Insurance Lapsation and Consumer Behavior

OJAS INSTITUTE OF MANAGEMENT

B-1, SECTOR -16, ROHINI, DELHI-110089

AFFILIATED TO UGC
TABLE OF CONTENTS

1. Acknowledgement

2. Executive summary

3. Overview of Max New York Life

4. Brief details of New York Life

5. Overview of Max India limited

6. Introduction to Insurance

7. How does policy lapse

8. Consequences of lapsation

9. Why does customer quit?

10. Persistency

11. Lapse portfolio of Max New York Life

12. Persistency rate at max New York life

13. Products sold but not lapsed

14. Findings of lapsed portfolio

•Lapsation rate at MNYL channel wise

• Bucket of endowment products
 • Bucket of term products
• Bucket of long term products

15. Findings of the annual premium basis

• Channel wise % loss of premium on AFYP band
• Bucket of endowment products
• Bucket of term products
• Bucket of long duration products

16. Tele-calling survey and interaction

• Objectives
• Steps taken
• Sample

17. GAP- reports, findings from agent advisors

• Is renewal data received
• Are customer aware of reinstatement clause
• Post sales customer contact by agent
• Reminders letters
• Product opinion provide by agents
• Agents opinion on reason for lapsation

18. GAP-report, findings from customers

• Reasons and response for non payment of renewal
premium
• Score cards for agents effectiveness and
performance
• Do the customer wants to reinstate
• Customer awareness of reinstatement clause
• Numbers of letters received by the customers
• Post sale contact by agency/company
• Delivery time of the policy document
19. Global insurance market

20. Comparison of different companies on persistency

21. IRDA report-FEB- 2005

22. Premium wise market share of all companies

23. Recommendations
ACKNOWLEDGEMENT

Executive summary
 Visit departments in the head office and understand their processes
related to Lapsation and Reinstatement:
1. Policy Owner’s Service Department (P.O.S)
2. Claim Department
3. Under Writing Department

 Collect DATA for all the lapsed policies till date for the I.T.
Department

 Organize, Statistically compile and analyze the Data on different

parameters and benchmarks

 Comparison of the company’s strategies with those used by other

players of the industry

 Cost-Benefit analysis of the strategies

 Collect all the important document related to lapsation and

reinstatement, study them and understand their importance

 If possible, then to study the processes used by L.I.C. for revival and
lapsation

 Visit I.R.D.A. web sites for reference

* It can be rightly concluded that MNYL is flourishing due to great Zeal to

work and enthusiasm, efficient staff that can be judged from the fact that it
ranked topmost out of many U.S. life insurance companies
In the beginning of the project report, the introduction is given about the
“MAX NEW LIFE INSURANCE”. It is followed by the product profile and
then is followed by details of the company.

After completion of the above mention tasks, to provide with

recommendations and also to include any other intricacy which arises during
the progress of project.

Max New York Life

Max New York Life Insurance Company Limited is a joint venture that
brings together two large forces- max India limited, a multi business
corporate together with New York Life international, a global expert in life
insurance. The very nature of insurance business makes the company highly
customer sensitized

Vision

Become the most admired life insurance company.

Mission

Become one of the top three life insurance companies.

Become a national player- dominant in north India.
Be the brand of first choice among all stakeholders.
Become the employer of choice.
Be the principal of choice for agents.

Values

Together, Max India Limited and New York Life aim to become India’s
preferred insurance brand. This vision will be realized through the
company’s unique set of values, which are as follows:-

• Knowledge: - offer customers the best information possible enabling

them to take decisions that better their lives.
• Caring: - understand customers and their needs thoroughly.
• Honesty: - Be transparent in dealings with customers. The company
considers their customers as part o MNYL family
 • Excellence:-Offer innovative solutions with an objective professional advice
and a highly personalized service.

Achievements of MNYL
The company has emerged among the country’s leading private life
insurance company having a sum assured over Rs. 15200 crores through
over 446000 policies sold.

Max New York Life has successfully built a team of over 1500 employees
led by a strong, independent management team drawn from top industry
backgrounds. The company has set up a state-of-the-art infrastructure across
all 48 offices in 34 cities. The company has also set up a center of
operational excellence at its corporate office in gurgoan.

Max New York Life is among the top 25 companies in India to work in,
according to a recent survey published in business world magazine, “Great
workplaces in India”. There were about 120 companies that took part in the
survey. Max New York Life was ranked 20th position.

Max New York Life is the first life insurance company in India to be
awarded the ISO 9001:2000 certification.

The company also boasts of having one of the best agent advisors base in the
country. The company’s agent advisors have one of the highest productivity
rates. In 2003, as many as 126 agents qualified for MDRT- that is more than
all other private life insurers in the country put together

New York Life

New York Life has over 159 years of experience in the life insurance
business. It is a Fortune 100 company that is trusted by millions worldwide,
across generations. For more than 150 years, New York Life Insurance
Company’s unwavering financial protection to their clients and their
families.
Since becoming the first American life insurance company to pay a cash
dividend to policyholders in mid-1800s, New York Life has continued to
build a history of innovation-enhancing existing product lines, creating new
financial products and maintaining a diversified portfolio to best
accommodate customers’ changing needs and lifestyles.
Central to the company’s success are New York Life agents, who are widely
recognized as the best-trained professionals in the industry.
Financial Strengths
It all begins with financial strength, which allows New York Life to meet
their future obligations towards their policyholders. Along with $144 billion
in consolidated assets; New York Life holds a stable and diversified
portfolio and consistently receives among the highest ratings for financial
strength from life insurance industry’s independence agencies. The
company’s capital position is the strongest in the industry giving it the
strength to weather unexpected storms.

Being a Mutual Company

Life insurance business is a unique, People pay premiums for many years
and receive nothing in return bur a promise that the incurred will be there,
strong and solvent, decades from now, to pay a claim, fund a retirement, or
meet nursing home cost

A mutual life insurance company is a company that is not publicly traded.

Therefore, it has no stock to be bought and sold and no shareholders.
Instead, policyholders share in the ownership of the company. For this
reason, unlike publicly traded companies that manage their business for the
short term benefit of shareholders, the company is guided by the long-term
needs and expectations of the policyholders. This makes the company,
essentially, a partner in long term planning.

Capital and Surplus

New York Life: $10.8 billion
Average of Top 25 insurers: $6.2 billion
New York Life Surplus as a percentage of assets: 8.2%
Average of Top 25 insurer’s surplus as a percentage of assets: 5.4%
Disciplined Investment Management

Wise investment and conservative sheet management are the foundation of

New York’s Life’s financial strength. The company’s investment portfolio is
diversified and stable. In fact, the majority of New York’s Life’s assets are
invested in fixed income securities, and 89% of these securities have
investment grade ratings by the National Association of Insurance
Commissioners.

Agents

New York life has a vibrant and highly committed sales force that sets it
apart. In fact, New York life was one of the first issuance companies in the
world to develop a network of dedicated career agents to sell its products.
New York life agents rightfully earn the trust and loyalty of their clients.
The company’s agents have been leading the world in million dollar round
table memberships-the most prestigious of life insurance honours-for49
consecutive years. The million dollar round is an association of leading sales
professionals in the life insurance industry.

Max India Limited

Max India Limited is a multi-business corporate, driven by the spirit of

Enterprise, focused on knowledge people and service-oriented businesses of
Healthcare and Life Insurance. Max also maintains interests in Clinical
Research, IT and Telecom Services, and Specialty Plastic Product
businesses.

Vision

To be one of India’s most admired corporate for service excellence and a

successful multi-business enterprise for its shareholders i.e. customers,
shareholders, employees, JV partners, etc.
Mission

Establish niche service business in 2 areas of Healthcare, and Life Insurance,

Rank in top 3 players in each niche.
Partners with “Best in Class” world leaders.
Maintain Traditional Business.

Max is a young, modern Indian corporation, with a strong capability of

recognizing opportunities ahead of their time. Max has been able to form
and strengthen international alliances with global leaders across a wide
spectrum of management activity. Max India is lead by a skilled team of
professional managers and it’s recognized for commercially successful
manufacturing and service delivery businesses. Max has created enviable
history marked by tremendous growth in various fields and has been ranked
among the “Top Two Hundred Most Valuable Indian Companies” by
Business India.

Businesses

• Healthcare

• Life Insurance
Max New York Life Insurance Co. Ltd.

• IT and Telecom Services

• Cosmat Max

• Max Health scribe Limited

• Max Mind Crossing

• Clinical Research

• Specialty Plastic Products

Introduction to Insurance.

Insurance is a contract whereby one party mainly the insurer contracts with
another, the policyholder, to perform a particular service. Insurance is also
an economic device, whereby the individual can constitute a small relatively
definite cost for large uncertain financial loss that would have to be borne if
insurance was not available.

Insurance contracts are of two types; indemnity and valued contracts. To

indemnify an individual is to place the individual back into the position,
which he enjoyed prior to the occurrence of the loss. In indemnity contracts
a particular vale is fixed which is payable in case of loss. This value is
based either on Reinstatement basis or Normal Value basis. In
Reinstatement policies the company pays the market value as compensation.
On the other hand in Normal Value policies the depreciated value is paid.
All non-life contracts (except personal Accident policies) are Indemnity
contracts.

Life Insurance contracts are Value contracts. Since it’s not possible to either
replace or compensate loss of human life we cannot fix a value. One can
only mitigate the financial loss that shall be suffered if an individual doesn’t
live long or lives too long. Hence unlike non-life policies, an individual can
have more than one life insurance policy insuring the same life. This is
because an individual has unlimited Insurable Interest in his own life.

The first premium paid is the consideration for the life insurance contract to
come into force and the payment of the subsequent premium is the condition
necessary for contract to remain in force. This subsequent premium is also
known as Renewal Premium.

To pay premium is an obligation of the policy-holder. This obligation is not

conditional on the insurer making a demand for the premium. Although
insurers send reminder notice before the due dates, and also later incase of
default, the insured cannot escape the consequences of default on the ground
that he was not reminder. The policy conditions state that if premium is not
paid within the days of grace, the policy lapses.
HOW DOES POLICY LAPSE?

The policy conditions states that if the renewal premium, which is due on the
policy, is not paid before or as the due date, then technically the policy is
said to have lapsed. In spite of such strict conditions, insurers have practices,
which are more policy owner friendly. Therefore in practice, the insurers
give an extra 30 days time called the “GRACE PERIOD” from the due
date, during which if the due premium on the policy is paid then the policy
stays in force. Moreover during this period, renewal premiums can be paid
without any penalties. This extra period is only available with respect to
payment of renewal premiums and not otherwise.

Insured Losses are covered during this period.

When renewal premiums are not paid by end of grace period the policy
lapses.

CONSEQUENCES OF LAPSATION
• No claim arises on happening of any Insured Uncertain Event

• All Premium moneys paid by customer to the company are forfeited

• The liability of the insurance company terminates as far as the risk is

concerned.

• The insurance contract terminates as the renewal premiums are the

condition on which the risk cover is provided.
Why do customers quit?

Retention of the customers is important; therefore retention can be achieved

by working on the dissatisfaction of the customers. According to a study
conducted, retention of 5% more customers increases the profitability of the
company by 23 to30%. The study also reported various reasons for the
customers to quit. Following pie chart shows comparative contribution of
various factors leading customers to quit.

Reasons for customer to quite

DEATH

MOVE AWAY
1%3% 5%
9%
FORM OTHER
FRIENDSHIP
14% COMPETITIVE REASONS
68%
PRODUCT
DISSATISFACTION
INDIFFERENT ATTITUDE
OF SERVICE PROVIDER

DEATH 1%
MOVE AWAY 3%
FORM OTHER FRIENDSHIP 5%
COMPETITIVE REASONS 9%
PRODUCT DISSATISFACTION 14%
INDIFFERENT ATTITUDE OF 68%
SERVICE PROVIDER
Persistency
One of a key indicator of the quality of business conducted is the persistency
level a particular company enjoys. The literal meaning of word is doing
“doing the same thing over and over again, irrespective of what hardships or
difficulties one faces”. In insurance business, it would mean, paying
premium again and again.

How does persistency reflect upon the quality of business?

The business that a company procures at any particular stage needs to be

sustained over a particular period of time. If the company is not able to do so
it implies that a certain percentage of the customers whom the company had
acquired had made an association with the company without being serious
about it.

For any company sales is continuous process, so every renewal premium is a

point of sale and if ever there is a break in the multiple point of sale it
indicates than t the quality of business is poor.

Apart from this a low persistency would mean that the renewal efforts of the
organization were not consistent.

Relationship between renewals and persistency

A renewal is a continuous process of collecting [premium, due, month after

month. The overall persistency will be affected if collections are not up to
the mark.

Apart these renewals play an important role in maintaining a company’s

cash flow. For an insurance company flow. For an insurance company
premium income is the cash flow and renewal efforts increase the inflow of
the company.It is the cash flow on which a company sustains itself over a
period of time.Future investment, developmental projects all require cash
and that is funded through the cash a company collects.In case of insurance
companies it is the new business premiums income and the renewal
premium income which helps the management implement their growth
plans, and the actuaries in their pricing and bonus calculation.
Factors which affect the persistency calculation
• Extract of total business procured in the 1-year period.

• Number of policies active on the persistency calculation date.

• Policies that got the lapsed after being active for 13 months and
thereon lapsed.

• Policies, which lapsed and later on are reinstated.

Lapse Portfolio of Max New York Life

Objectives:

• To study the lapsed data of the on various parameters such as AFYP

band, products and agents and draw inferences there after.

Methodology:

• Studied the “as is” process of lapsation, revival and reinstatement at

MNYL
• Studied and analyzed the lapsed data on various parameters
mentioned in the objective
• Contacted customers and agents to get their feedback
• Make recommendations to improve the persistency level of the
company
Persistency Rate at Max New York Life

CHANNEL-WISEPERSISTENCY

AGENCY

BANCASSURANCE

36% 76% BROKER

76%
CORPORATE
16% 87% AGENCY
85% DIRECTMARKETING
92%

GTMS

SOCIALANDRURAL

CHANNEL Total Total Persistency Ratio

Sales Lapse
AGENCY 349455 85335 264120 76%
BANCASSURANCE 884 114 770 87%
BROKER 800 63 737 92%
CORPORATE 5521 834 4687 85%
AGNCY
DIRECT 38 32 6 16%
MARKETING
GTMS 89618 21151 68467 76%
SOCIAL AND 39491 25444 14047 36%
RURAL

(a) It is measured that the highest persistency in regards to renewals amongst

the various channels is shown by Brokers (92%), followed by Banc
assurance (87%) and corporate agencies (85%).
(b) It is also found that the least persistency is maintained by direct
marketing (16%) and social and rural sector
(c) The reasons as to the higher lapsation in the rural and social sector can be
Contributed to the pressure on agents to make target sales in this sector
where wrong selling o obligation purchases take place. This is done to meet
the IRDA regulations
 Product sold but not lapsed

PRODUCTS SOLD BUT NOT LAPSED

827
900
800

451
700

417
130
600

269

382
COUNT 500
400

28

33
300

20
28
12
18
200
100
0
Chendt24S
Chendt18S

Def_Anty_SP

SPBOND
Lterm05S

Lterm10S
Lterm15S
Lterm20S
Lterm25S
LG60
LPMB
LG

PRODUCT

CHANNEL AGENCY BANCASSURANCE BROKER CORPORATE DIRECT GTMS SOCIAL AND

AGNCY MARKET RURAL
ING
Chendt18S 132 1 1 2
Chendt24S 276 1 4
Def_Anty_SP 32 4 43
LG 900 2 1 27 1
Lterm05S 35 1 10
LG60 447 10 10 34
LPMB 426 1 40
Lterm10S 28
Lterm15S 13 1
Lterm20S 18
Lterm25S 22 2
SPBOND 382
Finding of Lapsed Portfolio

1. Lapsation Rate at Max New York Life

AGENCY

BANCASSURANCE
24% 13%
CHANNEL-WISE CNTRIBUTION TO LAPSATION
BROKER
64% AS % OF TOTAL SALES 8%
CORPORATE
15% AGENCY
23% DIRECT MARKETING
84%
GTMS

SOCIAL AND RURAL

CHANNEL Total Sales Total Lapse Persistency Ratio

AGENCY 349455 85335 264120 24%
BANCASSURANCE 884 114 770 13%
BROKER 800 63 737 8%
CORPORATE 5521 834 4687 15%
AGNCY
DIRECT 38 32 6 84%
MARKETING
GTMS 89618 21151 68467 23%
SOCIAL AND 39491 25444 14047 64%
RURAL
 2. BUCKET OF ENDOWMENT PRODUCTS

90000 83205 40%

80000 35%
34%
70000 30%
28%

LAPSED RATE
60000
25% Total Issue
COUNT

50000

32902
20% Lapsed
40000 17% 17% % Lapsation
30000 14% 14%15%

13973
12%

12823
11% 10%
20000 8%
7148

5687

4198
2009

1764
1349

10000 5%
662

465

379

504
101
73

14

30

0 0%
6

10

06

10

15

A.
A.
.

.
20

60
00

25

25
20

25

18

24
dt

dt
T2

DT

DT

DT

DT

dt

dt
En

En
ND

En

En
EN

EN

EN

EN
E

Ch

Ch
LP

LP

LP

LP

LP

Product Total Issue Lapsed % Lapsation

LPENDT2006 7148 2009 28%
LPENDT2010 662 73 11%
LPENDT2506 1349 465 34%
LPENDT2510 101 14 14%
LPENDT2515 379 30 8%
Endt20. 32902 5687 17%
Endt60. 83205 13973 17%
ChEndt18A. 4198 504 12%
ChEndt24A. 12823 1764 14%
(a) Endowment products provide specified benefit amount weather the
insured lives to the end of the term of coverage or dies ding that term. Each
endowment policy specifies a Maturity date, which is the date on which the
insurer will pay the policy’s face amount along with any bonus earned and
other benefits attached. The maturity date is reached either at the end of the
stated term or when the insured reaches a specific age depending on the
product purchased

(b) Endowment products share many of the common features of permanent

life insurance policies. Cash value also builds in these policies.

(c) The conclusion is that Endowment plan 25 years with installments

payment mode have lapsed highest with 34% Lapsation rate, followed by
Endowment Plan 20 years with installments payment mode.
3. BUCKET OF TERM PRODUCTS

90000 90%
84020
80000 80%
70000 70%

60000 51531 60%

LAPSE RATE
42465 Total Is s ue
50000 50%
COUNT

Laps ed
40000 40%
% Laps ation
16936

30000 30%

20000 20%

9480

4861
2919
10000 10%

1857
1370

972
912
823

904
461

203

313
152

162
0 0%

.
.

rm
.

A.

A.

A.

A.

A.

A.
EP

05

10

15

20

25

60
er

Te
ST

Et

erm

erm

erm

erm
rm

rm
Lte

Lte
Lt

Lt

Lt

Lt

Product Total Issue Lapsed % Lapsation

STEP. 84020 16936 20%
Eterm. 51531 42465 82%
Lterm05A. 1370 461 34%
Lterm10A. 823 152 18%
Lterm15A. 912 203 22%
Lterm20A. 904 162 18%
Lterm25A. 972 313 32%
Lterm60A. 9480 1857 20%
Term. 4861 2919 60%
(a) By definition, all term insurance products provide coverage for a sp the
conclusion is that Endowment plan 25 years with 6 instilments period

(b) Specified period of time, called the Policy Term, the policy benefits
along with bonus and other add on, if any are only payable if (1) the
insured dies with in the specified term as stated in the policy documents
and (2) the policy is in forced when the insured dies. The length of the
term varies with the policy and the plan purchased.

(c) The information gathered shows that the highest lapsation of 82% is by
Easy Term Plan followed by Level Term Product (60%)

(d) After interacting with the agents and the customers it was found that the
lapsation in terms bucket is due to the following reasons:

1. The term products offered by the competitors in the industry are

preserved to be better by the customers. 50% of customers whose
Term policies have lapsed do not wish to reinstate as they have
purchased the term products from competing companies

2. The Term Products usually do not have ay saving element and

therefore the customer does not loose on lapsation
4. BUCKET OF LONG TERM PRODUCTS

200000 70%
176605
180000
60%
160000
140000 50%

LAPSE RATE
120000 Total Issue
40%
COUNT

Lapsed
100000
30% % Lapsation
80000

41040
60000 20%
40000
1478

10%

9101
20000

468
2461
0 0%
WLNP. WLP. Def_Anty_AP.

Product Total Issue Lapsed % Lapsation

WLNP. 2461 1478 60%
WLP. 176605 41040 23%
Def_Anty_AP. 9101 468 5%

(a) Whole Life Products and Annuity product are of long-term nature. They
are also called permanent life insurance products. Whole life products
provide lifetime coverage usually on payment of level term premiums. The
extra premium monies collected in the early years by the company are
invested and the returns build the cash value, which is the savings on the
policy. The cash value starts building only after three years the policy has
been in force.

(b) The analysis state that whole life participating policies were sold than
non participating this shows the customers preference and need, more over
non participating policies have higher lapsation rate (60%) due o the same
reason

(c) Whole life participating policy show a lapsation rate of 23% and annuity
product show a very less rate of 5%
Finding of the annual premium basis

1. Channel wise Percentage Loss of Premium On AFYP Basis

10000000000
100000000
1000000
10000 Premium
100 Expected
BANCASSURA

CORPORATE

SOCIAL AND
1 Premium
AGENCY

BROKER

DIRECT
GTMS
Lapsed
PremiumLoss
Rate

Premium Premium Premium Loss

CHANNEL Expected Lapsed Rate
AGENCY 3109550849 403389738 13
BANCASSURANCE 14570372 1489707 10
BROKER 6915045 4744099 69
CORPORATE
AGENCY 58613364 8305019 14
DIRECT
MARKETING 69000 4368752 6332
GTMS 658333898 141716017 22
SOCIAL AND
RURAL 36279814 9198679 25

(a) Direct Marketing and Brokers are the channels which are loosing
maximum amount of there premium money.
(b) Agency and GTMS are contributing maximum to loss amount.
 2. Bucket of Endowment Premiums
EMBED Excel.Chart.8 \s

800,000,000 40%
700,000,000 35%
600,000,000 30%
500,000,000 25% PREMIUM IN FORCE
400,000,000 20% PREMIUM LOSS
300,000,000 15% LOSS RATE
200,000,000 10%
100,000,000 5%
0 0%

LPENDT2006

LPENDT2010

LPENDT2506

LPENDT2510

LPENDT2515
ChEndt18A

ChEndt24A

Endt20

Endt60

product

PREMIUM IN PREMIUM LOSS

PRODUCTS FORCE LOSS RATE
ChEndt18A 46,743,327 17,250,638 37%
ChEndt24A 121,108,316 13,279,440 11%
Endt20 443,590,834 55,656,421 13%
Endt60 692,309,624 81,542,743 12%
LPENDT2006 83,675,994 15,811,127 19%
LPENDT2010 10,703,046 64,056 6%
LPENDT2506 12,446,994 3,094,362 25%
LPENDT2510 1,747,447 129,730 7%
LPENDT2515 3,907,299 202,228 5%

(a) The least amount of premium renewal income rate is in case of Child
Endowment to Age 18 plan followed by Endowment 20 years with 6-
installment mode.
(b) Higher amount of premium loss is in the case of Level Endowment for
20 years and 60 years.
(c) Usually the financial constrains of he customers are the reason for
non-payment of renewal premiums.
 3. Bucket Of Term Premiums

700,000,000 100%
90%
600,000,000
80%
500,000,000 70%
60% PREMIUM IN FORCE
400,000,000
50% PREMIUM LOSS
300,000,000 40% LOSS RATE
200,000,000 30%
20%
100,000,000
10%
0 0%
Lterm20A

Lterm25A

Lterm60A
Lterm05A

Lterm10A

Lterm15A

Term
STEP

product

LOSS
PREMIUM PREMIUM RAT
DUCTS IN FORCE LOSS E
STEP 652,472,257 124,772,147 19%
Lterm05A 3,082,166 797,441 26%
Lterm10A 3,492,145 370,115 11%
Lterm15A 3,870,010 863,490 22%
Lterm20A 2,871,925 410,567 14%
Lterm25A 2,350,876 574,554 24%
Lterm60A 35,277,827 5,385,280 15%
Term 4,109,230 3,517,680 86%

(a) In the bucket of term products highest rate of premium loss is by

Level Term and Easy Term products.
(b) On monetary basis Stepping Stone products have highest amount of
lapsation.
4. Bucket of Long Duration Premiums

100000000 1800000000
90000000 1600000000
80000000 1400000000
70000000 1200000000
60000000 Def_Anty_AP
1000000000
50000000 WLNP
40000000 800000000
30000000 600000000 WLP
20000000 400000000
10000000 200000000
0 0
IN FORCE
PREMIUM

PREMIUM

RATE
LOSS
LOSS

product

LOSS
PREMIUM PREMIUM RAT
PRODUCTS IN FORCE LOSS E
Def_Anty_AP 88601792.08 3981699.5 4%
WLNP 1042301.04 3436406.5 33%
WLP 1645587676 233020029 14%

(a) Whole Life products are the ones, which have maximum sales in the
company and are most popular even through the participating plans
have shown a higher trend toward renewal premium loss rate.
(b) Amount wise Whole Life Non Participating policies are losing money
Telecalling Survey and Interaction
(A)OBJECTIVES:

To collect information on random basis, on various parameters on lapsed

policies in Max New York Life.

• To understand discrepancies between the actual flow of work and the

ground realities, and formulating reasons of the same
• To collect feed back from agent advisors and customers
• To understand the problem faced by agent advisors and customers
• To ascertain the objectives of questions to be asked and there
relevance to lapsed portfolio.
• To bring out the findings and observations
• To study the above and provide recommendations to harness the
current As-in-process in the company and state the draw backs

(B)STEPS TAKEN:

1) Firstly prepared two questioners on the basis of common

Questions/quarries and problems faced by:
a) Agent advisors
b) Customers whose policy has lapsed
(Copy of both provided)
2) Randomly tele - calling customers and agents from the sample
selected
3) Filling in the data and information provided by them in the
questioners
4) Assimilated the information and structured it into a comprehensive
meaningful manner with the help of statistical tools.
5) After assembling the data, analyses were made and trends studied to
pinpoint and highlight the discrepancies.
6) Recommendations were made for both the customers and agents
(copies of both provided)
(C) SAMPLE

a. For Customers: there were in total 120 telephonic calls made to

the HIGH VALUE Lapsed customers out of which 72 Leads were
generated.
The basis is as follows

• General office –Delhi-Total Leads 30

Highest sum assured -10
More than one per customer -5
More than one per Agent -5

• General office –Delhi 2-Total Leads 20

• General office –Delhi 3-Total Leads 6
• General office –Mumbai 1-Total Leads 16

b. For Agent Advisors: there were in total 50 telephonic

call made to the agent advisors with high lapsed portfolio out of
which 28 leads were generated

*There fore in total 100 leads were used as sample.

GAP-Report (Findings From Agent Advisors’):

1) Is Renewal and Lapsed Data Received by Agents

11%

14%
YES
46% NO
SOME TIME
DIFFICULTY

29%

a) The pie chart above shows that 46% of the Agents receive their
monthly lapsed and Renewal Data from the General Office, 29% of
the Agents do not receive it. Where as 14% only received it some
time and not on regular basis where as 11% has difficulty in getting
their data.

b) The Agents think that lapsed data would be of help in maintaining

persistency, however the lapsed data is not delivered even on request
by the agent to the concerned Sales Manager

c) The monthly detail list is put in the pigeonholes on agent basis but the
sales managers do not confirm their collection by the agent, as few
agents are not collecting them
2) Customer intimated about re instatement clause
CustomersIntimatedAbout
Reinstatement Clause

36%
yes
no
64%

a) Only 64% of the customers are verbally intimated as to the provision

of reinstatement attached with the policy, where as 36% of the
customers are not told at all

b) 90% of the customers do not read the policy documents terms,

provisions and conditions there in

c) Out of the 64% only 5% of the customers are told about the
reinstatement clause at the time of sales and rest only once the policy
lapses

d) Few of the customers who do not receive the letter of lapsation from
the company and do not know the reinstatement clause, presume that
there interest in the policy is forfeited and do not make an effort to
confirm the same
3) Post sales contact with customer

P OS T S AL E S C ON T AC T W IT H C U S T OM E R S

14
P O S T S A LE S CO NTA CT
12
No of times contact made

10

0
1 2 3 4 5 6 7 8 9 101112131415161718192021222324252627
Co un t of Ag e nts

a) The average post sales customer contact maintained by agents is

4.3% annually; these figures do not take in account the contacts
made as on renewal dates.

b) The findings show that, the agents were maintaining rapport and
building relations with the customers, the agents make good
efforts.

c) The customers are even contacted through phone calls, greetings

cards and other tokens of appreciations on festivals and various
occasions such as customers’ birthday etc.
4) The reminder letters, that are PRM01, PRM09, PRM14
are:

• Not reaching the customer at all, or

• Reaching the customer late, even after the renewal premiums are paid,
or

• Not all the three communications are delivered to the customer.

• Therefore if customers are told that their policies have lapsed they do
not believe the agents and the customers’ trust in both the company
and the agent is lost
5) Product option provided by agent
Product OptionProvidedByAgents

4%
32% yes
no
64% sometimes

(a) It is seen that there is a great amount of competition taking place in

the market, especially in the western and northern ones; customer
attrition is high because, as the customer is leaving the product of max
New York and purchasing a different category of product in another
company. One of the contributory reasons is that the customer is not
aware of other products and benefit available with Max New York
Life
(b) We even infer that only 64% of the agents briefly name the various
product range available with the company, where as 32% do not even
name the product options and only explain one product to the
customers which they think is suited to customers’ needs. 4% of
agents some times explain more than one product.
6) Agent opinion on reason for lapsation
Agents' OpinionOnReasonFor
Lapsation

11% 7% Personal
Service
57% Product
25%
Sales

a) 57% of the agents are of the opinion that the main reason for a
policy to lapse is the Personal Issue of the customer. In it Financial
constraints and other priorities are covered
b) 25% of the agents believe that the Service Issue is the reason
leading to lapsation of a policy.

Service Issue could be from the company’s end:

1. Non response for complaint and endorsement
2. Non communication of changes, non delivery of letters
3. No calls or SMS received by customers
4. If request of changes as to mode of payment by agents on
behalf of customers are cumbersome

Service Issue could be form the Agent’s end:

1. Non communication of renewals dates personally to the
customer
2. Non collection of renewal premiums on time and at
convenience of the customers
3. Lack of interest shown to changes in the policies desired by the
customers.
c) 11% of the agents are of the view that a policy lapses
when product issue arises:

• No more need for the current product is feel by the

customers.
• The customer perceives that there are better
competitive products available in the market.
• Post sales changes option not available with
product, as they arise with span of time.

d) 7% of the agents themselves state that there are times

when a policy lapses due to Sales Issue

• Wrong Product sold to the customer

• Obligatory sales made.
• Sales made to meet the target or to obtain Incentive benefits.
GAP-Report (Findings from Customers):

1) Reasons of customers for non payment of renewal premiums

NONE

COUNTER OFFER-GWEN LATE AFTER

FOUR MONTHS

AGENT ISSUE-WRONG SALES, POOR

4.17 2.78 SERVICE, NO RESPONSE
11.11
1.39 2.78 FINANCIAL CONSTR;\INS, WANTS
1.39 SOME TO CALL HIM

FINANCIAL CONSTRAINS,
SATISFIED WITH AGENT AND COMP.

15.28 FINANCIAL CONSTRAINS,

UNSATISFIED WITH AGENT

19.44 WANTS TO REVWE AND PAY, SOME

ONE TO CALL

NOT HAPPY WITH ATTITUDE OF

COMPANY OFFICER

HAPPY WITH AGENT AND COMPANY

8.33 BUT OUT OF TOWN

REPLACED FOR COMPETETOR'S

5.56 PRODUCT, BETTER PERCIEVED
1.39
WANT CHANGE IN MODE OF
8.33 8.33
PAYMENT

CONVERTED TO ANOTHER MNYL

11.11 POLICY

POLICY DOCUMENT NOT DELIVERED

TILL DATE OR LATE

PAYMENT MADE BUT NOT CREDITED

TO ACCOUNT

Remarks No. Total %

NONE 8 72 11.11
COUNTER OFFER-GWEN LATE AFTER FOUR 1 72 1.39
MONTHS
AGENT ISSUE-WRONG SALES, POOR SERVICE, 14 72 19.44
NO RESPONSE
FINANCIAL CONSTR;\INS, WANTS SOME TO 4 72 5.56
CALL HIM
FINANCIAL CONSTRAINS, SATISFIED WITH 6 72 8.33
AGENT AND COMP.
FINANCIAL CONSTRAINS, UNSATISFIED WITH 8 72 11.11
AGENT
WANTS TO REVWE AND PAY, SOME ONE TO 6 72 8.33
CALL
NOT HAPPY WITH ATTITUDE OF COMPANY 1 72 1.39
OFFICER
HAPPY WITH AGENT AND COMPANY BUT OUT 6 72 8.33
OF TOWN
REPLACED FOR COMPETETOR'S PRODUCT, 11 72 15.28
BETTER PERCIEVED
WANT CHANGE IN MODE OF PAYMENT 1 72 1.39
CONVERTED TO ANOTHER MNYL POLICY 2 72 2.78
POLICY DOCUMENT NOT DELIVERED TILL 3 72 4.17
DATE OR LATE
PAYMENT MADE BUT NOT CREDITED TO 2 72 2.78
ACCOUNT

(a) It can be concluded that it is the agents' poor service attitude and wrong
product sales which has contribute 20% towards lapsed portfolio

(b) The other inference taken out is that 16% of the policies lapsed as the
customer had opted for a competitor company's products

(c) 11 % of the policies lapsed as the customer was facing financial

problems.

(d) 11 % of the lapsed customer did not have any reason to state for non-
payment.

2) Total score of agents given by customer

 428
430
421
425
415
420
415
Score 410 404

405
400
395
390
Product & Agents Courtesy Agents Concern Clear and
Feature Explaion and Friendliness for best Undestandable
By Agent Purchase with Sales Process
Budget Made

a) The data shows that total score given to the agents on attribute of
Product and Feature explanation is 404 which is 56% of the total
scale.

b) The score given agents’ courtesy, appearance and friendliness is

415, which is 58% of the total scale.

c) Agents’ concern that the customer purchases the best product as

per the needs taking in to account the customer’s budget got a
score of 421 which is 59% of the total scale.
d) Agents’ ability to provide complete answers to customer’s question
and making the sales process clear and understandable received a
total score 428 which is 60% on scale
3) Does the customer want to reinstate?

NEED TIME TO DECIDE

26%
YES
31%
NO

43%

The above pie chat shows the number of customers in lapsed bucket willing
to reinstate their policies or not
• Willing - 43%
• Not Willing – 31%
• Have To Decide – 26%
4) Customer awareness of reinstatement clause

68%

70%

60%

50% 32%

40%

30%

20%

10%

0%
NO YES

a) Here we see that only 68% of the total number of customers whose
policies have lapsed are aware of the reinstatement clause, fest of the
32%are not aware

b) More over we the survey also brought out the fact that agents
themselves do not know the reinstatement clause and do not
communicate to the customer at the time of sales or lapsation

c) 60% out of the 32% of customers who were not aware of the clause,
when explained, were ready to consider reinstatement of their policies
as maximum customers do not read the document provided to them
5) No. Of letter received by customer as%

17%

8% 1
2
3
7% 4

68%

The reminder letters, that are PRM01, PRM09, PRM14 are:

• Not reaching the customer at all, or

• Reaching the customer late, even after the renewal premiums are paid,
or

• Not all the three communications are delivered to the customer.

• There force if customers are told that their policies have lapsed they
do not believe the agents and the customer’s trust with both the
company and agent is lost

• Continuity and persistency on average delivery is not maintained

• The reading show that only 68% of the customers receive all the three
letters where as it is mandatory by IRDA regulations to send letter of
lapsation
• 32% of the customers are not aware of the changes as to their policies
and even about lapsation
6) Post sales customer contact by agency/company

80%

60% 79%

21%
40%

20%

0%
NO YES

a) Out of the customers who were contacted only 21%has been contacted
again by the agent/company, post sales and 79% were not.

b) This reflects upon the company’s level of efficiency in relation to

follow-up post sales. Following two points come into light:-

• The sense of belongingness of the customer towards the company

and acknowledgement of brand equity is minimum
• The satisfaction level of the customer is not measured as in the
earlier years it has to be maintained at a higher level
7) Was policy document delivered on time to the customers?

NO
9%
YES

91%

1. We can conclude that 9% of the customer do not received the policy

document with in the promised time by the company
2. There are 2% of customer who do not receive policy document at all
or receive after a year’s duration
3. 5% of the customer stated that the policy documents delivered is not
good condition
Global Insurance Market

At the global level, life insurance market has been bigger and growing
faster, compared to non-life business. This is not so in all countries. The per
capita life insurance premium is highest in Japan (US$ 3165) and the per
capita non-life income is highest in Switzerland (US$ 1571). The figures
relating to some of he biggest insurance markets in the world are given
below along with the figures of Indian market.

COUNTRY Non-life (US$ RANK Life RANK

bn.) (US$ bn.
)
USA 460.61 1 443.41 1
JAPAN 89.11 2 356.73 2
GERMANY 68.05 3 55.63 5
U.K 65.66 4 152.72 3
FRANCE 38.45 5 75.15 4
ITALY 27.5 6 41.5 6
S. KOREA 14.1 10 36.4 7
CANADA 24.3 7 21 9
NETHERLANDS 15.7 9 21.5 8
SPAIN 17.1 8 19.4 10
INDIA 2.46 30 9.42 19

The largest life insurer was ING Group with a premium of US$ 83 billions.
The largest non-life insurer was Allianz with a premium of US$ 85.93
billions.
Contribution of Renewal Premium towards Total Premium.

INSURER TOTAL PREMIUM RENEW %SHARE

2002-03 2003-04 2002-03 2003-04 2002-03 2003-04
LIC 54628.49 63167,6 38651.73 46178.31 70.7538 73.10444
INGVYSYA 21.16 88.51 3.5 16.41 16.54064 18.54028
HOPC
148.83 297.76 19.51 88.42 13.10892 29.69506
STANDARD

BIRLA
143.92 537.54 14.36 87.68 9.977765 16.31134
SUNLIFE

ICICI
417.62 989.28 53.52 238.43 12.81548 24.10137
PRUDENTIAL
OM KOTAK 40.32 150.72 5.11 25.24 12.67361 16.74628
TATAAIG 71.77 253.3 19.56 71.93 27.25373 28.3714
SBI LIFE 72.39 225.67 0.5 18.62 0.690703 8.250986
BAJAJ 18.68207
6.9.17 220.8 5.79 41.25 8.370681
ALLIANZ

MAX 36.21835
96.59 215.25 29.28 77.96 30.3137
NEWYORK
METLIFE 7.91 28.73 0.21 5.32 2.654867 18.51723
12.39536
AMPSANMAR 6.47 31.06 0.15 3.85 2.318393

AVIVA 13.47 81.5 4.54 0 5.570552

IRDA Report FEB'2005

IRDA Report FEB'2005
Company Market Share
Premium Wise (%) No. Of Policies (%)
Life Insurance Corporation 77.88 90.32
ICICI Prudential 6.69 2.77
Bajaj Allianz 2.86 1.1
Kotak 2.81 0.84
SBI Life 2.29 0.46
HDFC Standard Life 1.94 1.04
TATA AIG 1.46 1.06
Max New York Life 1.06 0.98
Aviva 0.87 0.37
Birla Sun life 0.83 0.26
ING Vyasa 0.56 0.45
AMP Sanmar 0.48 0.15
MetLife India Insurance 0.26 0.2
Sahara Life 0.01 0.02
 P re m ium W is e M arke t Sh a re

Lifi Insurance C orporationIC IC I P rudential

B ajaj A llianz K otak
S B I Life HD F C S tandard Life
TA TA A IG M ax Newyork Life
A viva B irla S unlife
ING V yasa A MP S anm ar
MetLife India Insurance S ahara Life
RECOMMENDATIONS
When a policy lapses, neither the policy owner nor the insurer is benefited.
The life assured losses the insurance risk cover. This signifies the reversal of
the decision to arrange for the risk cover. They also loose the full benefit for
which they have paid till then.

On the other hand the insurers loose the expected future revenues and the
calculations done in advance for the policy are hampered. The cost in the
initial years of the policy are high as they include high administrative
expenses and issue cost of the policy, it’s only when the policy completes
there years the insurance company comes to a break even.

The other factor is that the agents loose there income source and the efforts
put in at the time of sales and during the currency of the term is wasted.As
we see that lapsation affects all parties and because Lapsation is always not
intended by the insured to happen (Lapsation may occur due to sheer neglect
to pay or because of temporary financial difficulty). There fore there should
be a great importance given to revive the lapsed policies and to reduce
lapsation rate.

1) Lapsation and Renewal list to agents and General Offices:

a) Renewal lists reach General offices on the 6th of every month and
are received by agents on 10th there fore this time lag should be
reduced by sending the lists on last day of every month

b) The Agents should also be given from the Head Office, Renewal
list either through Post, e-mail, SMS or Telecalling. This would
reduce the time lag and the customers would be intimated in time
about there renewal payments

c) Lapsation list must be given to the agents on demand, directly from

the Head Office. It can also be given to them by there respective sales
managers along with renewal details

d) It should be ensured that details are received by agents on regular

basis, clearance, of Pigeonholes in General Offices should be checked
by sales managers and head office to maintain supervision on random
basis for the same
2) Customers to be educated about:

a) Reinstatement Clause as one of the provision of the policy at the

time of sales by the agents.

b) Agents should be directly to make conscious efforts to ensure that

the customers read the policy documents

c) There should be Reading Material and Information Broachers about

the company’s performance, insurance information, future goals and
aspirations send to the customers on quarterly and half yearly mode.
This can be done by providing for a column in the proposal form to be
filled by customers if they wish to receive the same. This in return
would increase the sense of belonging generate interest and provide
scientific insurance consciousness to the customers

3) The postal communication should:

a) Reach the customers on time, the dispatch of all the written

communication should be handled by a specialize staff. The letters
should be dispatched well in advance so that they are received by the
customer on time

b) The specialized staff so appointed for the purpose should be made

responsible to maintain persistency and quality in dispatching all the
letters so that the customers are well informed about all the changes
being made to the policy

c) A customer should receive all the three letters in time

4) Product Options should be mentioned by the agents to the customers. As

for now maximum agents only explain one product to the customers which
they wish to sell after doing the need analysis. They do not provide for an
optional product to the customers, this in return dissatisfies the customer’s
optional product to the customers; this in return dissatisfies the customers, as
they are lost to the competitors in the market on different products.
5) Agents should make extra efforts to:

a) Collect renewal premiums be maintain good rapport with the

customers. Customer contact apart from renewals should be
increased specially on festivals and important occasions as
birthdays, anniversaries, functions etc. as life insurance is a
business which is done through reference sales, healthy and long
terms relations should be maintain there own Data Base and Staff
to ensure steady renewals.

b) Like many all the agents who sell policies as part time business
should be advised to maintain there own Data Base and Staff to
ensure steady renewals.

c) The agents are provided with Palm Tops by company but due to
lack of knowledge they are still non-operational. The company
should provide some training as to this regard.

d) The agents should be advised to maintain higher level of customer

services with regard to providing timely and efficient feedbacks to
customers’ complaints, to ensure that customers’ request as to
endorsement and changes are made in minimum time span.

e) Non-response to customer’s request should be eliminated.

6) Policy Documents:

a) Should be delivered in time as promised to the

customers. There are cases where the documents are with the agents
even after one year of sales. These should be avoided as it leads to
dissatisfaction of the customer, tarnishing the corporate image and
lapsation of the policies.
b) Many a time the document received by the agents or the
customers are not in good condition this should be eliminated as the
delivery of policy documents are the first communication from the
customer.

7) The underwriting for maximum reinstated policies is done in the P. O. S.

department in the head office; it should either be decentralized to the
General Office or should entirely be handled by underwriting department as
the chances of reinstating higher risk policies are greater.

8) The agents should be made to feel as the part of the family and there
moral should be kept at high as they are the ones on which the renewals
depends. They should be made feel special

9) Sales Managers:

a) They Should be more concerned to the problems faced be the

agents and should put more efforts to maintain there satisfaction
b) The attitude and sense of superiority shown to the agents should
be avoided and team work approach should be adopted
c) As there are times when the sales manages are transferred from
the General Office or quits the jobs, there the new Sales
manager appointed to the existing agents should show interest
in them and there needs