition for a common European market.¹ Driven by the EU Commission, this situation leads to the development of more and more new legislations in the member countries. Although confidence in insurance companies was demonstrably adversely affected by the 2008 financial crisis, the industry is still in existence, and extensive.²

Generally, there are certain specific characteristics of the insurance market that must be considered. A particular feature of the insurance industry is that its products relate to an immaterial, intangible service. An insurance product, though it can be legally represented by a contract, lacks any physical form. As a result, the quality of the insurance product is difficult to assess.³

In addition, the insurance industry in Germany is a competitive, displacement market in the context of which an increase in business volume is only achieved at the expense of other providers.⁴ These facts, in addition to the aforementioned lack of physical form of the product as well as a wrong assessment of needs on the part of customers, lead to a very high level of competition among insurance providers.

Because of the information needed before the conclusion of the insurance contract and in the payment of claims, the customer is largely only integrated into the service process as an external factor, a fact which can lead to a very high demand for advice in certain circumstances.⁵ The Internet, however, also plays an important role in this purchasing process.

The ROPO effect makes visible the interaction between the Internet and the offline sales process. Based on the findings from private consumers, the selling process of agricultural insurance products is dealt with here. The focus is on how many farmers obtain information in advance on the Internet before they then conclude the insurance contract with an (offline) intermediary. The research is based on telephone interviews with 140 operations managers of agricultural enterprises in Germany. This is followed by a statistical analysis. The ROPO effect in the area of ​​agricultural insurance products is investigated. Similarly, a correlation is demonstrated between age and purchasing behaviour. The ROPO rate allows conclusions to be drawn on the importance of online marketing activities in the marketing of agricultural insurance.

1.2 The ROPO effect

The Internet has in the meantime established itself as a mass medium. Most target groups are accessible via the Internet.⁶ With the ROPO effect (research online, purchase offline), the customers inform themselves on the Internet before they then conclude the purchase offline. Meanwhile, the Internet affects purchasing decisions in many sectors.⁷ The Internet is now regarded as the most important source of information for purchasing decisions in almost every area. According to BITKOM, 55% of German citizens obtain information online, before a purchase, on price and quality of a product.⁸

illustration not visible in this excerpt

Graph 1: Decision-making support for purchaser (in %)⁹

2. Insurance marketing

The insurance market is a typical buyer's market. Customers are wooed by the various market players.¹⁰ The German insurance industry association, the GDV, in its annually published Insurance Industry Statistical Yearbook, differentiates between the following distribution channels:¹¹

- Single-tied or insurance group intermediaries
- Multi-tied intermediaries
- Credit institutions
- Direct selling (online)
- Others

illustration not visible in this excerpt

Illustration;1: Proportion of distribution channels relating to new business in the insurance industry¹²

It is apparent that the largest proportion of new business is to be ascribed to single-tied or insurance group intermediaries. In comparison, conclusion of insurance deals online plays a lesser role. The distribution channels and the small proportion of people concluding insurance business online do not provide enough information to draw conclusions on the extent to which the Internet ultimately does affect purchasing decisions.

2.1. How do private customers buy insurance?

Thanks to the ubiquity of the Internet among all age groups and regions, a significant change in consumer behaviour can be observed.¹³ To be online anywhere and anytime is part of the contemporary trend, and is leading to a significant change in buyers' behaviour. Other industries, such as books, clothing and music, have already experienced a massive shift in buying patterns. It is no longer a matter of if, but how and which online media will be involved in the decision-making process.¹⁴ The increasing shortage of time, the required transparency and the growing spread of digital networking promote just such a development. The option of being able to use the Internet on a mobile basis also encourages all the more a permanent online presence of all generations.

In a global consumer insurance survey, Ernst amp; Young see strong evidence that the way customers want to interact with insurers is also changing internationally.¹⁵

AXA and Google Deutschland have commissioned the Media Efficiency Panel of Market Research Institute GfK to clarify how customers treat new business on the Internet. In 2012, 14.8 % of all new insurance contracts were concluded online.¹⁶ Nevertheless, in addition it is evident that a large proportion of insurance contracts is still mediated via the classic sales route, i.e. through an insurance intermediary. However, an overall upward trend in online conclusion of insurance business has been recognised. Though the proportion of online insurance business thus concluded still seems relatively small, the role of the Internet is not to be underestimated as a medium for concluding insurance contracts. The survey of AXA and Google Deutschland shows a change in buying behaviour. Insurance will not necessarily be concluded online. People looking for insurance tend to use the information obtained on the Internet to conclude the insurance offline at a later date. The ROPO effect describes this phenomenon accurately:¹⁷ The preliminary research on the Internet is followed by the purchase of the insurance product through the traditional distribution channel. From 2009 to 2011/2012, an increase of the ROPO segment from 29 % to 42 % was observed.¹⁸

[...]

¹ Cf. (Seegmüller, 2008, p. 1).

² Cf. (Hilker, 2009, p. 9) and cf. (YouGov Deutschland AG, 2014), URL: http://www.wmd-brokerchannel.de/docs/wmd/vg09/vg09_psychonomics_stempel.pdf (04/10/2013).

³ Cf. (Altenähr, et al., 2010, p. 6).

⁴ Cf. (Braun, 2012), URL: http://www.versicherungsjournal.de/vertrieb-und-marketing/verdraengungswett ewerb-verschaerft-sich-111040.php (10/10/2014).

⁵ Cf. (Schwickert Theuring, 1998, p. 25).

⁶ Cf. (Homburg, 2012, p. 235).

⁷ Cf. (BITKOM Bundesverband Informationswirtschaft, Telekommunikation und neue Medien e.V., 2010, p. 1)

⁸ Cf. (BITKOM Bundesverband Informationswirtschaft, Telekommunikation und neue Medien e.V., 2010, p. 1).

⁹ Own illustration, created with Microsoft Excel for Windows, Version 2010, followed by (BITKOM Bundesverband Informationswirtschaft, Telekommunikation und neue Medien e.V., 2010).

¹⁰ Cf. (Koch, 2005, pp. 55-56).

¹¹ Cf. (Gesamtverband der Deutschen Versicherungswirtschaft e.V. (GDV), 2014, p. 13).

¹² Own presentation, created with Microsoft Excel for Windows, Version 2010, data taken from: (Gesamtverband der Deutschen Versicherungswirtschaft e.V. (GDV), 2014, p. 13)

¹³ Cf. (ARD/ZDF, 2013) URL: http://www.ard-zdf-onlinestudie.de/index.php?id=422 (25/08/2014).

¹⁴ Cf. (Müller-Peters, 2013), URL: http://www.f04.fh-koeln.de/imperia/md/content/hp-f04/ivw/forschungundevents/faris/preprint/kundenverhalten_im_umbruch_2013_mueller_peters.pdf (30/08/2014).

¹⁵ Cf. (Ernst Young Global Limited, 2012, p. 7); URL: http://www.ey.com/gl/en/industries/financial-services/insurance/global-consumer-insurance-survey-2012 (19/08/2014).

¹⁶ Cf. (AXA Konzern AG; Google Deutschland, 2013, p. 16).

¹⁷ Cf. (AXA Konzern AG; Google Deutschland, 2013, p. 23).

¹⁸ Cf. (AXA Konzern AG; Google Deutschland, 2013, p. 23) and (Allianz Deutschland AG and Google Deutschland, 2011, p. 23).