Mass Merchandising

DEFINITION of 'Mass Merchandising'

A method of selling insurance policies in which an employer or organization agrees to assist in the sale of insurance policies to its employees or members. Mass merchandising is most commonly associated with property and casualty insurance. Insurers who use mass merchandising to sell insurance are required to separate the loss experience from policies sold under this method from policies sold under other methods.

BREAKING DOWN 'Mass Merchandising'

Insurers market their policies to a broad array of individuals and businesses. The way that a policy is marketed depends on the type of peril being insured against, such as casualty, property, or fire. Insurers may target individuals, as is the case with automotive insurance, but can also approach larger groups that may need the same type of policy. When approaching groups, insurers often take a mass merchandising approach.

Mass merchandising involves working with a company or organization to offer a range of insurance policy offerings to employees or members. By working directly with a company the insurer may be able to reach a larger number of potential policyholders than it could through other marketing methods, which can drive down underwriting costs. In this sense it is like the mass production of a product, since the insurer can use a single approach to obtain new clients rather than using customized approaches to attract smaller numbers of clients.

The use of mass merchandising is regulated by state insurance boards.The premiums charged for mass merchandised insurance have to comply with state insurance regulations, which typically indicate that rates cannot be excessive, inadequate, or discriminatory. An insurer is considered to be using discriminatory pricing if different rates are charged to policyholders who carry similar risks. Charging a different rate would require the expense factor to vary across policyholders. Insurers are prohibited from selling insurance using mass merchandising methods if the employees of a company or members of an organization are required to purchase insurance as a condition to being hired or accepted as a member, or if the employee or member is penalized for not purchasing a policy. They are also prohibited from using different underwriting standards for policies sold through mass merchandising from standards used for policies sold through any other method.