Professional Documents
Culture Documents
Index
1. Know the Indian Life Insurance Industry 1.1 1.2 1.3 The Journey so Far Current Environment Powering Future Growth 01 02 04 06 07 08 09 09 10 11 11
2.2 The Benefits of Insurance 2.3 Common Insurance Terms 3. Understand Risk in the context of Insurance 3.1 Definition of Risk
4. Know the various Types of Insurance 4.1 4.2 4.3 4.3.1 4.3.2 4.3.3 4.3.4 4.3.5 4.4 4.5 Life Insurance Non-life or General Insurance Types of Life Insurance Individual/Group Policies Need Based Classification Traditional and Non-Traditional Policies Premium Paying Term Others Group Insurance Lifetime Product Mapping for Insurance
13 14 14 15 15 15 16 17 17 17 19 22 23 23
5. Know about the various Distribution Channels 5.1 5.2 5.3 Need for Distribution Channels The different Distribution Channels
6. The Lifecycle of an Insurance Policy 7. Get an overview of the Insurance Sales Process 7.1 Steps involved in the Sales Process
8. Insurance Underwriting 8.1 8.2 8.3 8.4 Defining Underwriting Role of an Underwriter Underwriting Objectives Risks in Insurance Business
31 32 32 32 33 34 35 35 35 35 35 36 37 38 38 38 39 40 43
9. Claims Management 9.1 9.2 9.3 9.4 9.5 9.6 Claims Definition Role of the Insurer in Claims Management Role of the Insured in Claims Management Types of Claims Premature Claims Maturity Benefits
10. Know the Insurance Regulator and its Role 10.1 Insurance Act 1938 and its Provisions 10.2 What are the provisions of the Insurance Act? 10.3 What is the need to Regulate the Insurance Industry? 10.4 What are the responsibilities of the IRDA? 11. Life Insurance Industry SWOT 12. Summary
Learning Objectives
1. Understand the journey and construct of the Life Insurance Industry in India thus far 2. Understand the different types of life insurance products and how they are beneficial for a customer 3. Understand the typical Insurance Policy Lifecycle 4. Gain an appreciation of the main activities undertaken by an insurer 5. Understand the positives and the challenges faced by the Insurance industry 6. Understand the ecosystem within which an insurer functions including the Regulator, Reinsurers etc.
World over, life insurance companies are counted among the fortune 500 list
Year 1818
Historical Perspective The Oriental Life Insurance Company, the first corporate entity in India offering Life insurance coverage was set up in Calcutta in 1818 by Bipin Behari Dasgupta and others. Europeans in India were its primary target market and it charged Indians very high premiums. The Bombay Mutual Life Assurance Society formed in 1870 was the first Insurance provider. Other Insurance companies established in the pre-independence era included Bharat Insurance Company (1896), United India (1906), National Indian (1906), National Insurance (1906), Co-operative Assurance (1906), Hindustan Co-operatives (1907), Indian Mercantile, General Assurance, Swadeshi Life (later Bombay Life). The Life Insurance Act and the Provident Fund Act were passed in 1912, providing the first regulatory mechanisms in the life insurance industry The Indian Insurance Companies Act of 1928 authorized the government to obtain statistical information from companies operating in both life and non-life insurance areas. The subsequent Insurance Act of 1938 brought stricter state control over an industry that had seen several financially unsound ventures fail. A bill was also introduced in the legislative assembly in 1944 to nationalize the insurance industry The Insurance Act of 1938 was enacted which was the first comprehensive legislation and is still operational as of now In 1955, parliamentarian Amol Barate raised the matter of insurance fraud by owners of private insurance companies. Eventually, the Parliament passed the Life Insurance of India Act on 19th June 1956, and the Life Insurance Corporation of India was created on 1st September 1956, by consolidating the life insurance business of 245 private life insurers and other entities offering life insurance services. Nationalization of the life insurance business in India was a result of the Industrial Policy Resolution of 1956, which had created a policy framework for extending state control over at least 17 sectors of the economy including life insurance. The General Insurance Business (Nationalization) Act was passed and the state owned General Insurance Corporation of India was set up with four subsidiary companies, New India Assurance, National Insurance, Oriental Insurance and United India Insurance Companies which became Government owned after amalgamation with various private sector General Insurance Companies. The process of economic liberalization initiated by P.V. Narasimha Rao Government extended to financial reforms under the leadership of the then Finance Minister Manmohan Singh. Malhotra Committee was set up to recommend the way forward for the reforms needed in the insurance sector
1912 1928
1938
1938 1955-56
1972
1991
1993
Historical Perspective The Insurance Regulatory and Development Authority Bill was passed in the Parliament The Insurance Regulatory and Development Authority (IRDA) was setup ICICI Prudential and HDFC Standard Life were the first two private sector life insurance companies licensed by IRDA in December, 2000. A total of 22 new private sector life insurance companies were set up including IndiaFirst Life Insurance in November, 2009 April, 2010 saw the unprecedented regulatory battles between Securities Exchange Board of India (SEBI) and IRDA with SEBI banning 14 private life insurance companies on the plea that they were selling collective insurance schemes not approved by SEBI As a result of the dispute, a spate of regulations has been initiated by IRDA to tighten its control over the industry. The Government brought in an Ordinance in June 2010 to reemphasize the supervisory and regulatory scope of IRDA and the Securities and Insurance Laws (Amendment and Validation) Act 2010 was passed by the parliament to replace the ULIPs Ordinance issued in June 2010
S. No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
Insurer
Total New Business Premium (INR Crore) 208 800 2,714 224 1,926 692 103 11 344 3,833 5,079 311 982 638 1,164 1,908 1,075 1,809 71 6,527 396 965 940 32,718 81,514 114,233
No. of Policies (Individual) 79,394 180,130 1,053,351 98,286 847,691 71,671 69,926 6,596 167,882 815,155 1,029,068 84,732 114,957 233,800 208,233 572,371 203,154 1,094,026 70,887 881,928 131,266 150,996 276,521 8,442,021 35,750,763 44,192,784
No. of Lives (Group + Individual) 95,479 -745,386 11,506,154 134,806 1,867,543 199,181 85,051 17,375 266,419 2,244,056 3,460,523 420,946 1,456,362 234,181 2,931,848 3,342,912 1,377,649 2,761,622 70,887 2,087,611 1,084,557 612,348 802,424 36,314,548 73,606,865 109,921,413
Aegon Religare Aviva Bajaj Allianz Bharti Axa Life Birla Sunlife Canara HSBC OBC DLF Pramerica Edelweiss Future Generali HDFC Standard ICICI Prudential IDBI Fortis Life IndiaFirst ING Vysya Kotak Mahindra Old Mutual Max New York Met Life Reliance Life Sahara Life SBI Life Shriram Life Star Union Dai-ichi @ Tata AIG Private Total LIC Grand Total
Similarly, a family which is dependent on one member to earn their livelihood may face a difficult situation if that member of the family is permanently disabled or dies in an accident. Insurance, therefore, is a mechanism that helps reduce the adverse effects of these difficult situations. It promises to pay us, the owner/ the beneficiary, of the asset a certain sum if a loss occurs. Insurance enables any person who suffers a loss or accident to be compensated for the effects of his/ her misfortune. The payments provided are from a common fund of money contributed by us, the holders of the individual insurance policies. In other words, individual risks are pooled and shared, with each policyholder/customer making a contribution to the common fund. With pooling of risks an insurance company pools the premium collected from several individuals to insure them against similar risks. Insurance, therefore, is a business of sharing; it makes an unbearable loss bearable.
Insurance enables any person who suffers a loss to be compensated for the effects of his misfortune
Economic Development The country requires investments for its economic growth. All life insurance companies have huge funds accumulated through the payments of small amounts of premia of customers. These funds are then invested by the insurers on behalf of customers. Therefore, insurers help mobilize the savings of customers and channel them as investments for economic growth. The countrys business and trade also benefits from insurance. Without insurance, trade and commerce may find it difficult to face the impact of major perils like fire, earthquake, and floods among others.
Meaning
The individual (customer) who is covered by the insurance policy The company that covers the insured and promises to make good the loss faced by him/her in return of a consideration The amount of money that needs to be paid to the insurance provider to keep the policy in good standing The minimum amount payable to the dependants on the death of the life assured The individual(s) eligible to receive the life insurance proceeds upon the death of the insured Notification to the insurance company from the insured (customer) requesting for the payment due under the terms of the policy
Pure and speculative risks Pure risks are in the nature of an Act of God! Speculative risks are in the nature of betting or gambling. Here, the risk is to some extent under the control of the individual concerned
Human Asset We, human beings are an income generating asset. Our value as an asset can be measured by considering the income that is generated by us. The risks in the case of a human asset relate to Early death Living too long Disabilities Sickness Unemployment Insurance of Intangibles Insurance is extended to intangibles. In some countries, the voice of a singer or the legs of a dancer can be insured. These are assets that produce income and provide a living to the owners. The object insured is intangible, but it is linked to a financial loss, and therefore becomes insurable. The Business of Insurance The insurance companies, are called insurers. The business of insurance comprises of sharing. It spreads losses of an individual over a group of individuals who are exposed to similar risks. Thus, the business of insurance is to Bring individuals together with common insurance interests Collect the share of contribution from all these individuals Pay compensations to individuals who suffer from risks Therefore, the premium for insurance is based on expectations of the losses. These expectations are based on studies of occurrences in the past and the use of statistical principles. Trustee The insurers also act as trustees as they are managing the common fund, on behalf of the community of policyholders. As trustees, they have to ensure that individuals dont take undue advantage of the arrangement. Consequently, the management needs to ensure that individuals with different risks are not included in the same group. This group also cannot include individuals who are paying claims on losses that are accidental. This decision to allow entry into a specified group involves the process of undertaking of risk. Reinsurance As insurance companies, are taking risks they have to pay claims as and when they occur, and also they cant be sure of when a claim will occur and how big it will be. Insurers, normally are financially strong, to be able to pay claims, but there are limits. An event like a tsunami or a hurricane may generate claims amounting to crores of rupees. They need to protect themselves from such situations by reinsuring risk with other insurers. In India, the General Insurance Corporation of India is the national reinsurer.
end of the savings period. The final fund is secured from the very beginning. A comparison with other forms of savings displays that life insurance has the following advantages In the event of death, the settlement is easy because of the facility of nomination and assignment There is a certain amount of compulsion to go through the plan of savings Creditors cannot claim the life insurance money There are tax benefits Marketability and liquidity is better
products Individual products are sold to a single policyholder, while group insurance covers a group of individuals usually members of a common society or employer among others. Need Based Classification Individual products can be further classified on the basis of the Need of the individual. These needs could be the need for financial security, or the need to increase wealth through investments, or the need to provide for financial security in case of any major health related expenses or the need to provide for post retirement years. Insurance has a solution/product to serve each of these needs as detailed below Benefits Term insurance offers financial cover equivalent to the face amount of the policy. This amount is provided to the policyholders (customers) family in case he dies during the policy period. The main objective for investment policies is to facilitate capital growth. Investment policies could also be tailored to ensure money is available at a specific time and for a specific requirement such as Child Policies. Child Policies helps you save and invest a certain amount for a period of time that can then be used for your childs future education marriage etc.
Investment
Provide for any major Health Related Expenses Provide for Post Retirement Years
Health Policies
Health Policies provider an insurance cover that pays for your medical expenses. These policies are used as a financial planning tool to save for post retirement, or to provide financial stability. In the event of an unfortunate accident or death, the insured is able to ensure the required expenses for his/ her family.
Retirement Policies
Traditional and Non-Traditional Policies Traditional policies are those where insurance companies offer a guaranteed maturity benefit. Thus, the investment risk in the policy is borne by the Insurance Company. Insurance companies need to ensure stable returns for these policies by restricting investments to low risk assets. An annual bonus for policyholders is also declared for these policies by the company. Traditional policies are typically of 3 types, viz Policy Whole Life Policy Benefits A typical whole life policy runs as long as the policyholder is alive. In other words, the risk is covered for the entire life of the policyholder. The policy monies and the bonus are payable only to the nominee of the beneficiary upon the death of the policyholder. The policyholder is not entitled to any money during his or her lifetime, i.e. there is no survival benefit. Endowment Policy Endowment policies cover the risk for a specified period. At the end of the specified period, the sum assured is paid back to the policyholder along with the entire bonus accumulated during the term of the policy. Typically, an individuals responsibility for the financial protection of the family reduces significantly after their children are independently settled. The focus then shifts to managing a smaller family - perhaps the individual and his/her spouse - after retirement. The endowment amount, which is the original sum assured and the accumulated bonus received at this time comes handy. Customers can either use the endowment amount for buying an annuity policy to generate a monthly pension for the rest of their life, or put it in any other suitable investment of their choice. This is the major benefit of an endowment policy over a whole life one. Money Back Policy Unlike ordinary endowment insurance plans where the survival benefits are payable only at the end of the endowment period, money back policies provide periodic payments of partial survival benefits during the term of the policy, as long as the policyholder is alive.
Traditional policies could be participating or nonparticipating plans. In participating plans, the insurer provides an additional bonus over and above the guaranteed amount. These bonuses come from the surplus generated from the participating funds. These are typically declared as a percentage of the sum assured, and once declared they become guaranteed. In non-participating plans, the benefits are defined at the time of the buying of the policy, and the same does not change.
Single Pay: Herein the individual pays the entire policy premium upfront in one installment Regular Pay: Herein the individual pays the policy premium at regular intervals as chosen by him, viz. monthly, quarterly, half yearly or yearly for the entire duration of the policy period Limited Pay: Herein the individual pays the policy premium for a limited duration of time, and receives benefit at the end of the policy period Others Riders A rider is an addition made to an insurance policy referring to a circumstance not covered in the basic policy. The rider has three primary conditions It is attached to the basic policy and becomes a part of it. It is subject to the same general conditions of the policy It usually refers to a special circumstance that is not covered in the basic policy It is paid for by an addition to the basic premium The most common type of rider is the Accidental Death Benefit Rider. This rider may provide for a double death benefit if death is due to an accident.
A rider is an addition made to an insurance policy referring to a circumstance not covered in the basic policy
Group insurance is an insurance plan that provides cover to a large number of individuals under a single policy called the Master Policy. The insurance contract is with the body that represents the individuals, the employer, or the associations. Because the contract is with the
body, that body is the policyholder and the individuals are beneficiaries. The premiums are paid by the policyholder, who may or may not collect the same from the individuals concerned. If the individuals contribute, it may be full or partial contributions. Individuals covered under the master policy are not parties to the contract. Originally group insurance was confined to employer-employee groups only. Since then the scheme has been extended to cover different groups, provided they are identifiable by homogenous common attributes, like profession, or membership of a cooperative society among others. Unlike other policies the group insurance policy does not have a fixed term. It is a policy in perpetuity, renewable every year and can be terminated by either party at the end of any year. The terms and the coverage can be renegotiated at the time of renewal. Important requirements for Group Insurance The group must not be formed for the purpose of taking advantage of the insurance scheme. The group must have some other reason for bonding Individual members will not be allowed to choose the amount of insurance cover; it will be determined by some criteria which are uniformly applied to all the members of the group The inclusion of members in the scheme is also a matter on which the members will have no choice Individual lives are not separately assessed for risks. The underwriting or selection is of the group as a whole
Premium under a group insurance policy will change from year to year. Premium may also change according to the mortality experience of the group Group Insurance Schemes One Year Renewable Group Term Insurance S c h e m e : M e m b e r s a re c o v e re d f o r specific amounts payable on their death within one year Group Savings Linked Insurance Schemes: Often offered to employers for the benefit of the employees. Contributions from employees are made up of two components, a part is used as premium towards a term insurance cover, and the other part goes into a group savings scheme Group Gratuity Schemes: Offered to employees and related to the gratuity of employees. This scheme guarantees a certain gratuity amount, which is more than what the rules provide. It also makes it easier to fund the gratuity liability of the employer Group Superannuation Scheme: Related to payment of pensions to employees. This helps employers administer the pension fund. Employers may fix the contribution they would
make annually, usually as a percentage of salary. The benefit available to the employees would be equal to what the contribution can buy on the date of retirement. Employers may also purchase annuities from a life insurer as and when they have to release the pensions. After the purchase, the annuities will be paid by the insurer directly to the pensioners
makes life less meaningful. Within these two goals, life moves from child birth, to education, to wedding, to a rising family, to consolidation, to retirement and finally to death. At each life stage, there is a legitimate role life companies can play through their products and specialized value added services which can be represented through a lifetime product mapping for the customer. The graph below displays an example of lifetime product mapping -
Asset Acquisition Income Protection against Protection Disability Wealth Creation & Increase life Annuity plans Shortterm Needs Accumulation cover Health insurance Save for Medical Childrens Wealth creation & Expenses education plan accumulation / Children education plans marriage plan for grandchildren Life insurance Increase life cover, Add children to plan so that the new Health Insurance Wealth creation & partner con cope plan accumulation plan with any events Wealth creation that may cut off and Health in Middle Age accumulation insurance product plan Health insurance need Tax minimization Unmarried First Job Young Married Young Married Retirement Planing with Children Pension Products Health Insurance Consumer Needs Products Catering to the Needs
Pre Retirement/Retired
Provision for Child Regular Income Education and Health Insurance Marriage Preservation of Wealth Creation & Capital Accumulation
Consumer Needs Asset acquisition Protection against disability Short term needs
Products Catering to the Customer Needs Life insurance plan Wealth creation and accumulation plan
Starting the very first job is an important stage in an individuals life as he becomes independent and is able to start planning for his own future. With the inflow of a regular income, the individual can start planning for luxuries such as his first house, holidays, and a car among others. However, at the same time he needs to ensure that he is preparing for the future against any unforeseen events that may hamper his ability to keep earning at a steady rate. To meet his needs of asset acquisition, protection against disability and other possible short term needs, we should recommend a life insurance plan and a wealth creation and accumulation plan at this stage of life. Young and Married Income protection Wealth creation and accumulation Save for medical expenses Increase life cover, so that the new partner can cope with any events that may have an adverse effect on the income flow Health insurance products Wealth creation and accumulation plan
As an individual begins a new phase of life, he also has added responsibilities of providing for his spouse and securing their future. At this stage, he may feel the need for income protection, saving for medical expenses, and wealth creation. To serve these needs we could recommend increasing the existing life cover, health insurance products and wealth accumulation plans. Young Married with Children Provision for child education and marriage Wealth creation and accumulation Increase life cover Child plan Add children to the health insurance plan Wealth creation and accumulation plan
Consumer Needs
With the addition of children to the family, the parents now need to plan for their childrens future. Education and marriage are the two biggest expenses that need to be taken care of for their children. At this stage, the individual could find various child plans useful. He can also add his children to the health insurance plan that he had purchased. The individual could also increase his life cover and purchase other wealth creation or accumulation plans. Middle Age Health insurance need Tax minimization Retirement planning Pension products Health insurance
At this stage the individual has had long years of working with a steady income flow, has provided for the childrens future, and has acquired assets that he needs. He now needs to start thinking about planning for retirement to ensure that he is able to maintain a similar lifestyle after he stops working. Thus it is ideal for the individual to buy a pensions plan that will help him systematically save for post retirement. He also needs to ensure that his health insurance coverage is substantial to support him/ her through possible old age related ailments. Pre-retirement/ Retired Regular income Health insurance Preservation of capital Annuity plan Health insurance Wealth creation and accumulation/ education plans for grandchildren
This is the time for the individual to relax. He has fulfilled most of his commitments. His children are independent. It is now time for him to pursue new interests, enjoy long holidays, and spend some quality time with his family. However, the individual may still continue to require a steady income. He can ensure this, by purchasing an annuity plan from the pensions corpus that he has built. He may also consider starting a wealth accumulation plan for the benefit of his grandchildren and maybe look at getting a further health insurance cover for himself.
Improve cost efficiency in distribution of products Satisfy the needs of more demanding customers Differentiate on the basis of customer service
An insurance agent is someone who works on behalf of the insurance company to sell products. For decades, the agency model has been the only distribution channel for life insurance in India. Even today, a large proportion of the business is carried out through the agency channel.
Introduction to Life Insurance in India | 23
Features of the Agency Channel They are off-roll employees for the company, and are paid a commission for the sales they make An agent is usually a good and convincing salesperson and has access to good leads Agents provide various pre sales and post sales services to customers Corporate Agents (CAs) Corporate Agent is a concept introduced with a view to take advantage of the presence of a large number of firms, corporations, banks, nonbanking financial institutions (NBFCs), NGOs, cooperative societies and Panchayats who are in constant contact with individuals. Cas are corporate entities (usually NBFCs) that source policies for an insurance company with There are three types of models for bancassurance Corporate Agency Referral Arrangement Joint Venture
whom they have a tie-up. They are authorized to source policies for one insurance company only. Potential CAs Institutions such as ITC who have a high customer base in rural regions NGOs Relatively new and untapped NBFCs Retailers Bancassurance The bancassurance channel was introduced in India when the insurance industry was opened up for private players. In this model, an insurance company, ties up with a bank and offers its products through the bank branches.
Banks act as CAs but without any risk participation. They enter into a service level agreement with the insurance company. Referral arrangements do not include banks acting as Cas. These arrangements are used for sharing the banks database, providing physical infrastructure, and displaying publicity material in their branches. There could also exist a joint venture arrangement between the bank and the insurance company. therefore provide cost effective products to customers. As products are being sold to the banks customers, there is already a relationship that exists that can be further leveraged. Banks can provide their customers a wider range of services that may help to increase retention and meet expectations. It also offers an opportunity to the banks to increase their fee based income.
Introduction to Life Insurance in India | 24
Features of Bancassurance The bank staff sells a range of products including insurance. They have multiple responsibilities. It is therefore important that products be simple so that the staff can understand them easily and sell them effectively. Insurer can utilize the existing branch networks of the bank to sell its products. This offers an opportunity to have a lower cost model and
Cultural Integration
Partner Banks and Insurers may have different organizational cultures and philosophies. The vision and mission might also differ. These issues need to be addressed There should be a proper communication of the process and the benefits of the partnership to the front end/ branch level staff so that they feel part of the entire system Technological incompatibility between the insurer and the bank might lead to non-delivery of promised service standards The MIS reporting should be simple and easy to understand with the flow of reports being as per the service agreements
Communication
Technological Incompatibility Management Information System (MIS) Reporting Proper Training of the Bank Staff Clearly Defined Roles and Responsibilities Brokers
The bank staff needs to be adequately trained for them to be able to advise customers on the right products based on their requirements Clearly defined roles and responsibilities must be provided
A broker acts as an intermediary between the insurance companies and the insurance buyer or customer. Insurance brokers differ from agents. While agents represent the insurance company, brokers represent the customers. Worksite Marketing Worksite marketing is the process of distributing individual or group insurance products to individuals at their place of work on a voluntary, payroll deduction basis. Under a worksite marketing arrangement, the insurer, approaches an employer to offer its employees the opportunity to buy insurance coverage at work. If the employer agrees, our sales representative, i.e., you market the products directly to their employees at their worksite. The employer implements a payroll deduction plan to deduct the employees premium payments from their pay checks and submits the same to us. E-sales E-sales refer to sales of insurance products through the internet. This channel for the sale of insurance products is relatively new in India, but is
fast catching up with more traditional methods. For some time, insurance companies have been using online payment gateways to collect renewal premiums and their websites to solicit sales inquiries for their insurance products, but it was only late in 2009 that insurance companies in India introduced products that are exclusively sold via the internet. Because these online products are being sold directly to the end customer, with no intermediaries, insurance companies can sell these products much cheaper, as the intermediary commissions are eliminated.
customers upfront. They can then help in forwarding only the right business to the company. Mis-selling is very common in the insurance industry. For example, sometimes agents do not assess the needs of the customer appropriately while recommending insurance products. In addition, sometimes agents or advisors misrepresent facts by promising unrealistic returns to customers, or even provide incorrect information about product features. As a result, the customer is unhappy and saddled with a product that does not meet his/her immediate or future needs. These scenarios need to be avoided in all circumstances The distribution channel may also focus more on acquisition than on retention. According to a recent study, it costs about five times more to attract a new customer than to retain an existing one. One may also fail to follow up and that could lead to the loss of a customer
The distribution channel should also be able to perform the role of a primary underwriter
There are various stages through which a typical Insurance policy would pass. These are: 1. Sale/Policy Login Herein the customer is explained the policy features and benefits by the insurance agent/sales person and the customer agrees to purchase the policy 2. Underwriting On purchase of the policy, the Underwriters, who are the risk assessment team of the insurer evaluate the policy to ascertain whether the risk can be taken on 3. Policy Issuance If the Underwriters feel that the risk is fit to be taken on, then the customer is accepted and the life insurance policy is issued to the customer
4. Policy Servicing Sometimes the customer may change his contact information, or nominee for the policy, or the customer may want to choose a different fund option in the case of a ULIP, all of these requests of the customer are serviced by the Insurer 5. Claims Either at the end of policy term or due to the occurrence of the said event, there maybe a claim that arises, at that stage we pay the dues to the customer and the policy is closed The following chapters provide an overview of the Sales, Underwriting and Claims stages of an Insurance Policy.
PROSPECING
Fixing appointments
PROPOSING A SOLUTION
Meeting the customer, Information gathering, financial planing and solution offering Concluding the sale and Application form filling
CLOSURE
Each stage of the sales process is extremely critical in finally closing the sale.
Sales Process
Suspecting
Steps involved
Identify prospective customer(s)/ leads (could be through existing customer relationship, customer referrals, walk-in customers or existing bank customers for bancassurance etc) Call the prospective customer and request for a meeting. Prepare yourself by gathering as much information about the prospect as possible and understanding his profile Meet the prospect as scheduled Understand his specific requirements with respect to his overall financial plan Propose a solution that meets his requirement
Closure
Once the prospective customer is convinced, fill up the proposal form, collect the first premium payment and close the sale Medical examination may need to be organized, wherever necessary The proposal form is then sent to the Central Processing Centre
Insurance Underwriting
8.1 Defining Underwriting 8.2 Role of an Underwriter 8.3 Underwriting Objectives 8.4 Risks in Insurance Business
Basic Requirements for Acceptance of a Plan For a plan to be acceptable to a customer, it must satisfy these three basic requirements The plan must provide benefits that meet all the customers needs The insurance coverage provided must be affordable to the customer The premium amount charged for the coverage must be competitive in the marketplace Medical Risks Financial Risks
The underwriter needs to consider the customers habits, personal and family medical history The underwriter needs to examine the customers need to buy the insurance coverage, the stability of his/her income, his/her persistence in paying the premiums, and the net worth of the customer The underwriter takes into consideration the customers occupation, hobbies, location of his/her residence, and some moral hazard elements Moral Hazard Red Alerts When the customer has no need of insurance or no insurable interest When the insurance is not appropriate with respect to the customers income When a customer wants a large insurance at an advanced age When the customer refuses to disclose his/her previous insurance history
Personal Risks
Moral Hazards A moral hazard is a risk that insurers take in believing in the customers integrity and honesty. It cannot be measured like a physical hazard. A moral hazard involves good faith, the customers reputation, his/her integrity, habits, standard of living and income, among others. Some customers may have a tendency to hide or manipulate data or information while buying insurance plans. Moral hazard is a required risk that insurers need to take in their business.
Claims Management
9.1 Claims Definition 9.2 Role of the Insurer in Claims Management 9.3 Role of the Insured in Claims Management 9.4 Types of Claims 9.5 Premature Claims 9.6 Maturity Benefits
Identity, occupation, and income Age and built Health and habits Personal and family history Previous insurance details, if any The purpose of applying for insurance The underlying principle of insurance is that the claim will reinstate the insured in the same financial position as he/she was prior to the claim. This indicates that the claimant cannot make a profit with his/her claim.
cases need to be handled with utmost care and responsibility because the fate of the deceaseds family is dependent on this claim. Death claim is attached with the base plan and rider, if any. A customer buys a life insurance plan to cover his/ her family financially in case of his/ her untimely death. This is therefore the most sensitive area for the insurer. Payment of a death claim will involve the following components Basic sum assured (SA) Any other benefits (if applicable) like accidental death benefit, and waiver of premium among others For example: A customer buys IndiaFirst Young India plan for a 10 year period. If the life insured (customer) dies in the fifth plan year, the following benefits will be paid to his/ her nominee (child) Life Cover Benefit - Basic sum assured (SA) is paid immediately Waiver of Premium Benefit - All future premiums are funded by us Maturity Benefit - At maturity, the fund value is paid to the nominated child if he/she has attained the age of 18 years. If the child is a minor, the fund value at maturity is paid out to the appointee
amount could either be a lump sum payment or a string of payments. For example, a customer buys IndiaFirst Young India plan for a 10 year period. At the end of 10 years (maturity), the customer will receive a lump sum amount that is the plan fund value. Survival Benefits Survival benefits are claims that are payable at predefined intervals during the endowment term as stipulated in the plan. These claims are payable out of the reserves accumulated against the plan. Annuity Payments Annuity payments refer to a string of payments made in favour of the annuitant after the annuity vesting date. An annuitant is an individual who is entitled to receive benefits from an annuity. For example, a customer buys a pension plan, at maturity, he/ she will have the following options Take 1/3rd of the fund value (tax free) and purchase an annuity with the remaining 2/3rd either from IndiaFirst or from any other life insurance company Purchase an annuity with the entire lump sum payment either from IndiaFirst or from any other life insurance company Take the fund value (taxed as per income tax rules)
The IRDA (Insurance Regulatory and Development Authority) is a corporate body that has the responsibility of administering the Insurance Act. Up until 1999 the Controller of Insurance was responsible for the administration of the Insurance Act. With the IRDA Act 1999 being put in place, the responsibility was subsequently handed over to the IRDA. The IRDA is guided by the Insurance Advisory Committee (consisting of not more than 25 members).
subsequently amended in 1950 and, again, in 1999. The Act includes the following provisions Registration of our company and renewal of registrations Capital and solvency margin requirements. Investment of our assets Rural and social sector obligations Assignment and transfer of policies and nominations Licensing of our agents and their remunerations Prohibition of rebates Protection of our holders interests Placing limits on our expenses Constitution of Insurance Association, Insurance Council, and the Tariff Advisory Committee for General Insurance among others
IRDA has the resposibility of administering the Insurance Act. It is guided by the Insurance Advisory Committee
business. This includes approval for the appointed CEO and Actuary Operations and Monitoring of Performance Insurance companies need to have all our products approved by the IRDA before introducing them into the market IRDA regulates the investments made by us It regulates the extent of reinsurance required It regulates maintenance of solvency margins It conducts on-site inspections periodically
Strengths High Savings Rate amongst Indians Indians have one of the highest savings rate 35% of GDP. A part of these savings flow into the Insurance sector Favourable demographics of the Indian economy India has a large young population and its dependency ratio is expected to fall to 52% by 2015 and 48% by 2025. 50% of the Indian population is expectedto be less than 50 years of age by 2020, triggering a rapid growth of working population which in turn will act as a catalyst for growth of the Insurance Industry Availability of large talent pool
The availability of a large pool of mathematical, analytical, financial and IT talent and a large supply of cheap manpower can make India the insurance back office hub of the world, transferring operational processes from UK and US Weaknesses Poor market perception Conflict between an agents need to hard sell a product and the true customer need, non standardization of products and processes to deliver a uniform customer experience and recent regulatory changes that have made the environment more challenging have all contributed towards a poor perception of the industry amongst customers and potential employees Strong correlation with Market Volatility Given that insurance also serves the benefit of investment lead wealth creation, success of the products and industry has a strong correlation to fluctuations in the equity market. Insurers however, can provide options to customers that provide balanced returns despite the volatile markets
Opportunities Growing incomes and Increasing financial literacy With increase in income across the country, Indian customers are also becoming more conscious about their financial choices and demanding a range of instruments that will help them meet their financial goals Governments focus on Financial Inclusion Government programs of financial inclusion are making available guaranteed minimum employment and a slew of rural development initiatives. These are opening up windows of opportunity for basic financial services in the remote corners in India. Replicating the successful Bancassurance Model The Bancassurance model has done well in India. This presents a potential opportunity for the industry to pick principles and learnings from the bancassurance model and apply them to a range of different distribution channels to improve performance of those Threat Competition from other financial service providers such as Banks/Mutual Funds/Pension Funds/Hedge Funds etc. I n i n te r n a t i o n a l m a r ke t s i n s u ra n ce companies are competing with hundreds of other players such as Banks, Mutual Funds, Pension Funds, Hedge Funds and finance companies. In India too, this is slowly becoming a reality. It is important that the Indian life insurance companies realize that every insurance as an investment and every investment is insurance, and thus broad base their strategy and capabilities to compete with a wider spectrum
Summary
Insurance is defined as a contract that assured the insured a sum of money in case of any untoward incident Insurance is bought to protect the economic value of an asset Insurance also acts as an effective tool for social security and economic development The life insurance market in India is fairly competitive with 24 players. Given the low penetration levels in the country this market has huge potential to grow further There are two types of insurance Life insurance an insurance cover taken for a human life. Payout by the insurer happens when the agreed number of years lapse or in case of the customer/ insureds unfortunate demise Non-life/ General insurance an insurance cover taken on a non-life asset. For example: fire insurance, car insurance, marine insurance, engineering insurance etc. Life Insurance policies provide varied benefits such as protection, investment, retirement, health Investment products could be either traditional products or non traditional products Traditional products are further classified into whole life policy, endowment policy and money back policy Traditional products could also be either participating or non-participating policies Non-traditional products are non-participating policies Unit linked insurance policies (ULIPs) are nonparticipating policies Insurance products could also defer by term of premium payment which maybe single pay, regular pay or limited pay Life insurance products cater to the changing investment and protection needs of the customer as he moves from one life stage to the next Companies use a variety of distribution channels to expand their reach in the country and improve cost efficiencies. The different channels present are agency, corporate agents, bancassurance, brokers, worksite marketing etc. Bancassurance has got three different models, i.e., corporate agency, referral arrangements and joint venture The key rationale behind a bancassurance model is its low cost effectiveness; the existing branch networks of the banks can be utilized to distribute insurance products They key success factors for the bancassurance model to be a winner includes cultural integration between the banks and the insurance player, proper communication, technological compatibility, simple & easy
management information system, efficient training to the bank staff and clearly defined roles & responsibilities The key steps involved in our sales process include suspecting or lead generation, prospecting, proposing a solution and closure Each stage of the sales process is extremely critical in finally closing the sale and involves various people both from within our company as well as from our partner banks Underwriting is the process through which we take a decision to accept or reject a specific application depending on the extent of risk for a given sum of premium. It is a process of identification, assessment, selection, and classification of risks involved in the insurance business An underwriter is the person who evaluates the risk being taken on by us and decides whether to accept or decline an application A claim on an insurance plan is the demand for the fulfilment of a promise made by the insurer to the insured (customer), at the time of finalizing the contract There are broadly two types of claims premature clams and maturity claim/ benefits Premature claim is a claim made on an insurance plan before the maturity of the plan and can be categorized under death claims or living benefits
Maturity claims/ benefits are claims that are made after the expiry of the plan term The Insurance Regulatory & Development Authority (IRDA) is a regulatory body that oversees the life insurance and general insurance activities of all insurance companies in India IRDA supervises insurance companies at the two stages Structure and registration of the company Operations and monitoring of performance G i ve n t h e c u r re n t s o c i o - e co n o m i c environment of the country, there are various strengths and opportunities that can be leveraged to fuel growth of the industry, at the same time there are weaknesses and threats that need to be considered and effectively overcome