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KARNATAK UNIVERSITY - DHARWAD

EditorV.H.P. Pinto

Editorial BoardS. Balachandran

S. J. Gidwani

Secretary-GeneralS. J. Gidwani

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C O N T E N T SEDITORIAL 2

PRESIDENT�S ADDRESS 4- Shri R. Beri

INSURANCE REGULATIONS IN INDIA AND FUTURE DIRECTIONS 8- Shri T. K. Banerjee

HEALTH PROTECTION FOR ALL 14- Shri P.C. James

BANCASSURANCE CONCEPT, FRAMEWORK & IMPLEMENTATION 34- Shri Vineet Aggarwal

NEED OF THE HOUR "RISK MANAGEMENT VIS-A-VIS INSURANCEEDUCATION " (ROLE OF INSURANCE INSTITUTE OF INDIAIN LIBERALISED ENVIRONMENT) 52

- Dr. A. K. Jain

49TH ANNUAL CONFERENCE 62

BRAND IDENTITY- ITS INFLUENCE IN CUSTOMER DECISION MAKING 74- Ms. Suranjita Lahiri

LAPSATION OF LIFE INSURANCE POLICIES - A CRITICAL STUDY 82- Shri N.V. Subramanyan

PROMOTING INSURANCE THROUGH INFORMATION TECHNOLOGY 94- Shri SNSSB Srinivasa

INSURANCE BROKING IN INDIA SCOPE, CHALLENGESAND PROSPECTS 106

- Shri Vinay Verma

ROAD SAFETY - ROLE OF INSURANCE COMPANIES 118- Shri G. Venkatesh

TOWARDS A BETTER WORKING CULTURE INTHE PLACE OF EMPLOYMENT 120

- Shri T. S. V. Subramanian

CONCEPT SELLING IN LIFE INSURANCE 122- Shri Sekhar Chandra Sahoo

AROUND THE INSTITUTES 124

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EDITORIALThe Institute has notable achievements to its credit in terms of, inter alia, awide network of Associated Institutes, committed administrative staff, I.T.applications in the examination system, devoted support from insuranceprofessionals in service or in retirement and, now its own physicalinfrastructure which is at an advanced planning phase.

On these solid foundations it should be easier to build a superstructure ofquality education for the decades following the Golden Jubilee.

Professional education demands strong academic underpinnings in termsof appropriate syllabus reflecting the current realities and likely trends in themarket and preparation of study material. There has been commendablecontribution from insurance professionals in the past but it is time to inductyounger professionals into the academic aspects of the Institute agenda.It may not be an exaggeration to say that there is abundant hidden talentin the insurance industry, as is evident, for example, from the number ofentries to the S.K.Desai, D.Subrahmaniam and Technical Competitions. It isencouraging to observe that for the first time three entries have securedprizes in the competition and this augurs well for the Institute.

Retired professionals should not be allowed to fade away but may beentitled to guide the deliberations of various expert committees. There maybe many available who believe in Bacon's dictum: �Every person is a debtorto his profession.�

Another area which needs to be examined is the current Postal TuitionService introduced decades ago with laudable objectives. But in recentyears, there appears to be a large number of drop-outs amongst thecandidates who enrol for this service. Why this is so needs to be examined.In any case, distance education is absolutely necessary in a large countrylike ours and specially so, because Oral tuition facilities may not be availablein many centres and where available may not be availed of due to timeconstraints or other reasons.

The demand for distance education is pronounced in university,management and professional education. The Institute may address this

2 THE JOURNAL

issue to extend its reach to the large number of candidates whether inurban or rural areas, who may not have the confidence to study on theirown but would welcome external aids. Distance learning is commonplacein the U. K, the U.S.A., Canada and Australia. In India, nearly 25 percent ofUniversities have in place distance learning systems. The All IndiaManagement Association has plans to extend management educationeven at the zila parishad level.

Advances In Information Technology have impacted all aspects of our livesand, In education we have open universities, online universities, etc. Onlinecourses have become more accessible in many areas of educationincluding professional education.

According to President A.P.J. Abdul Kalam, quality education in remoteareas requires tele education. After visiting a number of laboratories lastyear and interacting with the scientific and technological community, hehas identified education as one of the major areas where the influence ofScience and Technology will be strongly felt. In this context, he has made aspecific reference to the Indian Space Research Organisation's E D U S A T(Educational Satellite) which will be useful for Schools, Colleges, higher levelof education and non-formal education and will provide both-wayinteractivity and collaboration between the students and the educationprovider.

This may be in a long term scenario but the possibilities are infinite. TheInstitute, which has I.T. applications in place in many of its activities, mayexplore the possibilities of e-learning in insurance.

Innovation and creativity should be the mantra of the educational policyand mobilisation of the hidden talent in the insurance industry its actionplan. With this two-pronged effort, we may strive for academic excellence.

JULY - DECEMBER 2004 3

Hon�ble Dr.M.Khajapeer, Vice Chancellor, KarnatakaUniversity, Dharwad; Hon�ble members of the Councilof Insurance Institute of India; members of the Boardof Education and Administration Committee; Hon.Secretaries of Associated Institutes; invitees,distinguished guests; members of Media and my dearcolleagues from Insurance Industry.

I have great pleasure to welcome you all to the 49th

Annual Conference and the 96th Council Meeting ofthe Insurance Institute of India. I am specially gratefulto Dr.M.Khajapeer, the Hon�ble Vice Chancellor ofKarnataka University for sparing his valuable time andto be present at this august gathering as the ChiefGuest at this solemn function and to address thedistinguished gathering at this annual function.Dr.Khajapeer, I am indebted to you for your presencehere.

This event is being hosted by Dharwad InsuranceInstitute, one of the Associated Institutes of theInsurance Institute of India. The Dharwad InsuranceInstitute was established in the year 1967 and it has amembership strength of over 4000. I am thankful tothe Chairman, Honorary Secretary and other Membersof the Dharwad Insurance Institute for organizing thisconference under their auspices. They have taken allefforts to place the members comfortably during thestay at Dharwad.

Dharwad is a small town in the state of Karnataka andit is known as an educational center. This is evidentfrom the fact that Dharwad Insurance Institute has amembership strength of over 4000 despite beinggeographically a small place. This is the first time thatthe Dharwad Insurance Institute organizes the AnnualConference and the Council Meeting.

PRES IDENT � S

A D D R E S S

Speech of

Shri R. Beri

President

Insurance Institute of India

At the

49th Annual Conference

at Dharwad

on 11th September, 2004

4 THE JOURNAL

Achievements during the year

During the year 2003-04 the Insurance Institute of India has shown satisfactory progress both interms of financial performance and examination activities. As members are aware, besidesthe professional certificate and diploma examinations, the institute also provides regulationrelated qualification both for agents and surveyors. The Institute in its objective of having itsown building, made payment for the cost of land in the Bandra - Kurla complex in Mumbai. Asper the decision of the Administration Committee of the Institute, the construction of the buildingwill be entrusted to LIC of India.

The Institute also brought out new text books covering the subjects of insurance broking andinsurance survey for the first time and these have been well received in the industry circle. TheInstitute also revised the text books for Pre-recruitment examination for life and general insuranceagents. The examination based on revised syllabus for Pre-recruitment of agents however, willbe starting in case of life insurance from July , 2004 and for general insurance from October,2004.

On the international plane I am happy to report that the Regulatory Authority in Nepal and SriLanka now insist upon Associateship qualification of Insurance Institute of India for licensing ofbrokers. Besides, the number of candidates appearing for Sri Lanka has crossed 300 mark forthe professional examination. Invitation also received from the Chairman, Insurance Associationof Pakistan for discussions on, inter-alia, of extending Insurance Institute of India�s services toPakistan Insurance Industry.

The Chartered Insurance Institute, London continues to provide exemptions for the associatesand fellows of the Insurance Institute of India ( 4 & 7 subjects respectively in their ACII ) and it isunder active consideration of the Chartered Insurance Institute to provide exemptions in somesubjects for candidates having passed Licentiate examination under their revised system ofqualifications. An agreement in this area is likely to be reached in a couple of months.

A proposal of the Australian and New Zealand Institute of Insurance and Finance (ANZIIF) topermit Licentiate qualified members of the Institute to be become Associate members of ANZIIFis under discussions. It is also expected that some progress will be made with the CanadianInsurance Institute for providing cross credit to persons having I.I.I. qualifications.

With the cross credit already existing between USA and India, it is expected that all the majormarkets of the world in insurance will have cross credits in their qualification for qualifiedprofessionals from Insurance Institute of India. The Institute will launch a global qualification ofInstitute of Global Insurance Education (IGIE) co-founded by the Insurance Institute of America,Canada and England in electronic form in a couple of months from now. Discussions withLOMA ( Life Office Management Association, America) for incorporating Indian content ofInsurance Institute of India in their international qualification FLMI are likely to begin this month.

The institute is also taking steps to position itself as provider of insurance education for specificneeds of call centres and BPO organization and also planning to provide qualification framework for regulatory compliance by these organizations as per regulatory requirements of WesternEurope and America and the scheme of co-operation will be discussed with the InsuranceInstitutes in UK,USA, Canada, Australia and New Zealand.


The Institute will continue to build on information technology platform for wider reach and forimprovement in services to members and members can now view the journal of Institute on itswebsite regularly and very soon provision is expected to be made for issue of digital certificatefor IRDA examination.

Golden Era � 1955-2005

I am very pleased to inform this august gathering that the Institute has entered 50th year of itsoperations and it is time to both celebrate as well as to acknowledge the contribution madeby thousands of insurance professionals who worked without any reward for building thisinstitution. In particular, I would like to thank the contribution of, besides the Council membersand the members of the Board of Education and the Administration Committee, the variousoffice bearers of Associated Institutes in India and affiliated Institutes abroad for helping in thedevelopment of this institution. My thanks to all of you for contributing so much to the presentstatus of the Institute.

The Challenges Ahead

So far, I have outlined all the good things and good news, let me now share with you the futurechallenges. The growth in the operations of the Institute during the last 4 years has imposedserious burden on the administration of the Institute. While I compliment the Officers and theemployees of the Institute for standing as a one man team to deliver the promises to theInsurance Industry, it is time to set up systems and procedures to consolidate the growth achievedso far. This does not mean that the Institute should not plan further growth. It is, however, importantto have proper balances and checks before further growth is achieved otherwise in the absenceof changes in the organizational structure, growth may be counter productive.

The Institute needs to expand both in terms of infrastructure facilities and human resources.Enormous financial resources will be needed in the next 5 years for completing the buildingproject on time. To continue to enjoy the status of premier Institute in insurance education, theInstitute is examining the possibility of converting itself into an insurance university as a privateuniversity.

In the context of changes in the insurance industry the role of Associated Institutes can nolonger be limited to public sector companies who do not employ new manpower and hasfloated VRS schemes. The control over sale of study courses and the accounting needs to beredefined in the light of observations from the auditors.

I am sure with the expertise that Institute has acquired it can address these challenges giventhe support of the Associated Institutes and I hope that the details will be worked out duringthe current year.

Professionalism � Key to Industry Development

Insurance, being a knowledge subject, the need for insurance education can hardly beemphasized with an ever demanding customer on one hand and a vigilant regulator on theother, in the competitive environment with a large number of players having enormous financialresources, the key to success will lie with the quality of manpower with the individual organization.

6 THE JOURNAL

While technical knowledge itself may not be very essential for some of the functions, possessingthe same always means an additional advantage.

The blurring of boundaries between insurance and banking and new methods of risk financingand risk management are serious challenges for future managers in retaining the distinct identityand the role for insurance industry. Demographic changes of vast scale, difference in life stylesand need for post retirement income besides the new type of risks that the community is facingcan be addressed by application of knowledge acquired through professional qualification.

The insurance industry has opened a flood gate of new opportunities and challenges in othersectors of economy as well, particularly, for call centres and BPO companies. In order to satisfytheir customers, the call centres and BPO companies need to train their employees in thedomain knowledge of insurance. Theses companies will also have to satisfy regulatoryrequirements of overseas companies.

The opportunities of self employment in the field of insurance selling, marketing, survey andbroking operation can provide self employment opportunities for career development to scoresof qualified people in India. Insurance education and qualification, therefore, will be requiredin a greater measure and the Institute will have to reposition its courses to cater to the variety ofdemands emanating from the new face of insurance industry.

Acknowledgement

In the first year of my association with the Insurance Institute of India being its President, I amhappy to note the progress made by the Institute during the year. I must extend my sincerethanks to IRDA for keeping the Institute in high esteem for examination related activities. Thishelps immensely for the progress and prosperity of the Institute. The members of Council,Administration Committee, Board of Education and other sub-committee deserve myappreciation for their contribution through their valuable suggestions and advices. My thanksto the Editor of the Journal and some Board Members who have provided expert opinion onadministrative and accounts reforms. My thanks also to management of all insurancecompanies in private and public sector for their support and co-operation.

Before I conclude my address, let me once again thank the members and volunteers ofDharwad Insurance Institute for hosting this conference.

Thanking you.


HISTORICAL BACKGROUND

Insurance in India has progressedthrough several evolutionary phases inits more than one and half centuryhistory. The origins of the Indianinsurance industry can be traced wayback to the pre-independence era to1818 when it was conceived as ameans to provide for English widows.Interestingly in those days a higherpremium was charged for Indian livesthan the non-Indian lives as Indian liveswere considered more risky forcoverage. The first Indian LifeCompany, Bombay Mutual LifeInsurance Society started its businessin 1870. It was the first company tocharge same premium for both Indianand non-Indian lives. The OrientalAssurance Company was establishedin 1880. The first general insurancecompany in India - Triton InsuranceCompany Limited was established in1850. Till the end of nineteenth centuryinsurance business was almost entirelyin the hands of overseas companies.

Insurance regulation formally beganin India with the passing of the LifeInsurance Companies Act of 1912 andthe Provident Fund Act of 1912.Several frauds during 1920's and1930's sullied insurance business inIndia. By 1938 there were 176insurance companies. The firstcomprehensive legislation wasintroduced with the Insurance Act of1938 that provided strict State Controlover insurance business.

The insurance business grew at a fasterpace after independence. Indiancompanies strengthened their hold on

INSURANCE REGULATIONSIN INDIA AND FUTURE

DIRECTIONSBy : Shri T. K. Banerjee,

Member - Life, Insurance Regulatory and Development Authority,Hyderabad.

this business. Life insurance industrywas nationalised in 1956 with themerger of 245 private life insurancecompanies, and the Life InsuranceCorporation (LIC) of India was formed.The (non-life) insurance business,however, continued to thrive with theprivate sector till 1972 before it wasalso nationalized, and GeneralInsurance Corporation (GIC) wasformed in 1972 by merging 106 privateinsurance companies. GIC in turn hadfour subsidiary companies.

It was expected that the nationalisedinsurance companies would enhancethe spread of insurance to the hithertoneglected areas of the countrybesides improving security of assetsand quality of service to customersand also aiding in mobilising savingsfor the economic growth of thecountry. It was also felt that the growthof the insurance business would befaster and consumers would haveaccess to insurance coverage ofworld class standard. Although thenationalized insurers contributed tothe development and spread ofinsurance, there continued to be awide gap in terms of the marketpotential which the country offered.

OPENING UP OF INSURANCE

In 1991 there was a paradigm shift ingovernment policy with the advent ofeconomic liberalisation. Financialsector reforms in the mutual funds andbanking sectors allowed foreign directinvestment and foreign institutionalinvestment. In the insurance sector aCommittee on Reforms in theInsurance Sector, popularly known as

Malhotra Committee in 1993, wasappointed by the Government toreview the working of the insuranceindustry.

The Committee in its report submittedin 1994 recommended opening upof the insurance industry. Thekey recommendations includedpermitting private companies with aminimum paid up capital of rupeesone hundred crores to enter theindustry, prohibition of compositeinsurers and permitting foreigncompanies to enter the industry in thejoint venture mode with the domesticcompanies. Other recommendationswere introduction of alternatedistribution channels for improving theinsurance penetration, the setting upof an insurance regulatory body andmaking the Controller of Insuranceindependent, and also amendments/changes to the Insurance Act, 1938.

The Government responded byestablishing an interim InsuranceRegulatory Authority in January, 1996.However, on the issue of opening upof the sector an intense debatefollowed for several years before aconsensus emerged that this step wasjustified for increasing the penetrationof insurance in the country. And itultimately led to the passage of theInsurance Regulatory AndDevelopment Authority Act, 1999. It ispertinent to mention that the word'Development� was inserted in the Billat the last stage as the legislators wereconcerned that with competition boththe regulator and the regulated wouldlose sight of the more important

Keynote Addressdelivered at

the 49th AnnualConference of Insurance

Institute of India atDharwad, on 12thSeptember, 2004

8 THE JOURNAL

aspect of the development of theinsurance market in India therebydefeating the very objective of theopening up of this sector. Today interms of its mandate and the numberof people to be served by way ofincreased penetration of insurance,the Indian insurance regulator isperhaps the largest developer ofinsurance business in the world.

Insurance liberalisation promises manyadvantages which include better riskmanagement, product innovation,and wider customer choice. However,if implemented unwisely, it has theinherent potential to generateunprecedented inequalities withdestabilising effects on domesticmarkets. In order to allay our fears afterconsidering the present state ofdevelopment of the Indian insuranceindustry that more will be lost thangained by a complete opening up ofthe market, reforms have beenincremental in nature. As domesticpolicymakers, we are also responsibleto ensure that government ownedinstitutions have been given a fairchance to equip themselves to facecompetition.

The economic reform process is'irreversible' and the new insurancecompanies are expected to hastenthe process of producing a strong andefficient insurance market. The growthof the debt market is also expectedto get a fi l l ip as the funds frominsurance companies start flowing intothe coffers of the corporate sector.Similarly, stock market investments willfurther aid the growth of the capitalmarket and equity cult. The multipliereffect will be enormous.

CHALLENGES

In India, our approach to reforms hasbeen built on the belief thatsustainable growth is only possible inan environment which values andpromotes financial strength andstability, management capability andpublic accountability.

Reforms have included the setting upof a modern well resourced supervisor,the Insurance Regulatory andDevelopment Authority (IRDA). IRDA's

hallmark has been its belief inopenness and transparency. It hasfollowed the practice of priorconsultation with various stakeholdersbefore notification of regulations, andthis has resulted in a broadacceptance of the regulations.

To operationalise various provisions ofthe IRDA Act and Insurance Act, so far29 regulations have been notifiedcovering all aspects of insurancebusiness. Four broad areas ofoperation have been carved byregulations for the Authority to functionand these are:-(i) admission of insurersincluding powers of on site and off sitesupervision; (ii) functioning of theintermediaries; (iii) control on rates ofpremium , terms and conditions, and(iv) policyholders protection. These areinter-related. The misunderstandingthat may develop in the functioningof the various players are sought to besettled by the Authority - initially bypersuasion, failing which, by issue ofdirections.

The Authority has also helped inestablishing support mechanisms tosustain the Insurance Ombudsmansystem under the Settlement of PublicGrievances Scheme, 1998. Twelveombudsmen have been appointed inthe country. This has created a veryimportant grievance settlementmachinery for customers. Complaintsof non-settlement or delayedsettlements of claims received fromcustomers have been attended to.Many a time insurers have beenpenalized for breach of tariff termsand conditions.

Today, to the credit of combinedefforts by both the regulators andindustry players, the benefits ofinsurance are widely acknowledged,public confidence in the industry hasbeen very much visible and theindustry on the whole is far morerelevant than it has ever been in thiscountry. The industry is expected tosignificantly improve its public imagein years to come.

A healthy insurance market is an

important source of long-term capitalin domestic currency, especially forinfrastructure financing. Reforms ininsurance is therefore expected tostrengthen the capital market bygiving it greater depth or liquidity.

We are already witness to somefundamental changes in thelandscape. The insurance industry hasbeen opened up, with a restriction of26% on foreign ownership to Indianinsurers. Foreign participation hasenabled local players to form joint-ventures with foreign insurancepartners, and benefit from transfer oftechnical know-how and increasedfinancial strength. This has alsoenhanced the local insurers' ability tomodernise, expand, and to becomecredible players. Insurers are beingencouraged to form strategicalliances with other financial industryplayers, in order to flourish in aliberalised environment. Inspite of this,the sector still has many featurescharacteristic of an infant industry.

REGISTRATION OF INSURERS

The Authority has fixed a strict criterionfor awarding registration. The criteriafor awarding direct insuranceregistrations have been: financialstrength, track record and reputationof the promoters. Other aspectsexamined have been theircompliance with law and regulations,the strength of internal control systems;and commitment to contribute toIndia's development. IRDA has beenkeen to see the industry develop interms of product innovation and theuse of alternative distributionchannels. Applicants with a strongrecord in these areas, or in specialistand niche fields, and who have alsoundertaken upon themselves tounderwrite health insurance businesshave received favourableconsideration.

The experience so far in India is thatthe local partners are sound with anexcellent track record in theirrespective fields, and their foreigncollaborators are very well establishedinsurance companies with vast


experience in both developed andemerging insurance markets. Wehave, thus, sound companiespresently operating in the Indianinsurance scene. What should beensured is that they remain healthy.Adherence to regulations andobservance of sound principles ofgovernance should ensure that.

FINANCIAL HEALTH AND SOLVENCY

To guard against excessive insolvencyrisk insurers are required to meetcertain financial standards and actprudently in managing their affairs. Thestatutes require insurers to meetminimum capital and surplusstandards and financial reportingrequirements and authorise regulatorsto examine insurers. Solvencyregulations involve various aspects ofinsurers operations including:

(i) capitalisation

(ii) pricing and products

(iii) investments

(iv) reinsurance

(v) reserving

(vi) asset liability matching

New companies have substantialcapital adequacy therebyencouraging the market place tounleash the forces that are importantto compete on the basis of solvency.A rigorous scrutiny of the companiesat the entry level coupled with diligentmonitoring of their activities withspecial reference to maintenance ofsolvency margins and prudentinvestment policy ensures that themanagement of the companies is notlax and that proper corporategovernance practices are adoptedby them.

FINANCIAL REPORTING

Our accounting standards are inalignment with international standardsand regulations set out in detail themanner in which the information is tobe furnished to the Regulatoralongwith disclosure norms. IRDA isworking with the professional

accountants' institute in a bid to refinethe responsibilities of auditors and thestandards of audits, besides helping inbuilding the capacity of the domesticactuarial profession, a crucial elementof the regulatory framework.

INVESTMENT

Prudential investment norms havebeen notified to further enhance thefinancial flexibil ity and riskmanagement ability of insurers, andfor better management of investmentportfolios. In addition guidelines onrelated-party transactions to ensuremanagement integrity and publicaccountability in the conduct ofinsurance business are also in place.The guidelines reinforce the fiduciaryduty owed by insurers to properlymanage insurance funds in anindependent and transparent mannerfor the interest of policyholders at alltimes.

REINSURANCE

The need to enhance local retentioncapacity and conserve foreignexchange reserves has been ofstrategic economic priority. The lifereinsurance portfolio is very small.In non life insurance the Indianinsurers, through carefullydesigned reinsurance programmesadministered on a market wide basis,have managed to retain within thecountry as large a percentage of thegross direct premium as is desirableconsistent with safety. As a NationalReinsurer the General InsuranceCorporation of India receives statutorycessions of 20 percent from all generalinsurance companies on all classes ofbusiness.

TERRORISM AND CATASTROPHEINSURANCE

The Terrorism Pool formed jointly by thepublic and private insurancecompanies and managed by GICremains a singular example of how themarket responded to the post 9/11events. The contributing share of eachcompany was directly related to itspremium income. Terrorism Pool offersinsurance cover against terrorism for

a maximum of Rs 300 crores perlocation. Those who seek a terrorismcover for more than Rs 300 crores arefree to go to foreign insurancecompanies, but the rates from theoverseas players are much steeper.

Although the net account forcatastrophic losses is protected byExcess of Loss covers, a series of suchlosses can erode an insurer's netaccount and its financial stability.Indian insurers have not yet set upspecific reserve provisions forcatastrophes. Expert opinion suggeststhat it shall be prudent for insurers tomaintain a Catastrophe Reserve at 2%of net premium of individualcompanies with a cap, based on astipulated percentage, to allow foraccumulation to take place in thisaccount for a specified number ofyears. However, in the absence ofincentives to these funds in the formof tax exemptions very little of paidpremiums shall become available tomeet future catastrophe claimsliabilities under the policies issued. Thisis an area of concern and requires tobe addressed.

HEALTH INSURANCE

Though the Insurance Act 1938 andthe IRDA Act, 1999, prescribe that theregulator would encourage thesetting up of health insurance businesson a stand-alone basis, no one has yetapproached to set up an exclusivehealth insurance business. Due to lackof applications in this particular area,the Authority has encouraged both lifeand general insurance companies,old and new, to go in for rider policiesoffering health covers. It is gratifyingto note that the new companies haveseized this opportunity and many ofthem have gone in for riders offeringa variety of health insurance products.Additionally, for balanced and rapidgrowth of the health insuranceportfolio, with the introduction of ThirdParty Administrators in this areacashless hospitalization covers havebeen introduced for the first time inIndia. A Health Insurance WorkingGroup has been formed to increasethe penetration of health insurance

10 THE JOURNAL

and suggest ways and means toremove the structural bottle necks.

RURAL AND SOCIAL SECTORINSURANCE

Though the Government has tried topromote insurance business in ruralIndia through Public Sector InsuranceCompanies for nearly two decadesthere still remains a vast untappedpotential considering that 74.3 percent of the total population lives inrural India. At present in rural areasinsurance cover is low, and there arefew insurance covers, available onaffordable terms, for rural producersand consumers. One of the prioritiesfor fostering expansion of domesticinsurance would be identification ofproductive potential and specificinsurance needs in areas not yetreached by insurance and enhancingcooperation between insurance andrural credit schemes and institutions.

MICRO INSURANCE

The potential of insurance as a tool toreduce poor households' vulnerabilityto risk needs to be examined andadvanced. Insurance can play apositive role in meeting the financialservices needs of the poor, and onewould need to examine the manychallenges involved in offeringinsurance, through micro-insuranceagents simpler forms of insurance suchas property, personal accident healthand life insurance.

INSURANCE INTERMEDIARIES

The Indian insurance industry reliesheavily on the traditional agencydistribution channel, with a largenumber of agents of varying levels ofprofessionalism and productivity.There is thus scope for developingalternative distribution channels,which are often more efficient, andwhich can offer lower costs and betterbenefits for policyholders. We need todevelop alternative distributionchannels, which cost less, and canreach a wider target market.

Initially there was a demand from thelife insurers to have higher commissionsfor first year's premium in line with the

practices in developed market.However, over a period of time thisdemand has waned with the insurershaving realized that such high level ofcommissions will result in the existingunhealthy practices gettingmanifested manifold. In manycountries, the presence of professionalinsurance brokers and independentfinancial advisers who represent theinterests of the client is a majormotivating factor for insurers to raiseefficiency and give better value topolicyholders.

There has been some concern atcertain quarters on the appropriateremuneration structure for insuranceagents and brokers, and also on thepractice of offering special discountin l ieu of agency commission orbrokerage in the area of GeneralInsurance. Perhaps this has arisen asa result of introduction of the insurancebrokers as an intermediary channel.The role of an insurance broker doesnot seem to have been properlyunderstood and appreciatedbecause of the primordial role of tariffin the non life insurance. In additionthe brokers have also not been ableto deliver the value added servicesexpected of them.

Intermediaries and other practitionersare subject to professional conductstandards and a licensing procedure.This involves the professionals passingan examination, after completing arequired course. The idea is to makesure the professional has basicknowledge to protect the public andto provide a mechanism to removethe dishonest from business.

THE ROAD AHEAD

Most of these developments havecommenced only in the last few years.In the near future the industry isexpected to grow both in stature andstrength. It has to come a long wayfrom the days when private insurancewas seen in the public eye assomething to be avoided as far aspossible and misconduct in variousforms was rife in the industry.

In the near future insurers, in particular,shall be less financially vulnerable tothe vagaries of the market becauseof the adoption of a prudentialregulatory regime, which has set veryhigh solvency requirements andcapital adequacy norms. Domesticinstitutions, be they insurers orintermediaries are expected to catchup with their international counterpartsin terms of efficiency, innovation andcustomer service. Productivity levelsare expected to be as perinternational best practices. The levelof market penetration is also expectedto substantially improve.

DYNAMIC REGULATORY STRUCTURE

With the rate at which businessesevolve, rules and regulations becomeobsolete almost as soon as they areformulated. Regulators have to keepup with the burst of productinnovations, alternative distributionchannels, electronically-l inkedpayment systems, e-commerce,investment avenues and alternativerisk transfers, just to mention a few.These developments create intricatelinks in a commercial chain which arepotentially fragile in the sense that ifone link snaps, the whole chain comesapart. No member of the chain will bespared from the domino effects of acrisis anywhere along the chain.

With such complex and uniqueinterdependencies, it would bevirtually impossible to prescriberegulations that deal with everypossible contingency. In the first place,regulators may not even be aware ofthe potential risk factors emergingevery day. Secondly, regulators maybe faced with constraints ofjurisdiction. The answer to this dilemmais not deregulation but finding the rightregulatory structure.

In other aspects of regulatory reformconvergence of financial products willalso create the need for domesticregulators to re-examine financialsector regulation at a macro level.One option would be to createfirewalls within financial groupstructures to contain the spread of


intra-group exposures.

Instead of being watchdogs,regulators should act more likepacesetters, catalysts and navigators.This approach recognises that theindustry is often best placed to makedecisions concerning the rapidchanges revolutionising insurancemarkets. In an environment wheretime is of the essence, greater relianceshould be placed on the inherentknowledge and capabilities of theindustry to adapt to these changes.

LEGAL REFORMS

Institutional and regulatory reforms arealready well underway in India. Thecurrent statute was drafted in 1938and has seen numerous amendmentsand changes. Many of its provisionshave become outdated and somehave lost their relevance. Newdevelopments have taken place inthe insurance world, which do not finda reflection in the law. Therefore thereis an urgent need to overhaul theInsurance Act, 1938 in order to reflectthe new circumstances that existtoday. The Law Commission has in therecent past submitted itsrecommendations on the proposedamendments to the Insurance Act,1938. Even so, we must realise thatchanges do not take place overnight.The institutional and regulatory reformstake time to accomplish. For thispurpose discussions have alreadytaken place and the suggestionsreceived from various quarters havebeen sent to the Government. Wehope to see the new insurancelegislation in times to come.

DE-TARIFFING

The general insurance market hasbeen predominantly a tariff drivenmarket. Fire, engineering, motor andmarine hull insurance are under thetariff, regulated by a statutory TariffAdvisory Committee. The non tarifflines of general insurance and all lifeinsurance products are subject to a"file and use" process wherein theinsurers are required to file theirproduct to the Authority thirty daysprior to its launch. In case the Authority

has no reservations they can goahead with the marketing of the saidproduct.

All over the world it is well recognizedthat deregulation and tariff cannotexist together. Competition is aprocess where no player achieves adominant position. Transparency andinformation conditions are reinforcedto allow for "informed" decisions bothby buyers and sellers. Price fixingmechanisms are changed, away fromcoordinated systems; rates as well asproduct design, are determined bymarket forces. Price controls oninsurance should not be justified withconsumer protection. There has beena heavy cross subsidy from propertyclasses to motor insurance and tomotor third party insurance inparticular. Market based pricingshould lead to lower and more risksensitive premium rates over time andensure that databases becomealigned with key rating factors.

However, in order to ensure thatdismantling of tariffs does not result inrate wars and insurers are able to ratethe risks they underwrite in a scientificmanner based on historical data, theinitial step in regard to detariffing ofthe motor own damage premium hasbeen proposed with effect from 1stApril, 2005. To consider the alternativesavailable, to have a free marketavailability of the products in thisregard and to suggest to the Authority,the measures to be taken in this regardincluding adoption of differentialrating, the Authority had formed anexpert group to recommend the roadmap which has recently submitted itsreport. The detariffing of the otherportfolios will be considered thereafter.

CORPORATE GOVERNANCE

Another area of reforms is the processof corporate governance. Todaycorporate governance is strictlyapplicable to listed companies andnone of the insurance companies inIndia are so far l isted. The IRDArecognizes that weak corporategovernance and lax managementwithin the companies undermine thecredibility of the general public in the

companies as well as the Regulatorand cause severe setback to thegrowth of the industry. This problemhas been addressed through arigorous system of scrutiny ofapplications for setting up insurancecompanies coupled with stringentnorms relating to solvency. They arefurther reinforced with appropriateregulations on investment of funds bythe companies. Guidelines have beenset that clearly enunciate the role andfunctions of directors and AppointedActuaries of life insurance companies,so that they can provide greaterprofessional stewardship to protectand enhance the interests ofpolicyholders.

With greater competition in themarketplace, enhanced standards ofcorporate governance investmentmanagement and market conductare necessary to protectpolicyholders' interests. Regulationsneed to be introduced to strengthenthe corporate governance ofinsurance companies in line withinternational best practices.

INSURANCE AWARENESS & MARKETCONDUCT

Enhancing consumer informationabout insurers' prices, products andfinancial strength is a critical functiongiven the heavy reliance oncompetition to ensure good marketperformance. IRDA would also moveaway from merit-based regulation toa disclosure-based regime. IRDA, forinstance, will look to market institutionsand intermediaries to ensure thatprospectuses contain all the relevantinformation necessary to enable thepotential policyholder to make aninformed decision. Through regularchecks and reviews of practices of themarket institutions and throughpunitive action against therecalcitrant, the IRDA will ensurecompliance with a prudential regime.

Market discipline will also become amore prominent feature in theregulatory infrastructure. However, thekeys to effective market discipline liein public disclosure and consumer

12 THE JOURNAL

education. These will becomeimportant aspects of the regulator'srole in the years ahead. Informed andeducated consumers are often themost effective means of commercialdiscipline as they can exert significantinfluence over an institution's businessdecisions and practices, as well aspricing policies.

SHIFT IN FOCUS: FROM REGULATIONMAKING TO COMPLIANCE

With the insurance regulatoryframework now in place the focus ofthe regulator is shifting towards thecompliance aspects of theregulations. In this process theregulator will adopt a proactive anddynamic attitude and will be settingan example in terms of certainty ofregulatory action. To enable this, thereis need to develop suitable systemsand procedures and devise analyticaltechniques based on keyperformance indicators. This will alsohelp to develop a basis for the levelof regulatory response for a givensituation besides providing aconsistent approach which respondsto the seriousness of the problem.Action can be escalated or de-escalated as the severity of thesituation increases or decreases. Thiswil l enhance the efficiency ofsupervision and provide both thesupervisor and the regulated entitieswith enhanced certainty of law.

SELF REGULATORY ORGANISATIONS

Ineffective market discipline is one ofthe issues identified by theInternational Association of InsuranceSupervisors as a threat to the emergingmarkets. This is an issue that has to beeffectively tackled for the healthygrowth of the insurance market. TheRegulator has a role to play in ensuringmarket discipline, the role played bythe insurance companies in bringingabout discipline in the market placecannot be ignored. The key toeffective market discipline lies in publicdisclosure and consumer education.Informed and educated consumersare often the most effective means ofenforcing commercial discipline.

As our market develops, the role of theSelf-Regulatory Organisations (SROs)will take on greater significance. Theempowerment of the SRO essentiallygives greater rights and responsibilitiesto market participants who, for theirpart, must be capable of ensuringeffective regulation and must be ableto meet these challenges. Failure toregulate effectively will lead to adeterioration of market integrity andstability and, ultimately, theintervention of the IRDA as supervisoryregulator with oversight responsibilities.We also expect that, in time, much ofthe current developmental rolecurrently played by the IRDA will betaken over by the SROs. In anenvironment of growth andexpansion, it is the SRO who can bestfacilitate innovation and adaptationto seize competitive opportunities andmeet challenges. The Life InsuranceCouncil and the General InsuranceCouncil are presently performing therole of an SRO in a limited manner bysetting up market conduct standardsfor insurers. An exercise is already onto grant the Actuarial Society of Indiaa statutory status on the lines of theInstitute of Chartered Accountants ofIndia. A similar exercise has also beeninitiated to set up a self regulatorybody for insurance surveyors and lossassessors.

INSURANCE EDUCATION ANDRESEARCH

One of the spin-offs of liberalisation ofthe insurance sector has been thedemand for insurance education,training and research. The InsuranceInstitute of India's role appears to havebeen confined to the professionalexaminations conducted by it, andwhich has been recognized asacceptable qualification insofar asprofessional competence in the areaof insurance is concerned. What hasperhaps been ignored is the tappingof the vast potential by way ofintroduction of new subjects in tunewith the demand and expectations ofan evolving market after a thoroughreview of the existing courseware.Examples of such subjects are HealthInsurance, Unit Linked Insurance, andInsurance Regulations. These areas

today require to be dealt in muchgreater detail than what is being doneat present.

Similarly research in insurance remainsa neglected area in this country andthere is need for a concerted effort todevelop and define areas of focus forresearch in tune with the requirementsof the industry. Without a researchfocus no institute can expect to maketangible contribution in terms of valueaddition and meeting theexpectations of its members and theindustry.

Although one is witness to a lot ofinstitutions offering insurance coursesthere is need to develop an initiativeto set up a nodal body for accreditingvarious courses to lend an element ofcredibility and standardisation in thearena of insurance education.

The Insurance Institute of India mayconsider seizing this initiative and leadfrom the front by creating a researchwing and a standardization body withthe involvement of other insuranceeducation service providers.

CONCLUSION

The insurance industry will face greatercompetition from other financialservice providers along all aspects oftheir value chain. Insurers, for instance,with their significant and growing assetbase, shall have to develop assetmanagement capabilities andexpertise on par with professional fundmanagers, otherwise they will facepressure to farm out their funds forprofessional management.

IRDA will monitor the progress of theindustry and make further changeswhere necessary. It will continue toconsult industry representatives indeveloping a conducive regulatoryenvironment, and formulatingincentives to enhance the operationalcapabilities of insurers, for instance, inproduct development, distributionand asset management. Suchpartnership and dialogue will be vitalfor the growth of the industry, and formeeting the challenge of makingIndia a regional insurance hub and aninternational financial center.


1. CONCERN FOR HEALTH:

Health has always been a matter ofcritical concern for all. This is especiallytrue for persons who earn solely frommanual work, as their bodies are theirprime assets. Even for others, healthsignificantly affects both productivityas well as quality of life as good healthgives a feeling of general wellness andvitality. Good health, thus, has aprofound impact on the overall valueand capability of human capital.Illness, disease, accident on the otherhand not only creates pain andsuffering, but also erodes financialsecurity and reduces productivity andwell being. It also increases costs forthe society and the country ininnumerable ways. Organisedmedical and health care systems,which began to evolve about 100years ago, have become an effectiveboon to improve healthcare all overthe world by its increasing reach andcapability in combating diseases anddisability. As a result, longevity hasincreased, prosperity and general wellbeing have gone up, and people areexperiencing new frontiers of wellnessand freedom from disease.

In this scenario of improved healthoutcomes, the cost of healthcare isseen to be ballooning to becomeprohibitive and unaffordable. Ashealth is a valuable asset and anessential part of the human capital,the large and unpredictable risksaffecting it needs financial protection,from the point of view of allconcerned, namely individuals,

HEALTH PROTECTIONFOR ALL

By: Shri P.C. James, National Insurance Co. Ltd., Kolkata.

because many risks, which becomeevident, appear to be rooted in theirbehavioural characteristics. This hasled to the lifestyle approach in healthpromotion. However, there are alsoissues beyond the individual levelwhich require regulatory interventionsuch as in food and drug quality,health and safety aspects at work oron the roads and so on. There is alsothe need for international safetystandards in areas such asenvironmental and chemical risks, useof agro chemicals, food additives etc.Thus the concern for health hasimplications at individual, community,national and international levels.

In a different dimension, good healthis not only a concern for the poor butalso for the rich. Poor people aredriven to disease and disability due tofactors such as undernutrition, as wellas their unhygienic surroundings,which affect the quality of water theyuse as also their general l ivingconditions. These lead to poor healthconditions, giving rise to manycommunicable diseases that oftenlead to higher morbidity and mortalityrates. The rich in their turn are notspared from health hazards caused byproblems related to overnutrition,obesity, sedentary and stressfullifestyles. These generate what arecalled lifestyle diseases. Thus whilepoor countries have to deal primarilywith the consequences ofcommunicable diseases, the richcountries have to grapple with thefallout of the more expensive lifestylediseases. Countries in between aresaid to be compelled to carry adouble burden of both the "old"communicable diseases as also of the"new" lifestyle diseases.

families, employers, the society andthe country. Assured paying capacityis also a benefit that is looked forwardto and gives stability to the health careproviders who need the financing tosustain their capital spending, skillupgradation, and their rising researchand service costs.

The physical integrity and dignity of theindividual is now a well-recognisedright in law and fact. Healthcare is thusan important right for all. Therefore,denial of access to healthcare owingto geographical, infrastructural, socialor financial l imitations is notappropriate and needs to be rectifiedby all concerned as a part of socialengineering and a necessarycomponent in upholding basic humanrights. In fact, it is seen that such adenial perpetuates the vicious cycleof poverty, malnutrition, lowproductivity and early mortality. Thuslack of access to healthcare is not onlya cause for individual trauma andtragedy, but it also stunts the progressof the society on both economic andsocial planes. Conversely the ability tohave access to healthcare hasproved to be a powerful weaponagainst poverty as also against socialand economic inequality.

The health of a person is subject towide variety of risks, which trigger bothpredictable and unpredictable costs.Risks to the health of any personseldom occur in isolation but are theresult of both proximal and distal socio-economic causes. These risks affecthealth not only at the individual levelbut also at the society level. At thelevel of individuals, it was thought thatthey are mainly responsible forhandling their own health risks

S. K. DesaiMemorial

Medal AndPrize Winning

Essay2003-04

14 THE JOURNAL

The concept of good health is alsobroadening from a traditionalplatform of merely treating disease orinjury, to one where promotive,preventive and rehabilitative care isalso given increasing attention, eventhough the curative treatment stilldominates the mindset of healthcarestakeholders. The potential ofpreventive care is yet to be fullyexplored and the savings therefrom isyet to be completely understood.

Health risks thus affect all sections ofthe society. Statistics starkly reveal thedeep dichotomy between theconditions of the rich and the poor.Undernutrition and related conditionsaffect no less than 170 million poorchildren worldwide and about 3.4million of them die as a result of thiseach year. On the other hand amongthe well to do, there are one billionadults who are overweight and atleast 300 million of them are clinicallyobese. There is also the phenomenonof risk transition due to changes in thepattern of living arising from migrationfrom the rural to the urban, fromunderdevelopment to thedevelopment stage and fromagricultural occupations to theindustrial or the service sectors.

2. HEALTH CONCERNS OF THE POOR

For the poor their bodies are mostoften their only asset and thereforeapart from issues of physical integrityand dignity, good health is directlyrelated to their daily earnings. In sharpcontrast to this, there is often aninevitable denial of access tohealthcare to them, which is one ofthe reasons why their l ives arefundamentally linked to poverty. Atthe same time it is seen that while lackof access to healthcare perpetuatespoverty, access to healthcare is apowerful weapon in economicempowerment.

Developmental economics show thatthere is a health-wealth connection.A healthy workforce is the key tohigher productivity, less absenteeism,

less expenditure on curative care andso on. Worldwide, it has been seenthat ill health disproportionately affectthe poor, and they bear a higherburden of both morbidity andmortality. Ill health triggers a chain ofadversities for the poor which mayconsist of loss of work, deprivation ofearnings, expenditure for medicaltreatment, sale of essential assets todefray the costs and falling prey toloan sharks leading to unaffordableborrowings and indebtedness.

In the Indian context it has beenestablished that the poorest 20% havemore than double the mortality ratescompared to that of the richest 20%.They suffer disproportionately morethan others from pre-transitionaldiseases like Malaria or TB. To add toall as an NCAER (National Council forApplied Economic Research) studyreveals, the richest 20% enjoy threetimes the share of public subsidy forhealth as compared to the poorestquintile.

In the area of health expenditure,figures show that while the rich needto spend around 2% of their incomeon healthcare, the burden on the pooris far higher at 12%. Hospitalisationoften means the liquidation of theirmeagre assets and not infrequentlypermanent indebtedness. Thus, thethreat of financial disaster prevents thepoor from seeking treatment, and thepercentage of people avoidingtreatment due to potential financialruin have increased in the decade of1986-96 from 15 to 24% in the ruralareas and from 10 to 20% in the urbanareas.

A recent analysis of the World Bank isillustrative of the plight of the poor. Itsays that a hospitalised person in Indiaspends more than half of his totalexpenditure on hospitalisation, andmore than 40% of those hospitalisedhave to borrow money or sell assetsto cover their expenses and 35% fallbelow the poverty line owing to this.The study also suggests that such outof pocket medical costs alone maypush 2.2% of the population below thepoverty line in one year.

3. THE INDIAN HEALTHCARE SCENE :

Healthcare has been recognised asan essential social sector investmentsince independence. In the initialdays, therefore, it was envisaged thathealth services in governmentinstitutions, which were to play a majorrole in healthcare, would be providedfree of cost to all. However, theincreasing expectations regardinghealthcare could not be matchedowing to escalating costs andunaffordable expenditures.

The health spend in India, currently isaround Rs.103, 000 crores or 5.2% of itsGDP. Over the last five decades Indiahas built up a vast health infrastructureand manpower in the primary,secondary and tertiary care areas,involving government, voluntary andprivate sectors. However, even nowthe extent of access as also utilisationrates varies between states andregions, between the urban and therural, and between the rich and thepoor.

The public infrastructure is fairlyextensive both in the rural and urbanareas. In the rural areas, thegovernment has set up a vast networkof sub-centres, primary health centresand community health centres.Despite this, it is seen that patientsoften turn to private providers for theirneeds, as doctors and medicines aremore easily available there and thepatients perceive a better quality ofcare. However, the utilisation of privatecare puts a serious strain on personalfinances on the one hand, and on theother, often puts the patient to risk dueto the large numbers of unqualifiedpractitioners especially in the rural belt.

In the urban areas, the public sectorinfrastructure consists of urban health-posts, taluk hospitals, district hospitalsand medical colleges having tertiaryfacilities. In the private healthcarearea, there are private practitioners,for profit hospitals and nursing homesas also charitable institutions. However,even here, there are deficiencies in


the delivery of healthcare as it islargely unregulated, leading to themushrooming of sub-standard facilitiesand malpractices such as overdiagnosis and over treatment. Thusthere is a general perception of limitedavailability of facilities, combined withpoor delivery.

4. PROFILE OF THE INDIAN HEALTHCAREEXPENDITURE:

It is estimated that 61% of the privatehealthcare spending is on outpatientcare, and over 55% of the outpatientexpenditure is on acute infection suchas fevers, diarrhoea andgastrointestinal diseases. The inpatientexpenses are mainly towards cure ofacute infections, accidents andinjuries, cancer, heart diseases andmaternal care. The CII-Mckinseyreport on healthcare in India estimatethat healthcare spending will increasefrom the present Rs.86, 000 crores(2000-01) to over Rs.200,000 crores inreal terms in 2012. Private healthcarewill grow faster from today's Rs.69, 000crores to Rs.1, 56,000 crores and thiscould rise by an additional Rs.39, 000crores if health insurance coverbecomes available to the rich and themiddle class.

Given the gigantic needs of thecountry there is a crying need for alarge amount of investment in healthinfrastructure, skills and capabilities.The indicative factors for theseinclude:

a. The overall number of beds,physicians, and nurses is lowcompared with otherdeveloping countries and worldaverages.

b. The quality levels in mosthealthcare centres are poor,and many lack essentialequipment and instruments.

c. The number of beds in hospitalsis generally low. The majority ofprivate hospitals have less than30 beds.

d. There is overcrowding and overutilisation especially in publichospitals.

e. Private providers are allowed tofunction in an unregulatedenvironment and reportsindicate that many run practicesand treatment without minimumstandards. There is no all Indiaregulation for provider standardsand treatment protocols.

As per experts the future of healthcarein the country is expected to move inthe following directions:

1. As the country progresses in thedevelopmental index, the shareof communicable and other"old" diseases will drop to bereplaced by lifestyle diseases, ofwhich cancer and heartdiseases will be the mostprominent.

2. Outpatient treatment carewhich now constitute the majorpart of the health spend willdecrease and the inpatienttreatments will increase, thoughthrough technologicalimprovements day caretreatment also will rise.

3. The healthcare market will showrapid growth due to higher levelsof awareness and concern. Itcould even reach a level ofRs.2,70,000 crores by 2012 in viewof the changing demographics,disease profiles and due tomedical inflation.

4. All the above will necessitate theneed for rapid spread of riskfinancing and risk transfersthrough insurance andalternative channels, as theincreasing cost of medicare willnot be affordable even to thewell to do classes.

5. WHY HEALTH INSURANCE?

Insurance and development are

critically linked, and wherever risks existwhich gives rise to unforeseen financiallosses, insurance has a place asindemnifier. Health insurance hasbecome an essential requirement foreveryone for the following reasons:

1) Health risks are pervasive amonghuman beings across all ages,classes, social groups andeconomic categories. Morbidityconditions can affect anyone atany time in a sudden andunforeseen manner.

2) Medical costs are rising and canbe very high. Research,technology, skills and capital areall costs associated withhealthcare and their combinedcosts are ballooning, makingmedical costs vulnerable torapid rise, and the term"mediflation" has come intovogue characterising the regularrise of medical costs.

3) Health risks have a frequencylevel that is high requiringcontinuous cash flow or cashavailability. Such being the caserisk transfer to a cash rich entityis logical and essential, to avoidfalling into a debt trap andfacing impoverishment.

4) While diseases per se may not beincreasing newer and bettercures and treatments are rapidlybecoming commonplace inview of the increasingrequirements of wellness andgood health. The treatmentvalue chain keeps expandingboth vertically and horizontally toinclude not only curative, butalso rehabilitative treatmentsand includes pain management,diet advice, physiotherapy,preventive care and so on.

5) Disease patterns are changingdue to economic and socialchanges. The widespreadprevalence of communicablediseases is being replaced by the

16 THE JOURNAL

more insidious lifestyle diseaseswhich brings on critical illnessesthat raises expenses ofcatastrophic dimensions for thepatient and the need for lifelongcare. Lifestyle disease conditionssuch as diabetes is becomingpandemic in India. A surveydone in six Indian cities show that12% of the population could bediabetic and more worryinglyanother 14% could be pre-diabetic.

6) Development and economicwell being is raising expectationsof good health and fitness. It isseen that as people move up theincome ladder, they begin tospend disproportionately largersums on healthcare. A surveyconducted by NSSO (NationalSample Survey Organisation) in1999-2000 found that out of the12 types of households classifiedbased on their monthly percapita expenditure (MPCE), thetop class has an average percapita expenditure of about 12times that of the bottom class,but in the case of healthcareexpenditure the difference isabout 28 times.

7) Human morbidity conditions notonly affect everyone, but alsotends to increase andaccelerate with aging, needinglifelong protection, which shouldideally start from the cradle.

8) Health and disability losses havegreat immediacy as it involvescurative and rehabilitativeexpenses, trauma and pain andany delay in treatment owing toinability to pay can affect futurehealth and destroy a person'sincome and wealth.

Risk transfer mechanisms thus need tocome into the daily lives of everyoneand into the mainstream of theeconomic landscape as quickly aspossible.

6.HEALTH INSURANCE AND ITSCHARACTERISTICS:

Health Insurance is a method of risktransfer, by which an insurer assumesresponsibility for costs that arise due tocovered il lness, disease and/oraccident. Health Insurance is thus amethod of financial protection in theform of a contract containing terms,conditions, warranties and exclusionsby which in the event of a coveredloss taking place, the insurerindemnifies the insured by paying thecosts incurred, to the insured or themedical provider as the case may be,directly or through a Third PartyAdministrator.

The basic benefit of health insuranceis that all those covered getprotection, by paying a small price orpremium for the protection and thefew who incur unforseen but insuredmedical costs are paid for the same.Therefore, through the medium ofinsurance a known and affordablecost of protection is incurred everyyear to cover against the unknown,and often unaffordable costs ofhealth, which may also includecatastrophic losses. Thus by means ofinsurance, an insured person is giventhe necessary "deep pockets" to payfor unforseen health costs. Insurersbring to the public by this an assuranceof "affordability", which is very criticalin medical care, where the costoverhang, especially in the tertiarycare is very forbidding, and requiresrisk transfer. In addition in medicalinsurance insurers can also add theservice of "assistance" through ThirdParty Administrator (TPA) Service.

Broadly Insurance of persons can bethrough two types of indemnification:

a) Reimbursement of Expenses

b) Benefit Payments

Generally health covers are in theform of reimbursement of necessaryand reasonable medical costs, and inorder to avoid the burden of sourcing

the money first and then the insurerreimbursing the costs, insurers provide"cashless" service through their TPAs inhospitals that have been networkedby the TPAs. Benefit payments are onthe other hand, amounts which arefixed at the time of taking theinsurance, and on the happening ofthe contingency, paid in full or asagreed, to the beneficiary. Healthinsurance, though popularly is of thereimbursement of cost type, is seeingan increasing use of critical illnesspolicies as also disability policies,which are in the form of benefitpayments.

Unlike life insurance, which dealsprimarily with mortality, healthinsurance deals with the complexphenomena known as morbidity.Whereas in conventional life insurancethere will generally be one claim,health insurance risk typically involvesthe possibility of multiple claims andhence the health underwriter's task isto gauge the morbidity level consistingof both frequency and severity.Human morbidity conditions cannotbe measured or defined exactly andtheir manifestation depends on thecombination of a variety of factorssuch as age, sex, heredity,environment, lifestyle, occupation,food habits, economic status and soon. Morbidity conditions are also notreported on a regular basis, and thedata that may be gathered in thisregard cannot be universalised.Furthermore, morbidity conditions alsoindicate an evolution as new diseasestrains and new cures are coming intovogue over the course of time.

Health Insurance is different from theinsurance of all other assets, which aregenerally insured, in as much as healthcoverage deals with human beingsand with the less understood andcomplex phenomena of humanmorbidity. The following featurestherefore, tend to stand out:

1. A market value cannot beplaced against a human beingand hence in health indemnity


policies it is difficult to place aceiling on health coveragesbased on strict value or costparameters.

2. Ageing brings on more risks.Rejection of coverageparticularly at renewals due toage and/or aggravation of riskfactors are often neither possibleas in other asset insurances normay be permitted by law orcourts in the absence specificsocial security schemes and suchother safety nets. Rejection ofhigh risk coverage being difficult,there is an implicit cross subsidyin all health schemes wherebythe young subsidises the old, therich subsidises the poor andhealthy persons those who areoften ill.

3. Unlike many other insurancecovers, health insurance is claimintensive, that is, the frequencyof claiming is high. Empiricalevidence shows that out of 100persons covered an average of4 to 5 persons claim. Statisticalanalysis also shows, as seen in theCII-Mckinsey study, that there isa link between developmentand hospitalisation, that if in 2001when the per capita income wasaround US$ 2100 there were 31hospital admissions per thousandpeople, this is expected to rise to39 hospitalisations in 2012 whenthe per capita income is likely tobe US$ 3600.

4. Cost-push factors are generallylikely to be high and can beunaffordably pushed higher inmedical insurance owing to thefollowing two factors.

a. Moral hazard. Moral hazardproblems arise when thepolicyholder demands allkinds of medical facilitiesand services regardless ofcost. This coupled withmedical providers who donot have any incentive to

lessen costs, recommendthe costliest treatments,even if they are of littlevalue to the patient. Theyare also found to be proneto charge more merelybecause the patient isinsured.

b. Adverse Selection. Adverseselection can take placewhen people with high riskare likely to buy healthpolicies, rather than personswith medium or low risk.Another aspect of adverseselection manifests whenindividuals take the policywithout family members orif they are included in thecoverage the sum insuredchosen for family memberswho are covered, is oftenskewed in favour of thosewith the highest risk.

5. Morbidity conditions as alreadystated before are difficult tocomprehend and relevantauthentic researched data ishard to come by. Its range,scope and extent havevariations depending on age,sex, living conditions, lifestylesand so on. Hence, healthinsurance has traditionallyfollowed a rating pattern basedon experience basis.

6. Medical costs are continuouslydisplaying inf lat ionarytendencies and the beneficiariesof policies show increasing levelsof util isation. These twophenomena always combine toput pressure on premium levels.Hence, premium rates needfrequent revisions, and the ratesare generally perceived by theinsuring public to be high. In viewof the resistance from the insuredin paying higher premiums andthe various other characteristicsof health coverage as7explained elsewhere, health

insurance business is normallycharacterised as a high volume,low margin business.

7. Control on selection and controlon costs are the two vital factorsthat can assure health insuranceof long-term success andsustainability. Since healthinsurance coverage is for humanbeings, screening out personsfrom coverage would not beeasy and there could be actualor potential regulationsprohibiting discontinuance ofinsurance coverage. Therefore,the right method would be toexpand the base by coveringmore of the population, throughwell-distributed groups so as tobalance the portfolio. As thepooling concept in health impliesa certain amount of subsidy fromlow risk to high-risk sections of thepopulation, it is important to bringin balanced groups.

8. This ties in with the concept thathealth insurance is ideal fromcradle to grave. A mix of coversare available to take care oflifecycle requirements and thehabit of insuring everyone fromyoung age helps to ensure notonly protection for all but alsolong term sustainability of healthschemes.

9. Control on costs is an area wherethe insurer needs to work with theproviders and insureds, to ensurefairness and adequacy oftreatment on the one side, butat the same time to prevent overutil isation of facil it ies andservices, and limit the cost oftreatment within agreed orreasonable cost bands. Historicalevidence shows that medicalcosts tend to balloon over timeand headlines will continue to bemade such as: "Biggest carmaker spends more onhealthcare than steel for cars".(Business Standard, Kolkata

18 THE JOURNAL

edition, 20.8.03) Therefore, thefinancing of healthcare involvescertain amount of oversight andinter ference on the part ofinsurers and their facilitatorsthrough various methods ofutilisation review, agreementswith providers, casemanagement methods and soon. This may be perceived asrestricting of choices andfreedom for insureds. However atrade off is required betweenpremium paying capacity andthe availability of choice levels.

10. To offset complaints againstinsurers regarding impededaccess to care, the problems of"risk selection" by insurers toattract and retain only healthypersons, rejection of renewal ofpolicy or increase of sum insuredetc. courts, regulators andgovernments are often forced tostep in. In the US a draft Patients'Bil l of Rights contains thefollowing rights for patients:

� Information disclosure

� Adequate choice ofProviders and Plans

� Access to emergencyservices

� Participation in treatmentdecisions

� Respect and non-discrimination

� Confidentiality of healthcare information

� Complaints and appeals

Insurers are bound to takecognisance of customers voiceand rights in the area of healthcare more than in any othercategory of insurance.

11. Health Insurance, as alreadyindicated, can generate high

emotional responses from customers. Not only is good health a matter ofconcern, the frequency of claims, the controls and the "gag" clausessupposedly or actually contained in the policy wording, the service andadministrative failures in assisting the patient and settling the bills, easilytouch a raw nerve in insureds. Medical care also involves pain and trauma,affect issues of human dignity, confidentiality of health information,adequacy and quality of treatment etc. Therefore, in health insurance,insurers and their related service providers need to be highly responsiveand proactive and many assistance services will have to be offered toreassure and satisfy customers.

7. HEALTH INSURANCE PLANS:

Health insurance customers have a variety of coverage needs and aspirationswith regard to care and have varying capacity to pay. From the insurersviewpoint also covers need to be graded and fine-tuned to reduce insurerrisks and ensure sustainability on the one side, and competitiveness on theother to attract and retain customers. It is, therefore, inevitable that there shouldbe multiplicity and plurality in health insurance covers and that both generaland life insurers should offer as many plans and schemes as possible toindividuals, families and groups, whether annual or long term, reimbursementor benefit, for hospitalisation or for disability, or through combinations of variousoptions and so on.

Every country or market has its own uniqueness and pattern of moving up theprotection value chain. In the Indian context, the following types of plansalready exist or are likely to be introduced in the near term:

Health Insurance Plans

Indemnity/Reimbursement Benefit

Accident Hospitalisation only Critical illness covers

Surgical only Disability Income

Hospitalisation cover only (Hospital Cash)

Hospitalisation with limits on benefits Long Term disability

Group Policies with tailormade features

Major diseases covers with or withoutbasic cover

Hospitalisation with outpatient covers

Covers, which can be utilised forhospitalisation after retirementLong-term care.

All over the world, healthcare plans are structured based on parameters ofchoice and cost, that is as choices widen and options increase, the premiumcost goes up and vice versa.


Cost

Choice

7.1 Health Insurance Benefit Covers:

Benefit covers are policies where onthe occurrence of covered losses, theagreed amounts are paid,irrespective of the costs incurred.Benefit policies are popular becausethe policies are simpler and theformalities and documentationrequired to settle the claims are fewerand evidences of expenses incurredare not required. However, theeconomic status of the beneficiaryand the moral hazard of the proposerbecome important considerations,particularly as the sum insured or thebenefit amount rises higher andhigher.

7.2 Critical Illness Cover

Among the more popular benefitpolicies is the Critical Illness Cover, alsoknown as Dreaded Disease Cover. Ina world where lifestyle diseases areincreasingly dominating, this coverbecomes more and more essential. Itcan be sold both by general and lifeinsurers. It is said that in today's world,the white collared, highly drivenexecutive, working round the clock,with non-negotiable deadlines anderratic eating schedules is anaccident waiting to happen. The worsthit segments in this regard are peoplein the productive 30 to 65 age group,according to experts. Theconsequences of a critical illness canbe manifold:

� Possible loss of employment

� Physical disability

� High medical expenditure

� Need to change lifestyle

� Dependency on others in day-to-day life.

Expenditures that can arise from theabove are difficult to quantify andreimburse, and therefore, it makeseminent sense to offer a benefit coverfor a sufficiently high sum insuredbased on income levels. Since acritical illness can affect employment,companies can ideally take annualcritical i l lness policies for theiremployees, especially executives.

The critical illnesses generally coveredare the following: stroke, coronaryartery surgery, cancer, kidney failure,surgery for a disease of the Aorta,heart valve replacement, organtransplant, paralysis, total blindness,multiple sclerosis, myocardialinfraction.

7.3 Hospitalisation Covers :

The commonest form of healthindemnity policy is the hospitalisationcover. Hospitalisation cover can be forillness, disease and/or accident, for allprocedures or only named ones, foran all-encompassing care or only fornamed major illnesses. The chargespayable are generally listed. TheMediclaim Policy, for instance, lists thefollowing:

a. Room, boarding expenses

b. Nursing expenses

c. Surgeon, Anaesthetist, MedicalPractitioner, Consultant,Specialist fees.

d. Anaesthesia, Blood, Oxygen,Operation Theatre Charges,Surgical Appliances, Medicinesand Drugs, Diagnostic Materials,and X-Ray, Dialysis,Chemotherapy, Radiotherapy,

Cost of Pacemaker, ArtificialLimbs and cost of organs andsimilar expenses.

Any hospitalisation cover, andgenerally all health covers havecertain exclusions, more in the line todefine the cover more clearly, than torestrict the benefits, and the severityof such clauses wherever they areexisting are diminishing and willdiminish further in the future. Theprincipal exclusions specificallyrelevant to health as exemplified in thelargest selling health policy in thecountry, which is the Mediclaim Policy,are:

a) Pre-existing illness exclusion. Thisis considered an essential part ofany health policy, unless it isforbidden by law, as is said to bethe case in some countrieswhere health covers wouldpossibly be compulsory orcommonly bought by everyonefrom a young age. This conditionis now being increasinglymitigated by insurers and incertain types of group policiesaltogether removed by paymentof additional premium. Pre-existing disease clauses arehowever very relevant in ourcountry where the entry agecould be up to 75 years of agebecause the insurer could besaddled with known claims,especially in cases whenproposers can seek cover afterclearly knowing that treatmentinvolving major expenses areimpending.

b) Along with generic exclusions ofpre-existing conditions, certainillnesses may also be excluded inthe first year or for an initial periodas these diseases can bepostponed for a period once thediagnosis is made. Thesediseases include cataract,hysterectomy, hernia, hydrocele,congenital internal diseases,fistula, piles, kidney and gallbladder stones etc.

More choiceless cost (good

features)

Max.choice

Max.cost

More choiceless cost

Least cost

Leastchoice

20 THE JOURNAL

c) Circumcision unless necessary fortreatment of a covered diseaseor due to accident, vaccinationor inoculation, change of life orcosmetic or aesthetic treatmentof any description, plastic surgeryother than necessitated due toaccident or illness.

d) Dental treatment unless requiringhospitalisation, cost ofspectacles, contact lenses, andhearing aids.

e) Convalescence, generaldebility, run-down condition, restcure, congenital externaldisease or defects or anomalies,steril ity, venereal disease,intentional self-injury or use ofintoxicating drugs or alcohol,AIDS and related syndromes.

f) Charges primarily for diagnosticor laboratory examinations notrelated to a specific illness orinjury. Expenses for vitamins ortonics unless part of treatment ofdisease or injury.

g) Pregnancy and childbirth(coverable under group policies)

h) Naturopathy treatment.

In line with the above exclusions therecould be variations depending on therequirements of the policy.

In hospitalisation policy, the definitionof hospital is given, and the minimumduration of stay in the hospital isspecified. However, as a new line ofsurgeries called day care surgerieshave emerged, the same are beingincreasingly covered. Along withhospitalisation pre- and posthospitalisation for a fixed number ofdays are also covered.

Outpatient or ambulatory care is notusually offered in hospitalisationpolicies, but in certain cases limitedcare is allowed to certain well-approved clients for additionalpremium. With the advent of

managed care, preventive andpromotive care will be increasinglycovered and the market awaits theintroduction of such benefits in India.

8. COST REDUCTION AS THE KEY TOSUCCESSFUL HEALTH INSURANCE:

Morbidity and heightened concern forhealth particularly when a cover isavailable brings in frequency of claimsand the utilisation rates of coveredtreatments can go up. This coupledwith the inflationary tendencies inbuiltin medical care, can make for runaway costs, leading to unaffordablepremium increase or unsustainability ofan otherwise beneficial cover.

There are two very important aspectsof cost control. The first is on the partof the insured. Ideally a good healthinsurance cover should be co-createdwith the insured, suited to the uniquerequirements of the customer, pricedas per the affordability of thecustomer. At the same time thecustomer will have to accept theneed for sustainability and agree toregulate the costs/utilisation in such amanner, that while the cover isbeneficial and contributing tomaintain good health, it should alsobe made sustainable over as long aperiod of time as possible. Such co-created covers, also calledtailormade covers, are common ingroup policies, but even in suchpolicies the cost reduction issues orlimitation of benefits as is required, isseldom worked upon. The second ison the part of the insurer, who throughunderstanding of the risks and carefulunderwriting brings in safety factors tokeep the premium-claims ratio stablewhich is further aided by keeping atrack of provider costs, through variousmanaged care techniques.

8.1 Underwriting:

The beginning of fashioning asustainable and affordable healthcover begins with discerning andcareful underwriting. Successfulunderwriting and rating creates a

balance between adequacy andequity of rates and at the same timekeeps the competitive requirements inperspective. Rates should be highenough to generate sufficientrevenue to cover all expenses andyield an acceptable return on equity.At the same time the rate should beattractive enough to generate largevolumes.

An insurer often faces the twin risks ofadverse selection and moral hazard,and to counter this the insurer will tryto balance the risk and to improve therisk by strict scrutiny and screening. Inthis endeavour the underwriter looksinto the following aspects:

1) The chance of adverse selectiondecreases as the size of a normalgroup increases. Hence, apartfrom encouraging groupinsurances, the underwriter will tryto increase the volume of familycovers vis-a-vis individual covers,which are generallysymptomatic of selection.

2) Balance the age profile of thosecovered. It is generallyaccepted that the youngerpopulation constitute a betterrisk than those old. Similarlybased on age insurers can insiston pre-insurance healthscreening to avoid catastrophicpre-existing conditions ordiseases from being claimed.

3) The cost index of health facilitiesthat the insured population needto use can be an importantconsideration. Costs, in metrosfor instance, will be higher thannon-metros, and therefore tocontain costs l imits can beplaced on usage based onlocations or the premium can beloaded as may be necessary orthe level of sum insured could befixed at a much higher level incase of locations with high costs.

4) Even more insidious can be thevariations in utilisation rate of


healthcare facilities. It is seen thatamong those who are moreaware and where healthfacilities are easily accessible,the usage rate generally rises.Therefore, there can bedifference in the utilisation ratesbetween the rich and the poor,the urban and the rural, andareas where health facilities areplentiful and areas where suchfacilities are not easily available.The underwriter will need to keeputilisation rates under control byrelevant underwriting tools.

Keeping in mind the abovebroad parameters, theunderwriters wil l examineindividual cases based on theundernoted criteria.

a) The health status of eachperson to be covered. Thiscan be determined by:

i. Physical examination of theperson to be coveredalong with necessary testsand/or attending physicianstatement

ii. Individual medicalquestionnaire as can beseen in the individualmediclaim proposal forms.

iii. An employer disclosurelisting major healthconditions.

iv. Medical cost experience(large groups)

b) The type of coveragerequired. The extent ofcoverage that can beallowed will depend on themagnitude of risk that theunderwriter perceivesbased on facts andexperience. Normally risksare categorised intostandard and sub-standard. Sub-standardrisks can be dealt with by

loading the premium, and/or by restricting thecoverage or by decliningthe risk altogether.

c) Assurance of renewal.Underwriters will tend toview suspiciously covers inthe first year, as the risk ishighest from the point ofpre-existing diseases andmoral hazard. Therefore, inhealth insurance coverageparticularly, consistent andtimely renewals areconsidered essential bothfor the insurer and theinsured. Health insurancepolicies in the first few yearscan have more "gag"clauses for the customerdue to the chances ofhigher risks inherent in suchproposals due to non-disclosure or incompletedisclosure. There is alsoconsiderable risk for thecustomer that can arisefrom a break in the policyor discontinuation of thepolicy in that if the insuredtakes a policy at a laterdate after a break, theearlier covered illnessescould face exclusions dueto conditions or illnessesthat were contractedbefore or during the breakin policy. This is becausesuch conditions or diseasescould become a new pre-existing condition if thesame are manifested aslikely to generate furtherclaims at the time of takinga fresh policy after a break.Therefore the right strategyfor any health insurancecustomer is to have thecover from cradle to gravewithout any break.

Health Insurance as noted before is amost complex subject given thatpeople continuously age and have ahost of differentiating risk patterns

based on their age, gender, heredity,lifestyle, lifecycle, environment andliving condition, occupation, accessto healthcare, especially preventivecare and so on, apart from varioussubjective moral hazard factors.Therefore, in addition to individualprofiles, the underwriter would alsokeep in mind the larger macro picture,which includes:

1) Demographic factors. Age andgender data can providepredictors of future claims.

2) Economic factors - inflation, theavailabil ity of healthinfrastructure, socio-economicbackground of the varioussegments of customers, whichcan affect utilisation rates.

3) Occupational details help inunderstanding claim ratio.

4) Provider practices are importantin understanding cost patterns.

Ultimately the past data of claimexperience, coupled with futureprojection of claims, factored by themedical inflation index will give a morerealistic picture of costs and theunderwriter would have to weigh allsuch information while underwriting.

The next step for the underwriter is torationalise and limit expenses in sucha way that the insured receivesnecessary and reasonable treatmentbut within expenses and sub-limits ascapped. Examples of these caninclude:

a. Restriction on using more than50% of the sum insured perhospitalisation except for namedmajor diseases.

b. Sub-limits for bed charges limitedto a percentage of the suminsured per day or a fixedamount per day.

c. Specific limits for each illness oritem of expense or procedure asmay be fixed in the policy.

22 THE JOURNAL

d. Limiting the treatment to named(more economical) hospitals.Apart from putting a ceiling onexpenses, the insurer cancontain utilisation by restrictingcoverages through:

1) Exclusion of specific diseases,such as may be pre-existing orchronic

2) Naming only specific diseases orprocedures to be covered

3) Using other specific limitations orexclusions as may be consideredrelevant.

Similarly in pricing, there could beloadings or discounts based on riskperceptions, which could be ofvarious kinds such as:

� Standard rates and terms

� Extra Premium charged forhigher risks

� Standard rates but with limitedbenefits

� Discounts based on better riskprofile.

An important element for costreduction is co-sharing of costs by theinsured. This can be by means ofdeductibles or co-payments such as,say,@ 20% to be paid by the insuredand the balance 80% to be payedby insurer. The main intent of costparticipation by the insured throughdeductibles is the following:

1. To avoid unnecessary utilisation.

2. To eliminate small claims and theexpense of handling them.

3. To reduce the total burden ofcosts.

Various kinds of deductibles are usedin health insurance.

1. All cause deductible, which canalso include a family deductible

provision. In this kind ofdeductible, which is normally ofa high level, the payment fromthe insurers start after thedeductible level is reached.

2. Per cause deductible. Each andevery claim has a deductible.

3. Corridor deductible. Adeductible that is made after thebasic plan is exhausted andbefore the supplementarymedical benefits are payable.

4. Integrated deductible. Mainlyused by supplemental plans bywhich before the plan benefit isavailable a high deductible hasto be first incurred.

Co-payment or coinsurance, as it issometimes called, is used to reducehealth insurance payouts and evenmore to retain the insured's financialinterest in the cost of services, so thatthe insured does not misutilise or overutilise healthcare services.

Finally, renewal of policies can also beutilised to review underwriting resultsand take corrective steps. There area number of renewal methods thatcan be incorporated in policyconditions such as -

1) Non-cancellable renewals -renewals assured and withoutany changes.

2) Guaranteed renewals - changesnot usually made in the terms ofthe policy but premium rates canvary based on underwritingresults

3) Non-renewable for statedreasons such as on reaching aspecified age.

4) Optionally renewable, that is,subject to re-evaluation of risk bythe insurer which can includereview of premium andmodification of the terms andconditions.

Since health insurance is a matter oflife and dignity for human beings,renewals are a very sensitive issueespecially for persons who are in thehigher risk categories, and even morefor such persons who have been loyalcustomers for long. Therefore, courtshave been harsh on insurers in thearea of refused renewals withoutsufficiently weighty reasons, which areto be based on grounds of fraud ormisrepresentation and not merely onthe basis of random individualisedclaim experiences. Laws have alsocome into force in same countrieswhere refusal of renewal is regulated.

8.2 Reduction of costs by agreementswith providers :

Regulation of hospitals, theestablishment and implementation ofmedical protocols, and thetransparency and reasonableness inthe billing of medical costs and theprevention of medical frauds etc. areimportant components of cost control.Worldwide there are reported casesof over-billing and mis/overutilisationby providers and drug manufacturers.It has been reported in UK that healthinsurers had to repudiate thousands ofcases of caesarean operations, asthey were not medically necessary. Ananonymous book titled "Corruption Inour Health System" published in Taiwaninforms that doctors try to gain moremoney from the national healthinsurance programme. The practicesdescribed in the book includefalsifying medical records, conductingunnecessary examinations or surgeriesand inflating costs. The State of NewYork in USA has sued two majorpharmaceutical companies, allegingthat they engaged in illegal schemesto inflate the price of prescriptiondrugs paid by consumers and healthplans. Fraud, abuse and up-coding ofMedicare charges has been a matterof concern in USA and theDepartment of Health and HumanServices' Office of Inspector Generalconcluded that the Medicareprogram overpaid health care


providers an amount exceeding US $12 billion or 7.1% Medicare payments.

Control of costs at the provider endrequires the following inputs in place:

� Laws and Rules to regulatehealthcare providers.

� Standardisation of hospitalcharges and rating of hospitals.

� Standardisation of treatmentprotocols. Coding as per globalpractices including procedurecodes, disease codes, drugcodes etc.

� Transparency in bil l ing andavailability of data to crosscheck billing.

Apart from the above, limits on costcan be achieved by managingprovider utilisation by methods suchas:

� Long-term agreement to beentered into with networkedproviders, where costs could befrozen or increases allowedbased on transparent criteriaand/or predictable patterns.

� Contracting of a beneficialdiscount pattern based onvolumes and long termcontracting.

� Confining care for insureds tonamed hospitals in a particularservice area

� Initiating gate keeping andreferral practices throughprimary care physicians orthrough local primary orsecondary level providerfacilities.

Finally the introduction of regular andfull scale utilisation review, which is partof managed care, and can containthe following components:

1. Pre-admission Certification by

primary or other gate-keepingphysicians.

2. Second surgical opinions tocertify whether the surgery ismedically necessary as advised.

3. Pre-admission testing and sameday surgery provisions

4. Concurrent and continued stayreview

5. Catastrophic case management

6. Discharge planning

7. Data management andreporting

8. Retrospective review includinghospital bill audits.

9. MANAGED CARE:

Efforts at controlling the spiralling costof health insurance has typically ledto containing of its costs throughmanaged care, which in the processalso can offer many more beneficialand necessary services such asoutpatient care, preventive care,dental services and so on. Managedcare accordingly has three broadobjectives, which are:

a) To ensure access to medicalcare in the most appropriateand cost effective manner.

b) To provide co-ordination andcontinuity of medicallynecessary health services to thepatient

c) To assist the covered person inachieving full health.

Managed care involves the activemanagement of the services and

providers in healthcare. Utilisationmanagement and review is the mostsignificant element of managed care.It thus provides oversight, supervisionand feedback of providers in regardto their treatment of patients and theaggregate expenditures incurred onbehalf of the enrolled persons. This hascome from the recognition thattraditional fee for service indemnityplans do not provide mechanisms ornecessary incentives for containingcosts.

Managed care can embody a widevariety of techniques, which includevarious kinds of financial incentives forproviders, promotion of good health,early identification of disease, patienteducation, self-care and all aspectsof utilisation management. Again thefocus of managed care has seen ashift from the curative to thepreventive with focus on primary care.These techniques are also nowadopted by conventional insuranceplans especially the need forobtaining second opinions, beforeundergoing elective surgery and theadoption of case managementtechniques.

Types of Managed CareOrganisations :

Managed care and traditional

indemnity appears to have meshedinto a continuum as shown below:

1. Managed Care and Indemnityinsurance. Traditional insurershave adopted a variety ofmanaged care techniques.

2. Service Plans or self-insuranceplans by large groups also haveadopted managed caretechniques.

3. PPOs or Preferred ProviderOrganisations are entities that

Managed Service PPOs POS Open ClosedIndemnity Plans HMOs Panel Panel

HMOs HMOs

è è è è è

24 THE JOURNAL

purchase healthcare servicesfrom a selected network ofparticipating providers. Theseproviders agree to utilisationmanagement programmes andother procedures and acceptthe reimbursement structuremutually agreed upon. PPOprograms allow beneficiaries touse non-PPO providers but athigher levels of coinsurance ordeductibles.

4. EPOs or Exclusive ProviderOrganisations. They are similar toPPOs except that beneficiariescan utilise only from providersthat participate in the EPO. Theseorganizations are very similar toHMOs.

5. POS (Point of Service) Plans. Aplan in which members do nothave to choose how to receiveservices until they need them.Thus the plan may have a HMO-like system as well as anindemnity benefit cover. Theplan also can offer differentlevels in the benefits paid, forexample, 100% coverage ofbenefits if taken as per plan, butonly 70% in case the membergoes outside the plan for service.

6. HMO (Health ManagementOrganisation) Models.

HMOs are organised healthcaresystems that take responsibility forboth the financing and thedelivery of comprehensivehealth services to those covered.It can be viewed as acombination of health insurerand a healthcare deliverymanagement system. HMOs areresponsible for the quality andappropriateness of the healthservices they provide. An HMOcan have different types ofrelationships with different groupsof physicians, and these can becategorised as under:

a) Staff Model, where the HMO

employs their own physicians. Thismodel is also known as closedpanel HMO.

b) Group Model HMOs becausethey contract with multispeciality physician grouppractice. Such group may be acaptive group or anindependent group.

c) Network Model, when the HMOcontracts with more than onegroup to provide physicianservices, which may be broadbased multispeciality groups orsmall groups of PCPs (PrimaryCare Physicians). This modelcould be closed or open panel.In the open panel plan anyphysician who meets HMO'scriteria can be enrolled.

d) IPA (Independent PracticeAssociation) Model. In this type,the HMO contracts with anassociation of physicians toprovide physician services. TheIPA physicians continue to seetheir non-HMO patients andtherefore this is known as anopen panel, and they can havecontracts with more than oneHMO.

e) Direct Contract Model. In thismodel the HMO contractsdirectly with individual physiciansand util ise both PCPs andspecialists and use a primarycare management approach.

f) Mixed Model. HMOs use mixes ofdifferent models as may benecessary.

10. UTILISATION OF TPAS IN HEALTHCAREINSURANCE:

A good health plan consists of readyavailability of healthcare as providedby hospitals and other providers, theaffordability which can come throughpooling as in insurance or otherfinancing schemes and finally onassistance service which implies

making available of all inputsnecessary to assist a member in caseof medical need. Thus a goodhealthcare plan will consist of thebenefits of availability, affordabilityand assistance as shown in the figurebelow :

HEALTH CARE SERVICES FO PEOPLE

Health Care InsuranceIndustry Industry

AVAILABILI TYPATIENT CARE AFFORDABILITY

Cost Free SpeedyResponsive

High TechHigh Touch TPA

ASSISTANCE

The concept of the Third PartyAdministrator (TPA) has been recentlyintroduced in India by the IRDAthrough the TPA Regulations in 2001.The need for TPA in health insurancearises from the unique characteristicsof health insurance itself. Healthcovers deal with morbidity conditionsand is characterised by frequency ofclaims. The insured event involves acontinuous treatment process tilldischarge or cure and is not a discreteevent. The need for effective costcontrol is essential and requiresmanagement of provider networks.More importantly the health insuranceservice directly involves people whoare il l and in need of proactiveassistance and not objects as isgenerally insured in other covers.Hence, there are competencies,which are unique for healthcareinsurance, which includes thefollowing:

a) Transaction Processing - handlingefficiently large number ofmainly low severity claims.

b) Medical Case management -Serious illness/ injuries require longperiods of treatment.Therefore prevention, early


diagnosis, influencing the courseof treatment, utilisation reviewtechniques are important in suchcases. The goal is to co-ordinatethe care so as to improvecontinuity and quality of care asalso to lower costs. Casemanagement is defined as acollaborative process whichasses, plans, implants,coordinates, monitors andevaluates the options andservices required to meet anindividual's health needs usingcommunication and availableresources to promote quality andcost-effective outcomes. Casemanagement occurs across acontinuum of care addressingongoing individual needs. Whenfocused solely on high costinpatient cases it is also referredto as catastrophic casemanagement.

c) High Level of CustomerResponsiveness - Healthinsurance can be of highemotional content and thereforehigh touch service is required inmatters dealing with healthcare.The ability to respond quickly isessential in healthcare for whichthe necessary infrastructure hasto be built up and proactive andcapable people are required fordealing with claims and otherservices efficiently.

d) Network management. Throughnetwork management, hospitalsare accredited to the healthinsurance network by way of tie-up agreements owing to whichvarious valued added servicescan be offered to the customerin the area of assistance. This isespecially important in offeringcashless service and incontrolling costs and ensuringcertain minimum levels of qualityand care.

Therefore, the TPA concept addsconsiderable value to the health

insurance value chain. TPAs' functionscould include:

Member enrolment and issue ofidentity cards and guidebooks.This helps to ensure properidentification of members andthrough the guidebooks thebeneficiaries can avail servicesas required by following theguidelines.

Customer Service and ContactManagement, which includes:

24 hour call centre

Cashless access service innetwork hospital

Customer grievancehandling

Action taken report

Customer information andeducation through websiteand call centre

Benefit information andclarification

Claim status information

Eligibility review and pre-admission authorisation

Information regardingprovider services.

Provider and NetworkManagement:

Provider profil ing andcategorisation

Accreditation andnetworking

Provider contracting

Negotiated providercharges

Provider relations

Provider Reviewing

Provider contracting

Obtaining schedule ofcharges

Guarantee of payment

Access to medical records

Credit period

Cashless service

Check on cost throughlong-term agreement

Cooperation for review

Claims Management

Claim process mappingand skill building

Adhering to time frameagreed for settling claims.

Pre-authorisation andcashless settlement

D o c u m e n t a t i o nmanagement

Customer Satisfaction Surveys &Grievance Handling.

To understand consumerconcerns and priorities

Identify areas for qualityimprovement

Develop strategic plans

To add to customer valueand credibility

To reinforce customerretention and loyalty

Data Management

Compilation and analysis ofdata

Utilisation of data in addingto customer care

26 THE JOURNAL

Analysis of data to improvequality of care and

to reduce costs.

Data mining to developnew plans and coverages.

Data warehousing forresearch purposes.

11. THE FUTURE OF HEALTH INSURANCEIN INDIA:

Disease, accident and disability haveexpensive downsides in humanexistence, and managing these risksis essential not only for the financialsecurity of individuals and families, butalso for the community as well as thecountry. Health and disabilityinsurance is therefore an integral partof social engineering.

Health care as a service industry isperhaps the largest in the world, andis rapidly expanding in its reach andcapability. However in the progress ofmedical capability, medical costs arealso seen to be rising rapidly, makinghealthcare unaffordable. Thehealthcare treatment delivery formatnot only spans primary, secondary andtertiary care, but is also movingforward to more care oriented formatssuch as integrated delivery networkwhich can keep track of a patient soas to achieve high levels of clinicalquality and customer satisfaction,telemedicine which involves use oftelecommunication facil it ies todiagnose or treat patients in remoteareas, mobile care, home care andso on.

A health insurance claim is anuncertain event, and the payoutrequired is also uncertain. However,since the risk is a frequency risk, itmandates coverage on universalbasis, where the rich and the poor, theyoung and the old are covered in oneway or the other. There can be varioustypes of health protection schemesthrough insurance for individuals,families, groups, or through self-funded

schemes, and free or paid schemesfor social and/or community groups.The way to fund such schemes isthrough voluntary contributions byway of premium or throughgovernment taxes.

Going by past experience insurancewould appear to be a superior optionin comparison with traditional risktransfer mechanisms involving theemployer or the government,because insurers are more adept atrisk management and fundmanagement. It can therefore beseen that the health insurancepotential in this country is of giganticsize and could run into manythousands of crores of rupees aspremium. To enable the industry toface the challenge in insuring all,certain enabling factors are requiredfrom various authorities and agencies:

a) Government -

Regulations mandatingregistration of medicalestablishments and enforcementof minimum standards, whichshould include not onlyinfrastructure and personnel butalso information regardingpatient data, transparency ofcharges etc.

The need for a regulator toenforce provider standards andencourage medicalestablishments to self-regulatethemselves.

There should be governmentalencouragement for the spreadof universal health insurancethrough various incentives so thatall could come under theprotection umbrella at theearliest.

The Government can also enactvarious laws as maybe requiredto put into place the facilitatingfactors for the spread of thisinsurance to all and for theprotection of health insurancecustomers.

b) IRDA

Emphasis on rapid developmentof health insurance.Centralised collection of data ata data bank under thesupervision of the Regulator.

Actuarial studies and researchon health insurance to beencouraged through the data

Regulatory vigil on all players inthe healthcare market.

Encouraging multiplicity ofplayers, plans, programmesrelating to health coverage.

c) Providers:

Implementation of changes tointroduce

Accreditation standards

Patient safety standards

Clinical protocols

Healthcare ManagementGuidelines

Standardised Charge Patterns

Proper Record keeping

d) TPAs :

Rapid scaling up in reach andquality

Professionalisation and skil lbuilding

Continuous improvement inassistance content and quality

Ability to subserve in full theinterests of consumers, providersand insurers.

Data Management and itsutil isation to develop newpolicies, plans, and services.


Ultimately the main burden ofprotection falls on insurers. To develophealth insurance penetration insurersneed to be open to new learnings inthe following areas:

a) Health insurance is a separatecategory of business with uniquefeatures and needs its ownresearch and data collectionrequirements. Its underwritingand claims management willneed specialised skills. Separatebusiness units or subsidiaries maybe required to take advantageof the gigantic opportunities inhealth.

b) Health insurance is a highvolume-low margin business, andit is also socially oriented.Therefore, it has to have its ownparadigms of viabil ity andsuccess. This requires differentstrategies and capabilities,which need to be addressed.

c) There is a requirement for highlevel of integration with providersand TPAs so as to dealproactively with customers.Therefore, high levels oftechnology integration,transaction skills and servicecapabilities are required.

d) Health underwriting needsdifferentiated skil ls, largecollection of data on a widevariety of aspects such aspopulation characteristics,morbidity data based on age,sex, social or economic status,geographical areas includingrural and urban and so on.Underwriting and claims dataanalysis along with variousmacro data analysis can help tocalibrate rates accurately,measure benefits, make riskassessments to create newcoverages based on usageexperience and customerfeedback where necessary so asto address the concerns of all

categories of customers onpremium and benefit packages.

e) Accent on product proliferationto suit all needs and pockets isrequired. In this standalonehealth insurance companies asalso general and life insurers canoffer a variety of products in allareas such as annual/ long termpolicies, general/specialitypolicies, reimbursement/benefitpolicies, illness/disability policies,individual/group plans, fullhospitalisation, major disease ortotal health covers and so on.

f) Creating multiple channels todistribute and reach healthcover to all. Insurance sells pushoriented products and especiallyin India, where the insuring habithas not yet taken root and thepenetration is very low, there isthe need to proliferate healthproducts through all channels.Tie-ups with banks, credit cards,NGOs and other organisations,and more targeted sell ingthrough traditional channels canalso help to spread the messageof health insurance and reachrespectable penetration levels inthe shortest time possible.

g) There is an increasing need tomeet the complexities ofhealthcare costs by utilisingactuarial services to build up costmodels to reflect the importantexpense generating variablessuch as service utilisation andservice costs, which are oftentied to age, gender and otherfactors and the benefits offered.Actuaries can also do riskmodelling, fee schedule analysisbased on coding standardswhich need to be implemented,clinical efficiencybenchmarking, claim probabilitydistributions, creating incentivestructures for providers and so on.These analyses help to set pricinglevels and also can help toidentify, quantify and prioritise

insurance services in thehealthcare area.

The success of health insurance thusdepends on the active role of anumber of stakeholders starting withthe government, so that insurers whohave to bear the burden of the risk areproperly facilitated, assisted and givenfull support in arranging widespreadcoverage across all sections of thepopulation.

12. HEALTH INSURANCE FOR THE POOR/MIDDLE INCOME SEGMENTS:

The poor are entitled to health careand protection of their health throughinsurance as part of their basic rights.Health security for all is a national goal.As economists have noted a healthypopulation will give a "demographicdividend" by not only generatinghigher economic growth but alsoshowing a decline in morbidity andmortality, which are known to weighdown the society with heavy costs.Good health is therefore, a key partof the developmental index. On theside of the insurer, the poor and theunderprivileged do not necessarilyconstitute a poor risk, as they form thevast belly of the market and a sizablepart of a very large consumer pyramidthat exists in India. It is possible thatwhat may not be available by way ofmargins could be available by thehuge volume of business that can begenerated by sell ing to masscustomers.

The poor and the rural consumersegments are also characterised bytheir undergoing rapid transition. It isbeing increasingly recognised that ourcountry is turning out to be a largeconsuming economy owing to theirpurchasing power. The consumer hasbecome highly aware even in theremotest corners, as informationchannels, primarily TV are available toat least 500 million people, a 1 in 2ratio. Research also shows that farfrom being passive viewers, peopleare eagerly viewing the world,transforming their lifestyle mode from

28 THE JOURNAL

self-denial to value based acquisitions,guided by their increased awarenessabout personal well being and vitality.The consumer is also earnest aboutgrabbing economic opportunities andis increasingly foraying into the worldof branded products, information andmobility tools like phones and twowheeler transports.

In this scenario, opportunity mappingwill indicate that there is a vastcoverage potential for healthinsurance as it is a compelling needfor everyone. It also has a socialorientation making it a necessary partof the basic protection basket. Thelow-income consumers and the newlyemerging middle-income group arenow well-accepted large massmarkets. Current research shows thatthe consumers in these groups arenow found to be shifting away frommere consumption of primary articlesto higher order needs such as healthand education. Therefore, it isbecoming easier to look into theirunmet insurance needs in healthcare,which are urgent and imperative,through meaningful health insurancecovers.

Again, from a social andgovernmental point of view it isessential to bring social securitybenefits to all sections of thepopulation. This is the next frontier inthe goal of welfare for all. Animportant component of this will behealth insurance. In offering healthcoverage to the poor there are twomethods of contribution to the poolingof funds, namely taxes levied by thegovernment for this purpose on theone side and voluntary contributionsto be paid by the beneficiaries asinsurance premium to pay for theirunforseen health costs.

Thus in the scenario of health for allthere can be three types of coverageusing the premium/tax mix forpromoting health coverage.

1. Commercial Insurance - wherethe full premium is paid by the

insured, but tax benefits can beoffered and service tax on healthpremium can be waived.

2. Community Insurance - wherecommunities as may besponsored by the stategovernment, local government,NGOs and other groups can beinsured by means of limitedcontributions by the participatingmembers and subsidy from thegovernment targeted to this endfrom tax earnings.

3. Command or compulsoryinsurance or social securityschemes, whereby throughemployer contribution or taxessocial security schemes can beoffered to high risk groups suchas the aged as also the poorestand unemployed sections of thepopulation.

Commercial Full contributionCoverage

Community ContributionCoverage

CommandCoverage no contribution

Many initiatives are required at thevarious tiers of the governmentincluding local governments, to workwith insurers to empower and facilitatecoverage of the weaker andvulnerable sections throughcommercial, community orcompulsory coverage. These initiativeswill need not only money but alsomethodologies to cover effectivelythe many million beneficiaries, whichwill not only give them easyaffordability coupled with access tohealthcare, but also facilitatesimplification of coverage, easydocumentation and faster formalities.

In order to achieve these the followingwill need to be implemented:

a) Identify cards to be issued to all

citizens/beneficiaries withphotographs and basic data.

b) Large group or communityinsurance schemes, where onthe basis of minimum data,group coverages can beoffered.

c) Payment of premium throughpanchayats, cooperatives,NGOs and other group channels.

d) Networking with localcommunity hospitals to enablethe beneficiaries to obtaincashless benefits.

e) Cash inflows to such hospitalsthrough util isation of claimpayments so that they areconstantly upgraded to preventbeneficiaries from seekingexpensive care elsewhere, andby doing so to keep the premiumlevels affordable.

f) Building in preventive andpromotive care throughcapitation fees to primary carephysicians, and utilising them asgatekeepers to regulate theutilisation of higher order care.

g) Networked hospitals tostandardise their protocols andcharges.

h) To encourage universalcoverage to avoid selectionagainst the insurer, create a largepool of funds as also to ensureprotection for all.

i) To have as many product plansand options as may be requiredto encourage higher limits ofcoverage and obtain the same,at lower costs on the basis ofgroup coverage.

From the insurer's point of view thereare methods that can be


implemented to reduce costs. Theseinclude -

a) Offering family floater coverinstead of individual coverage.

b) Collecting the premium throughinstalments provided there isassurance or guarantee ofpayments within the stipulatedtime.

c) Restricting treatment to localcommunity hospitals.

d) Offering all treatments orselected elective treatmentspayable only subject tocoinsurance or co-payments bythe beneficiary.

e) Offering preventive care throughcapitation fee to primary carephysicians to reduce costs in thecurative area and encouragetotal health.

f) Implementing various othermanaged care techniques toreduce costs.

Apart from hospitalisation covers therecould be simplified disability covers, orcritical illness covers either through lifeor general insurance streams to coveragainst disabilities due to accidentsand/or major illnesses. Micro insuranceschemes are also in the experimentalstage and a number of pilot projectsare on trial in various parts of thecountry to offer micro covers at verylow premium.

Other than the poor, vulnerablesections of the population such asthose already with pre-existingconditions such as BP, diabetes, as alsosenior citizens need coverage. Theseare higher risk sections, and some ofthem can be uninsurable undernormal policies. Generally thepopulation under vulnerability wouldbe a smaller percentage and theirrequirements have to be handledappropriately by direct social securityschemes or state supported insuranceplans, as they cannot be left out fromsome form of organised protectionmethods.

13. TRENDS FOR THE FUTURE

Broadly the future of health insurance in the country shows the following trends:

CURRENT FUTURE

1. Presently health policies Could include not only curative, butare focused on curative care also preventive, promotive,

rehabilitative i.e. total care overcourse of time.

2. At present the covers are Most treatments will be of cashlessmainly of reimbursement type, kind where the Insured will bewhereby the insured has to allowed to obtain treatment withoutspend the money and obtain payment from networked hospitalsreimbursement after by means of pre-authorisationcompleting various formalities. which can be obtained from the

servicing TPA.

3. Most policies are More varieties of policies willhospitalisation policies become common including critical

illness and other disability policies.

4. Most of the policies are Longer-term policies will begin to beannual policies. offered subject to actuarial

evaluations, especially by lifecompanies.

5. The common policies are Most policies will be group andindividual policies family policies.

6. Few players operate in the Many more health insurancehealth insurance area players will operate in the market,

as it will be of very large size. Thesewill include general insurers, lifeinsurers, TPAs, Health ManagementOrganisations and others as may bepermitted by IRDA.

7. Few Policies Many more policies, plans, options willcome into being. There will bebranded policies, tailormade policies,and speciality policies such as dentalpolicies, long term policies and so on.

8. Non-managed care Managed care in its many forms andtechniques will begin to enter themarket to give more focused andcomprehensive care at lower costs.

9. Unregulated market More and more regulations, laws,rules can come into force to regulatehealthcare market and healthinsurance practices to give betterprotection to the customer andprevent malpractices. Apart frominsurers, providers and facilitators will

30 THE JOURNAL

get increasingly regulated.Standards, codes, and ratings willcome into vogue.

10. Only few are covered Increasingly the entire population, inall segments and socio-economicgroups will begin to be coveredand initiatives in this regard willcome from insurers as also from thegovernment, NGOs, employers,various associations and groups.

will have to comply whether willinglyor unwillingly. By following a trulyethical customer approach manyissues that trouble consumers could behandled with finesse. The concernsthat drive consumers of healthcareand health insurance could includethe following:

� Wide availability of consumerchoice with inclusiveness andequity as the underlyingcharacteristics.

� Customer / Patient protectionmeasures.

� Ensuring privacy andconfidentiality of healthcareinformation.

� Full information disclosure

� Access to emergency services.

� Participation in treatmentdecisions, choice of doctors etc.

� Respect and non-discrimination

� Reducing gag clauses andexclusions in policies

� Rights of renewal or continuationof policies.

� Measurement of patientsatisfaction and clinicaloutcomes.

� Ensuring that consumercomplaints are heard andredressed quickly.

Customers have expectations as tochoice, responsiveness, convenienceand trustworthiness. The concept ofgood health itself is expanding. It hasmoved from not being il l to an

The size of the Indian market in termsof premium is going to be extremelylarge. If by covering around 10 millionpersons, the general insuranceindustry could book a premium of overRs.1000 crores in 2002-03, then atcurrent rates if 500 million persons i.e.,half of the population is insured, thenthe premium could be in the region ofRs.50,000 crores. Viewing the size of thehealthcare market the size ofinsurance premium in the healthsegment could be even higher. CII-Mckinsey Report on healthcare inIndia estimates that as against 5.2% ofGDPI which was Rs.103,000 crores in2001 the spending on health could beas high as 3,20,000 crores in 2012 whichwould be 8.5% of the then GDP. If thisbe the scenario the growth in healthinsurance whether life or general,commercial, community, social or selfinsurance through group schemescould be rapidly expanding as out ofpocket payment would be virtuallyimpossible for ordinary citizens as timegoes on. Therefore strategies andplans are required to be put into placeto seize the opportunities in the mostadvantageous ways to not only towiden and deepen the market butalso to meet the social obligations thatare inherent in health insurancecoverages.

14. CUSTOMER CONCERNS ANDSERVICE IN HEALTH CARE INSURANCE :

With the advent of Mediclaim

Insurance in 1986, the Indian insurancemarket has seen a number of productsentering the health insurance areawith limited success, as the market hasnot expanded as was expected.These products range from policiesoffered to benefit an insured from timeof birth namely Cradle Care, UnbornChild Insurance etc. to Mediclaim,Medishield, Hosptial Cash, JanArogya, Univeral Health Insurance,Critical Illness, Tertiary Care, BhavishyaArogya, Long Term Hospitalisationcover and so on. On the life side thereare policies, such as Asha Deep,Health First and Medicare Plan etc.

Consumers are no doubt evaluatingthe products and looking at thevarious costs, which may not onlyinclude the monetary price, but alsomore intangible costs such as timecost, energy cost and psychic cost toevaluate the cost-benefits beforeparticipating in the various healthschemes that are entering the market.

At the macro level there are variousserious consumer issues which will haveto be considered by insurers, failingwhich the Government, the Regulator,the Courts, Ombudsmen etc. canintervene and impose laws and rulingsthat can bind insurers in more waysthan they would have bargained for.Hence, self-regulation by insurerswould always be a better option thanexternal regulations where the insurer


ongoing state of well being. This hastranslated from the side of customersinto various behaviours such as:

a) More self-reliance and lesssubservience to the medicalestablishment owing towidespread availabil ity ofinformation and relevantknowledge.

b) There are more instances of self-diagnosis, self-monitoring andself-care.

c) Consumers are getting more andmore empowered not only bytheir capability to assimilateknowledge and information, butalso because they are receivingmore proactive assistance fromconsumer groups, employersand others who will intervene forthem.

Increasing consumerism is going to bea fact of life and therefore, insurersmust align their actions with consumeraspirations. In main these include:

1. Consumer demand for meaningfulinformation

Health and health coverage arematters of high personal priority forconsumers and hence, assistance inchoosing the right product, fulldisclosure about policy conditions,and other procedures would benecessary. Now that insurers and TPAsare entering into managed caretechniques and procedures, whichmay include utilisation review andcase management, the insuredpatient would have to be providedeven more information.

2. Performance Measurement andSatisfaction in service rendered:

Insurers and TPAs will have to

benchmark against not only what hasbeen promised in their documents, butalso meet increasing customerexpectations both as to the time takento render service, and as to the qualityof service. Parameters of serviceexcellence would have to bedeveloped to ensure that customersatisfaction levels are kept high.

In due course significant investmentwill have to be made in informationsystems to understand better andultimately help to change memberbehaviours that affect health statusand costs. Thus, information systemswill need to profile member needs andusage, help to select desired serviceand providers, assist the customer withinformation and decisions makingtools in the choice of care options andso on. In the scenario of cradle tograve health insurance coverage,insurers will have to provide life longassistance and support, and obtain forthe customer, the best access to careto maintain and optimise their healthstatus.

3. Meet customer aspirations forinnovative products and services

In the anxiety to enrol numbers andmake a profit, insurers may overlookthe real needs of beneficiaries,especially in group insurances wherethe concerns of the employer or thegroup managers may override theconcerns of the beneficiaries. Newproducts and services would have tobe developed which could base theirattributes on the age, gender, lifestyleand other relevant aspects ofconsumer's life so as to align theinsurance product offerings with theirparticular health care needs.

4. Meet the challenges of customerempowerment

It is likely that over the course of time

consumer coalitions, governmentorganizations, industry associations,information websites, and the mediamay empower customers with avariety of health related informationand services such as:

� Rating of hospitals, physicians,health plans, their quality andperformance.

� Provider directories

� Guidelines for choosing hospitals,doctors, health plans.

� Health related news and articles.

� Links to health search engines

� Malpractice issues and otheranti-customer activities

� General information aboutinsurance policies and plans withcomparative charts.

� Evaluation of insurers and TPAsand their services.

� Policy monitoring

� Assistance in shopping for healthinsurance products.

In the scenario of knowledgeempowered customers insurers willhave to expand their capabilities,widen their service offerings anddeepen their product options to meetcustomer requirements. Consumeraspirations and activism coupled withcompetitive pressures will alwaysthreaten the status quo and createnew avenues for improved quality ofcoverage, better care, greaterefficiencies and at lesser overall costsand hassles.

Ultimately, healthcare issues will be

32 THE JOURNAL

evaluated on a comprehensive set ofcriteria such as quality, cost, patientsatisfaction and health promotion.Insurers and their TPAs would have tomake efforts to deliver the same totheir insureds at affordable costs andoptimal outcomes. In the evolution ofhealthcare, disease management isl ikely to give way to caremanagement, which will create anintegrated system of managing care,and will move from a focus on theinpatient arena to models that offer acontinuum of care. Insurers will needto move in tandem with this to moveup in the health value chain.

15. SUMMARY AND CONCLUSIONS:

Healthcare is an integral part ofhuman welfare as good health is acore component of the humancapital. Good health enhancesproductivity and economicdevelopment and is essential for thewell being and economic success ofall, which has beneficial implicationsfor individuals, the community and thecountry.

Morbidity conditions are widespreadirrespective of age or socio-economicclassifications, and the risks therefromare not only frequent, but can at timesbe of catastrophic dimensions.Invariably it is seen that health costsare rising and becoming increasinglyunaffordable unless such risks arepassed on to an insurer or to othertypes of risk bearers. Insurance ofhealth is a superior option becausethrough insurance everyone getsprotection and are able to afford the"deep pockets" that an insurancescheme can offer. Health insuranceschemes make the affordabilityattractive through relevant anddifferentiated products, which can be

offered by the many players who areactive in both general and lifeinsurance.

Health underwriting and cost controlmeasures will form the backbone ofthe growth in health insurance, whichis characteristically a high volume lowmargin business. The potential inhealth insurance is certainly a verylarge opportunity area running intothousands of crores. In order to controlthe run away costs of healthcare,insurers will have to util ise manyunderwriting and managed caretechniques to sustain the affordabilityplatform over the long term. In this, therole of Third Party Administrators will beconsiderable, and their service will notonly involve management of costs,but also many value added servicesto assist customers.

Universalisation of health insurance isa matter of importance, and in this theGovernment, the Regulator, theproviders, insurers, the TPAs etc. havea role to play. In offering healthcareto all, social security schemes,community and commercialinsurance schemes can exist side byside, obtaining the necessary funds onthe one side by taxation and on theother from voluntary premiumcharges. To make the premiumaffordable insurers can offer a varietyof facilitations, so that the coverageis adequate and continuous.

Health insurance touches theemotions of consumers more than anyother insurance as it deals with thecore of their well being and dignity.Insurers, therefore, need to examinethe various aspects of serviceexcellence and customer equity so asto ensure customer satisfaction in anera where consumer empowerment

is steadily rising. To achieve this healthinsurance needs to keep mind issuesof customer choice, confidentiality ofinformation, access to care, as full acoverage as possible and their rightsto renewal of policies as importantareas of consumer requirements.

The future of health insurance in Indiacan only be bright as modern medicalcare will be virtually impossible withoutthe affordability that can be possibleonly through risk transfer. Withoutinsurance the vulnerability of personsto loss of health and wealth isinevitable as health costs are bothfrequent and at times severe. This notonly creates problems for individualsbut also for the society and thecountry. It is therefore imperative thatproactive measures are taken at alllevels including that of thegovernment, regulators, insurers,medical providers, etc. to facilitateand propagate conditions favourableto the rapid growth of healthinsurance in as many ways as possible.

Finally the insurers on their part needto look at the future and open up thehealth insurance portfolio to a varietyof products and services, wherecustomers have wide choices andoptions. Rapid penetration in thissector will require the activeparticipation of all insurers includingboth general and life, as alsostandalone health insurers. Thiscoupled with widespread and activedistribution should see the healthinsurance penetration rapidly movinginto all socio-economic groups.Ultimately health protection is auniversal requirement, and whether byvoluntary premium payment or bytaxation method, the necessarypooling as will be required will haveto be set up to protect all citizens.


BANCASSURANCECONCEPT, FRAMEWORK

& IMPLEMENTATIONBy: Shri Vineet Aggarwal,

Royal Sundaram Alliance General Insurance Co., Chennai.

EXECUTIVE SUMMARY

The emerging new opportunity forbanks in India to sell insuranceproducts is part of the global trendtowards integration of the financialservices industry. The financial sectoris witnessing a rapid convergence ofbanking, securities dealing andinsurance business worldwide. Banksare strongly feeling the need toprovide a host of financial services asone- stop shopping to customers toretain their hold on them and bringnew clients into their fold. Bank's entryinto the insurance sector in Indiaprovides a great opportunity in thisdirection.

The new entrants to the insurancesector in India are also looking for costeffective channels of distribution thatwill provide large presence and longreach. Because of the extensivebranch network and large client base,the banks are emerging as a majordistribution channel. This will alsofacilitate the new insurancecompanies to reach rural area to tapthe growing potential in that area.

This essay touches upon the conceptof Bancassurance, the experiencesacross the globe and in India; benefitsto banks, insurers and customers fromthis partnership; modes of entry intobancassurance and the variousdelivery routes available.

Bancassurance has been a successstory in Europe, where banks accountfor 20 per cent of the market share inUK, Germany, Spain, Sweden,Denmark and France. Internationalexperience suggests that the sales

forces of banks have a productivitythat is three times that of the directsales force and enhanced customerretention.

The insurance companies in Indiahave also the opportunity to maximizeinsurance sales through bankingdistribution channels, and this willnecessitate customize products,specialist resources, and efficient andflexible services. Such a model wouldrest mainly on the existing resources ofthe companies configured in a newway.

The business model proposed in thispaper therefore describes how theinsurance companies in India mightaddress the business opportunitiespresented by the Banks in India: -

Ø A Central Service Center willprovide quotation and salessupport services, policyadministration and claims.

Ø Account Managers will operateclose to the bank, designing andcreating insurance salesprocesses, which interlock withbanking processes such as loans,mortgages, account openingand card processing.

Ø A Product House to source therequired products. The systems toservice these products will alsobe designed by the producthouse.

This model requires a number of newprocesses and skills, but will re-useexisting products and systemswherever applicable, and depend on

extending the capabilities of existingpeople rather than whole new jobdisciplines.

An agile and flexible ImplementationModel that integrates the variousdistribution channels and derivessynergies out of them would supportthis business model. Prominent amongthem are Agents, Internet, Directmarketing and Telemarketing.However this report mainly focuses onintegrating the agency force withbancassurance strategy.

The procedure to Identify ProspectiveBank for partnership consists of twostages. The first stage is primarily afiltering process wherein the banks areanalyzed quantitatively with the helpof parameters chosen keeping theCAMEL model as a basis. In thesecond stage the bank will bescreened with the help of theproposed Bank Compatibility Index toassess the fit between the bank andthe insurance company.

The Insurance Company propositionto banks will be that, in partnership, wecan sell more products to more of theircustomers through maximizing salesopportunities. This will generate higherrevenues, and will protect the bank'scustomer base from erosion throughcompetitors establishing an insurancerelationship.

TABLE OF CONTENTS

Executive Summary

Table of Contents

Section I- Introduction

S. K. DesaiConsolationPrize Winning

Essay2003-04

34 THE JOURNAL

- Insurance Industry in India

- Banking Industry in India

Section II- Bancassurance

- What is Bancassurance

- Models of Bancassurance/Modes of Entry

- Delivery Approaches

- Benefits to Banks

- Benefits to Insurers

- Benefits to Insured

- Rationale for Bancassurance

Section III- Global Experiences & India

- Europe

- Various Entry Routes

- Level of BancassuranceIntegration

- Bancassurance in India

Section IV- Bancassurance PartnerIdentification

- Procedure for Identification

- Bank Compatibility Index

Section V- Proposed Model

- Business Model

- Implementation Model

Section VI- Bottlenecks & KSFs

1.1 INSURANCE INDUSTRY IN INDIA:

Ensconced in a monopoly run from thenationalization days beginning in 1956,the insurance industry has indeedawakened to a deregulatedenvironment in which several privateplayers have partnered withmultinational insurance giants. Asuccessful passage of the IRA Bill havecleared the way of private sectoroperators in collaboration with theiroverseas partner. With about a dozenplayers in the General InsuranceIndustry in India, the industry is gearingup for a period of rapid expansion andchange.

For a long time, the industry has beenlocked in an Ice Age when the basic

industry structure has remained moreor less fixed. The glacier is now melting,revealing new challenges astraditional distribution and customermanagement processes are notproving to be adequate for the newage.

The shape of the insurance industry isbeing changed by developments indistribution. The main driver is thelowering cost of increasinglysophisticated technology, enablingnew economies of scale and scope,which extend beyond nationalboundaries.

It is likely to bring in a more professionaland focused approach. Moreover theforeign players would bringsophisticated actuarial techniqueswith them, which would facilitate theinsurer to effectively price the product.

The touch point with the ultimatecustomer is the distributor and the roleplayed by them in insurance marketsis critical. It is the distributor who makes

the difference in terms of the qualityof advice for choice of product,servicing of policy post sale andsettlement of claims. In the Asianmarkets, with their distinct cultural andsocial ethos, these conditions will playa major role in shaping the distributionchannels and their effectiveness.

The new companies have attemptedappealing only to the middle, uppermiddle and elite classes in the majorcities. Contrasted with Public sectorinsurance companies, with their officesacross the country, the newcompanies have miles to go beforethey reach anywhere. They mustovercome the mindset of thecustomer that life insurance is Life

Insurance Corporation of India (LIC)and general insurance is GeneralInsurance Corporation of India (GIC)if they hope to grow in the market.Meanwhile, the public sectorcompanies are going to great lengthsto revamp their image to look and feelmore contemporary.

Both the public and new private sectorcompanies are fighting their ownbattles from the perspective ofcustomer perception management.In today's scenario, Insurancecompanies must move from sellinginsurance to marketing an essentialfinancial product. The distributors havebecome trusted financial advisors forthe clients and trusted businessassociates for the insurancecompanies so this calls for leveragingmultiple distribution channels in a costeffective and customer friendlymanner.

The distribution in the Indian market isas below:

The intermediaries in the insurancebusiness and the distribution channelsused by carriers will perhaps be thestrongest drivers of growth in thesector. Multi-channel distribution andmarketing of insurance products willbe the smart strategy for the Indianmarket. While tied agents will continueto play an important role in distribution,alternative channels like corporateagents, brokers, and bancassurancewill play a greater role in distribution.Firms will need to forge relationshipswith the partners for strategicadvantage. They need to have strongpartner relationship management. Forexample, local partners may havestrong distribution channel in their line

s

s

s

ssInsuranceCompany Agent

Agent

Agent

Agent

Broker

Bank

CUSTOMERS

InsuranceCompany

InsuranceCompany

s

s

s

s

s


Insurance Market: Key Indicators

Particulars Key IndicatorSize of Market, Life and Non-life $8 Billion a year

Rate of Annual Growth Average of 20% for Life and 12% for Non-Life (1990-99)

Geographical Restriction for new players None. Players can operate all over the country

Equity Restriction in a new Indian Insurance Company Foreign promoter can hold up to 26%

Registration Restriction Composite Registration not available.

Market opening August 2000 with invitation for application for registration.

Numbers of Registered Companies

Type of BusinessLife Insurance

Public Sector 1Private 10

Total 11General Insurance


Total 12Reinsurance


Total 1New Registration awarded (Sixteen New Registrations issued)Life Insurance Allianz Bajaj Life Insurance Company Limited

Birla Sun-Life Insurance Company LimitedHDFC Standard Life Insurance Company LimitedICICI Prudential life Insurance Company LimitedING Vysya Life Insurance Company LimitedMax New York Life Insurance Company LimitedMetlife Insurance Company LimitedOm Kotak Mahindra Life Insurance Company LimitedSBI Life Insurance Company LimitedTATA AIG Life Insurance Company Limited

General Insurance Bajaj Allianz General Insurance Company LimitedICICI Lombard General Insurance Company LimitedIFFCO-Tokio General Insurance Company LimitedReliance General Insurance Company LimitedRoyal Sundaram Alliance Insurance Company LimitedTATA AIG General Insurance Company LimitedHDFC Chubb General InsuranceCholamandalam General Insurance Company

of business. That can be used to sellinsurance also in a cost-effectivemanner.

The time has come for the industry togradually move from traditionalindividual agents towards newdistribution channels, with a paradigmshift in creating awareness and not just

selling products.

Bancassurance - is one suchdistribution channel that offers hugesource of untapped opportunities.Since bancassurance is in its infantstage as far as India is concerned, athorough understanding of theconcepts and practices of

bancassurance world over is requiredin order to evolve the one that bestsuits the Indian scenario, which thispaper is focusing on. The feasibilitystudy of the proposed model wouldhelp the company in looking at thedelivery approach of Bancassurancein a more lucrative manner.

36 THE JOURNAL

FUTURE PROJECTIONS

(CII Estimates)

By 2005

� Life Insurance market shall trebleto Rs. 60,000 crores (18% growth)

� Non-life Premium is l ikely toaggregate closer to Rs. 20,000crores

� Pension business wil l crossRs. 4000 crores

By 2010

� Life Insurance premium maycross Rs. 1,40,000 crores

� Non-life Premium is close toRs, 40,000 crores

� Pension business will increase toover Rs. 14,000 crores

Mckinsey Report

� Customers of Life Insuranceremain a passive lot

� Agent will be the driver ofbusiness as the main distributionchannel-very much an Asiantrend

� Bancassurance, on-line anddirect selling will evolve only overa period of time

� Agents to continue to accountfor bulk of business, at least solong as increased competitionand costs lead to alternativechannels finding acceptanceamong customers

� Bancassurance (selling or thirdparty insurance productsthrough Banks) is forecast tobecome second most importantchannel

1.2 BANKING INDUSTRY:

Banking Regulation Act of India, 1949defines banking as "accepting, for thepurpose of lending or investment ofdeposits of money from the public,repayable on demand or otherwiseand withdrawal by cheque, draft,over or otherwise". The Banking system

is an integral sub-system of thefinancial system. It represents animportant channel of collecting smallsavings from the households andlending it to the corporate sector. TheIndian Banking system has The ReserveBank of India (RBI) as the apex bodyfor all matters relating to the bankingsystem. It is the 'Central bank' of India.It is the banker to all other banks.

1.2.1 Thrust areas for banking sector inIndia

Technology up gradation helps banksin reducing costs, increasing volumesand facilitating customized financialproducts. Technology has also helpedin accelerating the globalizationprocess. The entire world has becomea global village. It has opened up newvistas for the banking industry worldover. Growing consumer acceptanceof electronic channels is compellingbanks to provide Internet bankingfacilities because customers havealready started demanding fast,convenient and glitch-free bankingservices.

Banking on the Internet has becomea reality in India too, as this willenhance the reach of banks to theircustomers and will make widespreadavailability of information aboutproducts to the customers. InformationTechnology and the Internetrevolutions, in India, are poised to takethe banking scenario by storm.

With a view to keeping the pace withthe explosive speed of financialinnovations, continuous improvementin the technological infrastructure hasbecome the thrust area for bankingsector in India. With the deeppenetration of Internet, PCs andMobile Phones, the face of Indianbanking is going to be changedradically.

1.2.2 Key issues faced by bankingsector today

The barriers of entry for private sectorand foreign banks are beingprogressively eased out. This hasenhanced the competition for the

existing banks in India. There is,therefore, an urgent need fordeveloping sophisticated financialproducts and innovations in marketproducts. New breed of private sectorbanks has already jumped on to thebandwagon of developing new tech-savvy products, with a view tocatering to the needs of theircustomers. Public Sector Banks, inparticular have, therefore, to speedup their efforts in devising new tech-savvy products for attracting high networth customers.

The level of non-performing assets inthe Indian banking industry is a greatconcern. Though during the recentyears, the ratio of net NPAs to netadvances has been showingimproving trend yet in absolute termsit is still at a very high level. Hence,cleaning up of balance sheet hasbecome the crucial issue in tile Indianbanking industry today. NPAs have tobe reduced drastically and adequateprovisioning for bad and doubtfuldebts has to be made.

1.2.3 Future of Indian banking sector

The future of Indian banking industryseems to be bright. Big giants, likeState Bank of India, will have toprepare themselves for increasing theiroperations at the international level,as globalization and liberalization hasopened up new vistas for them.Adoption of new technology hasbecome crucial issue for the Indianbanking industry. Those who don'tadapt themselves to the changingtechnology environment may findthemselves out of the existing bankingsystem; Indian banking sector is poisedto meet the changing globalenvironment.

1.2.4 Why are banks entering intoinsurance?

With globalization and intensecompetition banks are seeing theirspreads- the difference between theirborrowing and lending rates- comedown sharply.

Banks have responded by trying to use


their reach and customer base toincrease their fee based income.Insurance is an ideal option as banksfeel they fulfi l l the three majorrequirements for a successfulinsurance business viz assetmanagement and investment skills,distribution and capital adequacy.

Banks would also like to fulfill all thefinancial needs of their customers.

1.2.5 The motives behindbancassurance also vary.

For banks it is a means of productdiversification and a source ofadditional fee income.

Insurance companies seebancassurance as a tool for increasingtheir market penetration and premiumturnover.

The customer sees bancassurance asbonanza in terms of reduced price,high quality product and delivery atdoorsteps. Actually everybody is awinner here.

2. BANCASSURANCE

2.1 What is Bancassurance?

One of the most significant changesin the financial services sector over thepast few years has been theappearance and development ofBancassurance. Bancassurance is abusiness model in which insurance andinvestment products are integratedinto core retail banking business.Bancassurance:

v Provides insurance and bankingproducts and services through acommon distribution channeland for the same client base.

v Refers to the selling of insurancepolicies through a bank'sestablished distribution channels.

2.2 REASONS FOR ENTERING INTOBANCASSURANCE

Wide network of branches:

Banks can prove to be a vitaldistribution channel due to their

existing wide network of branches allover.

Corporate clients:

Banks can utilize their existing clientele,which includes corporate as well asretail clients to market insuranceproducts. Depending on therelationship with its clients it wouldbecome easier to influence theinsurance purchase decisions of itsclients. Customers too, having bankedwith a particular bank for a long periodrepose a sense of trust and faith in thebank.

Customer database:

Customer database - raw informationon the customers spending habits,investment purchase can prove to bea goldmine. Such informationchannelised in the right manner canhelp work out marketing strategiesand arrive at result-oriented decisionstargeting prospects.

Personalized Service:

Since banks have direct contacts withcustomers, the service area can betackled easily. Customers, other thantheir day-to-day financialrequirements can also get assistancefor premium payment, surrender,transfer of policies and many more.

Rural penetration:

The existing wide network of banks inrural areas can be utilized for sellinginsurance products. Having beenaccustomed to the customers'choices banks are in a better positionto understand the needs of thecustomers and sell tailor madepolicies. Customers too, consideringtheir long-standing relationship withbanks, find them trustworthy. Servicingof policies would also become easier.

Cross-selling products:

Banks in their normal course offunctions lend finance in the form ofloans for cars, or for buying a house toclients. They can combine insuranceproducts and sell as a package. In the

current scenario banks can cross selltheir products along with theinsurance products.

Fee based service:

Insurance products can be sold as afee based service. In an age wherebanks are trying to venture into sellingmutual funds and other financialproducts besides stock Broking etc,selling insurance products could alsogive an additional boost to the banksbottom line.

2.3 Benefits of Bancassurance

a) To Banks:

1. Increased Return On Assets

2. Fee income which is risk free

3. To reduce operating costs

4. Customer retention

5. To prepare to eventuallydiversify into insurancebusiness

Banks those effectively cross-sellfinancial products can leverage theirdistribution and processingcapabilities for profitable operatingexpense ratios. In addition, a bank'sbranch network allows the face-to-face contact that is so important in thesale of personal insurance. Banks alsoenjoy significant brand awarenesswithin their geographic regions, againproviding for a lower per-lead costwhen advertising through print, radioand/or television. Banks haveextensive experience in marketing toboth existing customers (for retentionand cross selling) and non-customers(for acquisition and awareness). Theyalso have access to multiplecommunications channels, such asstatement inserts, direct mail, ATMs,telemarketing, etc. Banks' proficiencyin using technology has resulted inimprovements in transactionprocessing and customer service.

b) To Insurers:

1. Lesser procurement costs

38 THE JOURNAL

2. Known customer andtherefore risk assessment iseasier

3. Increase in marketpenetration

4. Personal insurance - sky isthe limit

Banks offer an untapped andsuccessful mode of distribution. Bankswith their brand image and existingcustomer relationship offer a naturalmarket for sell ing of insuranceproducts. Bancassurance also offerslower distribution costs and higherproductivity. Traditionally, insuranceproducts have been sold through full-time sales agents. The commissionspaid to the sales agents and theinternational productivity standard of4-6 sales per month made thisdistribution channel an expensive one.The reason the productivity is low in thetraditional sales agent distributionsystem is the amount of time the agenthas to spend on prospecting or tryingto find the right customer. Almost 80%of a sales agent's time goes towardsprospecting. Banks on the other handprovide a cheaper and highlyproductive distribution system toinsurance companies. Insurancecompanies also expect a greaterquality of sale throughbancassurance.

c) To Customers:

1. Lower cost

2. Refined, high qualityproduct

3. Double assurance/Credibility

4. Delivery at doorsteps

5. Convenience in payment

6. Easy & automatic renewals

For customers, bancassurance offersconvenience and a one-stop financialsuper market. The customer has thesatisfaction of the brand strength ofthe bank, his/her existing relationship

and trust on the bank. The productssold through bancassurance can givebetter value and offer cheaperpremiums due to lower distributioncosts.

2.4 Bancassurance Arrangement

1. Distribution Agreements:

a) Separate sales force: Oneparty's distribution channelsgain access to the clientbase of the other party. Thisis the simplest form ofbancassurance. Once abank and the insurancecompany enter into adistribution agreement,according to which thebank automatically passeson to a friendly insurancecompany all warm leadsemanating from the bank'sclient base, this cangenerate very profitableincome for both partners.For the bank the costsinvolved-besides those forbasic training of branchemployees are relativelylow.

b) Hand In Glove: A bank signsa distribution agreementwith an insurancecompany, under which thebank will act as theirappointed representative.The financial investmentrequired by the bank isrelatively low. The productsoffered by the bank can bebranded.

2. Joint Venture: This is the creationof a new company by an existingbank and an existing insurancecompany.

3. Mergers And Acquisition:

a) A bank wholly or partiallyacquires an insurancecompany.

b) The acquisition of a bank

that is wholly or partiallyowned by an insurancecompany is also possible. Inthis case the mainobjective is usually to openthe way for the insurancecompany to use the bank'sretail banking branchesand gain access tovaluable client informationas well as to corporateclients, allowing theinsurance company to tapinto the lucrative market forcompany pension plans.Finally it offers the insurancecompany's sales forcebank productdiversification (and viceversa).

4. Start Ups/Green Field Approach:

a) A bank starts from scratchby establishing a newinsurance company whollyowned by the bank.

b) A group owns a bank andan insurance company,which agree to cooperatein a bancassuranceventure.

c) A bank and an insurancecompany agree to havecross shareholdingsbetween them. A memberfrom each company mightjoin the board of directorsof the other company.

Bancassurance Arrangements

Green FieldApproach

Mergers &Acquisition

JointVenture

DistributionAgreements

s s s s


2.5 Delivery Approaches of Bancassurance

Delivery Approach Product Salary / Face- Part / Single/Sold Commn to-face Full Time Multiple Insurer

Career Agents Complex Commn. Yes Full/Part time Single

Special Advisors Complex Salary Yes Full time Single

Salaried agents Complex Salary Yes Full time Single

Bank employees Simple Incentives Yes Part Time Single

Set up / acquisition of agenciesor brokerage terms Complex Owned Yes Full time Multiple

Direct response Simple Owned No Full time Single

Internet Simple Owned No Full time Single

E-Brokerage Simple Commn. No Full time Multiple

Ø Career Agents: Career Agentsare full time commissioned salespersonnel holding an agencycontract. An insurancecompany can exercise controlonly over the activities of theagent, which are specified in thiscontract.

Ø Special Advisors: SpecialAdvisors are highly trainedemployees usually belonging tothe insurance partner, whodistributes insurance products tothe bank's corporate clients.Usually they are paid on a salarybasis and they receive incentivecompensation based on theirsales.

Ø Salaried agents: Salaried Agentshave the same characteristics ofcareer agents. The onlydifference is in terms of theirremuneration being paid on asalary basis and they receiveincentive compensation basedon their sales.

Ø Bank employees: Bankemployees can usually sell simpleproducts. However the time,

which they can devote toinsurance sales, is limited.

Ø Set up / acquisition of agenciesor brokerage terms: Bankscooperate with independentagencies or brokerage or havefounded corporate agencies.The advantage of such subarrangements is the availabilityof specialist needed for complexinsurance matters and in case ofbrokerage firms- the opportunityfor the bank's clients to receiveoffers not only from oneinsurance company but from avariety of companies.

Ø Direct response: The consumerpurchases products directly frombancassurer by responding tothe company's advertisement,mailing or telephonic offers. Thischannel can be used for simpleproducts, which can be easilyunderstood by the consumerwithout explanation.

Ø Internet: Internet banking will alsoprove an efficient vehicle for crossselling of insurance savings andprotection products. There is nowthe Internet, which looms large as

an effective source of informationfor financial product sales.

Ø E-Brokerage: Banks can open oracquire an e-Brokerage arm andsell insurance products frommultiple insurers. The advantageof this medium is scale ofoperation, strong brands, easydistribution and excellentsynergy with the Internetcapabilities.

Ø Outside Lead GeneratingTechniques: One last method fordeveloping bancassurance eyesinvolves "outside" leadgenerating techniques, such asseminars, direct mail andstatement inserts. Seminars inparticular can be very effectivebecause in a non-threateningatmosphere the insurancecounsellor can make apresentation to a small group ofbusiness people (such as thelocal chamber of commerce),field questions on the topic, thencollect business cards. Addingthis technique to his/her leadgeneration repertoire, aninsurance counsellor oftencannot help but be successful.

40 THE JOURNAL

2.6 Rationale For A Bancassurance Agreement companies with a view to cross-sellinsurance products. Spanishinsurance-banking links are oldalthough the full cross-selling potentialof Bancassurance has been exploitedonly recently. One of the features ofrecent years is the entry of foreigncompanies, which have promotedsuch links.

A major factor in promoting UKBancassurance was the high costsassociated with traditional insurancedistribution channels. While there arehighly competitive insurancecompanies in the United Kingdom, thelong-standing reliance on expensiveindependent financial intermediariesgave banks the opportunity todevelop cheap alternative channelsof distribution.

Other factors contributed to thediffering levels of Bancassuranceintegration in various Europeancountries. One such factor relates tothe existence of tax-advantageous lifeinsurance products, which bear astrong resemblance to banks'traditional savings products. The mainadvantage of such products is theease with which banks have beenable to train their sales staff. FrenchBancassurance was undoubtedlyboosted by 'bons de captilisation',single premium long-term policies thatentitled holders to tax relief on theincome generated over anaccumulation period. SpanishBancassurance was initially boostedby single premium policies free ofwithholding tax. In Italy, somebancassurers based their success onsimilar savings-like products. Thegrowth of endowment products in theUnited Kingdom also facilitatedBancassurance development. Suchproducts had probably most impactin France and Spain. However, the taxadvantages associated with theproducts have gradually eroded andbanks have introduced a wider rangeof more complex insurance productsover time in order to increase theirmarket shares.

Another major factor forBancassurance development isregulatory changes. In theNetherlands, Bancassurance became

The bank and the insurance partners both offer complementary and necessaryskills

Skills needed to develop Banking Insurance Combinationa strong presence in the partner partnerinsurance market

Product (manufacturingcapabilities)

Underwriting capabilities

Distribution

Customer Management

Brand name

Management capabilities

3. BANCASSURANCE- GLOBALEXPERIENCE

3.1 Bancassurance in Europe

The development of bancassurancein various European countries,including France, Germany, Italy,Netherlands and Spain are examinedaccording to the three dimensionsmentioned below:

� The importance of countryspecific factors in promoting thebancassurance phenomenon

� The entry structures dominatingin different countries

� The level of bancassuranceintegration

Country specific factors in thebancassurance trend

The structure of the insurance andbanking industries in various Europeancountries contributes to explainthe varying developments ofbancassurance. The French insurancemarket's inherent uncompetitivenessplayed a significant role in promotingBancassurance by allowing banks tocapture unprotected market shares.The ease of entry into the life insuranceconvinced banks that insurancedistribution could be an effective wayto utilize expensive branch networksto cross-sell a variety of products. Thehigh degree of rivalry among banks

themselves also meant that Frenchbanks would be reluctant to be left outof a market where other competitorsflourished. In Germany, conservativemarketing rules in the insuranceindustry had an opposite effect. Itmade it difficult for German banks toprofitably distribute insuranceproducts. Moreover, a tradition ofcross-shareholdings in the financialindustry has meant that banks havechosen to collaborate with insurancecompanies rather than develop in-house Bancassurance.

Italy's Bancassurance developmenthas been hindered by a weak-banking industry. However, thepotential for high growth rates in lifeinsurance fares well for bancassurersbut further consolidation in the industryis needed for Italian banks to competewith the large tied financial salesforces that characterize the industry.

Dutch Bancassurance developmentsare associated very closely with thefinancial industry concentratedstructure. The concentration of theindustry in the hands of a few powerfulplayers led to Bancassurance giantswho market their products throughmulti-distribution channels.

An underdeveloped insurancemarket, similarly to Italy, characterizedSpanish Bancassurance. This left plentyof scope for banks to exploit their long-standing ties with insurance


predominant in 1990, after therelaxation of ownership limitationsbetween the banking and insurancesector. In the United Kingdom, thepolarization principle laid down in theFinancial Services Act led banks andeventually building societies to tie toa single insurer, and thus made equitylinks between the two sectors moreattractive. In Italy, the 1991 reform thatrelaxed equity constraints betweenthe two sectors prompted a flurry oflinks in the financial sector. One of thereasons why Bancassurance has beenslow to develop relates to theremaining constraint that banks'investment in insurance companiescannot exceed 20% of bank capital,this in a country where banks are smallby international standards. The reformof life insurance marketing in Spainalso played a significant role inboosting Bancassurance sales. InFrance, the governments' implicitencouragement of Bancassurancelinks probably had an impact on thegeneralization of this strategy.

Clearly, national differences inBancassurance stem from the varyingcharacteristics of the financial industryin each country. The degree ofcompetitiveness in domestic financialsectors made Bancassuranceinitiatives more or less successful.Similarly, the design of life insuranceproducts made it more or lesssuccessful. Similarly, the design of lifeinsurance products made it more orless easy for banks to train their staff inselling insurance products; moreover,tax advantages made some productshighly attractive to consumers andhence encouraged banks to enter themarket. Finally, domestic regulatorychanges by and large relaxedconstraints on cross-shareholdingsbetween the banking and insurancesectors, and thus acted as a facilitatorto the bancassurance strategy.Bancassurance growth is undoubtedlylinked to regulatory reforms in somecountries such as in the Netherlandsand Italy.

3.2 Entry Routes in Different EuropeanCountries

The table below shows the preferredentry routes in various European

countries. It shows that bancassurersin different countries adopteddifferent entry routes into theinsurance market. In France, banksmainly selected the go-alone route bystarting up their own insuranceoperations whereas in many othercountries, banks have been eager toassociate with insurance companiesto start up operations. This is true ofItaly, Spain and the United Kingdom.In contrast, Dutch Bancassurance is asyet l imited mostly to marketingagreements that exclude equity links.It is interesting to note that Frenchbanks, who predominantly chose tostart up their own operations,achieved the greatest Bancassurancemarket shares.

3.3 Level of Bancassurance Integrationin Europe

The degree of Bancassurance iscompared between two dimensions:the market shares achieved bybancassurers in selected countriesand the type of link between the twoactivities from distribution agreementsto full ownership. The following figureshows the position of several countriesin terms of their level of Bancassuranceintegration. The figure shows thatFrance is well ahead of itscounterparts in the Bancassurancetrend. The greater level of integrationof French Bancassurance operationswhere insurance subsidiaries mainlyserve the needs of their bankingparents might explain why French

Entry routes in various European countries

Country Start-ups Joint Mergers & Distribution Totalventures Acquisitions agreements

France 6 3 3 - 12

Germany 2 - 3 3 8

Italy 2 3 1 1 7

Netherlands 1 - 3 - 4

Spain 3 3 - - 6

United Kingdom 5 6 6 - 17

40%

25%

45%

0% 10% 20% 30% 40% 50%

OWNERSHIP

JOINT VENTURE

TIED AGENTAGREEMENT

Most popular bancassurance configurations in Europe

% of top 178 Europe Banks

Source: Datamonitor, estimation of the Cologne Re

42 THE JOURNAL

banks were successful in achievinghigh market shares. Other countriesachieved significant market shares byintegrating their operations in a similarway. The exception among thecountries reviewed is Germany. TheGerman model of co-operation withthe insurance industry appears tohave prevented German banksachieving significant market shares ininsurance.

3.4 Bancassurance in India

India - a land of promise forbancassurance - with a democraticgovernment and a population of onebillion has a savings rate of 23% ofwhich savings with the bank constitutemore than 50% of the domestichouseholds' savings. This presents anenviable opportunity for insurers totake advantage of the strong bankingplatform. The banking network consistsof 65,000 bank branches, of which33,000 branches are in the rural areasand 14,000 branches in the semi urbanareas, with each branch serving anaverage of 15,000 people. Thechallenges and opportunities thatIndian market presents are immense.

With expertise in financial needs,saving patterns of the customers theyserve, banks provide something thatinsurance companies would find itnearly impossible to achieve on theirown.

Currently, many foreign insurers arepartnering banks and non-bankfinancial corporations to leveragetheir local branch network andexperience. Solid brand name, strongcustomer affinity, customized productand service delivery and flexibility tochange are some key success factorsin this country with its cultural andlinguistic diversity and huge economiccapability.

3.4.1 Status of Bancassurance in India

RBI had permitted Banks to enter theInsurance Sector, as the Insurancebusiness takes a longer time to breakeven.

Banks do not have the archival andtechnical expertise, they should bestrong to withstand the initial losses, itwas therefore suggested by RBI thefollowing norms/eligibility criteria forthe banks which may be permitted toenter the insurance sector having

1. A minimum net worth of Rs. 500crores.

2. CRAR not less than 10%.

3. NPAs within the reasonable level.

4. Made profits continuous duringthe last 3 years.

5. Satisfactory track record of thesubsidiaries, if any.

The banks fulfilling the abovenorms would be permitted totake up the insurance business,individually or jointly withdomestic or foreign partner. Themaximum stake a bank can holdin a JV is 50 % and subsidiaries orassociates can pick upadditional stakes.

6. Any scheduled commercialbank will be permitted toundertake the insurance businessas agent of an insurancecompany on a fee basis withoutrisk participation and have toobtain a case-by-caseclearance.

Until now only individuals could act asinsurance agents. After the openingof insurance sector to private players,RBI has selectively allowed banks topromote insurance companies. Theostensible reason was to allow themmake use of their surplus staff andbranch network and increaseearnings.

Now, the IRDA has also come up withguidelines pertaining to ReferralArrangement with the banks. Thesame is reproduced below: -

IRDA/CIR/003/2003

30th January 2003

RE: Referral Arrangement

To : All the CEOs of InsuranceCompanies

Arising out of the notification of theMonetary and Credit Policy byReserve Bank of India on October,2002 permitting banks to undertakereferral business through their networkof branches for selling insuranceproducts with prior permission of IRDAand RBI the Authority has beenreceiving enquiries from insurancecompanies about IRDA's guidelines onthe subject.

All insurers entering into agreements/arrangements with banks under thereferral fee model or renewing suchagreements/ arrangements may take

Bancassurance integration in Europe

² France

UK ²

Netherlands²

² Spain

² Germany

² Italy

Distribution only Fully ownership

s

Market Share


note that the following points form partof any agreement / arrangement:-

1. The referral fee shall be for accessto bank's customer databaseand it should not exceed theceilings on agency commissionprescribed under the InsuranceAct, 1938 and the IRDARegulations and shall form part ofacquisition cost of business andshall not form part ofmanagement expense. This willinclude arrangements wherebank branches operating outsideIndia are sharing customers' baseof NRI account holders.

2. The participation by bank'scustomers shall be purely onvoluntary basis and this should bestated prominently in all publicitymaterials distributed by the bankand the insurance company. Itshould also be clearly mentionedthat the contract of insurance isbetween insurance companyand the insured and notbetween bank and insured.

3. There should be no linkage eitherdirect or indirect between theprovision of banking services bythe bank to its customers and useof the insurance products.

4. There should be no interestsurcharge, concessiondependent upon non use/ use ofthe insurance service by thecustomer.

5. Any administrative/ managementexpenses to be incurred fordistributing literature and otherinformation on insurance shouldbe brought out in the agreement.Information exchange should beexclusively for the promotion of thebusiness and not for any otherpurposes during the validity of theagreement.

6. The bank will not be paid anyreferral fee for promotionalcampaigns.

7. The insurance company shall notprovide any details of itscustomers to the bank onaccount of confidentialobligations.

8. The insurance company and the

bank shall enter into a referral feearrangement based on aMemorandum of understandingor an Agreement which needs tobe filed with the Authority.

9. The bank which enters into referralfee arrangements should not bepermitted to enter into any similararrangements with more thanone life insurance company ormore than one general insurancecompany. This is important toensure that a bank does not actdefacto as an insurance agent oras an insurance broker withoutany license.

10. The insurance company shouldenter into a separate agreementwith the bank for allowing the useof premises and the use ofexisting infrastructure of the bankand a copy of the same shouldbe filed with the Authority. In no

case the fee for such servicesrendered/ offered by the bankshould be linked to premium andit should be on a flat basis. Suchfee shall not form part ofacquisition cost of business.

11. All agreements should be forfixed period and should be withprior approval of the boards ofboth the insurance companyand the bank.

12. The bank should comply withIRDA Regulations for actingunder the referral feearrangement and IRDA shallhave the discretion to apply itsown criteria to reject ordiscontinue such arrangements.

If insurers have already entered intosuch agreements/ arrangements theymust ensure that copies of the samestand filed with the Authority.

LIFE INSURANCE COMPANY BANKTata AIG Life HSBC, Bank of Rajasthan

Allianz Bajaj Life Insurance Standard Chartered

Aviva Life ABN Amro, Laxmi Vilas Bank, Canara Bank

Birla Sun Life Citibank

LIC Central Bank

HDFC Standard Life Indian Bank, Union Bank, HDFC Bank

ICICI Prudential Life Insurance Bank Of India

SBI Life SBI

LIC Corporation Bank

ICICI Prudential Federal Bank, South Indian Bank,ICICI Bank

ING Vysya Life ING Vysya Bank

Metlife Jammu & Kashmir Bank

NON-LIFE INSURANCE Co. BANKBajaj Allianz General Bank of Rajasthan, Punjab & Sind Bank,

Jammu & Kashmir Bank,Lord Krishna Bank, Karur Vysya Bank

Tata AIG General Insurance HSBC, IDBI Bank

New India Assurance Union Bank, Corp Bank

Royal Sundaram Repco Bank, Stanchart, ABN Amro,Citibank, Amex, SBI- GE, ING Vysya Bank,Lakshmi Vilas Bank

United India Andhra Bank, South Indian Bank,Indian Bank

National Insurance Indian Overseas Bank, Allahabad Bank,City Union Bank

3.4.2 Market Intelligence :

44 THE JOURNAL

4. BANCASSURANCE PARTNERIDENTIFICATION

4.1 Procedure for Identifying AProspective Bancassurance Partner :

The suggested procedure to identifyprospective banks for partnershipconsists of two stages. The first stage isprimarily a filtering process wherein thebanks are analyzed quantitatively withthe help of parameters chosenkeeping the CAMEL model as a basis.In the second stage the bank will bescreened with the help of theproposed Bank Compatibility Index toassess the fit between the bank andthe insurance company.

To judge the financial viability ofbanks, the Reserve Bank of India hasintroduced a rating methodologyknown as CAMEL (Capital adequacy,Asset quality, Management, Earningsand Liquidity) model. The CAMELmodel can be implemented bymaking use of the publicly availableaccounting data. In general, CAMELratings are designed to reflect abank's financial condition, itscompliance with regulatory policiesand quality of its management.

4.1.1 Methodology of CAMEL Model:

The CAMEL rating model is evaluatedin 5 modules.

v Capital Adequacy and Solvency- The Capital Adequacy andSolvency module is rated inrelation to

a) The volume of risks assets

b) The volume of marginaland inferior quality assets

c) The volume of net worth ascompared to total liabilities

The lesser the risk assets andlarger the net worth, the largerits cushion against insolvency.

v Asset Quality - The Asset Qualityis rated with reference to

a) The level, distribution and

health of the classifiedassets

b) The recovery performance

v Management Performance -The Management Performanceis evaluated against the factorsof ability to

a) Improve the productivity

b) Reduce the operatingexpenses

c) Improve the profitability

v Earning Performance - EarningPerformance is related to

a) The ability to cover losses

and provide capital

b) Quality and composition ofnet income

c) The ability to improvespread and reduce burden

v Liquidity Assessment - Liquidityrating is based on

a) The bank's capacity topromptly meet thedemand payment i.e.,short term stability of thefunds

b) To readily satisfy thereasonable credit demand

c) The stability of deposit base.

The following table presents the selected financial indicators for each of thesemodules and its expected effects on the likelihood of the improvements ofbank's performance.

Financial Indicators Expected effect onthe likelihood of

improvement in thebank's performance

1) Capital Adequacy andSolvency

i) Capital Adequacy ratio Increase

ii) Gearing Ratio i.e., AverageEquity (Average Capital &Reserve less accumulatedloss)/Average assets Increase

2) Asset Quality

i) Return on Assets (ROA) Increase

ii) Net non-performing assets(NPA) as % to net advances Decrease

3) Management Performance

i) Staff Cost as % to NetIncome (Interest Spread +Other Income) Decrease

ii) Staff Cost as % to operatingExpenses Decrease

iii) Business per Employee Increase

iv) Staff Cost per Employee Decrease

v) Profit per Employee Increase


vi) Non-fund Income as %to Total Income Increase

vii) Operating Cost as % toNet Income Decrease

4) Earning Performance

i) Earning per Share ofRs. 10/-(EPS) Increase

ii) Spread as % to total Income Increase

iii) Burden as % to Total Income Decrease

iv) Net profit as % to TotalIncome Increase

v) Spread as % to AverageWorking Funds Increase

vi) Burden as % to AverageWorking Funds Decrease

vii) Net profit as % toAverage Working Funds Increase

5) Liquidity Assessment

i) Credit Deposit Ratio (%) Increase

ii) Time Deposits as % toTotal Deposits Decrease

iii) Liquid assets as % toShort term Liabilities Increase

The financial parameters are rated on a continuous scaleof 0 to 5. The module rating can be derived on rating ofaggregate rating of the each financial parameter or byfactor Analysis technique using financial parameters in thatmodule. The description of the rating is as below:

Rating Level Description of the Institution

Upto 1 Strong performance

Above 1 and upto 2 Satisfactory performance

Above 2 and upto 3 Fair performance that is flawedto some degree

Above 3 and upto 4 Marginal performance that issignificantly below average

Above 4 and upto 5 Unsatisfactory performance thatis critically deficient and in needof immediate remedial action

Once the rating of each module has been determined, acomposite or overall rating is derived by Factor Analysistechnique again, on a continuous scale of 0 to 5 asdescribed below:

Rating Level Description of the Institution

Up to 1 Basically sound in every aspect

Above 1 and up to 2 Fundamentally sound, but withmoderate weakness

Above 2 and upto 3 Financial, Operational orCompliance weakness that givescause for supervisory concern

Above 3 and upto 4 Serious or immoderate financial,operational and managerialweakness that could impairfuture viability

Above 4 and upto 5 Critical financial weakness withhigh probability of failure in thenear term

After analyzing the Prospective Banks through CAMELApproach, the short listed ones would be filtered throughBank's Compatibility Index in order to zero in on the mostsuitable partner(s).

Bank's Compatibility Index (BCI)

Weightage Score

Size Deposits 3

Advances 3

Management Promoter Group 3

Professionalism 3

Network Regional Penetration 10

Corporate Banking

SME

Retail Banking

Liability Products

Technology Communication 7

Processes 6

CustomerService 7

Occupation 5

Paying capacity 5

Age group 5

Loyalty 5

Culture 8

Staff Knowledge/ Skills 5

Age group 5

Brand Image 10

TOTAL 100

ProductPortfolio

CustomerBase

46 THE JOURNAL

GUIDELINES : For allocating scores

Deposits < 500 crores - 1500- 1500 crores - 2> 1500 crores - 3

Advances < 500 crores - 1500- 1500 crores - 2> 1500 crore - 3

Promoter Group Based on market reputation (3 pt. scale)

Professionalism Based on market intelligence (3 pt. scale)Regional Bank branches in insurance company's strongholds/Penetration branches in the regions which the insurance company

can service

Product The match between the bank's product portfolio andPortfolio the insurance company focus areas

Communication Availability of inter branch connectivity, intranet/internet/e-mail

Processes Speed, efficiency, effectiveness, computerisation,software packages used for processing

Customer Early adopters with disposable income who areProfile highly loyal

Staff Profile Attitude, Qualified, Knowledgeable, computerproficiency, young to middle age group branch staff

Customer Service orientation, philosophy, Reliability,Service Responsiveness, Assurance, Empathy, Tangibles

Brand Image Market Intelligence & Feedback

Culture Fit between Bank's & the insurance company cultureas reflected in Vision & Mission statements, corporatephilosophy, Human Resource policies and employeesbehaviour

5. PROPOSED MODEL

5.1 Business Model

Client Proposition

The proposition to banks would be thatthe Insurance Company could helpthem generate greater revenues frominsurance sales through a businessmodel that maximizes their salesopportunities and gives them greatercustomer penetration & retention.

The Insurance Company will require adifferentiated and highly focusedbusiness model to deliver this. Howevermost of the assets required would bealready in place, but simply notstructured to seize the opportunity. Theunique proposition, which theInsurance Company will offer clients,requires

1. Resources dedicated to workinginside the bank to engineer thebest sales processes

2. Customized personal insuranceproducts, preferably under theBank's brand name.

3. Partner insurers who will acceptrisk profiles that the InsuranceCompany will not write

4. A dedicated Banking SupportCenter for quotation,administration and claimssettlement.

The Customer Proposition that theInsurance Company enables banks tooffer to their customers is:

1. Your bank have a good range ofcore insurance products youneed, supported by reputableIndian Insurer

2. These products offer good valueand will meet the needs of themajority of our customers

3. We will present these products inthe most convenient way for you.

4. Your bank will ensure goodservice.

Target Clients

1. Multinational banks

2. Top Indian Private Banks

3. Regional & Co operative banks

4. Nationalized banks

Bank

Customer InformationCustomer SupportTrained StaffMarket ResearchFeedback

CustomerService

DirectInsurance

Mktg.

Central Support Center

Query HandlingQuotationsAdministrationClaimsMarket Research

LocalSupport

ServiceSpecification

Product House

Market ResearchDesign ProductsSource ProductsBank BrandingRisk Arrangement

Account Manager

Market ResearchLocal contactSales supportTrainingIncentives

Sales SupportSpecification

s

s

s

s

s

s

s

s

BUSINESS MODEL


A new business model is proposed

Ø The Insurance Company musthave the capability to deliverinnovative insurance productsfrom any source, either throughexisting capability or throughglobal network. A Product Houseis proposed to meet this need.

Ø An Account Management teamwill maintain day-to-day contactwith appropriate banking staff.This will ensure creation of goodinsurance sales opportunities.

Ø The cost of processing andservicing of insurance sales mustbe a competitive advantage. ACentral Support Center isproposed.

The major thrust of this model is tosynchronize all the processes involvedin an insurance sale through a bank.This is achieved by dedicated localsupport through AccountManagement who will operate closelywith the bank, simultaneously feedingbusiness through a more efficientcentralized support capability.

PRODUCT HOUSE

A Product House team will identify therequired products, and theirspecifications, and find the bestsource either from within the InsuranceCompany, or externally. The producthouse therefore operates as a virtualmanufacturer for the CorporatePartnership business.

The Product House will

1. Hold details on all personalinsurance products worldwide.

2. Identify required products tocater Indian Market inconjunction with the AccountManagement Team.

3. Liaise with the Product Managersto determine pricing.

4. Assist in determining the systemssupport required, and source thisin conjunction with the CentralSupport Center.

ACCOUNT MANAGEMENT

Account managers will work with bankmanagement to determine the sales

route and processes that will apply foreach product.

The role will involve

1. Working closely with the bank,having very strong relationshipswith identified key bankingpersonnel.

2. Build a business plan with thebank, detailing the productspilots, roll outs, administrativesupport mechanisms and salesprocesses, both at point of salesand direct.

3. Assist in the sales processes andmanage implementation.

4. Imparting training to identifiedbank staff

5. Establish targets and feedbackresults.

A Process Analyst will support AccountManagers. This role will be to:

1. Determine how products will besupported (within the bank & theinsurance company)

2. Design a customer sales process,through developing a detailedunderstanding of bankingprocesses

3. Produce and implement salesprocess specifications, togetherwith a training and developmentplan.

4. Sets sales targets, agencyinformation management

processes and reportingmethods

5. Monitor and report on sales,underwriting, penetration andretention performance.

CENTRAL SUPPORT CENTER

A Call Center will be utilized to deliverthe following services to the bank.

1. PC based Quotation andManagement system

2. Query Handling and ClaimsSupport

3. Collate and report client activityto the Account Managementteam

The business processes supported bythe Central Support Center will bedesigned to support the salesopportunities presented by the banks.

Competitive Advantage of theProposed Model

This business model is specificallydesigned to support insurance salesthrough banks. An effort has beenmade to leverage and to derivesynergies from the available resources.An effort has also been made tointegrate the different distributionchannels as explained later.

5.2 IMPLEMENTATION MODEL

An agile and flexible ImplementationModel that integrates the various

CHANNELS OF DISTRIBUTION

BANK

TeleMarketing

s

s

Agents

s

Feet onStreet

s

s

s

DirectMarketing

Bank/Co*EmployeesInternet

Co*- Insurance Company

48 THE JOURNAL

distribution channels and derivessynergies out of them would supportthe business model. Prominent amongthem are Agents, Internet, Directmarketing and Telemarketing.

For a bancassurance operationdecision on the types of insuranceproducts that it wants to sell, is veryclosely bound up with the methods ofdistribution, which it plans to use. Thisis because the effort and expertiseneeded to sell a given product mustbe appropriate to the skills and costof the chosen distribution method. Aproduct that is very hard for theavailable distribution channels to sellis not going to be successful for theoperation, whether in terms of salesvolumes or profits.

The diagram shows the relationshipbetween product complexity andrequired sales effort and expertise

Therefore, Direct Mailers/Telemarketing can be used for simpleproducts like Personal Accident,Health. Similarly Bank staff should alsobe utilized only for marketing simpleproducts. The more complex productslike package polices (for e.g. Office,SME) should be marketing eitherthrough Agent or Insurance Companyresource.

The following figure illustrates therelationships between product

complexity, profitability, distributionchannels, the degree of trainingrequired and the acquisition costs.

The variousproduct deliveryapproaches thatare being utilizedby InsuranceCompanies inIndia are outlinedbelow

1. C a m p a i g n s(Direct Mailers/Tele Marketing)-Majority of thecampaigns are forPersonal Accidentand HealthInsurance. Simplecampaigns forHome Contents

and Hospital Cash can also belaunched.

2. Bundled Products- Simpleinsurance products like PersonalAccident, Health are bundledalong with banking products likeSavings Bank Account, CurrentAccount, and Personal Loan etc.

3. Direct Sales Agent (DSA)- Usedfor Motor and Mortgageinsurances.

4. Tele marketing- It is used in a veryfocused way. For e.g. Telemarketing campaign for

Personal Accident Insurance oncredit card base of a bank.Usually it is used to supplement aDirect Mailer Campaign.

5. No Actual Cost (NAC)- This is forPersonal Accident, PurchaseProtection, Travel, Lost CardLiability etc.

6. Branch Level Campaigns- Theseare specific campaigns/activities carried out in selectbranches of InsuranceCompany's Corporate Partnersin select cities.

7. Face-to- Face Campaigns- Thisutilizes the outbound sales teamof the bank. The sales team sellsinsurance as an add-on to thecore banking products.

8. Call Center of Banks- Both theInbound and Outbound CallCenters are utilized to sell theinsurance products to theprospective customers.

Therefore, in India, we are utilizing allthe distribution methods as outlined inthe implementation model exceptagents. It is proposed that theInsurance Companies may look into

DISTRIBUTION

ACTIVE

PASSIVE

SIMPLE COMPLEX PRODUCTS

s

s

s

MARGINS FOR PRODUCT, LEVELS OF SALES EXPENSE, TRAINING AND PROFIT

HIGH COMPLEX PRODUCTS SPECIAL HIGHADVISORS

DEMANDING PRODUCTS SALARIEDAGENTS

ORDINARY PRODUCTS BANKSTAFF

SIMPLE PRODUCTS BANKSTAFF

VERY SIMPLE DIRECTLOW PRODUCTS RESPONSE LOW

ss


the possibility of integrating Agencyforce with Bancassurance. Thebenefits of such an arrangementwould be:

1. Insurance products especiallycomplex ones require face- to -face interaction. This wouldensure the same.

2. This would provide source ofbusiness to agents that in turnwould increase theircommitment to the InsuranceCompany.

3. The Insurance Company maynot have enough resources todeploy at bank's branches. Thismodel will provide for the same.

4. The cost involved would bemainly variable in nature.

The challenges involved inimplementation of this model wouldbe

1. Bank might not feel comfortablein allowing the InsuranceCompany's agent to sit atbranches. Therefore, theInsurance Company would haveto assure bank that theconfidentiality of data would bemaintained.

If the bank is still not comfortable,than another way out would beto utilize the services of agents forthe entire sales process exceptclosing of deal. This would ensurethat the customer data wouldremain with the bank only. TheInsurance Company can alsolook for salaried agents for this.

2. Another challenge would bethat of Remuneration. Theremuneration payable to bank &agent should be commensuratewith the value that each adds tothe entire process. However thetotal remuneration payable toboth of them should not exceedthe stipulated IRDA norms.

A suggestive framework for the

above-mentioned process is shownbelow

Core Support Team of the InsuranceCompany

� Administration

� Query handling

� Claims settlement

Bank

� Advertise

� Provide information to customers

� Provide access to database

Agent/Salaried Agent/ Bank Staff

� Canvas

� Help the customer

� Collect premiums

� Query handling

Insurance Company's AccountManagers

� Regular visits

� Local support

� Find out requirements

� Training

� Incentives

PROCESS BEING PROPOSED

v The insurance agent provided bythe Insurance Company willmeet the insurance requirementsof the customers at the bank.

v The forms (brochures, proposalform, nominee form, claims form)

will be displayed at the bankcounter and also at their website.

v The agent will explain thefeatures and benefits of theproducts to customers.

v The agent will help the customersin filling up of the forms.

v The agent would collect thepremiums and forward them tothe core support team of theInsurance Company.

v At the time of claims the agentwould forward the requiredinformation to the core supportteam of the InsuranceCompany.

v The account managers ofInsurance Company wouldcommunicate between theBank and the Company to lendlocal support by their regular visitsto the banks and will find out therequirements of the customerswith respect to the product andthat of the agent with respect tothe incentives.

6. THE BOTTLENECKS & KSFs

The Deal gets signed at higher levelsbut the communication doesn't flowdownwards properly. The customerintention and interest is there but itdoesn't get converted into actualsales at the branch level due to lack

BankCore supportteam of RSA Customer

Agent/ SalariedAgent/ Bank Staff

Account Manager of RSA

s

s s

s

s

s

s

s

FLOWCHART FOR OVER THE COUNTER APPROACH

50 THE JOURNAL

of focused approach andcommitment of the staff.

Cultural Integration- Before enteringinto a partnership the cultural issuesneeds to be addressed. It has to bethought in the beginning itself thathow the cultural issues would betackled. The two partners may havedifferent organizational culture andphilosophies. The way they workdepend on this and thus the culturalintegration between the two isrequired for effective progress.

Communication- Propercommunication should follow thepartnership. It is very important to getthe involvement of the front sales/branch level people so that they feela part of the entire process. Theyshould have a feeling of ownership.Similarly it is very essential to fix theresponsibility and accountability.

The benefits of the partnership alsoneed to be properly communicatedto the entire staff. Sometimes it doeshappen that the bank employeesconsider it to be an extra burden overand above their routine work and thusdon't pay enough attention to it.

Technological compatibility- The levelof technological infrastructure shouldbe more or less the same between thetwo partners. Incompatibil ity intechnology may lead to non-deliveryof the promised service standards.

DSA Management- Even afterentering into an agreement with abank, the DSAs of the Bank don't passthe required business to the insurancecompany. Their preferences mightvary due to different reasons and it isabsolutely essential to align the DSAstowards the agreed insurer. For this tohappen the bank has to take the leadand should use its influence over DSA.

MIS reporting- The process needs tobe properly tracked. MIS reportingshould be simple and easy tounderstand. The flow of MIS reportsbetween the bank and the insurershould be strictly as per Service LevelAgreement. Otherwise this in turnleads to delayed commissionpayment and other issues l ikereconciliation.

Training of the Bank staf f- Theconcerned bank staff needs to beappropriately trained on the insurance

product so as to enable him to sell theproduct to the customers. Theinsurance company should give dueemphasis to this aspect and shouldensure that the bank staff is properlyequipped.

Target Customer Segment- TheInsurance Companies is targetingspecific customer segments and it isessential that the customers of thebank should fall in the intended targetsegment. Otherwise later on theinsurer will find that it is underwriting arisk, which it doesn't intend to.

Right product- The selection of theproduct is very important. The productshould offer a solution to the targetcustomer base needs and thereforethe first step in product developmentis to identify customers and theirneeds. The features of the productsshould translate into the benefits forcustomers.

Supply Chain management- Theentire process of Bancassurance canbe viewed from a supply chainperspective where each stakeholderis adding value to the process. Theentire chain needs to be monitoredand controlled effectively.

Effective Cross Selling - The maximumbenefits of a bancassurancerelationship will be reaped only whenthe bank and the insurance companyare able to cross sell the productsbetween their customers. Many a timeit happens that they get stuck to fewproducts and a narrow customer basereducing the benefits of therelationship.

Simple easy to understand products-The bank staff doesn't have theinsurance technical knowledge andtherefore it is essential that initially verysimple products should be offeredthrough Bancassurance. The bankstaff should feel comfortable with theentire process.

Cost Control- It should be also kept inmind that in order to get business, thefinancial logic is not thrown out of thewindow for procuring business. Thecost of the relationship should justifythe benefits accrued out of it.

In nutshell, the Key Success Factors forBancassurance Partnerships are: -

� Understanding yourself- SWOTAnalysis

� The right product matrix-product, place, price, promotion

� Additional 3 P's of Services-People, Process, PhysicalEvidence

� Technological infrastructure

� Integration into the organisationculture and philosophy

� Commitment from all thestakeholders

� Efficient monitoring and trackingof the entire process

� Clearly defined roles andresponsibilities

� Accountability & Ownership

Bibliography

1. Bancassurance in India by S MPadwal & R K Parchure;published by National Instituteof Bank Management & NationalInsurance Academy

2. A Rough Ride Ahead by MadhuSuthanan

3. Bancassurance by Manoj Kumar

4. Can They Bank on Insurance? ByRadhika Dhawan

5. Insurance Distribution in India- APerspective by SreedeviLakshmikutty & Sridharan Baskar

6. In India, Partnership Counts byDes Thomas

7. The Indian Insurance Sector-Taking Stock & Looking Ahead;Source: CII, Sixth Insurance Sumit2001

8. Bancassurance: Big ForcesTogether; ICFAI PRESS AnalystOctober 2001

9. Why Bancassurance? ByJamshaid Islam

10. Bancassurance by P. K.Raghunathan

11. Risk Insights Vol. 4, No. 2, May2000 by General & Cologne Re

12. Insurance Monitor, Jan 2001 byPriceWaterHouse Cooper

13. Insurance Monitor April 2002 issue

14. IRDA circulars

15. Various websites l ikewww.knowledgedigest.com,www.einsuranceprofessional.com,w w w . m a r c l i f e . c o m ,www.googlesearch.com


Risk is uncertainty arising out of unforeseen and unexpected situation in allwalks of life as well as business. Management of the risk is the need of hour inthe highly technological world, which can be minimised if not arrested totally.Risk Management is coming of age in India. The decision of GIC to offer creditguarantee cover underscores the currently accepted fact that insurancebusiness need not restrict itself to the traditionally established spheres. On theother hand the lack of insurance education is mother of various problemsprevailing in insurance industry and it has prevented the growth of insurancepotential in the country. The risk management can be defined as �Theidentification, analysis and economic control of those risks which can threatenthe assets or earning capacity of an enterprise� The risk management exercisecan be carried out either by firm�s own risk manager, an independent riskmanagement organisation or risk management division of an insurancecompany. The risk management exercise includes:Ø Risk IdentificationØ Risk Quantification or EvaluationØ Risk Elimination or Reduction

NEED OF THE HOUR "RISKMANAGEMENT VIS-A-VISINSURANCE EDUCATION"

(ROLE OF INSURANCEINSTITUTE OF INDIA IN

LIBERALISED ENVIRONMENT)By : Dr. A. K. Jain,

Oriental Insurance Co. Ltd., Jaipur.

Ø Risk Transfer including InsuranceØ Risk Acceptance/Retention

The doctrine on insurance stipulatesthat insurance can operate only inarea of �pure� risks. In a broad sense,risks are classified as either pure orspeculative risks. The outcome of aspeculative risk may either be seen inprofit or loss, whereas, the occurrenceof pure risk produces only loss.

Risk is, unquestionably, ever present inbusiness activity. A business manager�schallenge lies in how efficiently hetackles the risks to the advantage ofthe firm, the shareholders andcommunity at large. Therefore it canbe argued that the role of businessmanager encompasses the functionsof risk manager too. Nevertheless,there has been a gradualunderstanding that the handling ofrisks of different genre require distinctapproaches and practices.

The process of managing risks involvesa series of steps. At each step, oneshould consult with others to get theirpoint of view. Each situation is differentand requires its own risk managementstrategy.

The Risk Management process can beunderstood in the following diagram:

RISK MANAGEMENT PROCESS

Risk management deals not only withthe physical aspects concerning thenature of the identified risk in questionbut also with �psychology� of risk. By

FIGURE-I

Established Context

Identify Risks

Analyse Risks

Evaluate Risks

Treat Risks

COMMUNICAT

andCONSULT

MONITOR

andREVIEW

s

s

s

s

s

s

s

s

s

ss

ss

s

S. K. DesaiConsolationPrize Winning

Essay2003-04

52 THE JOURNAL

using this expression we intend to focuson how others perceive risk and howthey would behave in the face of riskeither as individuals or in a group.

Risk management is primarilyconcerned with the happening ofunlikely future events whose outcomescould be unknown and catastrophiccreating uncertainty and financialinstability in an enterprise. Riskmanagement as currently practicedin most organizations focuses on effortsmade to minimise the chances of lossoccurrence that could causepotential losses of huge magnitude tothe point of their zero probability.Adequate attention is still not paid tothe aspects of minimising andreducing loss potential by influencinghuman behaviour and adoption ofcontingent measures to respond toloss situation to reduce elements ofsurprise in the chain of events.

GLOBALISATION OF RISKMANAGEMENT:

The inexorable tide of globalisationsweeping across nations in trade andcommerce, the freeing of capital flowtransfers and the liberalisation ofdomestic markets permitting entry offoreign investors are also changing thecomplexities of risk managementmaking it a truly global phenomenon.The rapid spread of equity culture inthe public has thrust more statutorilyand other responsibil it ies oncorporations. It has given the public avoice in how corporations managetheir risk exposures in the interests ofall stakeholders and not merely ofthose shareholders.

Corporate governance norms aresignificantly changing due tostakeholder pressures bringing riskmanagement of corporations to thepublic gaze. The print media, TV,availability of global informationthrough internet have also made therest of the of the global citizenry moreaware of how lapses in riskmanagement are tackled elsewhereand are demanding international riskstandards in risk exposuremanagement in their own countries bychange of local laws and theirenforcement.

The recent outcry in India in respectof coca�cola, Pepsi andmanufacturer of bottled mineral waterfor lack of adequate safety standardsis an offshoot of what is happeningelsewhere of the public wanting morestringent standards enforced.

Insurance education has assumedgreat importance in the light of theliberalisation, globalisation and variousregulations issued by IRDA. Furtherdemand for new skills from MNC�s isturning more and more aspirantstowards this new spot. As the marketplace for insurance and financialservices will become more global, it isimperative to educate insuranceworkers as well as young aspirants.Emerging economy will require a workforce that has knowledge and skills inrisk management and insuranceapplications. A vital fallout of theopening up of the insurance sector isthe rapid rise in the value ofprofessional and vocationaleducation in insurance in search of astable career. Waves of liberalisationhave done wonders to propel thisoccupation to the status of a careerwith a bright future. The averagemindset, particularly of youngergeneration in India is very amenableto these changes in Insurance sectorand they look at insurance as anavenue where exhilaratingopportunities are opened up inchanged environment. These youngaspirants now look for a privilegedqualification provider that will helpthem in future profession. In thissituation the relevance of Insuranceeducation in improved riskmanagement and the role ofInsurance Institute of India as a leadingprovider of insurance aptitude will bemost important because educationalinstitutes act as encouraging inmanaging the RISK.

In recent years life has become a lotmore complicated, and so hasinsurance buying. Today, bigcorporate houses are confronted withbusiness risks that are greater andmore varied than ever before.Insurance education has radicallyimproved our ways to manage the riskmore professionally.

Insurance Institute of India is the onlynational Institute, catering toinsurance education for the entireinsurance industry offering a truly highquality professional qualification toensure academic excellence ininsurance business but nowadays withthe pace of change in insurancesector, many new commerciallearning providers are also emergingon the scene.

Many Institutes will shape out a nichefor themselves in this area. Underthese circumstances the Institute mayface a very testing future as newprospects are opening up before it.This study has been conducted toanalyse the relevance of insuranceeducation in improved riskmanagement as the need of the hourand role of Insurance Institute of Indiain liberalised environment to createnew era in insurance education. ThisInstitute has developed dramaticallyin recent years to take care of theneed for entrepreneurial flair andstrong management skills in insurancesector and it needs to broaden furtherthe skills of new prospective youngprofessionals to provide them withappropriate skills and perspectivesneeded to give a strategic role to theinsurance business in competitiveenvironment.

The study focuses on the followingareas to address the relevance ofinsurance education in improved riskmanagement and the role ofInsurance Institute of India in changedscenario.

v Profile and locale of leadingeducational Institute ofinsurance education andresearch

v Critical analysis and Positionappraisal of Insurance Institute ofIndia

v Environment analysis in alteredscenario

v SWOT analysis

v �Pilot Vision�- in changingscenario

v Creating new epoch ininsurance education


PROFILE & LOCALE OF INSURANCEINSTITUTE OF INDIA

Educational legacy of I.I.I. can betraced back to 1955 when this Institutewas established with a vision ofpromoting insurance education andtraining as Federation of InsuranceInstitutes (J.C. Setalvad Memorial-forerunner of present Institute). Thiscentre of distinction in insurance isrecognized today for its pioneering,forward thinking approach toinsurance education, research andlearning. Since its formation, theInstitute has progressively advancedthe standards and scope of insurancelearning & research. This academicinstitution is backed with over 1,37,369total membership out of which lifemembership stood at 1,11,336 ofwhom 8,989 are Fellow members and27,210 are Associate members. It offerseducation, certification and researchreports to insurance business.Diplomas of the Institute have aninternational reputation of distinction.

The main objectives of the Institute are:

v To encourage research activityin the field of insurance and riskmanagement.

v To impart education and trainingand to conduct examinations, ininsurance theory and practiceand related subjects forawarding certificates, diplomasand degrees to those interestedin insurance.

v To arrange oral and postaltuitions through various regionalchapters and prepare andsupport reading materials andsimilar other educative methodsfor encouraging and assisting thestudy of any subject bearing onany branch of insurance.

v To offer scholarships, grants andprizes for various research activitiesand any other educational workbearing on insurance.

v To ascertain the law and practicerelating to all matters connectedwith insurance and to disseminatesuch knowledge among thoseinterested in insurance.

v To facil itate IRDA inimplementation of variousregulations.

The Institute conducts qualifying examinations at following levels:

TABLE-I

EXAMINATIONS CONDUCTED BY INSTITUTE

BASIC PROFESSIONAL INTRODUCTORY REGULATORY COMPANYSPECIFIC

Licentiate � Associate � Inspectors

� Fellow � Certificate ininsurancesalesmanship

Qualifyingexaminationfor variousIntermediaries.like agents/surveyors

Competitiveexaminationfor entrycadre toGIC and LIC

This premier professional Institute ofinsurance education has widenetwork in India. It has 91 localInstitutes across the country that notonly provides oral tuition serviceassistance for basic examinations butalso conducts study circle and alsooffer difficulty-solving service tostudent members. The Institute alsoruns a College of Insurance, situatedat Mumbai to cater to the trainingneeds of insurance personnel atdifferent levels. This College hasearned a reputation as �center ofexcellence� and attractedparticipation from abroad in its varioustraining programmes.

CRITICAL ANALYSIS AND POSITIONAPPRAISAL OF INSURANCE INSTITUTE OFINDIA

To analyse the role of I.I.I in future it issignificant to look at the current stateof the Institute in respect of:

v Relevance of insuranceeducation in improved riskmanagement.

v Role in improvement ofproficiency in insurance sector.

v Research excellence ininsurance field.

v Training and technicaleducation.

v Proficient standing of theInstitute.

RELEVANCE OF INSURANCEEDUCATION IN IMPROVED RISKMANAGEMENT

Risk management is a new perception

of an old idea. The concept of riskmanagement is not new. In theancient Indian scriptures, it was saidthat man being the ultimate maker ofhis destiny, he was supposed toconquer the �niyati� (Fate/Chance) by�Mati� or intellect.

We also come across a pithy saying(Deuteronomy22:8 Holy Bible ) asfollows �when you build a new house,you shall make a parapet for your roofso that you may not bring the guilt ofblood upon your house, if anyone fallsfrom it�.

Thus, from the distant past, mankindhas recognised the need forsafeguarding against the adverseconsequences of risk and chances,which are inevitable in theenvironment. Here is the relevance ofinsurance education, which enablesan insured and insurer to take the vitaldecision.

For selecting and putting into practicethose risk management techniqueswhich are most cost-effective for aparticular organisation afteridentifying and analysing probableloss exposures, the feasibil ity ofalternative risk management may bestudied. The rest of decision processinvolves the selection of best possibletechniques and implementation ofthe chosen techniques and this is onlypossible when someone is welleducated about the logical steps ofrisk management viz. RiskIdentification, Risk Measurement andEvaluation, Treatment of Risk in the

54 THE JOURNAL

form of Risk Elimination or Reductionand finally the risk retention or RiskTransfer.

ROLE IN IMPROVEMENT OFPROFICIENCY IN INSURANCE SECTOR:

This position review analysis is to studythe skil ls that this Institute hasdeveloped through its variousprogrammes and whether it canensure a fit between the changingenvironment and the Institute�scapability to deliver professionaleducation to insurance industryprofessionals.

In India, till date, insurance subjectsare not forming part of the academicsyllabus of established and reputedinstitutions and universities and theInsurance Institute of India is the onlyprofessional body to provide the skillsand expertise in insurance culture. TheInstitute, however, has concentratedto develop mainly the employedmanpower in insurance sector. Thiscan be evidenced from thesubsequent studies conducted onassorted groups of members ofInstitute as well as the young aspirantswho may switch to this vocation, asexpressed in Table -II.

TABLE-II

Qualification seekers in Insurance

Public sector InsuranceCompany employees 85%

People engaged in Insuranceprofession e.g. Agents,Surveyors 7%

People employed in commercialorganisations and dealingin Insurance. 02%

Government employees &others already in some job 01%

Aspirants not in any job andlooking for insurance as a jobor profession 05%

(Based on the respondent sheetanalysis obtained from 200

questionnaires supplied to the varioussegments of society)

The above sample study was furtherreinforced on scrutiny of Fellows andAssociates elected in 2002-2003 asshown in Table III.

The analysis of above data led tosecond research effort to find out

Ø Why already employed personsseek insurance qualificationprovided by the InsuranceInstitute of India?

Ø Why the young generation andfresh graduates are notattracted to this qualification?

Ø Why people other than ininsurance job seek thisqualification.

The findings of the second researcheffort were as per Table-IV :

It was further noticed that apart frommiddle management level, theemployees of public sector insurancecompanies are also not motivated to

TABLE-III

Fellows and Associates elected in 2002-2003 by Insurance Institute of India

Category of qualified persons Fellows % Associates %

Employees of GIC & OtherPublic Sector Insurers 446 42.32% 776 34.17%

Employees of LIC 561 53.23% 1356 59.71%

Surveyors 09 0. 85% 19 0.84%

Government employees 2 0.19% 4 0.18%

Others Including the employeesof private sector 36 3.41% 116 5.12%

Total 1054 100% 2271 100%

(Based on the annual report of the Insurance Institute of India 2002-2003)

TABLE -IV

Category** A B C D E

Job advancement & career opportunities 65% 25% 20% - 90%

Financial betterment 25% - - - -

To gain knowledge and technical expertise 10% 75% 80% 100% 10%

Other reasons - - - - -

**

Category A Employees in Public sector Insurance Company

Category B Engaged in insurance profession; agents & surveyors

Category C Employees in commercial organisations dealing in insurance

Category D Government employees

Category E Aspirants seeking Insurance qualification as a profession orotherwise


acquire the qualification of InsuranceInstitute of India.

From interpretation of above resultsfollowing findings were gained :

v The major hold for Institute�squalification is up to middlemanagement level because ofpromotional advantages linkedwith this qualification andfinancial advantages is available

only to the clerical & supervisorycadre.

v Institutes qualification is ofenormous assistance in ensuringcareer development withinsurance companies.

v Importance of insuranceeducation for others has notgained because of too littlepromotion and publicity of this

qualification. There is need tomarket its benefits and topromote its use.

v Training and other programmeshave also not picked anymotivating force in executiveclass.

v Integrating insurance educationwith management, finance andI.T. can make it a very attractivecombination for youngprofessionals.

A study was also made on non-graduates and young graduates ofsome of the prominent schools andcolleges of Rajasthan to make out theaspirations of these students and howthey distinguish insurance as a career.

From the foregoing, the followingpatterns are discernable indevelopment of skill in insurancesector.

v Most of the aspirants, were notconscious about the details ofthe provider of this qualificationi.e., Insurance Institute of India.

v Training scenario needs to be re-anchored. Endeavour should beto augment employability.

v The key appeal for insuranceeducation was generatedamong the young generation byfront-page news reporting by aNational daily believing 150000money-spinning jobs in insurancesector in next few years.

v Pre-entry education in insuranceis more or less unknown. Thereare hardly any full timeacademic tracks that spotlighton insurance.

v The placement pages of most ofthe leading dailies have madethe young aspirants awareabout insurance qualificationnamed as FIII / AIII .

v Distinction flanked by �being-employed� and �becomingemployable� desires properaddress.

TABLE-V

Lower Middle SeniorLevel of Clerical & Marketing manage- manage- manage-employees supervisory staff ment ment ment

Cadre Cadre Cadre

Sample no 100 50 50 25 12

AttemptedInstitute�sexamination 75 15 40 03 01

Percentage 75% 30% 80% 12% 8%

TABLE-VI-A

Options of insurance education viz a viz other education as a career

Perceived future educational goals % of students

Traditional degrees 50%

Conventional career goals- engineering, medicine 40%

Short term vocational courses either along withdegree course or after degree course 10%

TABLE-VI-B

Particulars Yes No Not sure

Whether you find insurance as lucrative career 35% 30% 35%

Have you heard about FIII /AIII diplomasprovided by Insurance Institute of India 25% 75% �

TABLE-VI-C

Source of information of insurance qualification (FIII/AIII)

Placement pages of leading Publicity by the Other sourcesDailies & Employment News Insurance Institute

75% 5% 20%

56 THE JOURNAL

v Interviewees were of the opinionthat the Insurance Institute ofIndia should also make public itseducational programmethrough career fairs or by othermeans so that the brightgraduates may look at thisprospective career opportunity.

v A group of the young graduatesexpressed that this insuranceeducation may be linked withmanagement and IT degree tomake it attractive forqualification seekers.

v Under-graduates wish to takeinsurance as short-term courseeither along with their traditionaldegree route or as a separatepart time qualification.

RESEARCH EXCELLENCE IN INSURANCEFIELD:

Insurance Institute of India is a vibrantresearch and development institute.It delivers practical knowledge toinsurance and risk managementprofessional. The institute works in closeassociation with its sponsoringinsurance companies as anintegrated constituent for carrying outinsurance learning. At present most ofthe academic work on insurancerelated papers comes from peopleengaged in insurance industry. I.I.I.supports research through its annualessay writing competitions in both lifeand non-life sector. Nominations areinvited from Institute�s members as wellas from the members of the insuranceinstitutes in Afro-Asian regions. Atpresent, Institute runs threecompetitions viz. S.K.Desai MemorialGold medal essay writing competitionfor work of research in any area ofinsurance. D.Subrahmaniam Award isan essay writing competition forresearch conducted by youngmembers below the age of 45 yearsand Technical paper competitionaward is for original papers of highstandard on pre-approved insurancetopics. These research papers are alsocirculated to insurance professionalsthrough Institute�s publications.Institute also push higher studies andresearch through healthy competition

among its Associated Institutes.Associated institutes that achieveoutstanding performance receiveBest Institute Rolling Trophies. Topersuade the Associated Institutes toundertake research projects the I.I.I.also grant financial assistance.

Education of the populace for aspecific business must develop in thedirection the market leads. Educationimproves the quality of the peopleavailable to work in the market butonly if the leaders of the educationsystem make the right predictions asto market demands for skills andunderstanding. Currently the two apexInstitutes of education and researchin Insurance are leaders in researchexcellence in insurance area. It hasbeen observed that Insurance Instituteof India and National InsuranceAcademy do not get enoughencouragement from the Industry tobring these Institutes at par with theother Institutes else where in the world.This is the reason that the researchactivities in insurance are the bareminimum in India as compared toother countries. Indian researchpapers on risk and insuranceconstitute less than 2% of the outputof research in Asia alone.

Table VII shows the research papers ininsurance and risk managementpublished in 2003.

TABLE-VII

Research papers in Insurance & RiskManagement

World 26572

Asia 2682

India 61

(Source: WORKING PAPER SERIES OFTHE GENEVA ASSOCIATION)

National Insurance Academy andInsurance Institute of India are inforefront to endorse and performresearch on problems of insurancemanagement, training anddevelopment of insurance personnel,insurance policy etc and if a synergy

is fashioned between these two apexInstitutes through alliance or otherwise,it will bring distinction in insuranceresearch development.

NIA which received the prestigiousaward of �Educational ServiceProvider� of the year 1998 for itsoutstanding service in the field ofinsurance training in Asia andInsurance Institute of India whosediplomas are widely recognized asmost effective insurance qualificationin this part of the world have commongoals to provide and promote facilitiesfor research and education inoperations of insurance business.Synergy between these two canprovide world-class research efforts inthis sector.

A successful research based Instituteprovides a strong learningenvironment for all students and isideally positioned to build links withother Institutes or organisations. I. I. I.that is at leading edge is ideallyplaced to deal with challenges of arapidly changing and competitiveworld.

TRAINING AND TECHNICALEDUCATION:

The Insurance Institute of India identify,develop and organise insurancetraining programmes through itstraining wing �College of Insurance�which is situated at Mumbai. Trainingby this College is planned to cover thefocused skills and methodologies andto offer additional learningexperiences to satisfy therequirements of insurance entities.Prominence is placed on strategicmanagement and insurance issues,gaining a competitive frame indomestic and worldwide markets andin building standards. These trainingprogrammes are also an importantopportunity to share experiences withothers. This College has beenrecognised by Government of India asone of the Institutions approved forimparting training under Governmentof India�s financial aid schemes suchas �Colombo-Plan�, �SCAAP� &�ITEC�. This training college has alsobeen included in �United Nations�


directory on technical education foraward of financial aid under ESCAAP.The aim of College is not only to trainthe insurance officials from India andother developing countries of Asiaand Africa in a variety of aspects ofinsurance but also to carry themtogether for perceptiveunderstanding and appreciation ofeach other�s problems and to helpgrow by pooling of awareness andnew techniques in insurancedevelopment. Since its creation in1966 the College of Insurance hastrained about 10000 officials of whichabout 29% were deputed by overseasinsurance organisations from differentdeveloping countries. The Collegealso assumes special responsibility forcarrying out training courses oninsurance procedures and riskmanagement to prop up employeesof insurers at their offices. It alsoconducts special skill programmes forthe advantage of employees of bankand industrial houses in both publicand private sector who handle theinsurance portfolio for their respectiveorganisations.

PROFICIENT STANDING OF THEINSTITUTE:

Examination for the award of followinginsurance certificate and diploma areconducted twice in calendar year bythe Insurance Institute of India:TABLE-VIII

The certificate and diplomas awardedby the Institute are recognised byinsurers, State governments andGovernment of India as also byGovernments of many developingcountries. Insurers in this part of worldconsider these qualifications, gainedby their employees, for their elevationup to middle management cadre. Onacquiring this qualification, employeesin subordinate cadres receivequalification allowance from theiremployers. Enormous number ofsubject entries (150000-200000) everyyear demonstrates the prestige of theInstitute.

I.I.I is a charter member of GlobalInsurance Education, New York.Qualification of I.I.I. has cross

recognition by Chartered InsuranceInstitute, London and the AmericanInstitute for Chartered PropertyCasualty Underwriters, USA. The C.I.I.London grants 4 exemptions to theassociates and 7 exemptions to thefellows of I.I.I. in their ACII programmeconsisting of 10 subjects. The A.I.C.P.U.USA also award 4 exemptions in theirprestigious CPCU designations to thefellows (non-life) of I. I. I. The crossrecognition of professionalqualification stress on the availabilityof finest insurance education andtraining stuff for Indian market.

The Institute of Pension Managementof Great Britain has also authorised I.I.I.to adopt their text to suit Indianmarket, which will of course besupportive in developing new coursesrelating to fast emerging pension

business in India. Professional standingof this Institute has been furtherstrengthened by playing a leadingrole in establishment of Federation ofState Insurance Organisation ofSAARC countries (FSIO). Thequalifications of the Institute arerecognised by the MNC�s that havejust come into the insurance sector inIndia. These companies are makingan allowance for fellow and associatemembers of the Institute for keypositions in their organisation.

ENVIRONMENT SCANNING IN ALTEREDSCENARIO

With the opening up of the sector ofinsurance, more challenges in the fieldof risk management are obvious in thearea of insurance education. Thesechallenges do not have written

TABLE-VIII

Programme Course Assessment of skillsElement description

CIS & Inspectors Courses to up-grade The basics of principles andexaminations professional skills of practices of life and non life

development staff. insurance and salesmanshipare mastered.

Licentiate This is an introductory Only the fundamentals ofExamination course to insurance principles and practices of

including basic insurance (life and non life)understanding of and elements of modernaccountancy. commerce are to be grasped.

Associateship Specialisation course Comprehensive and in-depthcomprising six knowledge of technicaltechnical subjects in subjects and related problemsany chosen branch in each branch. Successfulof insurance. candidate eligible to display

post-nominal A.I.I.I.

Fellowship Advanced study Integration of insurance skillscourse including with managerial andRe-insurance, marketing skill. F.I.I.I.Management, designation is visibleMarketing and recognition of professionalism,financial accountancy. knowledge and commitment

to insurance excellence.

Entrance Qualification test for As per regulators prescribedexamination for license. Object is to syllabus.agents. promote efficiency in

conduct of insurancebusiness.

58 THE JOURNAL

answers for managing changes;instead they represent paradoxes ordilemma for institutions that have tomake resolution about how they aregoing to deal with them all. Thestructure and features of insuranceindustry are fast changing at a swiftpace and the changed set-up willhave its impact on entire insuranceindustry and those linked with it. TheI.I.I. will also have to analyse thischanging situation to agree on its rolein the liberalised milieu.

Environment constitutes a majorvariable within which an institute ororganisation has to operate. It refersto the totality of all factors, which areexternal to and beyond the control ofenterprises. The environment of aneducational institute can be assessedto its intricacy and vigor consideringgeneral environmental factors inpolitical (including legal andregulatory), economic, social andtechnological areas. Strategicplanners must take into accountenvironmental influences in order toproduce plans that are pragmaticand feasible.

The competitive environmentinfluences also have great impact inthe format of insurance education, itsdelivery and its providers. Insuranceeducation by this leading Institute isprovided in co-operation with GIC, LIC& OTHER NATIONALISED AND PRIVATEINSURANCE COMPANIES in the marketand the Institute has its genesis &assignment, syllabi & coursewareparticularly for the needs of theseorganisations. The pace of currentchange will soon witness new, morecommercial providers targeting thisworthwhile educational market. IRDAin its quest to bring professionalism ininsurance market has also made itmandatory for the agents, who arevital link between the insurers and theinsured, to qualify the pre-licensingexamination and also for the surveyorand loss assessor and brokers to passthrough these regulations.

The Insurance Institute of India hasbeen designated by the IRDA toconduct this pre-recruitment test butaccreditation has been given to many

of the organisations that have showntheir interest to impart educationaltraining in the field of insurance. Thiskind of professionalism is alsopracticed in European countries andin many parts of the world with theobject of promoting efficiency in theconduct of insurance business. To fulfillthis object, the role of educationalprovider is become challenging andpromising. The new status granted bythe regulator to I.I.I. will require Instituteto fully exploit its ability, proficiencyand know-how in learning andteaching the insurance subject in thewide spectrum.

In changed scenario, one thing isdefinite that insurance education maybe meaning ensuring the future ofyounger age band aspiring fordecision-making positions, as thisrecently opened sector has hugepotential to attract young talent.These new opportunities will posefurther challenges to providers ofinsurance learning. I.I.I will also requireconducting a proper positionappraisal, SWOT analysis, GAP analysisand creating a vision. This vision maybe close to the vision expressed by theCEO of the soft drink giant Coca-Cola.When he was asked who were thecompetitors of his company he did notpoint out Pepsi, Thumps up or anyother soft drink and not even tea orcoffee. He acknowledged that � themain competitor is tap-water and anyother definition is too narrow.� I.I.I mayalso re-define its role in such extensiveterms in order to provide qualitylearning in insurance.

Analysis of opportunities and threatsunder external environmental andrecognition of strengths and

weaknesses from position analysis maybe used by this national institute towork out appropriate strategiessuitable to the new scenario. GAPanalysis may also help the Institute tofind out the scale of tasks to beachieved to achieve its mission andto bridge the gap betweenknowledge and application in today�sinsurance market.

This century will perhaps differ from thepast, in the scope of newer fields thatwill emerge in terms of professionalopportunities. As India gets moreliberalised, there will be broad varietyof jobs in service sector which will turnout to be a key provider ofemployment. This will change jobseekers� attitude and they will look forInstitutes, which will sharpen their skillsin education and career. In thesecircumstances, further opportunitieswhere the Institute�s strengths can beutilised for benefit should be sought.At the same time prospective threatsand weaknesses must be identifiedand dealt with. In these conditions, thefollowing challenges need a properaddress:

Alternative strategies will emerge fromidentification of strengths,weaknesses, opportunities and threatsand by dealing extensively with theserious gaps in insurance training andeducation.

Major strengths and profitableopportunities can be exploitedespecially if strengths and

opportunities are co-ordinated witheach other.

< <

FIGURE-II

ENVIRONMENTAL SCANNING(SWOT ANALYSIS)

EXTERNAL ENVIRONMENT INTERNAL ENVIRONMENT

OPPORTUNITIES THREATS STRENGTHS WEAKNESSES

< < < <


Major weaknesses and threats shouldbe countered or a contingencystrategy or corrective strategy shouldbe developed.

The SWOT appraisal should addressthe following issues to draw alternativestrategies:

v A learning of past education andresearch activities and itsrelevance in current scenario.

v Present strength and position ofmembers of Institute.

v Economic structure and support.

v Managerial aptitude.

CURRENT EDUCATION SYSTEM AND ITSRELEVANCE IN PROMISING SCENARIO

Insurance Institute of India enjoys anoutstanding and stunning reputationfor its qualifications. Major strength ofthe Institute is that corporate housesalso recognise its diploma courses,which can prove a meaningful andrewarding mid-career experience.Strength of I.I.I. education systemincludes its:

v Standing and Reputation.

v Research brilliance.

v Pioneering approach toinsurance education.

v Facilities through network ofallied Institutes.

v Scholar support from alldisciplines to have membership.

v Recognition of its qualification isrelentlessly linked to careerdevelopment.

In addition to its teaching programme,I.I.I. has also developed a strongresearch standing with commendableachievements. Much effort has beenput into developing courses thatprovide students with the requiredtheoretical and practical inputs ininsurance education. Importantly, I.I.I.has developed a strong set of learningmaterials to ensure that students haveaccess to top quality learningexperience. The Institute has its ownpublication division that producesstudy courses for about 45 subjectsboth on life and general insurance.

PRESENT SCENARIO

Substance of insurance education hasalready grown and will grow furtherbecause of regulation andliberalisation. Elite privilege of LIC &GIC has become the history with thepassage of IRDA Act, 1999 andopening up of the sector to the privateplayers. Insurance sector is all set tomake available maximumopportunities and careers inmarketing, actuarial, underwriting

operations and investment fields.MNC�s in this sector are offeringexcellent pay packages. No wonderthen, more and more aspirants willtrain their sights on the �golden gates�of professional Institutes, which willimpart insurance education. In fact,insurance education is worthwhileavenue open to students from allstreams, even after they havegraduated from College, whether it ismedicine, engineering, accountancyIT, history, English, law, or evenphilosophy. Many well-recognisedacademic institutions have startedlooking for insurance as a core subjectto derive benefit from the challengesand opportunities thrown by currentscenario.

The Institute of Certified Risk &Insurance Managers (an ICFAIaffil iate) has launched a distantlearning insurance programmeunifying its insurance courseware withI.T. and management. ICRIM haslaunched this insurance educationprogramme to attract the best mindsat the right time differentiating it fromInsurance Institute of India�s companyspecific diploma qualifications. Thestatus and respect attached to thecorporate life style will drive youngaspirants in large numbers to opt forthis integrated course, which boostplacement assistance.

Forty-seven educational Instituteshave applied and got accreditationof IRDA as approved providers ofagents pre-licensing education. It issatisfying to note the growing numberof candidates appearing for the Pre-recruitment examination. Since it wasintroduced in October 2000 and untilFebruary 2003, over 713000candidates which means average ofover 25000 per month haveappeared. The regulator has givendue importance to the insuranceeducational programmes and thosewho will engage in education andtraining particularly in area ofinsurance sales service and marketingwill mandatorily require approval ofIRDA.

The Institutes and Universities that havejumped into the fray to address the

TABLE-IX

OPPORTUNITIES THREATS

� What threats might arise toinstitute or its businessenvironment from new players ?

� How market players will react tothis environment ?

� Whether the leading position willbe retained ?

� New value propositionsdeveloped and delivered bycompetitors.

� What opportunities exist inbusiness environment ?

� What is the capable profile ofcompetitors? Are they betterplaced to exploit theseopportunities ?

� What is the Institute�scomparative performancepotential in this field ofopportunity ?

(Source : Web site of IRDA - the Regulor)

60 THE JOURNAL

demand of career-linked educationalprogramme in insurance includesKurukshetra University, Anna MalaiUniversity, Pondicherry University,ICRIM, Insurance Training Centre, RituNanda Insurance Services (P) Limited,NIS Spata, Amity School of Insurance& Actuarial Science, Birla CapitalBusiness school, India InsuranceBusiness School & Institute ofManagement Development &Research.

Corporate staff training colleges of thepublic sector insurance companies,National Insurance Academy,Actuarial Society of India also impartjob related insurance education to thepractitioners of insurance. NationalInsurance Academy promotes,develops and nurtures research,training and consultation activities oninstitutional and individual area ofinsurance and management. Theacademy encourages researchassociates to undertake commerciallyfeasible stand alone or institutionalaction research projects. Sensing theprospects of growth with opening ofinsurance sector N.I.A. is launchingC.D. Deshmukh Diploma Programmethat will be eventually converted intoa value added MBA programme andC.D. Deshmukh Fellowshipprogramme which will be of thestandard of Ph.D. Programme ininsurance. N.I.A�s training programmeswith specific focus on insuranceexecutive needs are well recognisedin insurance industry. In last 12 yearsthe Academy has trained more than20000 executives of industry. Theacademy has its own academiccampus on 32-acre land in Pune withintegrated provision to run threee d u c a t i o n a l p r o g r a m m e ssimultaneously. Its industry supportedfaculty, I.T. park & computer lab withmore than 100 computers, net-based

learning interface, teleconferencingcapabilities make it a real state-of-artlearning centre. In its pursuit toglobalise its learning software,Academy is negotiating withinternationally renownedorganizations l ike LOMA of USA,Mohawa College of Canada,Manchester Business School of U.K.and Zee Interactive Learning SystemsLimited of India.

Insurance Institute of India may enterinto strategic all iance with thisAcademy to provide a wide range ofcourses to gear to the insuranceeducation, training and researchneeds of the market. These twoindustry supported apex Institutes canoffer impossible-to beat educationalprogrammes on insurance as amega-group.

STRATEGIC CHALLENGE TO INSURANCEINSTITUTE OF INDIA

Insurance Institute of India the premierInstitute in insurance education neverreally marketed themselves mainlybecause of the industry support. TheInstitute has achieved one of thehighest rates of employment andcareer advancement for its diplomaholders confirming strong linkage withthe industry. Today, however, thescenario has changed. It is the timeto identify strategic challenges and willhave to draw aggressive strategy sothat the diplomas and qualification ofthe Institute remain a passport tosuccessful career in insurance. I.I.I. willhave to amend its educational andresearch programmes to support andstrengthen its mission to ensureacademic brilliance in insuranceteaching and a world-class researchcentre.

The Institute has already started to

enhance �quality of insuranceeducation and training� and as aninitial step, curriculum of study courseshas been revised to make it universalqualification in insurance relevant withindustry to address current trends,regulations and needs of today�sinsurance professionals. The newcourseware has also been kept inelectric form to enable quick revisionwhenever situation necessitates.

Institute has appointed an �EnvisioningCommittee� to visualise the future roleof I.I.I and insurance education in Indiain changed and liberalised scenarioin order to develop, provide andpromote the highest qualityprofessional education to meetgrowing education needs ininsurance, risk-management, affiliatedproduct and services.

PRESENT STRENGTH AND POSITION OFMEMBERS OF THE INSTITUTE:

The life membership has beenincreasing steadily year after year.During 2002-2003, 3086 life memberswere added and with this the total lifemembership stood at 111336 as on31.03.2003.One of the most importantbenefits of membership (FIII/AIII) of thispremier Institute is the opportunity toexhibit the industrial acquaintanceand commitment through display ofits membership post-nominal. Thesetitles demonstrate an industryrecognised stand. Acknowledgementof these qualifications by new playersis a proof of proficiency andprofessionalism attached withInstitute�s membership.

Members of I.I.I. are from all ages andbackground. At present, Institute doesnot organise proficiency andprofessional developmentprogrammes like ICAI, ICWAI and ICSIto develop members and to equipthem fully to discharge their functionsand fulfill the objectives of the Institute.

Institute can organise skil ldevelopment programmes with thehelp its wide network.

Institute has strong informationservices. Its library represents a well-off

TABLE-X

Approved agents training institutions in different Zones.

North India South India West India East India India

12 19 10 06 47

(Source: Web site of IRDA � the Regulator)

(continued on page 67)


The 49th Annual Conference of theInsurance Institute of India was heldon 11th & 12th September, 2004 atHotel Hubli Navin, under the auspicesof the Dharwad Insurance Institute.The Conference was inaugurated byDr. M. Khajapeer, Vice-Chancellor,Karnatak University. Shri A. K. Kamble,Chairman, Dharwad InsuranceInstitute welcomed the Chief Guestand other dignitaries to theConference. In his brief speech, hementioned about the variousactivities undertaken by the DharwadInsurance Institute and conveyed hishappiness for an opportunity toDharwad Insurance Institute forhosting the Annual Conference undertheir auspices.

The President of the Insurance Instituteof India, Shri Rajendra Beri could notattend the Conference due tounforeseen circumstances. Hisspeech was read out by Shri M.Raghavendra, General Manager(Retd.), GIC and a member on theCouncil of the Insurance Institute ofIndia.

49THANNUAL CONFERENCE

The President in his speech welcomedthe Chief Guest and other membersfrom various places to the AnnualConference of the Institute. He alsothanked the host Institute for takingthe responsibility of conducting theConference. The President's speechincluded the achievements made bythe Insurance Institute of India duringthe year 2003-04 and the futuredevelopments which are in theagenda for promotion of Insurance/examination related activities, both inIndia and abroad. The Institute in itsGolden Jubilee year, has challengesin hand, particularly, the Buildingproject. He hoped that thechallenges can be met withconfidence in the wake ofopportunities made available due toglobalization of insurance education.

The Chief Guest in his speech thankedthe Dharwad Insurance Institute forinviting him to be the Chief Guest. Hewas happy to be associated with thisevent being an educationist. Hehoped that the deliberations in this

Conference wil l bring in newdimensions in insurance education.

TECHNICAL SESSION

Despite his heavy schedule, Shri T.K.Banerjee, member, IRDA took time todeliver the Keynote address on thetopic, "INSURANCE REGULATIONS ININDIA AND FUTURE DIRECTIONS". ShriS.J. Gidwani, Secretary-Generalthanked Shri Banerjee for acceptingto present the Keynote address on thetopic which is of much relevance inthe current context. The Keynoteaddress contained very importantissues relating to regulations onInsurance business as well asInsurance education. Shri Banerjeewas kind enough to answer some ofthe questions raised by the memberspresent in the meeting.

The Conference concluded with avote of thanks by Shri M. Jagannath,Marketing Manager, L.I.C. of India,Dharwad.

FORM IV (RULE 8)Statement about Ownership and other Particulars about the Journal of Insurance Institute of India as required by Form IV (Rule8) of the Registration of Newspaper (Central) Rules 1956.

1. Place of Publicaiton Mumbai2. Periodicity of the Publication Bi-Annual3. Printer�s Name Shri S. J. Gidwani

Nationality IndianAddress Insurance Institute of India (Regd.)

Universal Insurance Building, Sir P. M. Rd., Mumbai - 400 001.4. Publisher�s and Editor�s Shri S. J. Gidwani

Name and Address Shri V.H.P. Pinto, EditorNationality IndianAddress Insurance Institute of India (Regd.)

Universal Insurance Building, Sir P. M. Rd., Mumbai - 400 001.5. Name and address of individuals who The Insurance Institute of India is a professional

own the newspaper and partners or educational Institution in the field of insuranceshareholders holding more than one education and training, registered under the Societiespercent of the total capital Registration Act XXI of 1860 vide Registration

No. Bom. 128/74 G.B.B.B.S.D.President Shri Rajendra Beri

I, Shri S. J. Gidwani hereby declare that the particulars given above are true to the best of my knowledge and belief.

Sd/-Date : 31st December, 2004. S. J. GIDWANI

Signature of Publisher

62 THE JOURNAL

and widespread collection ofinsurance and managementliterature. It�s collection of nationaland international journals andperiodicals are also unmatched.Institute provides financial support toits Associated Institutes for generaleducational library activities so thatmore and more members may attainbenefit. The Institute may extend theborrowing rights so that they may takemore and more reference facilities.Institute also brings out its own globallycommended bi-annual Journal toenrich the skil ls of the membersproviding rich technical contributionand latest information. This Journal isprovided to the members free ofcharge. Institute may benefit itsmembers by providing discountedregistration fees to its seminars andconferences. It can also negotiatewith banks to facilitate discountedaccess to credit cards. AmericanExpress Bank provides such facilities toalmost all professional Institutes.

ECONOMIC STRUCTURE AND SUPPORT

Industry-academic alliance has givenI.I.I. continued financial support andInstitute has provided industry-specificcourses on specific lines of insuranceeducation and training. The feesstructure of the Institute against itseducational programmes is also verynominal as the Institute�s philosophy isto educate more with lessexpenditure. Its educationalprogramme is self or industry funded.GIC of India, LIC of India and otherInsurers in the market support I.I.I. withan annual membership to promoteinsurance education but this quantumof funding is much less as comparedto industry funding to academicinstitutes elsewhere in the world. TheBritish insurance industry spend millionof pounds through various incentiveschemes to Chartered InsuranceInstitute and its members.

In a competitive environment I.I.I. willrequire additional resources. Theinstitute may generate additionalfunds by:

� Organising international

seminars and conventions onissues facing insurance industry.In 2001 institute earned anincome of Rs. 2526905 and Rs.1,07000 from ASTIN seminar.(Source: Annual reports ofI.I.I.2001-2002).

� Arranging company-specifictraining programmes andinduction-programmes for therecruits of new players ininsurance sector.

� MARKETING AND SALE OF STUDYMATERIAL AND RESEARCHPAPERS. Institute may developstudy texts, insurance subjectbooks, Practice and revision kits,success tapes (videos & CD�s).These products will not only helpin advancing professionalcompetence in insurance but willalso help in generation of funds.

� Organising member skilldevelopment programme. Thiswill benefit members to upgradetheir skills and will contribute tofunds of institute.

� Developing profitable trainingprogrammes through its trainingwing �College of Insurance�.

MANAGERIAL APPTITUDE

Insurance Institute of India is managedby governing body that functionthrough its administrative committeeand the board of education. Themanagerial ability of the Institute isunmatched as the captains of theindustry are at the helm of the affairsof this Institute who have the soundknowledge of each of the majorinsurance functions and of strategicmanagement.

The strategic thinking to act globallyand to manage effectively in a vibrantand pro-active manner has alreadygiven a lead to this Institute.

PILOT VISION IN EMERGING SCENARIO

Mounting competition has meant thatpace and timing have become strongaggressive weapons to add ideas andchampion changes. Pro-activemanagement of the Institute seems tobe more powerful than it used to beto ensure that they are not perceivedas inferior in a competitive era.

To lead with vision in the changingscenario, the Institute is well awarethat differentiation is the key and thesame can be understood with thehelp of following diagram underFigure- IV.

FIGURE-III

Training Programme by Insurance Institute of India

INSURERS INSURED INTERMEDIARIES BANKER & F.I�S

PUBLIC PRIVATE INDUSTRIAL INDIVIDUALS BROKERS AGENTS NATIONALISEDSECTOR SECTOR HOUSE BANKS

SURVEYOR OTHER F.II

FIGURE-IV

DIFFERENTIATION IS THE KEY

Maintaining leading Forming strategic alliance Develop Competitivestatus to maintain leadership strategies

(continued from page 61)


To facilitate new competitive strengthsand to differentiate itself with othernew players Institute has already takenfollowing steps:

v Formed linkage with otheracademic institutions in theworld to grab the opportunity toplay lead role in providinginsurance education not only inour country but also in the SAARCregion.

v Created synergies by linking I.I.I.with other Institutes ofinternational repute to gainmutual benefits andimprovements.

v Constituted an eleven-membercommittee known as EnvisioningCommittee of InsuranceAcademics to study the role ofthe Insurance Institute of Indiaand highlight all relevant factorsof competition. This committeewill study the role of the Instituteviz a viz new players.

v Visualised the need to developnew programs based onprojections of insurance industryparticularly in new areas likeHealth care management,Pension Management and Riskmanagement.

v Superior examination system andcurriculum by revising thesyllabus and a strong set oflearning material and studycourses to ensure access to topquality learning experience andto ensure that these coursesmeet the current requirements ofchanging insurance market.Expert panel drawn fromacademia, industry andgovernment has developed thiscourseware integrating it withpractices of other global reputeglobal institutes. Institute�s mottois � think globally, act locally�.

v Felt the need for developingPension qualifications andpromotion of actuarialeducation and expertise in nonlife insurance. Institute is also

working upon new courses todevelop actuarial expertise innon-life insurance.

v Extra emphasis with change inorientation on research, trainingand continuous developmenthas been given to generate highlevel skills suited to careers ininsurance business.

CREATING NEW ERA IN INSURANCEEDUCATION:

I.I.I has built an unshakable foundationin the field of insurance education andresearch. Technical curriculum isreasonably in good shape but we livein an era whose hallmark is change.The winds of change are sweepingacross insurance sector and thesechanges will affect the functions of thisrenowned Institute. In order to createtomorrow�s business leaders ininsurance education, riskmanagement and research activitiesdeveloping this research paperrecommends following steps that thispremier institute may take to remainprogressive and modern.

01. INNOVATIVE EDUCATIONSOLUTIONS: Institute may takeinitiatives to run several programmesto make its education marketoriented. These programmes mayinclude full time pre-entry degreeprogramme in addition to institute�scompany specific post-entry learningprogrammes. These full timeprogrammes may target younggraduates from all streams. Theseprogrammes may be integrated withinformation technology andmanagement skills. Institute maynegotiate with Universities to developfull time degree courses. Linkagebetween universities, recognition byAssociation of Indian Universities orUniversity Grants Commission canpromote further academicexcellence in insurance. Insuranceeducation and research has becomea part of many leading universities andbusiness schools worldwide. TheCollege of Insurance, New York hasalready merged with St. John�sUniversity to provide threeundergraduate and two graduate

degree programmes. AustralianInsurance Institute also providesBachelor of Business (Insurance) incollaboration with a University. Theoldest general insurance company inJapan, Tokyo, Marine and FireInsurance Co, which has JV inIndonesia, has launched a short-termcourse �Business Management Risk� atUniversity of Indonesia forundergraduates. NIA and few otherUniversities as discussed earlier are alsotrying to have pre-entry degreecourses for insurance. The InsuranceInstitute of India has also decided tosupport the efforts of PondicherryUniversity in beginning a PG diplomain Insurance Management as a distantlearning programme. Institute hasauthorised the university to make useof its texts and supply reading materialto its students. The full year degreeprogramme and advanced fellowdiploma includes a research thesis oninsurance. The assessment of all majortaught-subjects and completion of adissertation will promote researchactivities and will produce the blendof human, technical and conceptualskil ls demanded of the modernmanagers. Students will have allreasons to perceive this prestigiousdegree as the best launching pad oftheir career.

02. RESEARCH DEGREES: I.I.I. is ideallyplaced to deal with challenge. It hasshaped synergies with other globalinsurance institutes. With thisworldwide exposure, it may develop�Research degrees� on PhD form. Thisdegree must form a distinctcontribution to the knowledge of thesubject and afford evidence oforiginality shown by the discovery ofnew facts and/or by the exercise ofindependent critical power toinsurance research. I.I.I has alreadysome dialogue with the Institute forGlobal Insurance Education tointroduce P.G. diploma orinternational designation.

03. DISTANT LEARNING: The abovedegree programme may also beconducted on distant learning basis.Distant learning is likely to be thepreferred route for those wanting tostudy whilst working full time. Market

68 THE JOURNAL

of distant learning has developedsignificantly and this is one of thereasons why 60% American Universitiesnow offer some distant courses.Institute may take up new deliverymethods rather than carrying onsimply defined traditional methods.

04. DEVELOPMENT OF IDEAL CYBERVENUE: Information technology isgoing to be the key component. Anyfunctional area would require IT toimprove its performance. Thereforefocus should be on appropriate ITintegrated into Insurance Institute ofIndia�s activities & programmes. Whilefocusing on insurance as the majordriving force, Institute may bundle I.T.with other skills and vocations toincrease the career prospects.Institute may also use wide range ofalternatives that include interactiveCD-Rom and Web based delivery andlearning support solutions. Institutemay build an effective and creativeportal containing all of its learningresources that the insurance had in theservice of profession. This will establishworldwide communication andglobal interaction. This portal shouldbe �customer center data warehouse� to manage Institute�seducational products on site.Institute�s ideal cyber venue shouldprovide all basic information oneducation and efforts to make it moreinteractive. It should also offer latestnews and analysis of informationrelated with insurance world andshould contain loads of advice, tips,links, career avenues, educationalinformation, tariff solutions through aneatly designed home page thatprovides easy navigation for evennovice web sur fers. The contentprovided at I.I.I �s portal should beexhaustive and fresh by frequentupdating. The Insurance times hasalready introduced its insurancelearning portal �prginsurance.com� totake a lead in this direction.

05. e- LEARNING: Insurance Instituteof India may turn out to be theepicenter for e-learning of insurancein India. Vision of e-learning is clear- itis accessible on hand, anytime,anywhere. In extension of itspioneering pursuits and foresight theInstitute may launch on-line coursesand learning tools through the net tomeet a growing demand in thisrespect. The instructor-led mode ofdelivery may also continue along withthis internet-led mode of delivery. On-line programmes provide an effectivemedium of learning for people whoare unable to go to a center regularlyand for those who would like to takeon course/exam at their own paceand place of convenience. Thesekinds of on-line courses have alreadybeen launched by National Alliancefor Insurance Education & AICPCU,USA. The global scenario is changingat the speed of light. The industry is alsorecognising e-insurance. ebix.comand catex.com have alreadyemerged as virtual business models.The education providers should alsomatch with the industry.

06. RE-ANCHORING TRAINING &CHANGE IN ORIENTATION: Emergingchanges in insurance marketdynamics need focused change ininsurance training and learning. Tomeet the shifting demand of careergrowth and focusing on the new trendfor diverse training needs of externalfunding bodies institute may provide

strategy based training to cater toexclusive specialised skills suited to thejob profiles of the trainees. To bringvalue to the training, a strong industry-institution inter face may bemaintained to catch the advantageof each other. The trainingprogrammes may be conceived,designed and developed after closeassessment of company and industryneeds through extensive feed backeither from market surveys or fromcontinuous interaction with captainsof industry. Training improves thequality of people available to work inthe market; but only if providers ofeducation make right prediction as tomarket demand for skil ls andunderstanding. Institute should have itsown premises to take care ofcontinuous training requirements ofinsurance industry. Institutes dialogueswith NIA, Pune about collaborationbetween these two apex educationaland training institute is veryencouraging and this synergy couldproduce mutual benefits andimprovements. The following methodsof training may be utilised to coverdifferent needs of insurance learning:

07. TRAIN THE TUTOR : For impartingstandardised training techniques andto nurture and develop those involvedin insurance teaching, institute shouldrun a innovative training programmethat should aim to give members (FIII/AIII�S) the necessary skills, experienceand confidence to teach and todevelop the quality of teaching and

FIGURE-V

Various methods of Insurance Training

Formal Training Paper reading Symposium

Panel discussion Seminar Net-based e-learning

Workshop Journals & periodicals

<<

<

<

<

<

<

<


to provide transferablecommunication skills that can form abasis of future academic or othercareer. On completion a �Certificatein teaching skills� may be awarded.The services of these trained membersshould only be utilised for impartingoral coaching at Associated Institutes.Institute can take the advantage ofits network of associated institutes forexpert counseling for all itseducational programmes. It shoulddevelop these associated institutes asteaching centers. Institute should alsodevelop system for orientation andtraining of examiners to ensure validity,reliability and consistency inassessments.

08. EXECUTIVE DEVELOPMENTPROGRAMME: To encourageinsurance education at the top levelInstitute may conduct �weekend top-executive learning programmes� and�short-term expertise programmes�linked with I.T. that may be the key tothe future of executive development.These courses will be helpful in fine-tuning the skills of the senior executivesin order to facilitate them tounderstand the market in better way.I.B.M run such an executive style MBAprogramme that requires just 4 weekends at Henley ManagementCollege. AICPCU also runs aninsurance executive programme incollaboration with Wharton School atthe University of Pennsylvania usingWharton�s world-class faculty, industryexperts and fellow members of theinstitute.

09. TELE-LEARNING SEMINARS:Institute may think to start � Tele-learning seminars� which attract notravel or parking cost and areconvenient as learners canparticipate in these tele-learningseminars from home or office. InsurersEducation Association, San Franciscoalready runs such seminars.Participants call the �phone-bridge

number� linking them to the presenterand participants of the seminar.Learners receive hand out materials,phone bridge number via e-mail. Atthe appointed time on simple dialingthe phone bridge number he is in theseminar. It is just simple and completelyinteractive.

10. CREATING BRAND AWARENESS: Tocreate awareness about this Institute,that provide global education for acareer in insurance sector, properpublicity should be made. It shouldprovide courses under the brandname of Institute. Institute mayconduct education fairs, which canprovide interesting insight into thetrend the future professionals mighttake. Institute may also promotesponsored programme to attractyounger generation to its educationalprogrammes. Hon�ble Union Minister ofState for Finance Shri Balasaheb VikhePatil rightly expressed in his inauguraladdress at International Conferenceof Insurance Institute of India that �theaverage mindset of youngergeneration in India is very receptiveto new ideas and concepts�.Insurance Institute of India couldcontribute to customer educationthrough school and college curriculato make an average Indian consciousof insurance right from very youngage.

11. FUND RAISING ACTIVITIES: Tostrengthen its futuristic outlook, Institutemay also conduct seminars forsurveyors, employees of industrialhouses, etc. and provide themmarketable experience from the poolof expertise available with them. Thiswill not only generate funds but willalso give an extra edge to the Institute.It is like having another arrow in yourarmory. To make it self sufficient,Institute should conduct fund-raisingactivities like international seminars,conferences and skill developmentprogrammes on subjects of

professional interest. This will alsocontribute in cross fertilisation of ideasfor professional growth.

12. NEW OPTIONS OF MULTIFACETEDEDUCATION: Introducing new coursesas per the requirements of industrycould enhance insurance education.Insurance Institute of India mayintroduce different educationprogrammes for brokers, agents andsurveyors. It may develop programmeon investment management,actuarial science for non-life insurers,risk management, pensionmanagement, underwriting andclaims management on differentassessment options. Australian andNew Zealand Institute of Insuranceand Finance provide �Examination onDemand� (students have the optionto elect examination time) and � AChallenge Test� that enables studentto demonstrate their skil ls andknowledge through an exam thatdoes not require formal study. Institutemay target the young graduates,employees of corporate world, andintermediaries in insurance sectorbesides the employees of insuranceindustry for these new projects.

13. CERTIFICATION OF EXCELLENCE:Institute may move toward ISO-9001/9002 certification for educationsupport service in insurance. As itscourseware design, examinationsystems are of international qualitylevel. This certificate will provide abrand name to its qualifications.

14. CONSULTANCY AND SPONSOREDRESEARCH ACTIVITIES: With theopening up of insurance sector, theprospects of growth are enormous.The Insurance Institute of India must setup resources to embark onconsultancy and sponsored researchservices across the globe relating toinsurance market, productdevelopment, distribution, pricing andmarket research.

70 THE JOURNAL

15. BETTER INFORMED MEMBERS: Weare in the midst of an informationexplosion. In order to update the skillsof members and to keep them betterinformed with all round information ininsurance world, the Journal of Institutecould be published on monthly basis.Its access may be widened tocommercial world so that Institutereceives enough publicity. This Journalcan be a great source of informationon educational and career optionsand can play an important role inanalytical and critical thinking.

16. LITERATURE FOR CUSTOMEREDUCATION: I.I.I has developed strongset of learning materials for students.It can also play a useful matching rolein preparation of customer-educationmaterial. To equip learners fully Institutemay develop latest student handbooks, study guides, periodicals, films,videos and audio tapes, CD-ROM�sproviding easy-to-understandinformation.

17. ON-LINE SHOPPING: I.I.I may alsooffer its textbooks, course guides,supplementary materials andinsurance essentials like CD-ROMs viaon-line shopping. AICPCU is alreadypracticing this concept in US.

18. GOVERNANCE: Institute mayconsider inducting in its governingbody members from private players tobroaden institution-industryrelationship and to gain total industrysupport in its pursuit to provide qualityinsurance-education. Institute hasalready inducted the members ofIRDA on its board of education toassociate itself with the regulator.

19. PROFESSIONAL ETHICS: Tomaintain highest standards ofprofessional conduct, thus upholdingthe reputation of the Institute the I.I.I.may also address ethical issues thatdeal with questions of absolute values

and their application in the real world.Ethics can be made operational in thispremier insurance educationalinstitute by application systems,culture and code of practice. In orderto get AICPCU designation, membersare required to abide by Institute�sprofessional ethics. The AustralianInsurance Institute also publishes inevery issue of its Journal the code ofconduct.

20. CREATING POSITIVEENVIRONMENT ON CROSS-BORDEREDUCATIONAL ISSUES: To share itsproficiency in insurance educationwith neighbouring countries theInstitute may offer curriculum,curriculum design support, coursedelivery and testing services todeveloping Institutes of South AsianCountries to support them in pursuit ofown missions.

While no one has a crystal ball with allthe answers, one thing is clear: if wewish to succeed in competitive era,either we embrace change as an ally,or run the risk of being strangled byevents. Successful institutions sustaintheir success by changing proactivelyat appropriate times; they do not waituntil they are forced on to thedefensive. The institute is aware of thisunderlying mantra for survival. It hasalready developed a global outlookand has earned a reputation as acentre of excellence in insuranceeducation. It has largest pools ofexpertise in insurance business in anypart of the world. Its proactiveapproach, strong linkage with industryand synergies with global institutesensures that it is ideally positioned todeal with challenges of rapidlychanging and competitive insuranceworld. In its long journey it has crossedmany milestones. Its commitment toinsurance learning and research is sureto set new pathways for itself andothers to follow. Educational institutes

play a supportive role to industry andit is expected that I.I.I. will readilyadapt to new conditions of theemerging market. This institute has aglorious future and purposefulexistence.

CONCLUSION

In terms of C.D. DESHMUKH �potential,education and knowledge are thetests of strategic talent.� Turningstrategic talent in to real actionrequires that every employeeunderstands the exact way in whichhis or her contribution is crucial toimproved risk management.

Risk management is a very vast anddynamic field, which touches upon allhuman activities. Due to this, thesubject becomes very interesting andchallenging with considerable scopefor super specialisation. As the riskmanager assumes a more dynamicrole in corporate decisions, his rangeof knowledge and expertise mustadvance accordingly. The RiskManagers today must be versatile- aRenaissance man, a man for allseasons. He must hold a reservoir ofknowledge of insurance. Insuranceeducation performs an absolutely vitaladministrative and economic functionand is good indicator of the managedeconomic development of thecountry. Insurance education in Indiahas a very bright future which will offera lot of opportunities in times to come.The central theme for managing theindustry would be risk identification, riskassessment, risk monitoring on controland the process would have to beginfrom understanding of risk and it�sreporting, risk adjusted performanceevaluation and management of therisk and the very purpose of riskmanagement can be achieved withthe changed perception towardsinsurance education.


QUESTIONNAIRE

Dear colleague /friend,

Please provide me the following information in connection with my research work on �NEED OF THE HOUR RISKMANAGEMENT VIS-A-VIS INSURANCE EDUCATION �(ROLE OF INSURANCE INSTITUTE OF INDIA IN LIBERALISED ENVIRONMENT)for the S.K.Desai Memorial Award Essay Writing Competition 2003-04 and oblige.

NAME & SIGNATURE

Sr. No. Particulars (Queries) Choose the Answer

1. Name :

2. Address :

3. Age (in years) :

(a) Upto 30

(b) 31 to 60

4. Educational Qualification :

(a) Higher Secondary [ ]

(b) Graduate [ ]

(c) Post Graduate [ ]

(d) C.A. / ICWA [ ]

(e) C. S. [ ]

(f) M .B. A. [ ]

(g) Others [ ]

5. Status:

(a) Employee in Insurance sector [ ]

(b) Employee in Banking / financial Institution [ ]

(c) Professional [ ]

(d) Student [ ]

6. Which business / financial magazines andNewspapers do you read regularly or occasionally?

(a) Insurance Times [ ]

(b) Business India [ ]

(c) Management Accountant [ ]

(d) Money Opportunities [ ]

(e) Financial Wizard [ ]

72 THE JOURNAL

(f) The Economic Times [ ]

(g) ASIA Insurance Post [ ]

(h) Financial Express [ ]

(i) Others [ ]

7. Have you heard about insurance Qualificationknown as AIII, FIII. Yes / No

8. Which study course you plan for your career or better prospects ?

Traditional degree course/engineering or medicine/short term vocational course degree / Not applicable

9. Source of Information of Insurance Qualification

Leading Newspaper / Publicity by Institute / Others

10. Which course you plan for your career or better prospects ?

Traditional Degree Course/Engineering or Medicine/Short Term Vocational Course/Not Applicable

11. If they are already undergoing for some insurance then what is their specific purpose

Job Advancement & Career Opportunities /Financial Betterment/

To gain Knowledge & Technical Expertise /Other Reason

Response Analysis

Respondents of the above questions were amongst the following category:

- CA�s, MBA, CS, ICWA�s, PG�s, Graduates and Non-Graduates.

- Employees of Insurance Companies

- Insurance Executives of Big Industrial House

- Intermediaries namely Agent/Surveyor/Loss Assessor

- Associate /Fellow - Member of Insurance Institute

REFERENCES:

ü Journal of Insurance Institute of India of 1996, 1997, 1998, 1999, 2001, 2002 & 2003

ü 46th Annual Report & Accounts 2000-2001ü 46th Annual Report & Accounts 2001-2002

ü 47th Annual Report & Accounts 2002�2003

ü Economic Timesü Daily Newspaper �Hindu�

ü Bureau Report, Insurance Bill Past hurdle, Businessline

ü National Insurance Academy News Bulletin

ü Asia Insurance Post �A Monthly Magazine from Mumbai�ü Research Report (various) from NIA

ü Dhyanjyoti �Half-yearly Magazine from NIA�

ü Working Paper Series of the Geneva Associationü WEBSITE OF IRDA �www.irdaindia.org

ü WEBSITE OF NIA www.niapune.com


Branding is a process of creating aseparate and distinct identity to theproduct in the market place. The word"Brand" owes it's origin simply to thepractice of making some businessmarks on some domestic animals likecows by the farm folks to identify theirlivestocks. In Latin the word "Brandir"means to burn. On the contrary"Maverick" would not have come inthe English dictionary but for SamuelMaverick, who refused to brand hisletter, just to be different from others.The word is now used to describe someone who is eccentric.

The traditional definition of a brand byPhilips Kotler reads, "A brand is a name,sign, term, symbol or design or acombination of these, which isintended to identify the goods orservices of one group of sellers anddifferentiate them from those of thecompetitors." Thus the brand identifiesthe seller or maker. A brand isessentially a seller's promise toconsistently deliver a specific set offeatures, benefits and services to thecustomers. The best brands convey awarranty of quality. But a brand is evena more complex symbol. A brand canconvey up to six levels of meaning...

Attributes- Brand brings to mindcertain attributes eg. Mercedessuggests an expertise, well built,prestigious and so on.

BRAND IDENTITY- ITSINFLUENCE IN CUSTOMER

DECISION MAKINGBy: Ms. Suranjita Lahiri,L.I.C. of India, Kolkata.

is appreciated. In the present scenarioof competitive market, it has given risefrom a comfortable monopolistic stateto a struggle state, which has led theinsurers to rethink their strategies, elsesurvival would become impossibleespecially for the public insurancecompanies.

The focus on growth for a long termsurvival in a huge untapped marketlike India, has necessitated thecompanies to design efficient andeffective branding strategies.

BRAND STRATEGY DECISIONS

A company has four choices when itcomes to brand strategy.

It can introduce line extensions(existing brand name extended tonew sizes, flavours and so on, in theexisting product category), brandextensions (brand names extended tonew product categories), Multibrands(New brand names introduced in thesame product category) and newbrands (new brand names for a newcategory product). According toGerman's new product News, of the6125 new products accepted bygroceries in the first five months of1991, 89% were line extensions, 6%were brand extensions and only 5%have new brand names (bothmultibrands and new brands).

Benefits- Customers are not buyingattributes , they are buying benefits-functional or emotional benefits, egwhile in a good well built car like TataSumo he thinks " I am safe in case ofan accident."

Values- Brand also says somethingabout the product's values egMercedes stands for highperformance, safety and prestige andso on.

Culture- Brand additionally representsa certain culture eg Mercedesrepresents a German culture,organised, efficient and high quality.

Personality- Sometimes brand speaksof the personality of an actual, wellknown person or spokesman.

User- Brand suggests the kind ofcustomer who buys or uses theproduct. The users will be those whorespect the values, culture andpersonality of the product.

Legally a brand implies a symbolwhich distinguishes a company'sproduct and certifies its origin and thusonly obtains it's value throughconformity.

Brand image is of great importancefor an intangible service like insurance.More than the advertising gimmicksthe utility of the brand to the customers

ConsolationPrize Winning

TechnicalPaper

2003-04

74 THE JOURNAL

Product category

Branding of services is much moredifficult than tangibles and when itcomes to insurance it is a function ofvariety of factors known andunknown. However, the key factorsaccounting for the success of anyinsurance player are continuousproduct innovations, efficient pricingand effective claim management. Abranding strategy should cater to andmust demonstrate these factoreffects, particularly, in times ofcompetition where we have 17 lifeand 13 non-life players and somemore in the pipeline.

A good brand serves the followingpurposes:

� Helps building a life l inevalue(LTV)

� Gives a specific identity to theproduct among the competitivebrands.

� Goes a long way in positioning.

The brand managers take a lot of painto position the brands, for wellpositioned brands do occupy not onlya niche in the minds of the consumerbut also find parity traits with thecompeting products. A niche brandmeans the products that are meantfor the use and consumption of certainspecified and exclusive target groups.Marketing of goods and services tosuch specialised groups is called nichemarketing.

A very popular example is the way visacards competed with the American

Express card to carve out a uniqueposition for itself. It is thus of utmostimportance, since it creates anintangible sense of superiority.According to Tom Blackett, there is anextricable link between a brand andits value and brand is the key driver ofvalue for a company. It is not just thatis kept in the supermarket shelves orthat appears in an advertising clip.

According to Chris Styles and TimAmber- " A brand is any proprietarygood or service a firm sells, and assuch is the primary revenue and profitgenerator of the firm, whatever thecase, the assets created by thesebrands, the brand equity, are amonga firm's most important and valuableassets".

Function of Brand for the Customer

Identify- To be clearly seen, to quicklyidentify the sought after product.

eg: While purchasing Greetings forany occasions, the brand identifiedwould be Archies" or "Hallmark" cards.

Practicality: To allow saving of timeand energy through identicalrepurchasing and loyalty.

ie. "Branding makes shopping easier"-while going for a wrist watch, if thebrand is T itan, or HMT, the samebecomes easier for the consumer, toidentify for total trust and loyalty.

Guarantee- To be sure of finding thesame quality no matter when orwhere we buy the product or service.

eg- Amul Butter will be of the same

quality no matter we buy it in Kolkataor Mumbai.

Optimisation- To be sure of buying thebest product in their category, thebest performer for a particularpurpose.

eg: LG or Godrej brand rules out anyheadache or hesitation when we gofor Life Long Consumer goods likerefrigerators.

Characteristics: To have selfconfirmation of one�s self image or theimage that you present to others.

Continuity- Satisfaction bought aboutthrough familiarity and intimacy withthe brand that we are consuming foryears.

eg: While buying biscuits, the first namethat comes to our mind for years is"Britannia".

Hedonistic- Satisfaction linked to theattractiveness of the brand, to its logo,to its communication.

eg Arrow shirt, apart from the brandingidentity is also attractive andcomfortable.

Ethical: Satisfaction linked to theresponsible behaviour of the brand inits relationship with the society.

BRANDING AND PRICING

Branding is considered less expensiveway of ensuring quality thanadministrative controls, since acompany stakes its reputation on thebrand. Among the branded productsnationally advertised brands havemore prestige with the buyers. If theproduct is made by a well known firm,it is considered as a guarantee ofquality. Buyers feel that a well knownfirm have a reputation to maintainand the resources to do so. In course

Existing New� Brand Names

Existing Line Extensions Brand Extensions

New Multibrands New Brands


of time, consumers tend to becomemore or less attached to a particularbrand name.

As a result, firms with reputed brandsare in a position to charge higherprices for their products. This has beenfound to be so in footwear, paints andvarnishes and plastic industry. A plasticcompany of Denmark reported- "A10% increase in price would have noreaction, a 20% increase would causesome decrease in sales, with 100%increase we would lose practically thewhole market." Also it has been foundthat an unknown brand must beeffected at a price somewhat lowerthan that of the leading brand in orderto sell a substantial quality. Brands,however, may be subject to a pricecontrol as in the case of drugs in India.

The differences in the prices ofdifferent brands can be illustrated bythe following table giving the pricesof various brands of baby food inKolkata.

Brand Rs/Kg

Amul 122.00

Lactogen 122.00 to 125.00

Cerelac 84.00 to 88.00

Alternatively when prices are formallyor informally controlled, list prices maybe uniform yet open market pricesdiffer and thus reflect the consumerpreference brand upon theirperception of the quality of the variousbrands. eg. The Delhi Market prices ofthe nylon truck tyres varied from Rs1920 to Rs. 2180. The price spreadbetween several brands of the samedrug in New York city was found to bebetween 2 dollars to 10 dollars. Heftydiscounts are offered to sell televisions.

An experimental study on the impactof price on consumer's choice

showed that.

(a) the name of a well known branddoes induce the consumer to befavourably disposed towards thebrand in terms of quality.

(b) The consumers also seem to bewilling to buy for a higher pricefor a well known brand.

(c) a marketer does haveconsiderable flexibility in pricinghis product, provided, he cancreate a psychological imageabout quality.

This perhaps explains why manyforeign controlled companies havebeen buying out the output of IndianCompanies in products l ike carbatteries, tonics, razor blades etc. andmaking them as their own productsmaking huge profits thereby..

Many large houses are purchasingproducts manufactured by small scaleindustries and are marketing theirproducts under their brand names. Thisgives a boost to many small industrieseg. Nelco, a Tata company,purchases its calculators from smallunits and then advertises, markets anddistributes them under its own brandname. (Courtesy Business India). Thusbranding and advertising may leadthe consumers to prefer a productover competing articles even thoughno real difference exists among them.It may not be out of place to mentionthat a number of devices have beendeveloped over a period of time tomake the buyers decision less rationalrather than more rational.

Empirical evidences in other countriesshows that there is not much scientificand strong brand loyalty. More oftenthere is marginal preference for onebrand within a range of acceptable

brands. In India, however, brandloyalty has been found to be high. TheIndian consumer legitimately expectsthat his favourite brand will keep thepace with the latest developments.

However, there is no doubt in the factthat as between well known brands,price elasticity may be very high andchoices can fluctuate by a slightreduction in price. Brand loyaltydepends upon the nature of productsas well. While there is strong brandloyalty in products l ike pressurecookers and headache pills, there isless brand loyalty in the products likewashing powders, light bulbs andtoothpastes. In textiles, brand imageis more effective in urban areas thanin rural areas. In such cases, pricecutting may give one manufactureran edge over the other.

However, brand image has lost itsimportance for consumers ofVanaspati. Consumers have becomeso price conscious that evenhousehold brand names are ignored.During these days of shortages,consumers learned that differencesbetween competing brands is onlynotional.

The exit of Coca Cola in 1978presented an unforeseen opportunityto the competing companies to grabfor themselves a sizeable chunk of themarket vacated thereby. Coca Colacontrolled about 80% of the market in1972. The various companies spentlarge sums of money on advertising.

BRANDING AND IT'S NEEDS

Brand image is something anorganisation cannot afford to ignore,if it wants to carve a niche for itself inthe long run. In order to successfullyhold the brand image, a companymust ensure to preserve the values of

76 THE JOURNAL

legitimacy, distinctiveness, relevancyand consistency. A strong brand hasits long term gain. Hence branding isan art of making a productmarketable. To grow into a sky identity,a brand should incorporate thefollowing fundamental blocks likeLegitimacy, Relevancy, Distinctivenessand Consistency.

A good image is an asset as a goodwill. In an interview on his success inmovies and also publishing- S.S. Vasanthe founder editor of "AnandaViketan" and the well known moviemaker of yesteryears aptly stated thathe owes his success to marketing andaccording to him marketing is a sixword miracle that demands findingthe need and filling it. It was hismarketing savvy that carved a nichefor his corporate brand "Gemini" in theminds of the Indian movie goers ofyesteryears.

When the insurance industry in Indiawas opened up for foreign partners,some of the well known IndianCompanies and corporates like KotakMahindra, Bajaj all ianz, SBI, etcreceived very high premium from theiroverseas partners for using their brandnames. The Coca Cola has such aglobal brand presence the word"Coca Cola" has become the secondwidely recognised English word in theworld.

A striking example of how muchimportance the corporate housesattach for the image of their brand iscited below- A new York couple JasonBlack and Francis Schroeder haveannounced in the Internet that anycompany that pays them $500,000 willget the sponsorship for naming theirbaby son with their brand eg. IfCadbury chocolates choose tosponsor the baby then the baby willbe branded Cadbury.

Once the brand is developed, it isnecessary to establish it and firmlyposition it. The process of establishingthe brand is called brand buildingwhich includes-

1. Market segmentation 2.Identification of the customers3.Understanding the strength andweakness of the competitors 4.Development of authenticcommunication packages 5.Strengthening the channels ofdistribution 6. Identification of the rightadvertising agency that can adoptand nurture the brand.

Brand building has many dimensionsthat depend on the nature of thebrand- Eurobrand is a coverage thathas come into vogue after theformation of the European countries.An Eurobrand refers to brand withstandards that are specified andacceptable in all the memberEuropean countries and at the sametime provide for variations due to thecultural differences among themembers. When an Indian corporatewants to promote its service orproduction in an European Unionmember country, the branding andbrand building exercise has to bewithin the EU frameworks eg. RugMarking.

The Rug Mark is a label affixed to thecarpets exported from India toindicate that no child labour isinvolved in the making of the carpets.Rug Market foundation, which wasestablished in India in 1994 has a list oflooms and factories, which areperiodically inspected to ensure thatthere is no child labour in themanufacture of carpets.

Similarly, the "Lifebuoy" soap is a brandthat extends an image that is morethan a century old. The concept ofbrand building took roots in India, only

after our independence and the

growth of Indian Brands. Till the fag

end of 1920s, only imported brands

were known-that too in metros. The

most popular brands of those times

were the the Pears Soap, Lux, the soap

of the fi lm stars, Sunlight soaps-

promoted by the British, Colgate

toothpaste- launched as far back as

1806 etc. With the growth of Indian

Business many brands like Rexona,

Dabur, Vicco, Godrej, Amul, Bajaj, etc.

came into vogue. Among the MNCs

were ITC, Hindustan Lever, Johnson

and Johnson, etc.

Till mid 1980s, the LIC was promoting

Life Insurance as a generic product.

The brand that lays stress on the quality

of product itself instead of highlighting

the name of the manufacturing

company or the company that

distributes the product is known as the

Generic Brand. The most successful

branding of a service was the one by

the LIC's "Jeevan" prefix for the

different plans of Life Insurance

Corporation of India was one of the

best branding exercises in Indian

Market. While launching Jeevan Mitra

and Jeevan Saathi in 1985, the

Corporation toyed with the idea of

branding these products for better

recognition in the minds of consuming

publics.

BRAND POSITIONING

Brand Positioning is concerned how

well the product performs relative to

the competitive offering and the

needs (benefits sought) of one or more

target market segments.

There are 2 types of positioning - one

based on physical products and the

other on the market perception of the


product. The former depends primarily

on the interface between marketing

and R& D, which help in identifying the

key competition and important

product gaps.

The latter consists of common

strategies such as those concerned

with mono segment, multiple

segments, standby position and

imitative position, an anticipatory

position, an adaptive position and a

defensive position. The decision about

the position chosen should match the

preference of a particular market

segment.

Formulating a positioning strategy

consists of selecting and defining a

market position, the firm plans to

occupy in reaching its marketing

objectives, which requires estimates of

the economic potential of the

alternative position, which are based

largely on sales potential of each

position, and the investment required

to occupy the target position.

Mono segment Positioning- Involves

developing a product and marketing

programme tailored to the preference

of a single market segment.

Multisegment Positioning- This involves

the process of attracting customers

from different segments, which

provides higher economics of scale,

smaller investments and avoids

dispersion of managerial attention.

Standby Positioning: The firms prepare

a standby plan specifying the

products and their attributes as well

as details of the marketing

programmes that would be used to

position the new product.

Imitative positioning- It is same as a

head on strategy, where a new brand

targets a position similar to that of an

existing successful brand.

Anticipatory Positioning: A firm

positions the new product in

anticipation of the segment's need.

Adaptive Positioning- Consists of

periodically repositioning a brand to

follow the evolution of the segment's

needs.

Defensive Positioning- When a firm

occupies a long-term position in the

market segment with a single brand,

it is vulnerable to imitative position

segments.

BRANDING DECISION

In the past, many products went

unbranded, and they were sold

without any supplier identification. The

earliest signs of branding were seen in

the efforts of medieval guilds to require

crafts people to put trademark on

their products to protect themselves

and the consumers against inferior

quality. However, in the present

scenario, it may be said that every

product needs a trading to bag a

better position in the market. Even fruits

like oranges, apples are stamped with

the grocery's name to be noted in

the market. Chicken like "Arambagh's

Chicken" is a popular brand, for

consumption. Artists sign their works, as

a sign of brand. Even though the

manufacturers know that branding

makes the product costlier, why do

sellers prefer to brand their products?

Firstly, the brand name makes it easier

to process the order and trace down

problem. The seller also finds it easier

to track down the order.

Secondly, the brand name provides

for an exclusive copyright to the

manufacturer and gives a legal

protection of unique brand features.

Thirdly, branding helps to attract a

loyal and profitable set of customers.

Fourthly, branding helps the seller to

segment the markets by launching a

variety of products for different

segments of the society, but with a

single brand name.

Fifth, good brand helps build a

corporate image, because it helps

advertise the quality and size of the

company.

At present, the consumers are more

brand conscious, to ensure certain

quality standards and identify the

quality differences, and shop more

efficiently. Hence as can be seen,

branding decision is a must, for the

manufacturers.

Unknownto the

customers

Known to thecustomers

(Awareness)

Recall BrandsRecognised

brands

All Brands

* Accepted brands

* Neutral Brands

* Rejected Brands

s

s

ss

ss

78 THE JOURNAL

AN OVERVIEW OF BRANDINGDECISIONS

Sales Potential of market position

Evolution of sales potential ofalternative position should also beconsidered. The more pertinentmarket dynamics, include -

1. Growth of market segments 2.Evolution of segments ideal points 3.Changes in positioning intensity 4.Evolution of existing brand positions5. Emerging attributes 6. Developmentof new segments 7. Introduction of newbrand.

In these days companies realisedimportance of a brand and havestarted investing amounts inpromotional activities in the attemptto get their brand noticed by thecustomers. It is evident that brand hasgot a value in finding new customers.

But, in the era of increasedcompetition and customer choiceand greater expectations, themedium of channel distributioncannot be overlooked. With theInternet redefining the way business is

done, the brand proposition needs tobe convincing in a new dimension.

In India, LIC is successful in creating astrong brand. In rural India, LIC isalmost synonymous with life insurance.However, things are fast changing inthe times of competition. On the otherhand, general insurers have a lot todo, as regards the brand identity andloyalty, lest they be knocked off theirfeet, by the strong foreign brands.

All brands need to be built around welldifferentiated and credible positioningthat springs from the organisation'shistory. The brand must not only bebelieved but also liked by themanagement and the employees.

Moreover, the same principles applywhether it is branding a cigarette oran insurance company. Customerswant good service, be it a tangible oran intangible good, which should bepresented with credible andattractive propositions, at the time ofdelivery.

BRAND POSITIONING OF A FEW PRIVATEINSURANCE PLAYERS

ICICI PRU LIFE:- The emotional slogan

given by them is "We cover you atevery step of life".

TATA AIG says it as- "With you always".This is a good marketing strategy sincethe TATA brand already instills so muchtrust and confidence in the minds ofIndian customers.

"Making Life easier for you" as islaunched by HDFC standard life hasbeen able to create a great impacton the minds of the people.

MAX NEW YORK LIFE- Wants to spreadit as "Your partner for life", appreciatesthe service demanded by thecustomer. This is a unique way ofaddressing the customers which infact has got a high degree of strengthconverting an ordinary person into abrand loyal customer of MAX.

Product or service gets totalrecognition when there is asynchronization with the corporatebrand. Corporate branding is aconcept where the corporates try toinfluence the target group in such amanner that the customers invariablyassociate the brand with thecompany and not with the productpurchase. Some of the well knownexamples of corporate brandingsuccesses are Xerox, Godrej(almairah), Minnesota mining andmanufacturing(Popular as 3M).In Indiathe examples are SBI and LICI.

Till the time the industry was openedup, the LIC and the GIC had no needto worry about either the brands orabout the corporate branding. Thoughthe newborn private players mayappear weak for the present, it maynot be so in the future and may provea match for the giants. Hence in thechallenging environ apart frominitiating the various messages to gainand retain customer loyalty, necessarysteps need also to be taken to buildthe brand image of the service office.Developing and nurturing a servicebrand is more difficult than promotingand positioning a product. It is here thebrand steps in, to inspire certainamount of confidence by providing anelement of tangibility to a purchase,

Branding decisions Brand sponsor decision Brand Name decisions

Should a brand bedeveloped for the

product?

Who shouldsponsor

the brand?

What namesshould be put on

the products?

� Brand

� No Brand

1. Manufacturer's brand

2. Private brand

3. Mixed Brands

1. Blanket family name

2. Separate family name

3. Company individualnames

s s

sss

Brand strategy decisions Brand repositioning decision

What Brandingstrategy should be

used?

Should the brandbe repositioned?

* New Brands

* Line Extensions

* Brand Extensions

* Brand Repositioning

* No brand Repositioning?

s

s

s

s


which the buyers can neither touch norfeel or examine the attributes.

A major hurdle for insurancecompanies in India is the task forconvincing people about the need forinsurance policy, as most of them areof the opinion that that they do notneed the insurance cover. The brandbuilding for specific products are stillfar off. The building up of a goodbrand image in an information age islike achieving the crown of the Magi.Once a service or product builds up agood brand image, it is difficult toerase it from the public memoryparticularly when mascots get wellpositioned in the customer minds. AirIndia for instance was most popularwith the "Maharaja of Air India"conceived by Umesh Rao of J.WalterThompson and initially sketched byGopalan, a well known artist ofAnanda Viketan Magazine. TheMascot was withdrawn by Air India buthad to be rethrown on publicdemand. Recently, the example isthat of Asian Paints mascot- "Gattu"conceived by R.K.Lakshman andchristened by the public through a'name the mascot' contest on asabbath.

Using mascots is one of the wellconceived brand building exercisesboth for the parent brand and theflankers. When a company introducesa new brand in the market with its ownexisting brand, the newly introducedbrand is called the Flanker Brand, as itflanks the mother brand. For example,Centaur is the emblem of Air India,whereas the Maharaja is its mascot.

In India, new entrants are banking ontheir innovative products, with betterservice and loyalty to capture theuntapped market. Most of them aretrying to emphasize the Indian Culturalvalues.

Branding helps the companies to riseabove their mere names, and on theother hand helps the customer tochoose their product easily.

NEED FOR ADVERTISING IN BRANDING

Advertising plays a leading role in

imbibing a brand picture in the mindsof the customers. The advertisementshould be in such a way as to createan awareness of the company in aholistic sense and not on specificproducts. Here is an estimatedadvertisement and expenditure ofdifferent companies for 2002-2003.

(From articles and financial statementsof the insurance companies)

A study made amongst people across various cities in India, shows LIC is in thetop of the mind followed by ICICI Pru and Max New York Life and others---

BRAND RECALL - LIFE

Insurance Company Top of the mind 1st recall 2nd recall

Allianz Bajaj 2% 4 4

Birla Sun Life 3.33% 6 4.67

HDFC Std Life 1.33% 2 4

ICICI Pru Life 5.33% 1.33 6

ING Vysya Life 2.00% 4 2

LICI 50% 4 6

Max New York Life 5.33% 8 5.33

Met Life 0% 5.33 1.33

Om Kotak Mahindra 1.33% 4.67 2

SBI Life 2% 7.33 4.67

TATA AIG Life 1.33% 4.67 4.67

AMP Sanmar 0% 1.33 0

Aviva Life 2.67% 4.67 3.33

The study also reveals that GIC along with companies like National InsuranceCompany, Oriental Insurance Company, and United India Insurance, enjoythe highest brand awareness in General Insurance sector. However, the privateplayers like Bajaj Allianz, etc. are coming up fast because of aggressive policyselling.

Another study made on two different times about the change in level of brandawareness shows the following:-

Insurance Companies April 2002 September 2001

LICI 98 100ICICI Pru 92 70HDFC Std Life 65 52Om Kotak Mahindra 60 25Birla Sun Life 40 23TATA AIG 31 17 Allianz Bajaj 27 12SBI Life 25 25ING Vysya 18 5New York Max Life 17 6Dabur IGU 11 4Met Life 03 0

Companies ExpenditureOutlay

LIC 100 crores

ICICI PRU 15 crores

HDFC Std Life 10-11 crores

MAX New York Life 8 crores

METLIFE 10 crores

NATIONAL INSURANCE 12 crores

80 THE JOURNAL

CUSTOMER EXPECTATIONS

It is to be borne in mind that customersbeing the focal point in the servicingindustry, the branding strategy shouldalso be made, keeping the same inmind. As is observed, the claimsettlement operation is the mostimportant factor in the minds of thecustomer, followed by the servicequality. The well known fact that theprivate players are better serviceproviders, will surely be an addedbonus to their brand identity. Thepublic companies, however, know themarket better, being in the field for aconsiderably long time.

An overview of the customerexpectations is given below:-

Others:- 11.00%

Networking of branches- 6%

Low premium:- 5%

Better services:- 19%

Security of Investment:-10%

Claim settlement:- 49%

Thus quick and hassle free claimsettlement, should be of primeconcern, for any company, to acquirethe needed trust, along with brandimage. The other positions like premia,service, investment, should also betaken care of.

LICI has not yet developed anymascot that could penetrate theminds of the customers. On the otherhand, other companies eg. AllianzBajaj, has imaginatively conceived"Care" as the brand message.Research study by "Future Brands" a UKbased research agency reveals thatthe traditional ideas that marketershave about brands is fast changing,particularly amongst the youngergeneration that has unlimited accessto information. The youngergeneration, relies more onadvertisement gimmicks, than theutility of the brands. In short, the brandshould have consistency i.e. ability tostay in the market and adapt to thechanges.

RISKS ASSOCIATED WITH INSURANCEBRANDING

The challenge lies in the ways how thecompanies have positionedthemselves as regards their brandimage. The biggest advantage incase of LIC and GIC is that they havetravelled through the bad times ofpeople, in the times of crisis of thesociety and even protecting them inthose times of crisis. But a brandingchallenge arises when they extendinto products and services that are bytheir very nature risky. If, for any reason,the company fails to perform its dutiestowards the customers, be it a coreproperty or a casualty insurancecustomers, the brand image acts likea backfire.

Inspite of the same, those who areaware, will surely realise how criticalthe brand strategy is, and no doubtplay a critical role in establishing andextending a helping hand both to theinsurers and to the insuring public aswell.

As we enter an era of a derelugatedenviron, and a new era of InformationTechnology , can we still rely on brandimage alone? No doubt big playerslike LIC, being an established player,has a very big advantage. Anotheradvantage of a well known brand isthat it comes in handy, if and whenthe organisation wants to diversify. Insuch a case, care should be exercisedby the organisation to see that thereverse does not happen. A badlyperforming subsidiary can well haverepercussion on the image of theparent organisation.

However a good brand image alsocannot pull an organisation too long.It has to be supplemented by otherpositive images like continuedimprovements in product quality,servicing standard and marketingmethods, value additions andfulfi l lment of the needs of the

customer. The brand today is towardsa shrinking global market a "Borderlessworld". This is especially in Europewhere customs duties, border delayand other impediments to deter theEuropean trade are rapidlydiminishing. Companies operating inEurope are eager to launch newbrands initially as Eurobrands, eg.Procter and Gamble successfullylaunched its detergent Ariel as anEurobrand. Clearly some brand nameshave gained worldwide acceptance.Such companies as Kodak,Mcdonalds, IBM, Sony and Coca Colawould not think of any different brandnames as they enter additionalcountries. Many believe that the worldpopulation is growing morehomogeneous in their tastes, thanksto fast communication and travel andwill thus increasingly respond to globalbrands. Global brand thus helps ineconomy of standard practicing,label promotions and advertising.Even when a company has promotedits global brand name worldwide, it isdifficult to standardize the brandassociations in all countries. Heinekenbeer for example is viewed as a highquality beer in the USA and France, agrocery beer in the UK and a cheapbeer in Belgium. Cheez Wheez, a Kraftcompany cheese spread, is viewed asa "fine food" in the USA, a toast spreadin Canada and a coffee flavour inPuerto Rico. Still branding is a must inthe modern scenario and companiesneed to develop brand policies for theindividual product chains in their lines.

Finally, it should be remembered thata good brand image has littlemeaning to a dissatisfied customer. Ittakes a few seconds to leave acustomer displeased, and make himleave the fold, while years of sustainedefforts, can only create a loyalcustomer and make the organisationtrustworthy, and retain an oldcustomer.


Preamble

As is evident Life Insurance is a businessdepending to a very large extent onthe theory of probability, law of largenumbers, factors of mortality andmorbidity and their trends, level ofeconomy etc. In this context itbecomes very obvious that newbusiness is the blood line of anyInsurance Company to survive andalso to prosper since existing policieskeep maturing and also result intoother modes of terminations such asdeath claims, surrender for cashvalues, result in accident or disabilitybenefit etc. For example, it is said thatLife Insurance Corporation of Indiasettles 3 claims in the span of a man'ssingle breath. The resultant reductionin the number of policies is thereforenaturally very large and new policiesshould also be added up to keep upthe requirement of large numberswherein alone the theories ofprobability and actuarial assumptionswork best. Thus the number ofInsurance policies in the portfolio ofevery Life Insurance Company issubject to erosion due to naturalfactors. To keep the numbers at thelarge level which is needed forconducting Insurance business onsound and scientific lines, constantaddition of new policies is needed.

While the erosion of numbers due tonatural reasons and for reasonscontracted against is inevitable, itbecomes very much imperative for

LAPSATION OF LIFEINSURANCE POLICIES -

A CRITICAL STUDYBy : Shri N.V. Subramanyan,

Manager - Customer Service, ING Vysya Life Insurance Co., Hyderabad.

that it deserves and remedial/corrective action taken for the wellbeing of the Life Insurance Companyas well as the policy holders.

IMPORTANCE OF RETENTION

Retention of existing business in theInsurers books is as important, if notmore important, as procuring newbusiness. Further income from anexisting policy that has run for someyears is much more stable andtherefore more certain to be realisedfor a long time in the future whereas anew policy may be more prone tolapsation due to various reasons suchas buyers' resistance prior to taking thepolicy etc. So, special attention needsto be focussed by the Life InsuranceCompany to not only procure newbusiness but also to prevent lapsationor surrender of old policies, improveconservation of existing business andthereby improve productivity andprofitability. In this area it need not bementioned that the key for improvedretention or conservation of oldpolicies is customer service and thisaspect assumes a lot of importance.

Lower levels of lapsation rates are alsoindicative of better quality of LifeInsurance business underwritten in thebooks of the company and also thewell oiled functioning of the marketingwing of the Life Insurance Company.Hence, the Life Insurance Companyshould contemplate and initiate allpossible steps to ensure that lapsation

the companies to see that thereduction in number of policies onaccount of lapsation of existingpolicies should be minimised if notaltogether removed. Lapsation ofpolicies has been recognised as agreat source of loss to the partiesconcerned - the individual policyholder, the Life Insurance Companyand also the employees and fieldforce.

The present paper is an attempt todelineate the complex phenomenonof lapsation of Life Insurance policiesand to suggest possible ways ofcontrolling the menace. The core ideaof the paper was thought and workedout during the period 1997 to 2000further to which some changes haveobviously taken place in the countryat large and in the Life Insuranceindustry in particular. However thehighly critical nature of the subject oflapsation of Life Insurance policies andits effect on the Life InsuranceCompany remains perhaps muchmore significant today than ever -what with the entry of several privateLife Insurance Companies in the field,a new regulator in the shape of theInsurance Regulatory andDevelopment Authority etc., severalpath breaking changes in the field ofeconomic reforms such as fall ininterest rates etc. Therefore, it isimperative that the aspect oflapsation of Life Insurance policies isrecognised with the due seriousness

D. SubrahmaniamAward


Essay2003-04

82 THE JOURNAL

is kept at the minimum if not totallynegated - perhaps any cost paid forthis is worth it.

EFFECTS OF LAPSATION

1. Erodes bottom lines - It is knownfact that the insurer has to spendvery heavily in the initial years toprocure a policy by way ofpayments to intermediaries (inthe shape of commissions,incentive bonus to developmentofficers, salaries to administrativeemployees engaged inprocessing New Business,establishment expenses etc.),stamp duty, postage, fixed costs,administration costs etc. and ittakes quite a while for the insurerto fully recover these initialexpenses. If the policies lapse,especially soon after they areissued, the insurer has no way torecover those expenses. Suchlosses lead to fall in theprofitability for the insurer - thisleads to a fall in the bonus ratesfor all policy holders. This againleads to further lapsation assome people would be againdissatisfied with the fall in profitsand this vicious cycle continues.Therefore, it is very imperativethat the insurer controls lapsationfrom the very beginning.

2. Leads to loss of goodwill amongthe policy holders as theyperceive the premiums paid aslost to or for feited by theCompany - while this may beperfectly justified by the legal.Contractual and actuarialprinciples it remains a cause forthe policy holders to view it asmoney swindled by theCompany.

3. Lapsation hits the income ofseveral agents by way of loss ofcommission on the policies thatare lapsed. Now, even

Development Officers pay aprice as first year lapsation hitstheir incentive bonus calculationalso.

4. Lapsation of policies hampersthe ability of the companies to doproper manpower planning asthe companies cannotaccurately evaluate theadministrative staff needed toprocess the proposals and alsofor their further processing orpolicy servicing. The Companyneeds to have a clear idea of thenumber of proposals that wouldbe processed so as to estimatethe people needed to completethem into policies. The incidenceof lapsation would render suchefforts put in by the employeesuseless.

5. Such lapsation would lead to thefeeling that the Company is overstaffed since the total cost byway of salaries would be high(including the employeesneeded to process the lapsablepolicies also) while the premiumswould not be collected on these.Lapsation thus is an anti-employee phenomenon.

The present study is an effort to studythe genesis of the problem oflapsation, which has a contemporaryhue, in view of the highly competitivescenario and attempts to givesuggestions to correct the scenario.The feedback given was collected toa major extent during the stint atWarangal in 2000. The methodologyused for the study is to have a surveyover telephone over premiumdefaulters over a period of time to getto know the reasons for defaulting onpayment of the policy premiums.

Further, for the recent trends a studyof data of premium defaults is doneand the data given in separate graphsattached as annexure to this essay.

The area covered here is mainly theTwin Cities of Hyderabad andSecunderabad and to some extentthe State of Andhra Pradesh and afew cases outside of the State also.The efficacy of the study may betaken to be high since the data is fromthe entire country and therefore it maybe valid for the entire country.However, the data for the entirecountry is taken for the comparison ata state wise level.

REASONS FOR LAPSATION

To have a good grasp as to thephenomenon of lapsation, it would behelpful to look into the main reasonsfor lapsation. Some of the main pointsthat came to light during the courseof the study are as under:

WRONG SELLING

Most of the participants respondedthat they were not satisfied with theproduct that they were sold. The mostcommon refrain was that they werenot explained of the salient featuresof the policy at the time of canvassingthe product. They informed that thefocus of the agent was only to finishthe sale at the time of canvassing thepolicy - most of the persons alsoinformed that they could not fullycomprehend what was sought to beexplained by the agent at the time ofselling the policy also. Therefore, mostof the policy holders were of thefeeling that the policy they were leftwith was not fulfilling their needs, sincethey did not have the full idea of whatit covered and its total benefits.Therefore, they let the policy to lapse.But it is pertinent to note that whenthey were informed of the variousbenefits arising out of holding thevarious policies, they were quite willingto continue the same.

NATURAL MARKET

Many parties covered in the study andcontacted during the survey were of


the natural market of the agent ordevelopment officer. They hadbought the policy as an obligation tothe concerned agent ordevelopment officer who was theirrelative or close friend or neighbourwith an idea to help them. Some ofthe agents or development officerswere now in a terminated conditionand hence did not contact the policyholder to pay the premiums and tokeep the policies in force. Further,some of them being the very closefriend or relative of the agent orDevelopment Officer did not deem itnecessary to pay the premiums sincethe agent or Development Officer didnot stand to gain or lose anything inthe process. Some of them were evenmildly against the Company forhaving removed the DevelopmentOfficer or agent from its rolls andhence were against paying thepremiums. Some of them felt it to bevery difficult for them to pay thepremiums from their incomes aftermeeting all their expenses.

FORCED SELLING

From the statements of the parties, inmany cases it appeared that thepolicies were sold by way of forcedselling rather than by convincing theparties about the benefits of insuranceand creating a responsible feeling intheir minds so as to keep paying thepremiums during the contract period.Worse sti l l, some parties werecomparing the returns projected bythe policies with the returnsreceivable/projected by banks andpost offices in their recurring depositschemes and arguing/feeling that thereturns in the insurance policies werevery unattractive. This goes to give afeeling that the agents had not beensuccessful or had not attempted toexplain the concept of Life Insurancein its detail to the parties since LifeInsurance basically is to be viewed asa risk sharing device and the aspectof returns/other benefits (such as

income tax rebates) must ideally onlybe incidental to the aspect of sharingof risks. So when the party took thepolicy, he was in two minds as to itsuses and when he compared theoptions with other investmentavenues, he gave more importanceto projected returns rather than theexcellent risk coverage it offered. Thenew philosophy of the regulatorInsurance Regulatory andDevelopment Authority in giving moreleverage to the policy holder by wayof free look period etc. only made hisjob easier to ask for refund. Peoplewho did not initially respond to theoffer of free look ended up lapsingtheir policies.

OVER SELLING

In many cases of premium defaults i.e.lapsation, it was found that there wasan element of over selling involved -the parties were not fully informed ofthe matter of financial commitmentinvolved in taking up a Life Insurancepolicy and the need to have a lot offinancial discipline to keep self andfamily members covered fromfinancial risks and other suchuncertainties. If the matter and thebenefits of the policy was perhaps fullyintimated to the party, the aspect oflapsation would not have arisen orremained at the level currentlyexperienced. In some cases, it leavesone with the doubt as to whether thepolicy was canvassed with the policyholders' interest and his insuranceneeds in mind or so as to meet thebusiness targets or commission needsof the agents or DevelopmentOfficers. Had there been need basedselling of Life Insurance, the aspect oflapsation would have been far morecontrolled and minimal.

BOGUS SELLING

In some cases, a doubt as to whetherbogus selling has played a part in thepolicy being lapsed raises its head.Usually, in such cases, where doubts

of bogus selling existed, the partieswere not traceable in the phonenumbers given for contact. Further,another interesting thing that wasnoticed was that many such policieshad earlier been returned undeliveredat the time of policy completion.Another thought provokingobservation was that, a majorproportion of such undeliveredpolicies were later collected by theagents' or Development Officers' foronward delivery to the policy holders.So, it appears that the practice ofhanding over the undelivered policybonds to the agents andDevelopment Officers needs athorough rethink.

EFFECT OF COMPETITION

In many cases, the effect ofcompetition has been felt in leadingto lapsation of policies. The parties aresometimes attracted by the variousfeatures exhibited by the policies ofthe competing companies and witha view of availing of such benefitslapse their existing policies. It is adebatable question as to whethersuch policy holders keep their newpolicies in force by paying regularpremiums. It is also doubtful as towhether such parties inform the newinsurer whom they approach for theirnew policy about their earlier policiesbeing lapsed. Therefore, it isimperative that a way/procedure ofcross examining the previous policyparticulars with all insurers for aparticular prospective policy holderbe devised - a la clearing house or IIB(Indian Institute of Bankers) that existsamong all the bankers in India. Sucha tie-up would also be very muchnecessary to investigate into earlydeath claims etc. so that the aspectof the same person having held lifeinsurance from different insurers couldbe investigated and moral hazard canbe ruled out - all the more in view ofthe recent entry of several privateinsurers in Indian market since it is likelythat unscrupulous elements or parties

84 THE JOURNAL

would like to take undue advantageof the changed situation. Thus, theaspect of lapsation has several otherconnotations and several otherimportant angles involved that needto be looked into so that noundesirable developments strike rootsin the Indian insurance market. In thisconnection, it must be understoodthat the role of the regulator i.e.Insurance Regulatory andDevelopment Authority and also theindividual insurers is very high, complexand not capable of being overemphasised.

INTRODUCTION OF NEW PLANS

One of the common reasons observedfor lapsation of policies that arementioned by the parties is theintroduction of new insurance plansthat are perceived to be better by thepolicy holders. In such cases, perhapsaided by the ideas given by the agentor Development Officers, they preferto take a new policy and let theirexisting policies to lapse. Mostly, thepolicies are allowed to lapse as theymay not be able to afford the financialcommitment of paying the premiumof both the new and old set of policiesor the continuation of both sets ofpolicies may be beyond the financialunderwriting standards of the insurers.Thus, it is to be accepted thatcompetition which brought in severalnew policies with excellent featuresand factors has also led to almost aspike up in the lapsation of policies.

BAD SERVICE

Bad service, some times only asperceived by the policy holders assuch, has also been stated by theparties as a reason for letting the policyto lapse. Bad service in the eyes of thepolicy holder has usually involvedsome of the following matters, almostin all cases, where bad service wasquoted as the reason for lapsation:

(i) Delay in completion of the

proposal into policy though thismay sometimes be due to non-compliance of furtherrequirements called for by theinsurer;

(ii) Policy given is not meeting his/her expectations;

(iii) agent has convinced the partyfor one policy while the insurerhas offered the party anotherpolicy due to underwritingconsiderations by way of acounter offer;

(iv) lack of follow-up by the agent orDevelopment Officer incollecting the premium. Almostall the policy holders expectedtheir agents or DevelopmentOfficers to remind them of therenewal premium on the duedates, collect the renewalpremiums from their end whenthe parties had the money andat their convenient time, remitthe same at the office and givethem their renewal premiumreceipts. When this was notdone, perhaps, since the agentsand Development Officers arenot authorised to collect themoneys from the parties, it wasperceived as lack of goodservice, perhaps unfairly so;

(v) some of the parties mentioneda discernible perceived changein the services offered by theagents and DevelopmentOfficers after the sale iscompleted.

IGNORANCE

Ignorance on the part of the partiesas to the benefits of the insurancecover provided by the insurancepolicy, the need for paying premiumsregularly so as to keep it in force, thevarious facilities provided by theinsurers to pay the premiums (atcollecting banks, via Bank ATMs

(automated teller machines), MoneyOrders etc.), the many varied types ofrevival facilities provided etc. also hasled to a large number of policies tobe lapsed. Therefore, it is felt that asustained effort may be needed tokeep the knowledge and awarenesslevels of the customers i.e. policyholders at a high level so that theincidence of policy lapsation isminimised or better still wiped out.Many simple gestures such as sendingan SMS on the cell phone (shortmessaging service), sending an e-mailto remind the party of the premiumdue dates, perhaps a periodical newsletter to remind the newdevelopments and matters wheretheir special attention is needed asregards their policies (this may be triedinitially for high profile policy holders ifthe cost involved is thought to be onthe higher side), a reminder on theirspecial days say increment days etc.to consider revival of their lapsedpolicies, if any, go a long way inremoving the ignorance from thepolicy holders and also educatingthem as to the benefits of LifeInsurance - better still it can also beviewed by the policy holder as goodservice and can be used as a verypotent marketing tool by the Insurersto canvass new business.

NON-RECEIPT OF NOTICES

Non-receipt or late receipt ofreminders to pay the policy premiumfrom the Insurance companies by wayof premium notices, phones from callcentres etc. were also mentioned bythe parties as reasons for allowing theirpolicies to be lapsed. The main refrainwas that they could not remember thedue dates to pay the policy premiumin the absence of policy premiumreminders. Therefore, efforts may bemade to ensure that the policypremium reminders are sent in time tothe policy holders without fail. Differentchannels of transmission or despatchmay also be adopted to ensure thatthe policy premium reminders do


reach the policy holders so that theyserve the intended purpose. It is oftenseen that many policy premiumreminders are simply returned to theLife Insurance Company's office withcursory remarks by the postaldepartment leading the officials todoubt whether any efforts have beenmade at all to deliver them. Therefore,adoption of alternative means ofdespatching the policy premiumnotices such as through courier,informing through telephone etc. maybe considered to ensure promptdelivery. This will, to a major extent,eliminate the aspect of lapsation dueto non-receipt of premium notices.

NO FOLLOW-UP BY AGENTS

It is usually mentioned by the policyholders that there are no reminders orany other follow-up measure from theagents or Development Officers to seethat the premiums are paid to keepthe policy in force. Traditionally inIndia, as is perhaps the case across theworld, by the very nature of LifeInsurance business, much moreimportance is placed on procurementof new business as we mentioned inthe preamble and sometimes theagents and Development Officersmay not be able to devote enoughattention to remind the customers oftheir premium payment dues, whichmay lead the policy to be lapsed.However, it has to be admitted thatthe importance placed by the LifeInsurance Corporation of India as wellas many other Insurers - for exampleby linking other benefits such as clubmembership, reimbursement ofcertain expenses such as telephonebills, club expenses, sanction ofadvances etc. to the aspect ofretention of existing policies - hasplayed a major role in seeing that themaximum possible attention is givenby the agents towards policy holders'service needs.

GENUINE PROBLEMS

In quite a few cases, the policies were

allowed to be lapsed by the partiesfor genuine reasons - such as familydisturbances, loss of job, reduction ofincome, sickness in family deprivingthe party of much needed funds etc.These aspects usually are beyond thecontrol of the individual parties andunfortunately the first casualty in suchfinancial emergencies is usually theLife Insurance premiums. It is thereforevery much imperative on the part ofthe insurer, the intermediaries such asAgents and Development Officers toeducate the parties that Life Insuranceis essentially to counter or take careof such emergencies only - perhapsthey can arrange for a policy loan etc.to tide over the crisis and also to ensurethat the policy stays in force. This willearn the goodwill of the party, helpthe party to tide over a crisis and alsoopen the doors for New Business alsofrom the same party either throughhimself or through his / her references.

MEDICALS

Strangely in some cases the reason forthe policy continuing to be in lapsedcondition happened to be the needof undergoing medical examinations.The chief reasons behind thisphenomenon were as under:

- Reluctance on the part of theparty to undergo medicalexaminations due to somevague feeling of insecurity. Mostof the times the vague feeling ofinsecurity is unfounded andbaseless and not indicative ofany serious problems. Usually it isthought that people rush torevive their policies or take newLife Insurance policies when theirhealth concerns rise - but this isalso a reason for polices notbeing revived when medicalexaminations are needed.

- General & casual indifference onthe part of the insured parties toundergo medical check up - thiswas basically due to

procrastinating nature. Somepersistent follow-up by theagents or Development Officers,perhaps by talking to the family(spouse, parents, children etc.)of such customers, would havebeen very effective in such casesin ensuring submission of medicalrequirements as well as revival ofthe policies.

- Unfavourable medical reports.

A more pragmatic and liberalapproach on the part of the insurers,however, without sacrificing soundunderwriting principles, would beneeded to see that maximum policiescan be revived. For example, whenthere is a special campaign for revivaletc. going on, it would be very muchuseful if one or two medical examinersare made to be present in the officeitself - this will, to the maximum possibleextent ensure prompt medicalexaminations in all deserving casesand also take care of the reluctanceof the parties to go to the medicalexaminers.

CHANGE OF ADDRESS etc.

In quite a few cases, the reason for thepolicy being lapsed was the changeof address of the party. In such cases,the parties or the agents andDevelopment Officers usually had notinformed the office of the change intheir mailing address. Therefore, thepolicy premium notices, the final lapseintimation letters, revival campaignletters etc. did not reach theconcerned customers. No wonder,neither the address was changed ortransfer of policies effected andnaturally the policies were lapsed. Aproactive approach on the part of alli.e. the insurer, the agents and theDevelopment Officers would beneeded to see that such instances donot occur and to ensure thatmaximum number of policies are keptin force or revived if already lapsed.

86 THE JOURNAL

SSS POLICY PROBLEMS

Another area of concern leading tolapsation of policies was servicingproblems in policies taken under salarysavings scheme. Theoretically undersalary savings scheme the possibility oflapsation is minimal, if not exactly nilbecause here-in the policy premiumsare deducted straight away from thesalaries of the policy holders. However,in many cases confusion was presentin servicing of policies under salarysavings scheme - such as servicingbranch identification and thesubsequent transfer of policy records,sending monthly demand invoices tothe paying authorities, non-deductionfrom salaries by the paying authorities,non-remittance of premiumsdeducted by the paying authorities,frequent transfers of employees whosepolicies are under salary savingsscheme which are not promptlyintimated to the insurer, othermiscellaneous problems such as lackof rapport between the insurer andthe establishment department of thepaying authority etc.. It is notuncommon to come across policyholders who had got their policiesconverted from salary savings schemeto ordinary mode and whose policieshad later lapsed.

A proper and planned effort from theinsurer would go a long way inreducing the problems andstreamlining the servicing aspects ofsalary savings scheme policy servicingand this as a corollary would greatlylimit the probability of salary savingsscheme policies lapsing.

INADEQUATE EXPLANATION OF THEPRODUCT - RIDERS ETC.

It was a peculiar experience to hearpeople saying that they find thepolicies to be uneconomical andunattractive! After all how can aperson take a policy first and laterrealise that it is not economical sincebuying a policy is even today a major

decision in India - people express a lotof reservation and try to postpone thedecision to buy a Life Insurance policy- otherwise there would not have beenthe need for a vast agency force andLife Insurance policies like all othercommodities would be �bought� andnot �sold' as is the case now. Manypeople complain that the premiumthey pay, say in a money back policy,is actually more than the Sum Assuredthey would be getting and hence thepolicy is thought to be uneconomicaland is allowed to be lapsed.

This only proves that all the variousfeatures of a policy (such as whichkind of parties it is intended to, whatfurther actions would make the policyproceeds economical etc.) are notexplained in totality to the parties.Perhaps, the initial effort to sell a policydoes not include (at least not in allcases) the complete explanation ofthe policy to the satisfaction of thepolicy holders.

Proper care at this stage andreassurance/follow up at regularintervals would be very helpful inretaining the confidence and goodwillof the policy holders and ensuremaximum policies to be in force andalso lead to generation of morebusiness.

HOUSING FINANCE LTD. CASES

Another major area where lapsation(perhaps programmed lapsation) wasobserved was in the case of policiesassigned to LIC Housing Finance Ltd.or other financial institutions ascollateral security for loans taken or aslegal requirements. The policies wereallowed to be lapsed once the totalloan was disbursed or the party's loan/ legal requirement was fulfilled. Thiswas especially so in cases where thepolicy premium payment was de-linked from the loan instalmentpayment. Perhaps, a stricter control tosee that the financial institutions ensurethat the policies are kept in force may

be very helpful and effective. After allseeing that the policy given ascollateral security is kept in force is inthe interest of the concerned financialinstitutions also. It may be prudent andhelpful to send the policy premiumnotices, lapse intimations and all othercorrespondence to the concernedfinancial institutions in addition to thepolicy holder since they can thenensure that the payment is indeedmade. A special fee or penalty mayalso be helpful in all such cases wherepolicies had been allowed to belapsed. Perhaps easy revival optionsmay also be given in these groups toensure that policies are kept in forceand incidence of lapsation is keptminimum if not altogether nil.

MALPRACTICES BY AGENTS AND FIELDFORCE

There were some instances where fieldforce such as the agents orDevelopment Officers had alreadycollected the money well in advancefrom the party but not remitted to theoffice for a long time. However, suchcases were quite rare - though thisaspect also needs to be checked toensure that lapsation is kept to aminimum and the Insurer's goodwillremains intact.

POSSIBLE SUGGESTIONS

FREE LOOK

Introduction of free look has been avery helpful feature that has beenintroduced by the Regulator i.e.Insurance Regulatory andDevelopment Authority. It hasprovided the policy holders with anoption to evaluate the policy taken bythem i.e. to see whether it meets theirneeds, requirements, outlook,financial commitments, financialoutlook etc.. If the policy does notmeet any of their needs andaspirations, they can return the policyto the insurer during the free lookperiod for a refund of their premiumafter deduction of some nominal


charge. This has put a greaterresponsibility on the insurer, the agentsand the Development Officers alike todo need based selling alone. This alsohas two positive effects on lifeinsurance business namely -

(i) Since the policy holders are soldonly need based policies theyshould be fully (at-leasttheoretically) satisfied with thefinancial abil ity to pay thepremiums in the future andtherefore lapsation for financialreasons must be low - this aspecteffectively weeds out potentiallyunhealthy practices in marketingof Life Insurance policies and alsoreduces lapsation in future.

(ii) The Life Insurer can also have acheck by way of the free lookperiod - the Life Insurer caneffectively analyse the free lookcancellations that take place inhis organisation and takeremedial measures vis-à-vismarketing activities, policydesign, policy servicing aspects,market segmentation, productsegmentation etc. This should bea major solution as far aslapsation for other reasons areconcerned.

EDUCATE FIELD FORCE

Thorough education to the agentsand Development Officers as well asthe other field force of the Life Insurershould be taken up in a big way as tothe adverse effects of lapsation. Thisalone can hope to weed out thismalaise in the long run and ensurehealthy growth of the insuranceindustry. Lapsation of policies is a majordrag on the profitability of the LifeInsurance Company - lapsed policiesaffect all the parties involved in thebusiness adversely. The Life InsuranceCompany incurs a huge amount ofexpenditure to initially effect a policywhich goes waste and this is a drag

on the Life Insurance Company'sincome and life fund; The party endsup with his cover being lost and in amajority of the cases also loses thepremiums paid by him which may beforfeited by the Life InsuranceCompany - this adversely effects theLife Insurance Company's goodwillalso; The efforts of the agent, theDevelopment Officer and other fieldforce go waste and they may alsostand to lose their commissions,incentives, club membership etc. onaccount of lapsation and finally suchlapsed policies also render the LifeInsurance Company liable tounscrupulous activities by exposing itto vigilance aspects. Thus withoutexception lapsation benefits no one.Further, the manhours and effort lostin the process can never be totallyestimated and the fact remains thatthe same time could have beendirected profitably elsewhere.

Therefore, it is imperative on the partof the Life Insurance Company to fullyeducate its field force as to theadverse effects of lapsation and toadvise them to avoid such business atany cost which is likely to end up aslapsed policies. Since, it is felt that theagents are the primary underwriters, itshould be the policy of the LifeInsurance Company to see that theagents are fully aware of theconsequences of lapsation - theirattitude and approach such be sotuned to the seriousness of the issue oflapsation that they do not end upadding to the problem - instead theymust be the practical antidote to theproblem. Indeed, it would be noexaggeration to state that if theagents are adequately trained, theywould be the first and best filter as faras lapsation is concerned and theproblem can be nipped at the budi.e. before a proposal ends up beinga policy itself.

TAKE ACTION ON ERRING FIELD FORCE

As a supplement to the point

mentioned above regardingeducating field force, it would behelpful if certain punitive or correctiveaction is taken in cases where it canbe said that the action of the fieldforce is leading to the aspect oflapsation. This would put the field forcein check and make them ensure thatthey take all precautions to weed outproposals that may lead to lapsedpolicies in the future.

CDAs

It is usually observed that the policieswhich had ended up as CDAs(cheque dishonoured cases) at theproposal stage itself and later werecompleted by repayment in cash etc.usually tend to be lapsed policies infuture. Adequate care at this stageitself would be helpful in controlling theincidence of lapsation.

IMPROVE SERVICE STANDARDS

It would be very much necessary,crucial and also helpful for the LifeInsurance Company to have a look atthe pulse of the customerexpectations and the level of servicestandards in the market vis-à-vis its ownservice levels. It would then be possiblefor the Life Insurance Company toensure that its service levels is at thetop bracket in the market and takesteps to continuously monitor andimprove its service standards so as toensure customer satisfaction andcustomer delight. This would go a longway in keeping the customers loyal tothe Life Insurance Company and alsoto minimise the possibil ity andincidence of policy lapsation. Presentday customers have not only becomemore knowledgeable but also moredemanding in their expectations,price savvy in their outlook, morediscerning in the choice of productsand as a consequence demand fullvalue for their money. As a result, thecustomer has become the real 'King'of the market - one who can make or

88 THE JOURNAL

mar the prospects of a business entityas well as punish or reward anyorganisation. In the competitive set-up, when the various products offeredby the various players are more or lesssimilar with very little distinction, if any,it is very much imperative for the LifeInsurance Company to ensure thatcustomer service offered is top class.

Mainly, the steps that may be takenin improving customer service may bein the following areas:

(i) Make use of the latest ininformation technology to servelarge numbers of customers(which most Insurers, especiallylife Insurers have) promptly,efficiently and proactively. Thismay finally bring down theiroverheads as well as variableexpenses. Technology mustcomplement as well assupplement distribution channelsat a low cost so as to improvecustomer service, improveprofitability as well as the imageof the institution.

(ii) Ensure sufficient and up-to-datetraining and development for itsemployees, agents and otherdistribution intermediaries. Theestablished companies wouldhave to provide staff training forimproving customer service andalso to put the employees atease as regards newtechnology, new demands fromcustomers, and the latestdevelopments in the insuranceindustry etc.

(iii) Design good contact andfeedback forums with customersso as to understand theirchanging needs and demandsand to further develop newproducts, improve existingproducts and thereby improveprofitability.

EASE REVIVAL NORMS

Easing revival norms may be very

helpful in reducing the incidence oflapsation - it would be useful to controlfurther lapsation and also actuallyhelp in controlling the dues on thelapsed policies from piling up. It maybe said here that the major Indianinsurer i.e. Life Insurance Corporationof India offers a wide variety ofchoices by which lapsed policies canbe revived such as:

(i) Ordinary revival;

(ii) Special revival;

(iii) Loan cum revival;

(iv) Instalment revival;

(v) Survival benefit cum revival incase of money back policies etc.

It also floats on an annual basis thespecial campaign for revival of lapsedpolicies wherein some concession isgiven on late fees and also for medicalrequirements subject to certainrestrictions. It is usually observed thatthe campaigns are fairly effective. Itmay be very useful for the LifeInsurance Company as well as thepolicy holder if more effective andinnovative measures are taken toreduce lapsation. Some of theinnovative schemes that may beconsidered are:

(a) The Life Insurance Companymay arrange for financearrangements from banks orfinancial institutions for persons torevive their policies especiallywhere the lapsed dues areheavy. This may prompt manypersons to revive their policies. Itis found that many people lapsetheir policies since they facecertain temporary financialtroubles and not because theyfind the policy to beuneconomical. In such instancesby the time their financialdifficulties are eased they findthat the premium dues havemounted up and then they find

it difficult to find avenues tomake good the dues. Thus theyare forced to keep their policieslapsed rather than get themrevived. If bank loans etc. can beprovided, it would be veryeffective for such cases. Forexample, we find that LifeInsurance Corporation of Indiahas tie-up with Corporation Bankand some other banks and thesebanks may be willing to lendmoney also for elite or deservingpolicy holders at their own termsmuch like automobilemanufacturers have tie-ups withbanks for providing loans topersons to buy cars or twowheelers such as scooters,motorcycles etc.

This would also lead to synergybetween the Life InsuranceCompany and the banks andeach can grow to each other�smutual benefit. However, criticalaspects to Life Insurance such asmoral hazard, approval from theregulator that is InsuranceRegulatory and DevelopmentAuthority may need to be lookedinto in this area.

(b) Other means of arrangingfinance etc. may be explored.Now the interest rates have fallendrastically in the financialmarket. Therefore, it may bebeneficial for the insurer toprovide policy loans atdiscounted or lower rates forthose policies that haveacquired paid up value andwhich are in lapsed condition, ifthe loan is meant to pay thefuture premiums,. This wouldgreatly encourage a lot manypolicy holders whose policies arelapsed to get their policiesrevived.

GIVE INCENTIVES FOR REVIVAL

Subject to the approval from the


regulator i.e. Insurance Regulatoryand Development Authority and afterlooking into other important matterssuch as moral hazard, financialviabil ity and other underwritingaspects, the Life Insurance Companymay perhaps consider givingincentives (monetary or otherwise) tothe policy holders for revival of theirpolicies. This may not be very much astrain for the Life Insurance Company,since the company is receiving thetotal arrears of premium including riskpremium also from the date of firstunpaid premium though it is / has notcovered risk for that period. It mayperhaps divert a small portion of thatrisk premium as incentive for policyholders to revive their lapsed policies.

Such revival would actually increasethe total income of the Life InsuranceCompany and the profitability of thecompany as well as the policy holdersalso is likely to improve.

INCREASE MINIMUM PREMIUMS

It would be helpful for the LifeInsurance Company to considerincrease of minimum instalmentpremium since policies with higherinstalment premiums are unlikely to belapsed by the policy holders. Increasein minimum premiums actually is agood check also on the quality of NewBusiness introduced by ensuring thatpersons of a certain minimum financialstanding are only made as policyholders - naturally as a corollary suchpolicy holders are not usually likelyallow their policies to be lapsed. Theyalso are likely to enjoy a betterstandard of living, comforts and alsomedical facilities. Therefore, not onlylapsation - even early death claimsetc. can be finely controlled and in theprocess all the parties namely, thepolicy holder, Life InsuranceCompany, agents and DevelopmentOfficers benefit.

SELL MORE YEARLY POLICIES

As a corollary to the above, it would

be better for the Life InsuranceCompany to sell more policies withyearly mode of premium payment. Inthe yearly mode, the premium paidat the outset by the policy holder isnaturally higher than in any othermode, except the single premiummode. In such a situation, the policyholder would be most reticent andunwilling to allow a policy with yearlymode of premium payment to lapse,except perhaps for really genuinereasons and for reasons beyond theircontrol. Thus, it would be a goodcontrol to put a cap on the incidenceof lapsation.

ENCOURAGE ALTERNATIVE PREMIUMPAYMENT CHANNELS SUCH AS AUTODEBIT FROM CREDIT CARDS ETC.

As a corollary to the above two pointsmentioned regarding increasingminimum premiums and increasingshare of policies with yearly mode ofpremium payment, it would also needto be added that the Life InsuranceCompany should perhaps alsoincrease the modern and alternatemodes of premium payment such asby ECS (Electronic Clearing System),direct or auto debit from policy holdersbank accounts, auto debit from thepolicy holders credit card accounts,payment through internet etc.. Suchmeasures would be very useful indecreasing the incidence of lapsationin the policies of persons who are eliteand very busy and who do not findthe time to effect regular payment ofpolicy premiums. For example, creditcard as a means to pay the policypremiums has been introduced bymany private insurers who accept itfor both the New Business proposals topay proposal deposit as well as to payrenewal premiums. This would not onlysave the policy holder the trouble ofmaking regular payments of his ownbut also the Life Insurance Companyform worrying about and followinglapsed policies. Further, this would actas a natural selection in favour of the

Life Insurance Company as personswith credit cards, access to internetetc. are likely to belong to a betterstrata of the society as well as beingmore knowledgeable of manyaspects such as health, financialmarkets as well as the importance ofLife Insurance.

In fact, such modern modes shouldnot only be introduced - they shouldalso be propagated and popularisedin a big way among the agents,Development Officers and also thenew and existing policy holders. Thiswould also decrease the incidence oflapsation of Life Insurance policies.

INCREASE SALE OF LIMITED PREMIUMPOLICIES

In the same philosophy of the pointsmentioned above, it would bebeneficial for both the Life InsuranceCompany as well as the policy holdersif more number of policies with limitedpremium payment is sold. In suchpolicies, the premium liability for thepolicy holders is limited to a shorterperiod than otherwise and thereforemore people are likely to go for suchpolicies, perhaps mainly due to thepsychological factor. So they are lesslikely to allow the policies to lapse.Further, naturally the instalmentpremium payable in such policieswould be higher - this would alsoprevent the policy holders fromallowing their policies to lapse owingto the large possible financial lossinvolved. Finally, even the agents andDevelopment Officers are likely tofollow up such policies more regularlysince the parties would usually be highend customers. Thus, it is capable ofcapping incidence of lapsation ofpolicies to a good extent.

SELL POLICIES WITH MORE INVESTMENTASPECTS

At the time of thinking and penningthe ideas, there were no Life Insurance

90 THE JOURNAL

policies with much focus at aninvestment oriented level such astoday's Life Insurance Corporation ofIndia's Bima Plus etc.. The only productthat had some element of LifeInsurance while being mainlyinvestment and returns oriented wasperhaps Unit Trust of India's U.L.I.P (UnitLinked Insurance Plan) and itscounterpart with other mutual fundsalso. It was often felt and heard(especially among the employees atthe time of the year end when taxplanning etc. used to assume a lot ofattention and importance) that everyemployee should have one PPF(Public Provident Fund) account andshould take the maximum amount ofcover available under Unit LinkedInsurance Plan (the maximum limit fortarget amount was then Rs. 60000.00per person). The common feeling alsowas that why Life InsuranceCorporation of India (the only LifeInsurance Company then) cannotintroduce such a plan on its own whenit has immense investment expertise atits command. Introduction of suchplans ensures that the policy holderstherein are mainly with a long termfocus and are also likely to beinvestment savvy and would not allowtheir policies to lapse. It is perhaps avery good scheme to minimiseincidence of lapsation.

INCREASE RENEWAL COMMISSIONAND REDUCE FC & FYC

It is commonly felt that the agentsinterest in a particular policy does notextend to more than probably the firsttwo or three years of the date of issueof the policies, except in cases, wherethe policies belong to the very highsum assured or where the policiespertain to influential policy holderswho may give further New Businessfrom their own side or from theirreferences. Therefore, it would behelpful if the commission structure ofthe agents is reformed - presently thecommission structure is very top heavy

with very high payments to the fieldforce by way of first and first year'scommission, bonus commission, prizesof various competitions floated topromote New Business etc. to theagents and by way of incentivebonus, additional conveyanceallowance, prizes of variouscompetitions floated to promote NewBusiness etc. to the DevelopmentOfficers also. So naturally the focus ofthe agents, Development Officers andto some extent the administrativeofficials also is much more onprocuring larger volumes of NewBusiness than on following up policiesalready made. Therefore, staggeringthe high amounts (by way ofcompetition prizes given, bonuscommission etc.) paid in the first yearto perhaps the second or third yearafter commencement of the policiescan be very helpful in containinglapsation of policies since the fieldforce would then have a stake andinterest in keeping a tab and track onthe New Business policies procured bythem. The recent incentive by way ofhigher club allowance to clubmember agents introduced by the LifeInsurance Corporation of India is astep in the right direction.

It is also commonly felt that the interestof the Development Officers in aparticular policy is limited to the firstyear that is the year in which it is givenas New Business only. Now, with thechanges in the incentive bonuscommission structure, they have astake and interest in seeing that thepolicy is kept in force in the secondyear also. Perhaps, it would be helpfulif adequate incentives linked tocontaining lapsation are introducedfor Development Officers also as it hasbeen introduced for club memberagents.

IMPROVE COMMUNICATION ANDPREMIUM NOTICES

In many instances, the main cause

given for non-payment of policypremiums on time is stated as due tonon-receipt of renewal premiumnotices. It is often said that sending therenewal premium notices by the LifeInsurance Company is only a goodgesture on the part of the companyand non-receipt of the same shouldnot be taken as an excuse for thepayment of renewal premiums. But itis to be added that Indiapredominantly is a developing countryand the rate or level of literacy is stilllow which necessitates timelyreminders from the Life InsuranceCompany to see that the policy is keptin force. Further, a maximum share ofthe Life Insurance policies sold in Indiaeven today belong to the rural sectorwhere the level of literacy is averageat best even today. Therefore, sendingtimely reminders for payment of policypremium without exception andwithout any fail is imperative to the LifeInsurance Company to see thatincidence of lapsation is kept at theminimum.

IMPROVE NEW BUSINESSPROCURATION CONTROLS

It would be pertinent and useful tohave good controls at the time ofintroduction of New Business itself tocheck the incidence of lapsation. Inthis connection, the help of planningdepartment can perhaps be taken tohave analysis of lapsed cases data onstate wise, area wise, mode wise, sumassured wise, premium amount wise,plan wise, sex wise, occupation wise,agent wise, Development Officer wisebasis etc. to be able to ascertain witha reasonable level of accuracy as towhether a particular proposal is likelyto be able to end up as a lapsedpolicy or not. This analysis would bevery helpful in many ways - one itarrests the introduction of potentiallylapsable policies, it keeps the agents


and Development Officers alert as tothe quality of New Business theyintroduce and finally it reduces to alarge extent the wasteful expenditureand efforts of the Life InsuranceCompany.

CALL CENTRES

It may be better to have call centresto follow up the Life Insurance policiesintroduced at various stages as underto have high levels of servicestandards:

(i) at the time of issue of LifeInsurance policies to confirm theterms of policy opted, anyspecial features that he mayneed etc.

(ii) to remind the payment ofrenewal premiums etc.

(iii) for various policy servicingaspects such as change ofaddress, etc.

These aspects may be by way of a tollfree line so that improved service canbe provided to the policy holders - thiswould to a great extent reduce thepossibil ity of a policy going intodefault, except, in very genuine cases.

COLLECTION BOXES

It would be prudent and perhapsnecessary also to have the conceptof installing drop boxes or collectionboxes in all major towns and citieswherein the policy holders can deposittheir cheques for payment of renewalpremiums. The locations may be inbanks, super markets, major postoffices, etc. This aspect is found to bevery useful in the case of credit cards,phone bills, etc. It would go a long wayin helping customers for timelypayment of renewal premiums andreduce the incidence of defaults.Further, the cost element involvedhere is also less.

ATMs

At the time of conceiving the idea forthis essay the only major banks havingATM (Automated Teller Machine)setup in Hyderabad were perhapsANZ Grindlays Bank (with 1 ATM) andGlobal Trust Bank with about 3 ATMs. Itwas felt that the convenience offeredto the bank customers by the ATMcard was phenomenal and the basicidea was that the same can beextended to the bank customers (whousually belong to a better strata ofsociety and are therefore usually highend customers for the Life Insurancecompany) to pay their Life Insurancepremiums also. Now, for example, withthe tie up of Life InsuranceCorporation of India with CorporationBank with such a facility is perhaps astep in the right direction.

PROMOTE ALTERNATE CHANNELS

It is usually observed that policies soldthrough alternate channels say byBancassurance seldom end up asdefaults. The probable reasons behindthis phenomenon may be that thecustomers are high end, the premiumsinvolved are usually high, the aftersales service is good, etc. Therefore, itwould be useful to promote the use ofalternate channels to sell LifeInsurance policies. They have theadvantages of being cost effective,provide better service, increaseaverage premium income, etc. all ofwhich allow the Life InsuranceCompany to cut its costs and also toreduce the incidence of lapsation.

OTHER FACTORS

It is to be acknowledged thatlapsation of Life Insurance policies is avery complex phenomenon, in thatthe causes can be varied and furtherthe principal causes affectinglapsation may change from time totime. Some of the miscellaneousfactors that lead to spurts in lapsation

and in some cases surrender of LifeInsurance policies also are as under:

(i) Change in Government policies- for example when theGovernment of India changedthe tax treatment for JeevanDhara policies of Life InsuranceCorporation of India there was aspurt in the lapsation of suchpolicies and subsequently thesurrender of Life Insurancepolicies also.

(ii) At the time of introduction of thefirst Asha Deep policy somepolicy holders had boughtpolicies without properlyunderstanding the diseasescovered. Such policies were laterlapsed.

Such factors are beyond the fullcontrol of the policy holder as well asthe Life Insurance Company also.

SUMMARY AND CONCLUSIONS

It may be concluded that the aspectof lapsation of Life Insurance policiesis a very complex one and its effecton the profitability as well as the verysurvival of a Life Insurance Companycan hardly be over emphasised. Theadverse effect on account oflapsation and the subsequent declinein bonus rates has very seriousconsequences such as selectionagainst the insurer by surrender ofexisting policies, etc. Taking theseaspects into account, it becomesimperative for any Life InsuranceCompany to take all possible steps tocontrol lapsation right from the verybeginning.

While, it is to be acknowledged thatnot one of the above suggestions maybe totally effective in isolation tocounter the situation, the combinedeffect of all the aspects takentogether may promise to be significantand yield results.

92 THE JOURNAL

28%

72%

Agents status-Terminated Agents status-Active

DGH83%

Medicals1%

Nil Reqmts16%

DGH Medicals Nil Reqmts

Qly77%

Hly16%

Yly7%

Qly Hly Yly

12%

16%

43%

24%

5%

0%

0%

Dues <=1000 Dues >1000 & < =2500Dues >2500 & <=5000 Dues >5000 & <=10000Dues >10000 & <=25000 Dues >25000 & <=50000Dues >50000

43%

43%

10%

3%

1%

0%

0%

Premium <=1000 Premium >1000 & < =2500Premium >2500 & <=5000 Premium >5000 & <=10000Premium >10000 & <=25000 Premium >25000 & <=50000Premium >50000

4%

4%

8%

9%

3%

7%9%

7%

8%

1%

4%

8%0%

6%2%

2%

17%

AP MP WB MaharashtraGujarat Karnataka Goa DelhiPunjab Haryana Assam OrissaKerala TN Bihar RajasthanUP

ANNEXURE

Lapses based on Agency Status Reqmt.-wise lapses breakup

Mode-wise breakup Lapses breakup based on total dues

Inst. Premium-wise breakup of Lapses State-wise breakup of Lapses


OBJECTIVE OF THE PAPER:

This paper attempts to highlight theuse of Information Technology, itsutilities, tools, systems and techniquesthat help improve the spread of theconcept of insurance to the generalpublic. A prior knowledge of I.T.concepts would facilitate the readingof the paper, as the concepts arediscussed at length in some of thesections. The internet tools, utilities andtechnologies have been paid specialattention as most of them are freesoftwares and easy to download/operate and use.

Though the insurance industry wascovered in general, specific attentionhas been paid to the life insurancewing. The I.T. solutions discussed in thefollowing pages can be of practicaluse for readers. It is essential thatnecessary data security measures/firewall protection is ensured whileusing the I.T. tools discussed in thepaper.

India is a predominantly rural countrywith low levels of literacy and still lowerlevels of computer literacy. Theconcepts of I.T. are known/used by asmall section of the population. Adoubt may arise as to how a countrywith such low levels of literacy canmake use of I.T. and internettechnologies for promoting lifeinsurance. It is suggested thatcommon devices l ike TV andTelephone may be interfaced with theinternet technology. The Microsoftcorporation has recently released MS-OFFICE in Indian languages. Likewise,Rediffmail has introduced the email

PROMOTING INSURANCETHROUGH INFORMATION

TECHNOLOGYBy : Shri SNSSB Srinivasa,

LIC of India, Hanamkonda-506 001.

In order to drive a car, one need notknow the details of automobiletechnology. It is enough, if one is ableto handle the steering, the gears,accelerator and the brakes. Infact,even an illiterate can drive a car, givena basic training into the mechanics ofdriving. Drawing an analogy to thesame situation, we can apply thefinest aspects of I.T. , especially theInternet technology for promotion ofthe Indian Insurance Industry. India isone of the biggest consumerconglomerates which offersinnumerable opportunities on themarketing front.

THE CITIZEN-NETIZEN GAP (THE GREATDIGITAL DIVIDE):

Of the total population, our countryhas only 2 to 3 percent of NETIZENS(persons browsing internet). The tele-density (number of persons havingtelephone connection) and PCdensity are also low, though the tele-density has seen an upward trend inthe last couple of years. Theinformation technology has beenviewed as a technical jargon andeven amongst the literates, only asmall percentage of people areexposed to the I.T devices. Thanks tothe cable networks, today, most of theIndian homes have cableconnections. Even within the sameorganization, awareness levels/expertise vary as regards I.T. devices/systems. For example, theprogrammers and I.T. department staffof Insurance companies have moreexposure to the subject than others.With the help of selected I.T.

facility in 11 Indian languages. It is THIStype of interventions and utilities thatare anticipated for bridging the gapbetween NETIZENS AND CITIZENS ofIndia. Thus, we may say that the worldis A MOUSE CLICK AWAY.

India is a country of agrarian originand still most of its population dependon agriculture and agro relatedactivities. The literacy levels of thepeople are low in rural pockets andremote areas. India is slowly growinginto a hub of services sector includinginformation technology relatedservices. A country of over 100 crorepopulation like India needs MASSDELIVERY SYSTEMS and this laboriousand tedious task is taken care of bythe information technology devicesflooding the market with theemergence of new technologies likeNANO TECHNOLOGY and 3G (THIRDGENERATION COMPUTING)

A doubt may arise at the outset of thispaper that how can InformationTechnology, which is very technical innature, come to the rescue of a vastpopulation of illiterates . The answerlies in the question itself ! The vastpopulation of i l l iterates canunderstand the audio-visual mediaand can understand well in vernacularlanguage. Taking a clue from thisangle, the Indian Insurance Industry,(that has recently been opened up forprivate participation) can plan itsVISION for the next decade topromote and market both the Life andGeneral Insurance coverage for thesecond most populous nation of theworld.

D. SubrahmaniamAward


Essay2003-04

94 THE JOURNAL

technologies, Insurers can bridge thecitizen-netizen gap and apply thesame for furtherance of the conceptof insurance.

Today, the world has shrunk into aglobal village due to the influence ofI.T. and we are witnessing the effecton every segment of our home andoffice work. Even the differencesbetween HOME and OFFICE aregetting blurred. Pressing the fastforward button of the of the BUSINESSPROCESS OUTSOURCING (BPO), theconcept of EXTENDED OFFICE hascome into vogue. With this, one neednot go anywhere and just by sitting athome, one can work on line/off lineby rendering services over thecomputer. Medical Transcription is theexample for such services. Gone arethe barriers of communication andbarriers of time. With online computingtechnology, real-time processing ispossible in almost all service areas.

India has a clear edge over othercountries with regard to BPO. Low costof labour and easy acquaintance withEnglish are the two assets possessedby Indians, which is giving an ampleopportunity for foreign companies.With the help of I.T. and particularlyinternet technologies, India can aspireto specialize into the area ofpromoting insurance not only in thecountry, but also throughout theworld, with the help of BPO operations.

Hands-on training sessions for the lineand staff of Insurance organizations inthe latest I.T. devices/techniques willbe of immense help for the employer(Insurer) to improve the levels ofservicing. The problem of the DIGITALDIVIDE has to be addressed at homefirst. All employees and Agents/Insurance Advisors must be trainedappropriately to know the intricaciesof I.T. related devices.

KNOWLEDGE MANAGEMENTINITIATIVES (KMI):

Knowledge Management is the fastdeveloping science of I.T. which hasa great bearing for a service industrylike insurance. It is said that the

General Motors in the U.S. could comeout of its crisis with the help ofKnowledge Management. At a timewhen G.E. was dismissed by many asa messy conglomerate, its CEOMr. Jack Welch embarked on KMI andcreated a learning culture whereknowledge sharing among its humanassets helped the company to tideover the crisis. Thus, the companycould turn a threat into an opportunity."SOMEONE SOMEWHERE HAS A BETTERIDEA - says Mr. Jack Welch. Harnessingthe knowledge assets of the peopleof an organization and by systematicsharing and learning of knowledgethrough resourceful persons of theorganization is known as KnowledgeManagement. Whenever employeesleave/retire, the knowledge leaveswith them, unless properly shared byothers in the organization. Theinternet, intranet, datawarehousing,data mining are some of the KM tools.KMI is a dynamic concept and itpromotes innovation. It reduces theresponse time to challenges andproblems. It also reduces redundancyand repetition of processes/jobs.

For any industry, there are 3 factors ofproduction; they are, MEN MACHINESAND MATERIALS. Fortunately orunfortunately we, in the insuranceindustry, have only one factor ofproduction and that is ITS PEOPLE.Since the internal and externalcustomers are human beings, weneed to apply innovative andhumane techniques to motivatethem. Thus, ours is a people orientedindustry, where the knowledge inputsof the staff, agents/insurance advisorsplay a vital role in the success orotherwise of the organization. Like anindividual, every industry facescompetition from other industries in theeconomy. Unless the returns in theform of Bonus and Dividends for theshareholders is made attractive, theinsurance industry cannot think ofsecuring its due share in the nation'seconomy. This value addition can beachieved through KMI.

KMI is not a theoretical one nor it is thework of an armchair philosopher. It is,as said earlier, a developing science

of I.T which enables contentdevelopment through collaborationby knowledgeable persons. With theexplosion of information technology,the awareness levels of the customersare ever growing, and in order to meetthese expectations, the deploymentof IT is essential.

Apart from KMI, we need to take upthree studies propounded by onefamous management scientist. Theyare the TIME STUDY, MOTION STUDYAND FATIGUE STUDY of the operationsof the office. The time taken for eachstep in the process of a documentand the motions involved and thedegree of fatigue that could beencountered would give us immensehelp in scientifically analyzing theoperations and minimization ofCUSTOMER RESPONSE TIME. With over5 decades of experience in theindustry, the state owned insurers likeLIC AND GIC can benefit from the KMIand even start consultancy servicesfor others, including overseasinsurance companies. Infact, themortality investigations of LIC can betreated as a treasure trove for guidingthe industry in future.

Reengineering the mindsets of thestaff and agents, achieving attitudinaland perceptional changes is the needof the hour in the industry. Someextent of unlearning of hitherto learntprocesses of the pre-I.T. era is alsoessential for the growth and survivalof the industry.

At times, we may have the capabilityto face the challenges in the form ofcollective wisdom and experience ofour leaders & staff. But, many a times,it is observed that some of us fail toharness the knowledge assets of ourpeople due to the inability to identifythe sources of knowledge existingwithin the organization. The source ofknowledge is none but the staff andagents of the organization only.Inadequate methods/practices ofknowledge sharing and lack of timelyavailability and use of knowledgebase is also observed at times. KMIhelps us overcome such difficulties.


Insurance industry needs MASSDELIVERY SYSTEMS and I.T. can addressthese problems with more ease andeffectiveness.

THE EMERGING TRENDS IN I.T.:

Convergence of IT devices is the latesttrend. Today, at a cost of Rs.5000/-one can get a device that scans,prints, faxes and works as a copier -an all in one PRINTING SOLUTIONDEVICE. R&D LABS around the worldare agog with finding an integrateddevice for TV & PC. With the adventof NANO TECHNOLOGY (ie., thescience of smallest things) computerchip and device manufacturing is setto create an all time small appliancesfor the use of even illiterates, with user-friendly features. Application ofNANO technology in garmentmanufacturing (Grasim'sUNCRUSHABLE clothes, for instance),its application in robotics, genetics,nuclear medicine, bio-informatics,drug discovery and delivery systems isyielding amazing results. The 64 bitcomputing and 3G (ie., thirdgeneration technologies) are going tomake the way we live, more simpleand comfortable. Creation of newdisciplines of technology is the orderof the day. Gone are the days ofinserting the bank card in the ATM; thelatest in thing is that if one waves thecard in front of the roadside kiosk, thesystem will take cognizance of thetransaction based on iris pattern. Bio-informatics is the fast growingdiscipline that has applicationstouching our daily life and office.Smart homes, interactive computers,the list is never ending. Apart from this,I.T. has contributed 1500 words to thedictionary.

IDEA EXCHANGE SERVICES THROUGHINTERNET:

The utility of KMI concept has beendiscussed in the previous sections. TheIDEA EXCHANGE SERVICES on the Net(IDEAS FOR BUSINESS.COM;IDEAEXCHANGE .COM; BRIGHTIDEA.COM etc., sites) can fill the

thoughts of insurance marketingteams with lot of innovation. It alsohelps in sharing the ideas with othersin the marketing field, thus acting asknowledge management INTRAORGANISATIONALLY.

SUBJECT SPECIFIC SEARCH TOOLS ONTHE NET:

Locating and accessing the rightinformation from the web is always alaborious job, notwithstanding thethousands of sites fi ltered anddisplayed even by the best searchengines l ike google, yahoo oraskjeeves.com. In order to overcomethis, there are certain search tools likeZAPPER at ZAPPER.COM , which act ascontext sensitive tools. The Zapperclient program can be downloadedfrom the above site to provide help inlocating the desired information withfastness. Other tools such asTHIRDVOICE.COM & GURUNET. COMare also helpful in this regard. Suchspecial sites are useful in handlingpiquant situations while dealing withcustomers/prospects.

Due to lack of awareness, sometimes,several opportunities are lost. The NRIproposals for life insurance pose aproblem at the stage of financialunderwriting. The reason is that mostof the employment contractsoverseas are executed in foreignlanguage (other than English). In suchsituations, online dictionaries andtranslation software tools can be ofimmense use for the insurer. They arealso helpful in claims processing andspeeding up the process ofunderwriting.

PEER TO PEER BASED CONTENTDISTRIBUTION MODEL:

At present, the data, audio and videofiles are stored at a Central Server(called centralized content distributionmodel). When the number of usersincreases, the load will be more andmore on the central server and attimes it may fail to deliver the desireddata too. To address this problem,

which is common in peak time, the P2PBASED CONTENT DISTRIBUTION MODELcan be adopted. It enables thecomputers to exchange the contentdirectly with one another over the net,skipping the central server. Inotherwords, whoever downloads a filewould become a download sourcefor others. It is a technique for loadsharing and multiprocessing. Callcenters for insurers can adopt thistechnique for addressing thegrievances of their customers. It alsoleads to a reduction in response timeat the enquiry desks.

INTERNET TELEPHONY OR NETPHONE:

At present, the quality of voicethrough net phone is less than that ofland phones (called PSTN PHONES).The reason is that the LATENCY RATE,(i.e, the amount of time taken fordigitizing, packetising and making thevoice ready for transport from oneplace to another through net.) Givenits low cost of operation, net phonecan be an excellent communicationmedium for marketing and serviceteams of insurers. With the growinghighway internet cafes and growingPC density in India, net phone canaccelerate the growth of insurancemarketing capabilities. It also leads toa reduction in customer complaints.

Digital technology can reach themasses in indirect form too. Forexample, the auto prompter serviceby BSNL reminds the residents of ahouse about the pending phone billsin vernacular language. By having atie up with telecom service providers,insurers can think of sending thepremium/claim alerts in the samefashion.

I.T. can be used for design, processingand dispatch of messages even invernacular language. Recently, MS-OFFICE HINDI VERSION was releasedby the Microsoft corporation. Text tovoice and voice to text conversionsoftwares are on the rise now. Theywould enable even the illiterate to useIT. Devices with greater ease. The

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convergence of INFORMATIONAND ENTERTAINMENT, namelyINFOTAINMENT is in the offing.

OPEN SOURCE SOFTWARES:

Open source software (OSS) refers tothe software developed by a team ofprogrammers by collective wisdomand the proprietorship of which is notclaimed by any individual /organization. It is mostly free of costand is highly flexible. Its SOURCE CODE(original programs) is open for all onthe net. The exact inverse of this isPROPRIETORY SOFTWARE.

LIC has already switched over to LINUXoperating system, which is an opensource software.

GEOGRAPHICAL INFORMATIONSYSTEMS AND GEOGRAPHICALPOSITIONING SYSTEMS:

Short names of GIS AND GPS, theyhave enabled the crystal clearcapturing of the physical and aerialdetails with video images of aselected area. The Andhra Pradeshstate government has, with the helpOf GIS AND GPS, created a vast database of the geographical spread ofthe state of Andhra Pradesh. This databank enables one to locate even aremote house in a street of a town/village with precision. It may be a newtrend for us, but it has been in voguefor the western world, where the household surveys with the help of thesesystems enabled the marketing teamsto know about the complete data onsuch homes.

These systems can help the insurersunderstand the insurance density of aparticular area and design suitableplans for penetration of that marketsegment. It would also help inassessing the financial position of theprospects and offering the rightproduct for them.

Another application of I.T. is that GEO-ENCRYPTION technology enables us insending a file to the desired locationon the globe with a secure password.

The practical application can be feltwhen a movie, which is geo-encrypted, opens up only in thedesignated theatres and can beplayed there only. Encryption is theprocess of coding the message/dataand Decryption is the process ofdecoding the same by some standardmode.

NATIONAL HEALTH INFORMATICSYSTEM:

It is an integrated system which is inplace in developed countries like US,UK and Japan. Even countries likeMalaysia, Indonesia have establishedthe same system for maintaining thehealth of the citizens of their countries.Under this system, the data related tohealth records of all citizens of acountry is compiled and consolidatedby a monitoring authority at nationallevel. The Ministry of InformationTechnology of the Indian Governmenthas proposed to set up the samesystem in India under the name "Health UnlTe" which is a joint ventureby the I.R.D.A., and Union Ministry ofHealth. It will also fix standards forcompiling and capturing andexchange of information and thelegal framework to protect the privacyof individuals. There is a proposal tosetup a National Health InformaticsCouncil to be setup by an act ofparliament. The collection andstandardization of health data of thecountry is vital for the control andassessment of epidemics and forcommunity health schemes by thegovernment. It is also essential for thehealthy growth of the InsuranceIndustry.

It is said that one big apprehension inthe minds of foreign institutionalinvestors is that there is no healthinsurance system in India. Thus, theunorganized health record system hasbeen proving a hurdle in the path offoreign direct investment. Onceestablished, the Indian system can beharmonized with that of the US system,to which all countries are trying toharmonize with. The US system of

health insurance portability andacceptability act 1996 is taken as thebase system for this.

The first step in this direction involvessetting up standards for capturingdata; deciding healthcare indices.The transaction formats for healthinsurance sector have already beenidentified and created in India. Thedata capture will be from Hospitals,Nursing homes, clinics, laboratories,pathological labs, pharmacies, thirdparty administrators andrehabilitation centers in astandardized format. There will beunique health identifiers for patients,insurance companies and providers.

This system would help preventoutbreak of epidemics and isproposed to be administered by statedrug authorities in India. This systemwould help insurance companiesdecide as to what premium is to becharged for a proposer with familyhistory of a specific disease and withpersonal history of some othercondition and residing at a particularplace. The Department of InformationTechnology of Government of Indiarecommended to adopt WorldHealth Organization defined ICD-10system of Standardization of HealthCare.

National Health Informatics Councilwill identify Universal health identifierfor patient, provider, insurers, andhealth plans. It will also have uniformcodes for diagnosis, procedures,Drugs, nursing, medical supplies andequipment. The council would evolveCommon standards (electronictransactions) for eligibility for healthplans, their premium, claimsprocedures etc.,

SUGGESTED REFINEMENTS TO THEABOVE SCHEME:

The National Health Informatics Systemis proposed to be administered by theState Drug authorities, which ishandicapped by understaffing,inadequate infrastructure and skills for


handling such an important projectcovering the health records of allcitizens. Moreover, they are reportedlyoverburdened with drugadministration job. By a sheercomparison of our system with that ofany developed nation, we can cometo the conclusion. For instance, anymedicine is available over the counter(OTC) in our country, whereas unlessprescription of the physician isproduced, scheduled drugs will not besold by any pharmacy in thedeveloped countries. The medicalstandards and ethics are of very highprecision in these countries.

In the light of the shortcomingsenumerated above, it is suggestedthat the proposed informatics systemmay be regulated by an independentbody to be setup under the control ofUnion Ministry of Health. The saidBoard should have members from LifeInsurance companies, Indian MedicalCouncil, Pharmacy Council, Actuariesand Legal Experts. Government canthink of collecting user charges (for theservices availed) from the insurancecompanies. It needs a conscientiousand planned effort to put in place andrun such a massive system ofcollecting and compiling the data ofover 100 million citizens of the country.

THE NEXUS BETWEEN "GERIATRICS" AND"LIFE INSURANCE":

Geriatrics is the emerging medicalscience dealing with old age diseases,problems. It is estimated that India willhave a large pool of about 25 crorepopulation in the old age group by2020. The problems of the old agesegment of the population needs tobe addressed with special care, astheir health, income and social profileschange with the passage of time.

India is perhaps, the biggest marketfor an Insurer to tap the potential ofannuity/pension business (next only toChina). Under the joint family system,we had a blanket of comfortablesocial security. Now, with the breakup of this system, there is a need to

devise suitable plans for this segment,as ours is a welfare state. TheBioinformatics, Nuclear Medicine, andGeneric Engineering sciences arebased on the pillars of I.T. The currenttrend is that mortality rates are fallingand morbidity rates are rising. Mostof the above modern sciences areinfluenced by information technology.With the help of the same I.T., theIndian Insurance Industry can draft avision document for tapping theimmense potential offered by thetomorrow's old age segment. This isalso helpful for health insurancepenetration, which is very low in ourcountry. A lot of promotional effortcan be taken up in the print andelectronic media by educating thegeneral public about the cost ofmedical treatment in old age, otherneeds and problems associated fromthe geriatric angle.

THE ADVANTAGES OF SATELLITETECHNOLOGY:

The Indian Space ResearchOrganisation (ISRO) is planning tolaunch thematic satellites calledEDUSAT (FOR EDUCATION) HEALTHSAT(FOR HEALTH), CARTOSAT (FOR MAPMAKING) RESOURCESAT (FORMAPPING RESOURCES) ANDOCEANSAT ( FOR OCEAN RESEARCH).ISRO is planning to establish integratedvillage info kiosks to help improve thequality of life of rural people. Thesekiosks provide telemedicine,teleeducation, expert advice onagriculture, local governanceinformation, and other people centricservices. The AP state Governmenthas collected about 50 GB of datapertaining to the geographical detailsof Andhra Pradesh state withclockwork precision. With the help ofthis information, even a remote hut ina lane in a far off village/hamlet canbe spotted on the computer monitor.

The insurance industry can make useof the above info kiosks forpropagating the concept of lifeinsurance and for servicing of existingpolicies.

CONVERGENCE OF INFORMATION :

"As we have already seen, the mostsignificant change to impact our livesover the past century has beenthe computing revolution. As ageneration, we have been witness toand benefited from technology themost. What lies ahead promises to bemore exciting, changing the way wework, play, communicate, and live.Once the information is digitized, itcan be shared, duplicated,transferred and edited with ease andthis is being facilitated byconvergence of IT devices.

Handwriting, speech recognition,biometric devices and touch screenfunctionality are all aimed athumanizing the technology. Thephone and TV are the two devices,through which PC can beinterconnected/interfaced with lowcost of operation. We are movingtowards a time when information willnot be PC centric or device centricbut will be USER-CENTRIC and this is themost significant change the digitalage has heralded."

______________Mr. BILL GATES ofMicrosoft Inc.

The above para summarizes the shapeof things to come. The day is not faroff, when we will be speaking into ourPCs, reading off our screens (insteadof paper) and even taking notes bywriting directly on to your PCs! Thus,the convergence of informationwould lead to a fall in costs andtechnology would come to us, insteadof our going to the technology.

In order to reap best returns from theI.T. it is suggested that the Industry mayform a CONSORTIUM on the same linesas FICCI or ASSOCHAM and set up amechanism to study the environmentand suggest ways to use thetechnology in the furtherance of theconcept of life insurance. I.T. is not aone time or one day affair; hence,instead of appointing a committee aCORE TEAM represented by all

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member companies shall monitor theprogress of this project and administermid course corrections. The NationalHealth Informatics Council, asdiscussed above, would help in Claimssettlement operations, expedition ofclaims settlement, and minimization ofthe element of selection againstinsurer. Thus, both Underwriting andClaims functions would be benefited.

BPO- A BOON FOR THE INSURANCEINDUSTRY:

Business Process Outsourcing (BPO) isthe handling of service operations/back office operations of anorganization (located at a differentplace) by another organizationthrough I.T. devices.

At present, India is in the eye of a stormin the U.S., for the alleged fears of lossof jobs of their nationals. The MedicalTranscription (MT) and other serviceoperations of foreign countries arehandled by Indian IT firms, as the costof labour and operations is less here.

The concept of BPO can be extendedto the servicing of policies of lifeinsurance and dissemination ofinformation about l ife insuranceproducts. Some of the companies likeCSC have already begun the work ofwriting software for foreign life insurersat its Indian facility. The fluency ofIndians in English proved to be a boonfor the BPO sector.

We can even help the third worldcountries, which are poor and can'tafford a full- fledged insurance system.Apart from earning foreign currency,this would help in employmentgeneration for our citizens.

THE BROADBAND ANGLE:

The data transfer speed through cableor satellite is measured in kilo bytes persecond (kbps) or mbps. A datatransfer speed of 1.5 mbps or more iscalled broadband and it can offertransfer of video, text, data and voicethrough sane cable. Though nearly60,000 kms of optic fiber cable is laid

across the country, it takes some moremonths to reach Indian homes. Thebroadband, once operational, wouldrevolutionise the customer contactprograms.

There are four types of technologiesfor broadband:

Under the Integrated Services DigitalNetwork (ISDN) connection system,the data transfer speed is slightly morethan that of the dial-up modems (with64 kbps speed as against 56kbps ofdial-up modems).

Under the Digital Subscriber Line (DSL)technology, the ordinary telephonelines are used. However, companieslike DISHNETDSL have laid dedicatedlines, as the conventional system couldnot gear up for the speed.

Under the Direct to Home (DTH)technology, the communication isthrough a satell ite through abroadcast station located on earth.This is a costly alternative, apt forcorporate clients only.

Under the Cable Modem technology,the communication is through cablenetwork. India has an estimated 8crore TV sets and about 4 crore cableconnections. This technology involvesan initial investment of about 10000/-(one time) for special modems andmonthly rentals of about Rs. 900-1200.This is suitable for upmarket segmentonly.

Broadband offers internet telephony,exchange of music and movie files,high speed data transfer. TheInsurance industry can make use of thisopportunity to promote life insurance.It is going to be the masscommunication medium to reach themasses in split seconds. Breaking newsis that Reliance Infocom joined theelite club of WIMAX forum(broadband based on wireless-fidelity(wifi) technology), which is capable ofdelivering connectivity upto 70 mbps.

THE SPEAKING PCs:

The free software revolution has

endowed us with yet another utility inthe form of "WILLOWTALK" software. Itallows us to listen to the MS-OFFICEword or excel documents/spreadsheets. It is more useful forproofreading for the content keyed in.

THE PAPERLESS OFFICE:

This was the concept propounded byMr. Bill Gates in his book BUSINESS @THE SPEED OF THOUGHT. It deals withminimization of manual processes anddigitization of manual processes,cutting costs and improving thequality of service. Scanning ofproposal and other documents is onthe cards of state insurer LIC. Afterthe CRM MODULE -II, even thecustomer complaints will be handledonline.

There is an immediate need forrewriting the operating manuals inview of computerized environment.Similarly, the process of BUSINESSPROCESS REENGINEERING is to bespeeded up to eliminate duplicationof work and overlapping/redundancies. ComputerisedAuditing routines may be introduced.A single M.I.S. report for each branchoffice, covering all departments byrunning an MIS package and sendingthrough online communication isdesirable. (efforts are on in thisdirection).

All operational routines in theorganization shall be CUSTOMERCENTRIC and the RESPONSE TIME hasto be drastically reduced. Likewise,the transfer of policies from one officeto another may be dispensed with,leading to considerable reduction inresponse time (suggesting aTRANSFERLESS OFFICE.) While draftingsoftware of operational departments,the subject experts help may besolicited to render the best IT. Solutions.

THE DIRECT TO HOME (DTH) SATELLITETV:

In the broadband section above, wediscussed the DTH technology, whichneeds a special mention. It is a wireless


solution which communicates with thesatellite. Every communicationssatellite placed in the orbit will haveseveral transponders. Eachtransponder can transmit 10 to 12 TVchannels (called the KU band).

The DTH service provider hires desirednumber of transponders on thesatellite and uplinks the TV channelsfrom a broadcast stations to thesatellite and there on to the homes ofthe viewers.

With a 15 to 30 cm. Diameter dishantenna and a smartcard plus adecoder, this facility is installed.Currently, Zee TV and Star TV areoffering the service. Quality wise, it isthe best alternative and pays richdividends for marketing of insuranceservices.

PURITY OF EXISTING DATA:

Data purity is the qualitative andquantitative accuracy andconsistency of information relating toa business activity. Reliability,adequacy, accuracy andconsistency are the four pillars onwhich the edifice of data purity is builtupon. Data purity, if properly plannedand achieved, could prove to be agoldmine for the state insurers of LICand GIC. During the past fivedecades, the state insurers had seenmanual computing, back endprocessing and now front endoperations. Thus, transition from oneto another technology posesproblems to be coped up in the duecourse of time. Data purity enablessound decision making.

Data purity may affect mortalityinvestigations, actuarial valuationsand assessment of life fund. Datapurity instills confidence in employeesand spurs the trustworthiness of theorganization.

Data impurities result from omission ofperiodic maintenance functions,software bugs, incompatibil itybetween two systems, last minute

pressure of work/chasing deadlines,missing links of information, failure ofconsistency checks and change in filesize/structures.

Through online/hands-on trainingprogrammes, the significance of datapurity can be communicated to theemployees. It is reported that thearea of age/DOB and premium andaccident premium fields need specialattention. With the CRM module, theaspect of DOB errors is almosteliminated.

PROMOTING SSS THROUGH I.T.:

The salaried class forms the biggestmost reliable market segment for thelife insurer. IT. Modules can be ofimmense help in administering/managing the SSS portfolio effectively.An IT based module can establishdirect contact with employer's salaryoffice records and result in online,realtime updation of premiumpayment status. These modules alsohelp in launching new products,publicizing the service campaigns andother service alerts to the employeesand employer too.

In the absence of an IT based system,the SSS segment would have beenplagued, as the operations involverepetitive and laborious processes.With the help of internet, individualemployees can be sent email alertsabout premium updations, bonusintimations, lapse intimations, claimsinformation and other service detailsby employing AUTO PROMPTER EMAILSOFTWARE.

At this juncture, a utility offered by afreeware site "COPERNIC.COM", whichenables us to employ all popularsearch engines on the internet for thedesired information is of much use. Theresults from all popular search enginesare displayed on screen.

THE H.R. FACTOR :

For any manufacturing process, threefactors of production are required.They are men, machines and

materials. Insurance being in theservice sector, has only two factors ofproduction, namely men andmachines. The per formance ofmachines is influenced by the mendesigning software/engineering andmaintaining them. Thus, the HR factorplays a vital role in the success of aservice industry l ike insurance.Boosting the morale and motivatingthe employees towards CUSTOMERCENTRIC operations is the need of themoment. The attitudes, perceptionsand mindset play a key role in thesuccess of enthusiastic programs ofinsurance companies. Humanresource is the asset that is not shownon any balance sheet, but is a hiddenasset. A mindset reengineeringinitiative is required to achieve theteamwork in realizing theorganizational goals in thecompetitive environment. It is theemployee who can convert a routineservice operation into a DELIGHT forthe customer.

Unless the internal customer is happy,no organization can expect to keepthe external customers delighted. Theknowledge and skill set of employeesvary even within the same cadre/group. Soft skills, especially the wordand spreadsheet processing, internet,email and related subjects are theminimum requirement in the currentday customer service operations. TheIT people are found to be lacking insubject expertise while the subjectexperts are lacking in IT skills. A blendof both the faculties coulddramatically improve theperformance of teams and renderworld class service. For imparting softskills, on line and hands-on sessions areessential. Knowledge of fundamentalsof office suites like MS OFFICE, STARSUITE coupled with basics of linux/unixoperating system would enhance thecomprehension levels of employees.

Integration of all IT modules of aninsurance organization is another areawhere emphasis needs to be laid.There is abundant talent within everyinsurance company and the same has

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to be tapped and utilized. It has beendiscussed in the above paras that ifKNOWLEDGE MANAGEMENTINITIATIVES are taken, it is possible tooptimally utilize the capabilities ofemployees. All these measures INSTILA SENSE OF CONFIDENCE ANDBELONGINGNESS FOR THEORGANISATION.

Video conferencing can be aneffective tool to trouble shoot and forplanting new ideas in the minds ofworkforce.

ROLE OF INSURANCE INSTITUTE OFINDIA:

As suggested hereinabove, all theinsurance companies may form aCONSORTIUM (on the lines of FICCI orASSOCHAM) and draft a visiondocument for the industry for the nextten years. A pioneer institution like theInsurance Institute of India can beentrusted with the R&D projects infollowing disciplines:

� PRODUCT DESIGN

� ADVERTISING & SALESPROMOTION

� CRM INITIATIVES

� HEALTH INSURANCE

� PENSION AND GROUPINSURANCE

The member companies maycontribute the financial and otherresources for the projects. Having gotabout five decades of rich experiencein making insurance specialists, theInsurance Institute of India can be theguiding lamp for the smooth sail ofInsurance Industry. The fruits of theresearch can be shared among themember companies.

CLAIMS MANAGEMENT THROUGH I.T.:

For any insurer to be successful, thequality of claims and their settlementis essential. It is the quality of the claimsthat affects the solvency and life fund/

mortality investigations. Owing to thelow literacy levels prevalent in Indiaand poor medical facilities coupledwith private and registered medicalpractitioners, the situation of claimsinvestigation is complicated for wantof records. Most of the rural citizensdepend on local unqualified doctorsand over the counter (OTC)medicines. Added to this is the aspectof DESI MEDICINAL SYSTEMS likeayurveda, yunani and other herbaltreatments. The National HealthInformatics Council, once established,could be immense help in settlementof death claims. Establishment of theexistence of a disease prior to the dateof proposal or revival is very difficultwith the poor health record system.Only personal enquiries are the basis/source of information for the claimsinvestigators. Even the existence ofhereditarily acquired diseases cannotbe established in such scenario. Thecause of death in some cases remainsa mystery in the absence of asystematic record of health of the lifedeceased.

Moreover, the language andterminology used in plan brochuresand policy documents is verytechnical in nature and notcomprehensible even to theeducated people. Thus, there is a longfelt need to prepare the brochures/policy documents in a reader-friendlymanner. Information Technologydevices could be of much help in thisdirection to translate the matter withthe help of translation software.

THE CONCEPT OF "PREFERRED LIVES" INUNDERWRITING:

One of the private life insurers in Indiais offering a policy under the aboveconcept. The concept of PREFERREDLIVES is in vogue in European countrieslike U.K., GERMANY etc., A preferredlife is one which is free of diseases likeHypertension, Diabetes Mellitus,Cancer or other life style diseases andwithout a family history of thesediseases with Non-smoker & Non-alcoholic attributes. Since the life is

free from known causes of lowerlongevity, it is a preferred life for theunderwriters. The National HealthInformatics System could be of helpfor selection of preferred lives withaccuracy. In the absence of suchsystem, we have to rely on personalstatements and medical/lab tests, thereliability levels of which may vary.

Having been a preferred life, thelongevity will be high and theincidence of claims could beexpected to be lower than that of anaverage life. With the help of I.T., mostof the cumbersome calculations ofmortality and other actuarial/mathematic issues could be solved.Today's customer wants CUSTOMISEDLIFE INSURANCE SOLUTIONS. I.T. utilitiesand suites help insurers in devisingcustomer specific customizedsolutions, which is in vogue indeveloped countries. �When you cancustomize your home, clothes, andjewellery, why not your life insurancebe customized� questions thebillboard of a life insurer. We are livingin an era of customization andcustomer-centric environment.

In the absence of preferred lifeconcept, most of the Indians fallingunder this group have been payingmore premiums than what they oughtto pay. This concept would create alow risk pool of lives, the mortalityexperience/trends of which can bestudied in due course.

BETTER CHANNEL MANAGEMENTTHROUGH I.T.:

The field of I.T. has a bearing on themanagement of channel partners(agents). Even the state insurers LIC &GIC have supplied the policyholders'data in the form of soft media (CDs)to their top performing agents, whocan generate desired outputs with thehelp of their own systems at home/agent's service centers. Topperformers have also been grantedloans/advances for purchase ofcomputers. Innovative softwares spellmagic on the users (agents) by


generating 3D graphics, animationsand projection of costs and benefitsof life insurance policies even forlonger terms of 30 or 35 years. Theoutputs and their quality is visuallyappealing and quite useful fortracking the premium position, loan,claims and other benefits.Interpolation and Extrapolation,comparison and evaluation of Returnof Investment is now at the click of amouse.

Projections made with the help ofsoftware made for agents show theimmense potential unleashed byinformation technology. Theprojections and presentations can bedone on a laptop or even a notebook.Both sales and service aspects arecovered in these packages and thereis room for improvement. Through theauto-prompter emails, auto-responder emails, premium alerts,claim/benefit alerts can be sent to themailboxes of the clients. Today, wehave softwares that confirm whetherthe client read the email. Training ofchannel partners can be now donethrough video conferencing, or onlinetraining programs. Comparison ofdifferent avenues of investment ismade easy and the ideas areDRAMATISED WITH MULTIMEDIA. Evenwithin the same plan of assurance, theeffect of different add-ons such asTERM RIDER, CRITICAL ILLNESS RIDER,PREM. WAIVER BENEFIT can be shownin all permutations and combinations.

A freeware available on internetupdates/auto-prompts by way of anemail, whenever the pages of a website are changed with latestinformation. This way, the agents canupdate their knowledge/awarenesslevels, without physically surfing thesites.

DISTRIBUTED COMPUTING MODEL:

It is a wonderful I.T utility, through whichload sharing and optimal utilization ofcomputing resources can be made.The modus operandi of the system islike this:

Under the present scenario, mailservers will have to bear the brunt ofmaximum load during the peak hours,where internet traffic/data traffic willbe high. Sometimes, system hang ups/slowdown in the data transfer speedshas been observed. The distributedcomputing model ensures that theEVERY P.C. SEEKING A FILE FROM THEMAIL SERVER ACTS AS A SERVER FORTHE NEXT P.C. (ANYWHERE ON THEGLOBE) SEEKING THE SAME FILE. Byway of this, the load on the mail serveris shared and data transfer speeds areaccelerated. This is one way ofoptimal util ization of computingpower. For a country like India withdial up modems of 56 kbps maximumdata transfer speeds, this modelcomes to the rescue of the users.

The above model can be employedfor call center operations and infocenter operations. Channel partnerscan also use the model for betterfunctioning of the systems.

DATA MINING:

This concept is an ingredient ofKnowledge Management and is aprocess of compiling the desiredinformation from a heap of data usingcertain criteria (filters/conditions). Asimple application of data mining isgiven hereunder:

Every day, we will be receiving severalmails to the office mail box frompolicyholders, agents, suppliers andothers. Compiling the email addressesof all from the above mails generallyneeds a program to be written. Aprogram called "textpipe" canaccommodate up to 60 filters (criteria)and compile the desired email ids.Freewares available on internet arethe cost effective & quick solutions formost of everyday problems faced withprocessing of information.

Five decades of rich experience ininsurance industry for the state insurersof LIC & GIC is an invaluable asset thatcan be fully utilized with the help ofdata mining techniques. Infact, they

can render consultancy services forthe newcomers and foreigncompanies too. A small bookpublished by LIC in late 90s containingan extract from its balance sheetssince 1956 (since formation of LIC)gives a historic profile of every aspectof balance sheet and is a thesaurusfor economists, actuaries andeveryone associated with insurancestudies. When a small book ofextracted information could spell sucha big magic, one can imagine theresults generated by DATA MININGtechnique, based on I.T. applications.

PROMOTION OF PENSION BUSINESS:

Life insurance deals with the fear ofdying too soon, while pension businessdeals with the fear of living too long.

Indian Life expectancy has risen from45.6 years in 1971 to 62 years (as per2002 estimates). The average lifeexpectancy of the pensioner will bedefinitely greater than that of this.

Normally, the working employees payfor the pensions of the pensioners inthe form of contribution towardspension fund. (on PAY AS YOU GObasis). But, with the number ofpensioners outnumbering the newemployees in the organization (in viewof ban on recruitment and other costcutting measures), there will be a strainon the pension fund.

This is a worrisome picture for a socialsecurity scheme called pensions.Today, insurers are unable to offerdefined benefit pension scheme(where the pension amount is definedat the time of entry of employee intothe scheme). Instead, they areharping on DEFINED CONTRIBUTIONSCHEME (i.e., the contribution topension fund is defined but thebenefits would depend on the netasset value of the fund prevailing onthe date of retirement/vesting). Underthe defined contribution scheme, theonus of investment risk is on theemployee. Unable to withstand thestrain on the pension funds, even the

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government has notified a date afterwhich employees joining will have theoption of DEFINED CONTRIBUTIONSCHEME ONLY.

Given the fact that about 20 crorecitizens in the country are going toreach the old age in another 15 years,the market potential for pensions canbe estimated. I.T. plays a vital role inspotting, addressing this importantmarket segment and promoting thepension business of an insurer.Administration of pension business ismade easy with IT. Modules, as therecord maintenance will becumbersome under manualprocessing of information. Moreover,the generation of advance monthlycheques, their tracking, mailing andother operations can be facilitatedwith the help of I.T. modules, as canbe seen in case of LIC's administrationof pension business.

Index linked pension schemes requireI.T. support for administration of thescheme. The proper growth ofpension business is essential frompolitical, social and economicperspectives.

THE GRID COMPUTING MODEL:

Today, even the entry level PCs haveenormous computing power in termsof CPU., Memory, storage slots, andports. Many a time, this abundantcomputing power gets unused owingto under utilization of PC to optimaluse.

The National Thermal PowerCorporation (NTPC) employs the gridsystem for management of distributionof power to various parts of thecountry. An insurer too, can pool thecomputing resources spread over aparticular city/region and created asuper-computing power for better use.It is a process of interconnecting thePCs and servers in specific areas andis useful for projects requiring vast timeand resources. Normally, life officeslocated near bus stations and railwaystations experience heavy rush of

customers during peak hours. In suchcase, the grid computing model canfacilitate the transaction processingand quick disposal of customer calls/requests.

DISASTER RECOVERY SYSTEMS(BUSINESS CONTINUITY PLAN):

Most of us may not be knowing thatthe Mumbai Stock Exchange, thefinancial heart of Indian economy, hasgot a Business continuity plan, (an I.T.based backup system) and theoperations of the exchange can beresumed within minutes of a disasterof any magnitude. Post 9/11 attackon twin towers in the U.S., no body inthe world wants to take chances withdata security. Any business continuityplan comprises of local backups andremote backups with a minimum of 3layers of protection to data.Installation of a reliable disasterrecovery system is essential for thesmooth conduct of life insurancebusiness.

ONLINE DATA STORAGE SERVICES:

Today, technological obsolescence isat its peak and data stored on onemedium cannot be expected to besafely transferred to the server oranother storage media. An onlinebackup service allows us to transferour files to a backup server connectedto the internet that can be accessedfrom anywhere in the world from anymachine at any point of time. Someof these online storage services areoffered at free of cost.

Online storage services can be utilizedfor data that is not sensitive orconfidential. Moreover, it acts as asafe backup at offsite location. Oncethe broadband services are fullyoperational in the country, insurers canmake use of online data storageservices. It mitigates the storagemedia problems and costs attachedthereto.

DISTRIBUTED FILE STORAGE:

Under this model, the soft files of an

organization can be encrypted andstored at several locations across theglobe, in servers that have idle storagecapacity. Thus, the chance of our notbeing able to retrieve the data fromany one location is almost NIL. This isnot only a security measure, but alsoa measure of storage of data.

HEALTH INSURANCE:

It was an alien concept for Indians untilthe introduction of Ashadeep planby Life Insurance Corporation ofIndia. Though almost all insurancecompanies are offering life insuranceplans, the market penetration is in thesingle digit range of the total marketpotential.

The vagaries of nature, and peopledepending on the nature/weather,the uncertainties of income, lowliteracy levels have all been thecauses for not according due priorityto the concept of health insurance.Even today, most of these policies aresold in urban and suburban centers.One more reason is that theterminology used in these plans isincomprehensible for the layman, oreven to the educated, as the termsare of technical in nature.

Thus, there is a need for change inperception of the general publictowards health plans in view of thegrowing morbidity rates. India hasbeen a traditional bank of heartailments and the hereditary factor alsocontributes to it, apart from life styles.The urbanization, changing socialprofile and eating habits of thepeople, has led to an upwardly mobilelife style related diseases.Hypertension, Diabetes, Cancer andrenal problems have been the causesof death in most of the cases.

With the help of Indian census dataand by conducting an appropriatesurvey into the health and habits of thecitizens, the insurers can map thehealth profile of an average Indianand devise a suitable marketing planfor a PERCEPTION REENGINEERING.


With the corporatiisation of healthservices, the cost of treatment hasgone up drastically. In developedcountries, every citizen shall havemedical insurance and even thevisitors are allowed only with medicalinsurance proof. In absence of sucha health insurance system, thegovernment wil l have to tackleproblems that are directly linked to thisaspect.

GROUP INSURANCE:

Perhaps, India is the world's largestmarket for group insurance (leavingChina). The services sector (called thetertiary sector in economics) has beengrowing at a faster pace in India, withthe I.T. and I.T. enabled services.Technology has created several newavenues of services like, STD, Internetcafes, Xerox centers, etc.,Consequent upon the migration ofworkforce from agriculture, theservices sector has been showing anupward trend. Services fall mostly inthe unorganized sector and it is thissector that offers great marketpotential for group insurers. Theservices are homogenous but the unitsare not. Since the persons working inservices with small incomes cannotafford to have a regular individualassurance policy, the umbrella of lifeinsurance can be offered under thegroup portfolio. Hitherto, the groupinsurance was viewed with an eye ofsuspicion by the insurance fraternity,fearing erosion in the market share onaccount of individual assurance.

With the opening up of the insurancesector and globalization trends, everyone and every product facescompetition from others in one orother form. The banking companies,which entered the insurance sectorcould show results in the groupinsurance wing, owing to thedepository groups with whom theycould market the group insuranceservices too.

Just on the lines of health insurance, asurvey can be conducted formapping the profile of the groupinsurance market and suitablemarketing plan can be devised withthe help of I.T. utilities and modules.Administration of group insuranceportfolio without I.T. support is almostimpossible, as the number ofbeneficiaries sometimes runs intolakhs. With the help of I.T. basedmodules, the beneficiaries can knowat any point of time, the contributionmade by him/his group and thebenefits that can be expected therefrom. Group Insurance would act asa social security measure for thegovernment, and it can contribute/subsidize the premium for the selectedgroups on pre-fixed norms.

Add-ons to group insurance in theform of health insurance coverage orother riders can be provided for thegroup members. Administration ofgroup accounts, periodical reports,costs, benefits, experience ratingadjustments (ERAs), revision inpremium, review of benefits and studyof mortality investigations, group wisecontribution/deficit accounts will befacilitated with I.T. based modules.

Commitment on the part ofgovernment and developmentalagencies could spread an umbrella ofgroup coverage for the entire nationwith the collaboration of insurers.

CHILDREN INSURANCE:

Like the group insurance wing, thechildren insurance wing in India is alsoa yet to be tapped market segment.The breaking of joint family system andalarming rise in the cost of education(especially higher education) hasforced the common man to think ofavenues of investment on a monthlybasis, so that the maturity benefits canbe applied at appropriate moment.This is a market segment that isgenerated on the date of birth of thechild itself. For sentimental or

attachment reasons, every parentwants his son/daughter to be moresuccessful than that of him/her. Thisdesire needs to be ignited by theinsurers for marketing the childreninsurance products. Most of thechildren studying in Urban areas areexposed to the fundamentals of I.T.They are the budding netizens oftomorrow. Educating the parents withcomputer animated projections, 3Dgraphics and presentations of thecosts and benefits of the plan wouldhave an impact on their decisionmaking.

FEMALE INSURANCE SEGMENT:

Though the female population in Indiarepresents almost half of the totalpopulation, their share in the lifeinsurance is far from satisfactory. Therecent trends show that theircontribution to family income isgrowing and the female literacy levelsare also up in the country. Medicallyspeaking, women are stronger thanmen and their longevity is more thanthat of men. They are found to be lowon heart ailments, owing to thehormonal factor. With most of theIndian population dropping into theold age group by 2020, there is animmediate need to support thefemale segment so that they cansupport their spouses and other familymembers.

"If you educate a woman, she wouldeducate the entire family" was thefamous quotation by PanditJawaharlal Nehru. Drawing ananalogy to the same theme, we maysay that if we insure a woman, shewould ensure the future of the family.

Suitable plans may be designed forwomen working in unorganizedsectors and cooperative sector. Thefield of IT and IT ENABLED SERVICES iswell represented by women. Hence,appropriate marketing strategies canbe devised for tapping this viablesegment.

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THE MACRO LEVEL ISSUES OF THEINDUSTRY:

So far, we have seen the MICRO LEVELISSUES OF THE INSURANCE INDUSTRY.Now, a discussion on MACRO LEVELISSUES and their solution through I.T.enabled devices/utilities follows:

Whenever the print or electronicmedia reports of the financial sector,the only name that gets prominenceis the Banking, Share brokers and otherfinancial services. Insurance lacksidentity in the financial sector, inspiteof being the best service provider forlongest term contracts of life insuranceand contributing major share to theGross Domestic Product (GDP). Therole of insurance sector in theeconomy or infrastructure or capitalmarket development finds a mentionin the columns of the press, but theprominence is missing.

In other words, Insurance industryneeds recognition in the form of anIndustry on par with Banking. Even atthe governmental level, the role of theIndustry needs to be improved. Allthese signs indicate the necessity of aPLANNED PR EFFORT. The proposed PReffort would have a long lastingimpact on the strengths of the Industry.A vision document will have to beprepared for the PR efforts, inconsultation with the membercompanies.

The way the banking sector establishescontact with general public shall bethe guiding post for the insuranceindustry. A good PR effort on the partof manufacturing industries l ikeCement, Plastics, Textiles can be takenas the example. When there was alot of hue and cry against plasticspolluting the environment by theenvironmentalists, the PlasticsManufacturers Association has donea good PR job by inserting ads in thenewspapers and issuing TV ads,depicting the way of condemnation

of plastics. The Insurance Institute ofIndia and the National InsuranceAcademy could be approached fordevising a PR plan and implementingit. Having contributed about 250000crores to the National Income, theIndustry needs better coverage andprominence in the Economy.Moreover, the investments made bythe industry in infrastructure andcapital market too need duerecognition. This PR effort would helpin maintaining better relations with theregulator (IRDA), the other Industries,the Government and last but not theleast, general public.

The inter industry cooperation andcoordination is essential for properfunctioning of New Business andClaims departments of the respectivecompanies. Sharing of informationamong the members through an I.T.based network would improve thequality of underwriting and claimsinvestigations. It would act as a hedgeagainst the malpractices andfraudulent preference of claims.

CONCLUSION:

It is true that the number of netizens andcomputer literacy levels in the countrycompared to the total population isquite low. Most of the villages andeven urban centers experiencefrequent power failures. Data transferspeeds with the dial-up modems is lowand frequent hang ups are a commonphenomenon. In spite of so manyhurdles, the I.T. HAS BEEN ADVOCATEDAS THE PANACEA FOR ALL AILMENTS.Information technology makes thedifference in such situation, by offeringuser-friendly utilities/devices thatinterface with gadgets of daily use likeTV and Telephone. For the illiterates,the voice recognition software couldbe a boon. Handwriting recognitionsoftware, biometric devices furthersimplify the technical aspects of theprocess and make the life of acommon man comfortable.

For a country with over 100 crorepopulation, manual processes cannotmeet the requirements. If digitalprocesses, with user-friendly features,are put in place, India could becomethe I.T. leader in the world and renderservices for the rest of the world. Theimmense untapped potential for thelife insurance market demandsinnovative thinking and execution ofthe plan in a creative manner.

Gone are the days of customerloyalty. These are the days ofcustomer hopping from shop to shop,swapping the channels and surfingthe internet. Price is no bar, providedthe quality of service is good.Expectations of customers riseexponentially with the refinements tothe IT. Based devices/utilities. THUS, ITIS UPTO US TO ACT NOW.

Life insurance is a capital intensiveindustry, where the breakeven periodhas been estimated to be around 7years. Cooperation and coordinationamongst the member companieswould help improve the image of theIndustry in the economy.

Nobody thought a decade ago thatIndia would excel in the field ofInformation Technology. Today, wehave shown to the world that India,once described as a land of snakecharmers and taboos, is the abode forwriting software for the fortune 500companies and other coveted I.T.operations. TO BE SUCCESSFUL IN ITSEFFORT, THE INSURANCE INDUSTRYSHALL BELIEVE IN ITSELF AND JUST DOIT.

SOURCES/REFERENCES:

The news and articles on I.T. publishedin print/electronic media including theinternet, publications of the InsuranceInstitute of India, and web sites of theInsurance Companies.


In the post liberalisation period, IndianInsurance market has witnessed aseries of remarkable and impressivedevelopments. A few amongst theseare, the entry of large number ofIndian and Foreign private players,transparent and efficient legislativeinstruments, emergence of IRDA asstrong regulator and introduction ofnew distribution channels.

Having set a broad architecture forefficient and effective functioning forcarriers of risk the regulator focused itsattention on raising professionalstandards in insurance sell inginterface. Licensing regulations foragents and corporate agents havecreated an atmosphere to foster newbreed of intermediaries. The recentspate of alliances between banks,post office and insurance companieshas rewritten the way of distribution ofinsurance products.

In its quest to expand the horizons ofthe insurance business and to giveflexibility to respond to changingmarket environment and to buildmulti-channel distribution capability,at par with international standards, theregulator introduced new institution ofbrokers by bringing in place BrokersRegulations of October 2002.Traditionally, insurance has not beenthe forte of brokers and only agentswere allowed to operate in the directinsurance business. The role of brokerswas limited only to re-insurance. Direct

INSURANCE BROKINGIN INDIA SCOPE,

CHALLENGES ANDPROSPECTS

By : Shri Vinay Verma,Oriental Insurance Co. Ltd., Jaipur.

broking has now gained officialrecognition with IRDA issuing licensesto the first batch of brokers in themonth of January 2003 permitting thisnew fangled line of vocation to takeits position in insurance market place.There is ample evidence that broker-driven insurance market is attractiveto customers. Brokers dominate thedeveloped insurance market. In USA70% of non-life business is transactedthrough brokers. Their activities havealready kicked-off in Indian marketand they are ready to play a moreprofessional role to create riskawareness, widening customer baseand in development of insurancemarket in India. Their presence willequip the market with a moremotivated and more focusedmarketing force that would hasten thebusiness development.

Broker model has been introduced togive a 'feel-good' to the customers. Ithas unveiled immense opportunities tothis new breed of intermediaries. Theroad ahead is challenging. The broker-model is a tested model in other partsof the world and it will stay in India forlong in operational transformation ofInsurance Industry in a dynamicenvironment.

BROKER- A DISTINCT INTERMEDIARY INDISTRIBUTION SYSTEM

Contrary to agents and corporateagents brokers are supposed to bedirectly looking to the interest of the

customer and not the insurancecompany. The client appoints abroker. He conducts a fact finding oncustomer's need and his financialposition to properly represent his clientto the insurers. He understands thecommercial priorities of a client anddevelops an appropriate riskmanagement strategy to formulateapt insurance coverage at optimumpremium. The brokers are specialistsand are unlike agents. They facilitateinsurance activity on the most basiclevel, by getting clients the protectionthey need at the price they can affordand at the time they need it. For thisthey may interact with insurers andreinsurers to conclude a better ratedand best available risk protectioncover suitable to the needs of theclient. They provide vital link betweenthe insured and the insurer. Generallaw of agency governs them and theybargain and get covers on behalf oftheir principal. Brokers owe theirprincipal a fiduciary duty and they arein an important position of matchmaking to carry both their client andinsurer together.

Where agents deal with standardizedrisk solutions of personal class, thebrokers have the strength andsophistication of handling extremelycomplex risks and that too withcontractual certainty and supportingfast and accurate business deal.

Agents may not be able to strike best

Prize WinningTechnical

Paper2003-04

106 THE JOURNAL

deal, as they do not have access tothe entire insurance market butbrokers can do wonders for theirclients. World over insurancebrokerage houses are large,sometimes even larger than carriers ofthe risk. They provide even reinsuranceto the underwriters. In countries likeJapan, the broker is not empoweredto conclude the contracts or acceptrepresentation or the premium. In suchcases minimum capital requirementand solvency margin are not required.In Indian market, however, the brokermodel has been introduced with moreprofessional touch and it is expectedthat it will provide more flexibility andbetter risk solutions for the clients.

To a layman both broker and agentare nothing but insuranceintermediaries irrespective of fact thatthey are legally & professionallydistinct in their status and responsibility.To his principal, the agent owes theduties such as:

Ø The duty of carrying outtransaction for which he isemployed.

Ø To obey his instructions and to actstrictly in terms of his authority.

Ø To act with reasonable andproper skill.

Ø To account to the principal forthe money received.

Ø To deal honestly with theprincipal.

The broker, in addition, has the dutiesof:

Ø Ascertaining the needs of hisclient by instruction or otherwise.

Ø Using reasonable skill and careto procure the cover his clienthas asked for and

Ø If he cannot obtain what isrequired he is expected to reportin what respect he has failed,and seek his client's alternativeinstructions.

Brokers, in our country, are required tohave certain qualification, undergotraining and pass an examination tobe eligible to apply for a license. Inaddition they are required to havecapital norms, insurance cover forprofessional liabilities, observe codesof conduct, implement accountingregulations and other compliance

norms with regulations as befits aprofessional body.

This model has been compared withthe existing model of the insurancedistribution in following table.

Brokers are better placed to servecustomers' interests. Brokers

Table: 1

Broker- Model Agents- Model

01 Represents the customer/ Represent the insuranceorganisation. Obtains detailed company. Insurers decide howknowledge of clients business they should function.and philosophy.

02 Minimum investment before getting No substantial investmentlicense is Rs. 50 lacs. For re-insurance required.brokers minimum capital requirementis Rs.200 lacs and for compositebrokers Rs.250 lacs.

03 Required to take professional No professional indemnityindemnity cover of minimum cover is required. No impliedRs 50 lacs to assure security of term to exercise reasonable skillthe client's funds. & care.

04 Responsibility to provide services No commitment to provide risksuch as insurance consultancy, risk management services.management and uninsured lossrecoveries throughout the year

05 Assistance in payment of premium, This is the discretion of agent tolodging, negotiating and settlement help at the time of distress.of the claims.

06 Maintain data bank for the client Maintains his own personaland chart out risk management renewal data chart of variousprogramme on scientific basis. Also clients.maintain detailed knowledge ofavailable market.

07 Carry the insurance business in such No restriction for agents.a manner that not more than 50% However no corporate agentbusiness in first year of business, 40% can have a portfolio ofin 2nd year and 30% from 3rd year insurance from one person/onwards shall emanate from one one organisation under whichclient. the premium is in excess of 50%

of total premium procured inany year.

08 Keep a deposit for a sum equivalent No deposits are required.to 20% of initial capital in fixeddeposit, which shall not be releasedwithout prior permission of regulator.


Regulations 2002 specifies threecategories of brokers:

1. Direct Broker

2. Re-insurance Broker

3. Composite Broker

Apart from an individual, a company,firm or co-operative societies areentities that can apply for a brokerlicense.

Direct Broker: A direct broker canintermediate between the client andinsurer for life or non-life business tonegotiate best deal. He carries out thefollowing functions:

� Obtains detailed information ofthe clients' business and riskmanagement philosophy.

� Familiarise himself with theclient's business and underwritinginformation so that this can beexplained to an insurer andothers.

� Renders advice on appropriateinsurance cover and terms.

� Identifies adequate levels oflimits.

� Maintains detailed knowledge ofavailable insurance markets.

� Negotiates competitive termsand reasonable rates.

� Submits quotation received frominsurers for consideration ofclient.

� Provides requisite underwritinginformation as required by aninsurer in assessing the risk todecide pricing terms andconditions for cover.

� Acts promptly on instructionsfrom a client and providing himwritten acknowledgements andprogress reports.

� Assists clients in paying premiumunder section 64 VB of InsuranceAct, 1938.

� Provides services related toinsurance consultancy and riskmanagement.

� Eliminates under-insurance andincomplete coverage of perils ininsurance contracts.

� Provides reliable report onsurveys and valuation andassisting in the negotiation of theclaims, and

� Maintains proper records ofclaims and ensuring promptrecoveries from insurers within thetime frame set by the regulator.

Direct broking encourage professionalexpertise and insurance awareness isbound to increase but for carriers thecost of acquisition will also go up. Theinsurers will however appreciate therisk improvement and loss reductionmeasures initiated by the brokers tomake the risks better.

Re-Insurance Broker: Reinsurancebroker is an insurance broker thatarranges re-insurance for directinsurers with insurance and re-insurance companies. He helps inevolving relationship between re-insured and re-insurer. He deals withnational and international professionalunderwriters and therefore needs anexpert to manage expert underwriters.Re-insurance by treaty method is forfuture risks and is based on blind faithof one specialist into another expertsunderwriting. Broker's role is tostrengthen this belief for a long-termrelationship. He carries followingfunctions:

� Familiarise himself with theclient's business and risk retentionphilosophy.

� Designing re-insuranceprogramme.

� Maintains clear records of theinsurer's business to assist thereinsurers' or others.

� Renders advice based ontechnical data on the re-insurance covers available in the

international insurance and thereinsurance markets.

� Maintains a database ofavailable reinsurance markets,including solvency ratings ofindividual reinsurers.

� Renders consultancy and riskmanagement services forreinsurance.

� Selects and recommends areinsurer / group of reinsurers.

� Negotiates with a reinsurer on theclient's behalf and completesplacement of orders well withintime limits.

� Assists in case of commutation ofreinsurance contracts placedwith them.

� Acts promptly on instructionsfrom a client and providing itwritten acknowledgements andprogress reports.

� Collects and remits premiumsand claims within such time asagreed upon.

� Assist in negotiation as well assettlement of claims.

� Maintains proper records ofclaims, and

� Exercise due care and diligenceat the time of selection ofreinsurers and internationalinsurance brokers having regardto their respective security ratingand establishing respectiveresponsibilities at the time ofengaging their services.

Composite Broker: A composite brokerrepresents the insured as a directbroker, and at the same timerepresents the insurer as its reinsurancebroker. He can be a producing brokeras well as placing broker. He gets paidtwice for his service and advices totwo risk carriers on the same risk. It isnot unusual for composite brokers todeal with customers, particularly ofmega risks, as direct brokers and

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gather underwriting information andpresent it straight to reinsurers,circumventing or marginalizing thedirect insurer. This occurred in Indianmarket when mega risk conceptcame to light. Composite broking is anarea of hypersensitivity but regulationnow recognises it. It has the inherentdisability of conflict of loyalty andinterests as the broker simultaneouslyrepresents the risk producer and therisk carrier. Such an arrangementcould in addition lead to explosion offronting arrangements. Further theduties responsibilities and functions oftwo roles are in disagreement. Thebenefit of composite broking hasattracted big players. HSBC InsuranceBrokers (India) Limited is the first bankthat has received the licence tooperate as corporate broker.Preferably there should be no licencefor composite broking; because oftheir enormous reinsurance clout, theywill render the direct brokersredundant. Moreover, there is also adanger of insurance companiessurrendering their basic underwritingfunctions to the composite brokerswho will arrange everything fromcradle to grave. This could even leadto extravagant cessions to foreignreinsurance at the cost of Indianmarket. This issue also came beforethe expert committee onremuneration of intermediaries andthe committee has recommended tothe regulator that the licencing ofcomposite broking should bediscontinued immediately. Those thathave been licenced should beinformed that such licences would notbe renewed.

SCOPE OF BROKERS IN INDIA

Positioning brokers as pre-eminentdistributor in Insurance Products:

The precise scope of new regime ofintermediation of insurance productshas already been set in stone. Themarket has to witness how strong thisdelivery structure is built. Insurer'sprimary front l ine channel ofdistribution is increasingly expensiveand not providing them the return

needed. Insurers are now seekingmore efficient and effective ways toearn premium and develop customerswhile at the same time they are tryingto drive cost out of their balancesheets. They can dramatically reducethe internal staff costs associated withoriginating and servicing policies whilerelying upon broker-model. This modelof delivery drives cost down andrevenues up and it has a definitefuture in insurance market.

Brokers need to manage distributionas their core business and to makebusiness-partnering their core skill. Themodel has its own advantage andthreats. How this new engine ofdistribution will drive the insurancemarket will depend not only how ittakes the challenge from otherintermediaries of the field but also howit turns their threats into strategicadvantage to take a lead in deliverybusiness.

Threats:

The following issues are confrontingthe broking-model.

Regulated Rates and Products:

The insurance sector that is liberatedis yet under substantial price controlthat governs product features anddistribution. In competitive businessmodel presence of tariff structure,which governs the product featureand pricing in significant number ofportfolios, inhibits the customer andprovider to exercise their full choice.In such a restrictive state of marketbrokers find no innovative andcompetitive edge to promote theinterest of consumers. Brokers performtheir best in a market where there isno price or product feature control,also where the broker has knowledgeand expertise of insurance andunderwriting at a level equal to if notsuperior to that of an underwriter withwhom he deals.

The present partial liberalisation hasenabled the creation of a competitiveenvironment but with prices and

product features controlled it is difficultfor brokers to provide value additionin their services. This state of marketencourages unhealthy practices toflourish. This is the reason that thebrokers were put on the firing line inthe very first year of their appearancein the market. Established carriers ofthe risk mainly the public sector insurerscomplained that brokerage modelimpose the increased cost without anycorresponding benefit. In regulatedmarket brokers are not in a positioneither to improve the features ofcoverage or reduce its pricing. Theyalso complained about theengagement of brokers in unethicalpractices like premium rebating andother allurements to tap the marketespecially the creamy layer ofinsurance business i.e. fire andengineering portfolio that still is undertariff regulations. Unfortunately evenbefore picking up the pace they gotembroiled in controversies overalleged rebating. The regulator hasnow reduced the margin of differencebetween agency commission andbrokerage but this constraint will keepconfronting the brokers till the priceand product features are brought outof tariff. Unlike India, non-life insurancein most developed countries is notbound by tariff regime and premiumis negotiable for all contracts. Todismantle the tariff system is as suchthe foremost demand of the brokers.True benefit of liberalisation may notaccrue to the consumers unless thereis competition in pricing of non-lifeproducts. Moving away from tariffregime to fully market responsivesystem will definitely increase thescope of broker-model in this sector.

The sheer variety and nuances of de-tariffed market make the skill of brokermuch more effective and relevant.However, until the market breaks freefrom the tariff system and brokersdevelop the skill to negotiate the bestpossible premium rates and covers fortheir clients, their function will belimited to selling available products atpredetermined rates.


5% Special Discount:

The practice of doing business directlywith public sector companies andgovernment bodies without anyintermediation cost was introduced inAugust 1969 and this practicecontinues till today. The 5% specialdiscount for corporate sector wasgood with a view to discouragebenami agency system thatcontinued to operate even after thenationalization of the sector. Thisfeature of 5% discount is peculiar toIndian market and not encounteredin other developed and developingmarkets.

Government organisations and PSU'salso have the directives from CVC todiscourage usage of middlemen andwhen present tariff condition do notbring any value addition but only addcost of insurance to theseorganisations there is no point for thissector to take the services ofintermediaries. The quality ofprofessional advice of fered alonecannot be justified to increase the 5%cost of the insurance.

The share of private sector corporatebodies entitled to 5% special discountfor fire and engineering business isestimated about 15% of Rs.14000 croregeneral insurance business. It is thissegment for which there will be severecompetition. May be because of thishuge worth, in the very first year of theiroperations this segment was targetedby brokers, as there are reports, byoffering kickbacks and rebates as thedifferential (between 12.5% brokerageand 5% special discount) was as largeas 7.5% to attract this sector whereprofits or reduction in cost is a keyobjective of business. Luring clientswith overriding commissions becamerampant and various kinds ofpractices were followed to grabbusiness. The regulator was forced toexamine this issue and an expertcommittee was formed. The specialdiscount has been allowed tocontinue and the margins inbrokerage and standard discounthave also been reduced substantially.

Now to acquire the business of bigclients, having paid up capital morethan Rs.25 crore, the brokers will getonly 6.25% brokerage for tariffproducts. For tariff business of fire,petrochemical, engineering, loss ofprofit and IAR insurances for corporatehaving paid up capital between Rs3crores to Rs. 25 crore, the brokerageadmissible is 7.5%.

Broker should not use his�countervailing power' to squeezedeals that are patently unfair to theinsurers, lest he should lose thegoodwill of insurer community. Abroker has to manage his relationshipsuccessfully with the insurer, even whilemanaging his customers'expectations with reasons. The only'feel-good' factor for the brokers isthat the regulator has indicated thatthe market will be free from the tariffby 2006. Once the market is left openfor pricing and product features theseconstraints will remain of noimportance, as the brokers will usetheir skill and expertise to get bestproduct in optimum price.

Legal Complications:

It is trite law that a broker is the agentof the insured and therefore owesduties to the insured rather than insurer.In practice, this commercial realitymay complicate matters. They maybe held liable for breach of an expressterm of contract or implied term toexercise reasonable skill and care. Hewill be liable to insured for defaults ofnot placing right insurance or may beblamed for not checking the policywording, particularly an exclusionclause in accordance with clients'instructions. In developed marketthere are ample of examples for suchlitigations. Though the professionalindemnity cover is there to protectthem and it is compulsory too but stillthe threat of legal complications mayturn the thing very unpredictable.

The composite brokers are not onlyresponsible to their customers but it isalso expected of them to act properlyon technical issues as well as on

matters relating to due diligence andtruthful conduct of business towardsinsurers. Recently regulator hasexercised its penal power to suspenda composite broker for improperconduct in relation to placement ofreinsurance liability risk of RanbaxyLaboratories Limited. OrientalInsurance, as lead insurer, underwrotethis broker-driven business and whena claim was reported the insurercalled for reimbursement of pro-ratashare of the reinsurer based on whosequotes the policy was placed. But thiswas to come from no-where.Regulation has begun to bite ininsurance sector and the brokercommunity must carefully observe thecase of Corporate Risks India PrivateLimited, whose license has beensuspended as regulator observedbreach of diligence and reasonableskill and care in the above deal, elsethe results may be shocking.

Dummy Insurance Brokerage Firms:

Another threat looming large is thatcorporates may be tempted to set upbenami brokerage firms to get backa share of premiums paid tounderwriters through brokerage. WhileIRDA has warned against allowingsuch a possibility but there is little theregulator can do to enforce the ruleshould corporates enter intocartelisation. This may hamper thescope and prospects of genuinebrokers who already have set up theirshops here to tap mega risks and largecommercial businesses to their kitty.

Smart Customers:

Indian customers are in habit ofseeking rates from different insurers.They can give underwritinginformation and mandate letters toseveral brokers to obtain quotes fromseveral insurers. This may also createa situation when more than one brokerapproach same insurer for the risk andget different rate. This will not onlymake the market more and morecompetitive but will also createconfusion in the market and will surelyaffect in the relationship building.

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There will be customers who will getthe risk inspections and professionalguidance from many brokers withoutpaying any one of them. They shouldrealize that nationalised insurancecompanies are providing riskinspections and risk consultancywithout passing any cost to the clients.These kinds of expenses have beentreated as a part of marketing effortand now clients will not like to pay forthat. Brokers will have to see whethertheir brokerage income is sufficientenough to meet this kind ofexpenditure.

Opportunities:

The industry is currently run atunacceptable cost. Brokers canreduce the pre-sale and post-sale costof the carriers of risk and in such asituation insurers can concentrate ontheir core business that is underwritingand development of the productleaving the distribution to their businesspartners. This should encourageprofessional brokers as their salesharbingers. The industry has notoptimized its professional expertiseeven in tariff covers and as such lapsesare brought to light by consultantsengaged by the insured. The numberof claims outstanding and /or disputedclaims is another piece of evidenceto show that independentintermediaries like brokers could betterserve the insured. The followingopportunities provide better scope tocapture major portion of distributionbusiness of insurance products.

Private Insurers:

Nationalised insurers have a widereach and presence, which cannotbe duplicated easily. Building adistribution network from scratch isexpensive and time consuming.Private insurers, on the other side, havelimited capital and resources and theyhave no other viable option than touse the most vibrant and usefulmiddlemen to handle their line ofproducts. In quest for market sharethey are in a look out to reach themasses through these new

intermediaries, as it will not put anyfixed burden on their cost structure.They surely like to take advantage ofIndia's large population and reach aprofitable mass of customers byalliances with brokers, corporateagents including banks and traders.Recently, Tata AIG has signed a MOUwith JLI Insurance Broking Company.JLI, an associate company of FrontierTrading, was earlier known as JapanLife India. The core business of theentity was selling magnetic mattresses.Insurance companies have of latebeen signing a series of corporateagents. Now MOU with a broking firmis an indication of many such tie-upsin near future. The private sector is fastcatching up in insurance field and thebrokers can foresee an impressivefuture to develop along with theprivate players. The most importantfactor is that they have no bar toplace business with public sectorcompanies also when they get acompetitive deal even when theyhave tie-ups with private insurers.Introduction of brokers in deliverysystem has met with resistance frompublic sector companies butcustomers and the private sectorinsurance companies havewelcomed it. The global practice ofusing brokers as the principaldistributing arm of insurance companyis evolving in fits and starts.

Voluntary Retirement Scheme in PublicSector Companies:

Traditionally, the insurers re lied onofficers and development officers towiden and create insurance markets.They were not able to fulfi l l theexpectation of the insurers. Thepresent insurance market is mainlylenders-driven market or where therequirement to have an insurancecover is because of some statutorycompulsion. The public sector insurershave realized this hard reality evenbefore the start of the game that theirown marketing force cannot be themovers and shakers of future market.This seems the reason of offering VRSto slim their fat size. VRS fordevelopment officers and other

officers and employees have createdthe scenario altogether different ininsurance market. As the directmarketing force has been reducedsubstantially in the public sector, thebrokers now have an equal chanceto develop themselves as theirdistribution partner. The directmarketing will take a back seat incoming days and now the maincompetitor for brokers will only be thedirect agents and corporate agents.The market situation is ripe for makingan onslaught on existing accounts ofthe public sector companies.

Competitive edge in Commercial Line:

Brokers have critical advantage inmarket that is now crowded withcompetition. MNC's with biggerbalance sheets will no longer tolerateexpensive insurance. Right cover,premium for coverage strictly on needbase and demand for difficult-to-insure will make these clientssophisticated one. Exclusion clauseswill be challenged resulting in lack ofavailable cover. This kind of need-driven risks has been handled worldover by the brokers and with their skilland expertise they will be the captainsof the game, here in India too.

Agents and corporate agents can relyonly on their principal. They havelimitations to redesign their approachto risk or to provide any innovativecover and in this scenario the brokerscan prove themselves as drivers ofchange in insurance distributionespecially in corporate segment. Indeveloped markets they have provedthemselves capable to slash costs andcreate values. They can makeavailable better service in packagedniche products. Consumers, be theycommercial or personal, have muchhigher expectation levels today thana decade or two ago. Competitivepressures have already forced insurersto seek product and deliveryimprovements both within their ownset up and out of their distributionchannels. They will now recognise thechannel that suits them most inchanged environment. Another niche


area of operation, which brokers maytarget, is mega risk segmentcomprising risks like infrastructure,power projects, highway projects,aviation, space, marine hull, energyand oil sector to name a few.Underwriting of these huge risks requirespecial skill and expertise and brokershave competitive edge to deal inthese areas. They can also providefacultative placements in addition totraditional treaty against these kindsof risks. Large broking houses haveoffices in all parts of the world andhave extensive access to globalinsurance market. Their global reachallows them to util ize expertiseworldwide.

Competition has thrown immenseopportunity to brokers to target andhit the tied portfolio developed bynationalised sector. Disturbed with VRSand other administrative slackness thisprofitable portfolio is not in a fortifiedstate. This portfolio has well developedin Indian market with optimumutil ization of technical andadministrative abilities of competentinsurance professionals but in ascenario when PSU's are facingproblems to manage their strongnetwork and have moved towardsconsolidation of their huge portfoliobase, brokers have an opportunity tojump into the panorama to influencethis sector and grew tounprecedented multinational stature.They can interlink the expertise of theirglobal partners to grab thisopportunity. This is the area where thecorporate agents and agents also donot present any aggressive challenge.

ROLE OF BROKERS

The primary role of insurance broker isto facilitate the transfer of risk throughplacement of insurance cover onbehalf of an insured. They have toinspire in underwriters, on case-by-case basis, the confidence to acceptthe risk presented. There can be nouniversal solution that will transformevery risk into an attractive propositionto insurers and for some clients this maywell be impossible. Each case is

considered on its merits and individualproblems addressed. Brokers have skilland expertise to understand the riskand have access to the multipleinsurers to find a right carrier of risk toplace that risk. They are in thedistribution business not only to extendthe market by spreading riskawareness but also to make wider theshopper support for all insuranceproducts. They have a bright futureand role as the value addedintermediary that can provide perfectservices to match insured's need invarious segments. Brokers worktogether with client companies toconstruct proactive programme of riskprotection that are geared to supportthat organisation's strategic businessobjectives. Effective risk managementtypically involves the application ofpre and post loss mitigationtechniques combined with variouslevels of insurance in well structuredprogrammes drawn purely on theneed of the client. They are the onlyintermediaries in the distributionchannel that analyse the needs of thecustomer and negotiate a dealsuitable to the risk exposure of theinsured instead of buying a standardinsurance product. There are manyareas where broker's input will be ofgreat value. They are vital l inksbetween the contracting parties andcan play a influential role inintermediation business.

As Match Maker:

Brokers play an important role ofmatchmaker bringing the insurers andthe clients together in the spirit ofgoodwill, mutual trust and long lastingrelationship. They make businessmutually desirable for both the insurerand the insured. They tailor risk-financing programmes to match theuniqueness of client firms usinganalytical tools and technicalexpertise to determine what is best fortheir clients. As substantial amount isinvested in technology andprofessional development they arebetter placed to negotiate price,terms and conditions or even getclients the products that precisely fit

their need. Brokers have a know howin risk management and riskevaluation and they can understandthe risk profiles of clients and can actas their voice in getting mostappropriate and best rated productthrough consultation with insurers andwhere desired with re-insurers too. It isright time that insurance contracts arewritten by involving both the parties ofthe contract. Brokers not only look intopricing factors but also see the bendof safety mechanism that exists andso forth. The insurance broking virtuallyeliminate the need for consumers tokeep track of their insuranceprogramme. They offer completesolution right from risk profiling to claimsadministration, which makes it easierfor clients to concentrate on their corebusiness. As pricing of risk is based onthe principle of risk management,insurers are also encouraged and theyappreciate better risk managementprocedure practiced by insuringcommunity in guidance of skillfulbrokers. They are real matchmakers.

As Consultant:

These professionals, like in developedmarket, may also provide insuranceconsultancy services, riskmanagement services and services foruninsured loss recoveries. Their role isto provide technical expertise and toexplain fully various aspects of riskcoverage. Brokers deploy theirunderstanding of workings of theinsurance market and the strength oftheir relationships with insurers tosecure cover for their clients ataffordable cost. Carriers need theconfidence to underwrite and beliefin the broker is a pre-requisite of this.Risk consultancy to corporate clientsis greater need of changing times. Riskconsultancy is for risk management,loss prevention and risk improvementtechnology required by both insuredand insurer. The insured is generally alayman and the insurer is a technicalexpert. Broker has to nourishrelationship between them by hisexpertise to satisfy both. It is importantaspect of risk presentation that itproves to be a true picture to maintain

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long-term relationship. Brokers providetechnical consultancy services for alltype of non-life insurance, riskmanagement and claims settlement.This includes handling of the specialrating and formalities of TAC as wellas acting as lender's adviser onprivately financed projects. Ininsurance it is practice to fix pricebefore the cost is known. Hence thereare good and bad rates and notgood and bad risks. Broking strategyshould stop ridiculous rate reduction.As consultants brokers are expectedto balance both the rates and termsso that loss of one when shared byany, all survive and leave none tobreak. This model will flourish for longif brokers act as �priest of marriage'and not as �advocate of divorce'

As innovator:

The most important aspect of brokingin insurance is that brokers functionnot only as intermediary, as the termbroker applies, but also as innovator.If the insurance product does not existthat meets the need of the client, thenthey try to invent it and sell that ideato insurers. In this way instead of simplyacting as the buyers' agent inpurchasing the best available productfrom the insurance market they oftendevelop the most excellent productsand try to sell it to insurers. This sort ofcreativity and promotion is nowexpected to put further challenges toIndian Insurers who have remainedunder the sheltered environmentwhere the insurance product aresimply sold on 'what is available basis'and they will take on new marketingstrategies to offer products whichclients need as per their suitability.

Like in developing insurance marketsbrokers wil l make many largecompanies to recognise the benefitsfrom a greater degree of risk retention.As premium rates rise and insurers turnmore selective, the option of insuringrisk from the 'ground up' will be lessattractive and may not be profitablein larger cases. Brokers, in such asituation, have a specific role to designinsurance programme maintaining

the optimum balance betweenretained and transferred risk for eachclient. The 'one-rate-one-industry'theory of tariff being followed in Indiadoes not recognise the industrial riskprofile hence good risk and bad riskare treated equally. This is likely tochange soon because of brokingmodel.

Role to lessen �gap of expectation':

General insurance is an intangibleproduct, contingent to the happeningof an event that may or may nothappen and tested for its utility orotherwise at a future date. Insurancepromises future performance. There is'informal gap' between the providersand the served throughout thecontract period and this 'informationgap' is converted into 'gap ofexpectation'. Traditionally, the insuredhas little to say in drafting of contract,which is often technical. Insurancecontracts are unique; their pricedepends on insurer. Two parties ofcontract do not draft contract.Contradictory expectations, noadherence to commitments, differentinterpretation of basic agreementresults in 'gap in expectation' betweenthe parties of contract. Genuineconditions apart, in present insuranceindustry, human greed, system failures,bureaucratic approach etc havemade things very erratic. There is noquestion that 'it takes two hands toclap' and inadequacies lay both withinsuring public and insurancecompanies. It is here that brokers canplay a key role to lessen this 'gap ofexpectation'. They can offer badlyneeded depth to this service industryand perhaps more transparent andwell-regulated system than otherentities in distribution of insuranceproducts. Brokers can take the job ofeducating potential customer forwhich insurers have to spent chunk oftheir hard-earned premium income.Broking in insurance can direct themovement of services in this industrytowards professional managementsupported by research and use oftechnology taking due care that maybest fulfill client's wish-list. These kind

of services will surely narrow down thegaps. The clients will also becomemore levelheaded in their outlook.

Brokers also have a role to correctdistortion in non-payment of claims.They serve to fill gaps in insurer'sservice and ensure seamless andefficient service to clients. Theyunderstand insurer's procedure betterand respond as required to emergingdemands from clients. The Regulatorhas stipulated time frames to settleclaims. These need to be adhered ifnot bettered and the broker canensure that insurers regard these rulesin the interest of the clients. Keepingthe above in hindsight and the rolethat the insurance brokerage industryhas been playing on a global level, theIndian market also needs the broker-model here to mature with time andneeds to have a clear standing for theindustry. Developing this way willenable brokers to service theconsumers to its optimum level ofefficiency.

PROSPECTS OF BROKING MODEL ININDIA

Broker model has a distinctive featurethat ensures the patronage ofparticular consumer segment thatvalues the choice presented bybrokers. Need based covers built uponand negotiated by brokers increasetheir business to meaningfulpropositions. Inherent limitations of theindividual agent have contributed toleave huge gaps in the spread ofinsurance, which are potential areafor brokers. They can aim to combinehigh-end sales with mass marketingapproach by segregating insurancebusiness in terms of corporate andretail customers.

Retail Segment:

The effective way to reach to massesis to grab the retail segment. Thissegment includes motor, health,personal accident and packagepolicies l ike householders andshopkeepers package covers. Motoris key segment of general insurance


business. Excluding motor the retailsegment constitutes around 15% ofIndian general insurance business. Thispoor performance is largely due tolack of adequate distribution channelrather than lack of products. In fact,the insurance industry has developeda wide array of products over last fewdecades. However, it is anybody'sknowledge that not more than 40% ofthe products are in regular use. Thismeans either the products do notmeet the requirements of the targetgroup or the traditional marketingforce is not fully aware of theavailability of these products. Bytapping such under-served niches,brokers can expand the retail marketsubstantially. The individual is not onthe whole very insurance conscious.He is aware of a few of common formsof insurance but will probably have noconception of the enormous varietyof covers, which the insurance marketprovides. He may also be prepared toconcede that the idea of insurance isa good one, but he still tends to bereluctant purchaser. His reluctance ismainly because of payout in return ofwhich he receives no immediatetangible benefit and to some extentbecause of his perception that it is verydifficult to get a claim from insurers.The brokers' prospect may be bright ifthey take the lead to improve thesituation from this place. They can playthe role of educator to develop thisline. Brokers need to do more thanwhat insurers and traditionalintermediaries have done so far.Clients need far more than simpleintroduction to available covers.Broker's task will largely be to selectmost appropriate cover from a rangeof standardized policies and whereverrequired he can negotiate additionalendorsement on standard packagesor can work on tailor made covers inconsultation with insurers to suitparticular group or inhabitants ofparticular zone. It is the influence ofbrokers that one can find floater infamily package health cover, criticalillness cover as supplement to basicmedi-claim policy on nominalpremium and inclusion of pre-existingdisease after four claim free years in

succession. Personal line of business ismostly non-regulated business andbrokers have huge scope to negotiateboth pricing and product features. Toput their finger on right pulse brokersmust assure post sales service anddoing so they can be seen far aheadon road leaving their competitors milesto the rear.

Motor business is the major portfolio forgeneral insurers. It constitutes 40% ofgeneral insurance market. To maintaingrowth in profitable private carinsurance segment insurers havesigned a series of MOU's to have tie-ups with lead manufacturers,distributors and financers. Insurershave preferred Corporate-Agency-Model to promote and distribute thismajor product. It is difficult for brokersto grab this portfolio without any valueaddition. They have to developbusiness relationships and post saleservice is the key area that can givesome mileage to them, as thetraditional agency force hasremained deficient in this area andthe dissonance is commonexperience of customers once theymeet with an accident. Brokers canhelp their clients by completingformalities of making claim upon hisinsurers, and possibly for assistance inmaking an uninsured loss claim againstthe other motorist. Motor insurance isa mandatory insurance cover. Giventhe total vehicles and the annualgrowth it is obviously a huge marketthat broker must try to grip in order tostay alive and to take their due sharein most prominent portfolio, in brutalcompetition surrounded by otherintermediaries and direct marketingforce of the insurers.

Health insurance is another area inretail segment that has huge potentialto grow as standalone business.Brokers can play a lead role todevelop it. Health needs of the peopleare increasing day-by-day and moreso the cost of treatment is alsoescalating with parallel pace. Currenthealth care expenditure in India is Rs.1,03,000 crore, which includes Rs.86,000 crore, spent on health care

delivery and Rs. 17,000 crore onpharmaceuticals representing 5.2% ofGDP. This is comparable to theexpenditure most developingcountries incur on health. However,the coverage of population underprivate, social and other types ofhealth insurance is limited to the extentof 15%. Following table shows the formof healthcare coverage in India.

Table:2

S. Type of healthcare NumberNo coverage of lives

01 Private Medi-Claimcover 80 lacs

02 E S I beneficiaries 3.4 crore

03 Central Govern-ment HealthScheme 40 lacs

04 Railway healthscheme 12 lacs

Over the years private healthexpenditure has grown at the rate of12.84% p.a. Insurance awareness isvery poor in our country. This presentsan opportunity to brokers to take leadto educate people and to developand negotiate need based insurancecovers in health sector where only onecover 'medi-claim' is largelymarketed. This policy currently coversonly 5% of the population.

One in every 333 Indians suffer from aheart-stroke. Four million stroke victimscontinue to survive. 20% of thepopulation can develop cancer.Today, the average age of a personwho can experience a heart attackhas come down from 40 years to 35years on account of changing lifestyle.Diabetes is also more prevalent today.All this means additional medicalexpenditure that may not beadequately covered under generalmedi-claim policy. Expenses could beincurred even after discharge fromhospital. Add to this fact one mayeven lose his/her job as a result offalling prey to any illness. Even aftertaking a cover customers are unsure

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about whether they can fall back ontheir medi-claim policy should they beaffected with ill health. At the heart ofmost disputes is the issue of pre-existingailment.

Floodgates of competition havethrown a challenge to the brokers todevelop more innovative covers todeal with the health care issue at largeand to make an impressive hold on themarket. This is an area where there isample scope to redesign the coverand negotiate the rates. Healthinsurance products are Giffen Good-a term used by economist for productswhere sales rise despite an increasein prices. For a long-term relationshipbrokers should finalise deals thatremain effective for years. A close lookto current profile of business shows thatthose that are likely to use it purchasethis product. It is individuals over 45years of age. Brokers can negotiatecovers with possible discounts for thosewho join the health cover early anddiligently pay their premium all theirlife. They can also work for productswhere pre-existing disease conditiongets deleted after operation of thecover continuously for 4-5 years.Globally this model has successfullyhandled this segment withprofessionalism and it is expected thatIndian market will also witnessinnovative covers by intermediation ofbrokers. Other intermediaries havelimited skills to explore the possibility ofbest product that suits the need of theclients and professionally they canonly rely and market the products oftheir principal but the entry of brokersin health segment means betterproducts with variety of riders andchoices for customers.

Corporate Segment:

India is shining and showing stronggrowth in both life and generalbusiness. It is expected that insurancebusiness in India, which is pegged at $6.6 billion, would increase to $ 40 billionwithin next 4-5 years. Insurancepremium in our country accounts fora mere 2% of GDP compared to theworld average of 7.8% and G-7

average of 9.2%. With increasing signfrom manufacturing activities andincreasing signs of consumptionrecovery there are all chances that'feel-good' factor in newly born brokerintermediation will turn into 'feel-better' as there is vast scope incorporate sector. The share of gross fireinsurance business in Rs.14000 croregeneral insurance market is 20%. Thisbusiness is growing at about 12%.

Indian corporate has become morerisk aware with development ofeconomy. Due to fall out ofSeptember 11 corporates look forbetter, newer and wider covers likeDirector and Officers liability insurance,product liability and product recallcovers besides the traditionaloperational covers. Corporate sectorrequires unique tailor made coversand risk consultancy services. Riskprofile of marine hull, aviation, energy,oil, power, foodand beverage, entertainment,broadcasting, multi-media and otherjumbo projects are different not onlyfrom industry to industry basis but alsofrom industrialist to industrialist basis.Brokers subdivide a market byintroducing more characteristics. Theybelieve to move into niches beyondsegments to make their presence feltby the market. Brokers, world overhave designed, negotiated andfinalized many innovative covers. Thefirst tailor made cover for a Hollywoodfilm covering the risk of death or injuryto stars or damage to negatives ortapes causing costly re-shoots and risksfrom pre-production until release ofthe film was broker-driven and it wasaltogether different from standardaccidental damage and fire coversavailable in the market at that time.Big corporates will welcome theintermediation of capable andaccomplished experts who will makethe deals possible on tailor madeproducts best suitable to theirorganisation. They are not happy evenwith 'one industry one rate' they wantspecific rates for their organisation.Mega risk concept is one suchconcept that made it possible toanalyse risks of every customer as

separate segment. Separating the riskof Reliance group from the standardpetrochemical tariff and offering atailor made product driven onreinsurance quotes made it possiblefor Reliance to have a need basedspecific cover by paying Rs 30 croreinstead of Rs 100 crore for purchasingstandard cover.

The broker-model as such is veryencouraging way of intermediationbut its success will depend how itkeeps it operations in the deliveryworld of insurance products. Worldover brokers have made a strongplace in corporate segment. Thebroker's USP is financial planning andneed analysis for clientele. It is difficultfor client to approach number ofinsurers to get the best deal. Brokershave specialized knowledge andaccess to multiple insurers andreinsurers and they can providegreater choice to corporate clientsafter analyzing their risk pattern andcapability to retain risks.

With 5% discount for corporate andwith tariff and structured policies inplace it will be difficult initially to getestablished in the market but for surethe corporate segment is the majorsegment that will decide the future ofthe broker-model in India.

Mass Marketing:

India is fast catching up with directbroking. Intermediation throughbrokers has already changed the wayof insurance marketing with mass.Brokers are better placed to sell groupinsurance covers to a set of peoplewho share a similar need. They couldtransform urban and semi urbanmarkets in the non-tariff business.Indian consumers have also startedlooking for real value for their money.Brokers with competitive insurers arealready hitting upon innovative andnovel ways to reach both theuninsured and underinsured. Some arepackaging the goodies of the traderswith insurance facility as extraincentive for wooing the costconscious consumer; some are


targeting the same with low servedhealth and accident segment. Marketreport confirms that new companiesare almost targeting 50% of premiumincome from these nation widealternate channels.

Brokers emphasise need-based sellingof risk products. They provide clientexpert advice on relevant issues. Theyare not in the market just to earncommission by pursuing onecompany's available products but thismodel believes to generateawareness and to guide the client, thecover that protects the risk theyproduce and perceive. Theynegotiate add-ons or modifications, ifthey are relevant to make sense to theneed of the mass. They have apowerful role in insurance penetrationof the country.

CHALLENGE FROM OTHERINTERMEDIARIES

Understanding one's customer is notenough to remain successful intoday's competitive environment. It isequally important to understand theobjectives, strategies as well asstrengths and weaknesses of one'scompetitors. Brokers are new in theintermediation business of insuranceand the competition is stiff from theother intermediaries, which haverecognition and a firm standing in thedistribution business. To becomestrongest driver of growth brokers willhave to perform better than thesecompetitors to win the clients as wellas the insurers to their side and moreimportant is that they becomecompetitor oriented too. Theircompetitive strategies will only decidewhether they are going to be marketleaders, challengers, followers ornichers.

Agents:

The traditional agency system ofdistribution of insurance products isperhaps a century old. The agents arelinked to one insurer. They get acommission on the policies sold, whichis usually a fixed percentage on the

premium. Agents generally havelimited knowledge of business they getand canvass business through theirpersonal contacts. Agents generallyservice by one-on-one discussions andhave a very special way for calling oneach individual based on their likingand personal details known to him.They have ability to handle routinematters but they lack competence totackle complicated issues.

Traditionally, insurers in a top-downproduct development approachcreate products with featuresattractive to agents (high commission)and then let the agents findappropriate target markets. Brokerchannel, in contrast, requires ananalysis of the market that starts atbottom, with the customers and worksup. There is challenge without doubtfrom agents in personal line of businessincluding motor segment that carrymajor share of non-life premium.Agents, though recruited accordingto licensing regulations, are notnurtured enough through propermentoring by the insurers. There is lackof clarity on how to harness theagency potential. Retail segment(excluding motor) is not easy to sell. Ademand for it has to be created byinsurer through well thought outstrategy and agent has a role only inits operational implementation butbrokers are placed in better position.They can create this demand at theirown by playing the role of educatorand can perform as planner andexecutor to grip the distribution of theretail products. They can enhance thedegree of professionalism andproduct innovation in the market. It isinteresting to see how potentially theycreate retail market. Right strategiescan drive them to target.

Corporate Agents & Bancassurance:

Corporate agency or Bancassuranceis a 'hot word' in Indian InsurancePanorama to-day. Corporate agentshave stepped in the intermediationbusiness all together with brokers to

deliver insurance products. They havebeen recognised immediately by thecarriers looking to the potential,network and grip they have with theircustomers. General insurance businesshas developed to a large extent as alender-driven market. Banks andFinancial Institutions have been themajor drivers of wealth creation andinsurance as necessary collateral hasgrown alongside. Banks can use theirinherent strengths in leveraging theirfamiliarity with their customers todevelop insurance business andcorporate agency is the best way toearn non-fund income and to improvetheir bottom lines.

Banks have a vested interest inpromoting insurance products. Theyhave shown their keen interest inBancassurance tie-ups in order toincrease the proportion of theirincome, which come from commissionrather than from interest margins,especially given the current lowinterest environment. This is consistentwith global trend towardsconvergence of banking andinsurance, which are two crucialbusiness activities in the financialworld. In Europe it is the main form ofdistribution for financial products andit is estimated that Bancassurancegenerate about 30% of Europeanbank profits. The business logicunderlying Bancassurance is theexploitation of business synergies andeconomies of scale between bankingand insurance products and services.Climate is very friendly toBancassurance and at present theBancassurance is practiced only as adistribution-model of the pureinsurance products. The bankproducts have not yet tied-up withinsurance products. This model is thereal challenge for any other player inthe distribution field. But this model hascertain inherent weaknesses thatother competitors would like to watch.

Bancassurance-model imposespreconceived product-drivenstrategy. Product design is an

116 THE JOURNAL

important issue in open market andbrokers are capable to present aserious threat to this way ofintermediation by creating productthat may be attractive to the bankconsumers. Authentic marketing is notthe art of selling what you make butknowing what to make. Brokers canfind clever ways to pursue these clientsand to deal with them directly.

Another problem is that banks in mostof the cases are joint beneficiaries inthe event of a claim, even while theyperform the duties of agent to placethat business to the carriers of the risk.In the event of any error or mistakecommitted by them as an agent toprejudice the interest of bankcustomer may complicate the matter,and it can be challenged legally.Bankers definitely will not like to haveobligations or liabilities brought on totheir balance sheet as a result of theirtaking up corporate agency. They arein this business to generate non-fundincome and to improve their bottomlines and not to enhance liabilities. Thisthreat of Bancassurance-model is onemore opportunity to brokers.

The corporate agency model is notonly restricted to the banks andfinancial institution but the insurershave found their partners in other fieldsalso. They have given corporateagency to travel agents,manufacturers, traders and one of thepublic sector company, Oriental, hastied up with Indian Postal Departmentto distribute its products. The lender-driven and producer-driven marketswill be grabbed by corporate agencymodel and the reason is the non-fundincome to the lenders and producersthat can contribute to improve theirbottom line and impress theshareholders.

Direct Marketing Force:

The present structure of PSU's relies onbranch managers, divisionalmanagers, officers in developmentside and development officers as

main marketing force. They enjoyaccess to preferred source of supplyand high respect in industry. Thisstructure has been built in years andinsurers are not going to change thiszero-level channel easily. With theopening of the sector insurers haverealized that intermediation is theneed of the hour and they haveshown their initial confidence onBancassurance-model and havesigned many tie-ups with motormanufacturers, dealers and othertrade giants to capture lender-drivenand producer-driven market. Forconsumer-driven market they still relyon their primary marketing channel.The broking-model has not gainedtheir confidence and recognition totheir expectation and this is thebiggest challenge for the brokers.

Development officers, who wererelied upon by insurers to create newmarkets in retail segment have largelyfailed to promote and developpersonal line of insurance. Their sellingeffort has remained less intense inpersonal line and rural sector wherethe market is not lender driven. In thiscontext the role of brokers assumesignificance and if they work hard anddo not allow agency intermediationto take lead in retail segment they canchange the delivery system ofinsurance products comprehensivelyin their favour. Insurers sales forceconcentrate entirely on company'sproducts. They follow the product-oriented strategy to sell standardizedproducts. On the other hand brokerscould convincingly sell more than acompany's sale force because theyare customer-driven.

Consolidation process in the PSU's hasdiminished the role of direct marketingforce in Commercial segment and thisis the best time when brokers canprove their competitive edge. Theinsurers will have to accept thechannel that performs better as a partof inevitable growth process of themarket.

CONCLUSION

Brokers, as intermediaries, have hugescope and prospects in the distributionand servicing of insurance products.With market-oriented thinking theycan generate risk consciousness,expand shopper pattern and developinsurance market. Broking-model isnew to the Indian scene as such thereare many apprehensions on all sides.Neither the brokers nor the insurers norhave the clients tested each otherenough to build mutual goodwill asnecessary to become supporters ofeach other rather than as adversarieswho are bent upon to outsmart eachother.

Broking in insurance will increaserange, mobility, integration andabove all utmost good faith amongparties in insurance contract.Insurance business for decades hadbeen insulated from internationalcompetition. With dismantling ofregulations not only new players willenter into the market but also therewill be professionals to select mostexcellent among them in order tobring value for the money to thecustomer. Brokers will need their mindset and expertise to becomeaccustomed to changingrequirements and will have to getready themselves to participate in anew ball game altogether where foralmost all major business they will haveto interact with likewise expert andconversant rank of mediators.

The market will witness the onslaughtof multiple distribution channels thatwill revolutionise the geometry ofinsurance products. In the end, theintermediaries who best satisfy theircustomers will be the winners. The jobof brokers is to "think customer" and toguide insurers to develop productsthat are meaningful and attractive tothe target customers. The futurepromises to hold out a highlycompetitive environment where onlythe fittest will survive.


7th April 2004 was World Health

Day and for the first time in the

h i s to ry o f the Wor ld Hea l th

Organisation, it has dedicated the

day to 'Road Safety'. By taking

th i s s tep, WHO hopes to ra i se

awareness about the hea l th

impact and societal costs of road

traffic injuries and issue a call for

act ion to increase ef fo r t s to

prevent road accidents.

In 2000, an estimated 1.26 million

people died worldwide as a result

of road accidents. Around 90% of

the fatal road traff ic accidents

occur in developing countries like

ours. The majority of victims are

pedestrians, motorcyclists, cyclists

and passengers o f pub l ic

transport. WHO predictions are

that by 2020, traffic crashes will

rank third in the order of causes

contributing to ill health; only after

heart disease and depression.

India accounts for the second

largest number of road accidents

in the world. The time to act is now.

Road Safety has thus become one

of the greatest social problems of

our time.

MULTI-PRONGED ROLE

Several bodies like Police, Public

ROAD SAFETY -ROLE OF INSURANCE COMPANIES

By: Shri G. Venkatesh,Castrol India Ltd. Mumbai.

the functioning of LPAI. IRDA could

play an important role in ensuring

that LPAI is not cash strapped for

initaiting such measures. The role

of LPAI has to be expanded. At

present i t i s concer ned w i th

creat ing awareness , t ra in ing,

collaboration with other institutions

l i ke Cent ra l Road Research

Institute, Traffic police etc. Going

forward, LPAI should get involved

in RTO as well. LPAI can set the

s tandards fo r d r iv ing tes t . Fo r

example - LPAI should be given the

authority to insist that no license

be i s sued w i thout the dr ive r s

undergoing a Defensive Driving

Training program.

FACTORS RESPONSIBLE FOR ROAD

ACCIDENTS

These are classified as :

v Driver

v Vehicle

v Pedestrian

v Road

The largest number of accidents is

attributable to driver's fault.

The crux of the problem is the

att i tude of the persons s i t t ing

behind the wheels. With every

person firmly believing that he is

Works Depar tment , T ranspor t

Reg i s t rat ion author i t ie s , Road

Research Laborator ies ,

Developers of Road Infrastructure,

automobile owners have to come

together to create more and more

awareness about road safety .

Human l i fe is precious and it is

really sad to see many lives lost as

a result of road accidents.

The General Insurance Industry has

p layed an ind i rect ro le in the

promotion of Road Safety so far.

The ind i rect ro le i s l im i ted to

insu rance cover, p remiums

charged etc . But w i th t imes

changing this is not enough.

LOSS PREVENTION ASSOCIATION OF

INDIA

Es tab l i shed by the Genera l

Insurance indust ry , the LPAI i s

doing a great job - but there is

need for more profess ional ism.

There is scope for improvement.

One is not sure how many vehicle

owners even know about the

training programmes conducted

by LPAI. It would be worthwhile to

give more teeth to LPAI so that it

becomes more professional in its

outlook. Now that the insurance

sector has been opened up, it will

be advisable to involve the private

general insurance companies in

118 THE JOURNAL

r ight , the p rob lem on ly get s

compounded further.

An att i tudinal change can be

brought about only by sustained

public awareness campaigns.

ROLE OF GENERAL INSURANCE

COMPANIES

The insurance companies should

not limit themselves to providing

insu rance cover and set t l ing

claims. All the general insurance

companies should come together

to strengthen the LPAI and at the

same time, they should bear in

mind that they too have a role to

play in creating awareness and

highlighting road safety issues.

� Awareness has to be created

through media - televis ion,

radio, print, banners.

� Celebration of National Road

Safety Day.

� Adver t i s ing campaigns

targetted at reckless drivers.

� Banners can be set up in

Garages , Ra i lway s tat ions

and Petrol stations.

� Celebr i ty endorsement o f

Road Safety.

Even though these are cos t

incurring activities, there are two

indirect benefits that will flow out

of such measures :

1. Reduct ion in cos t o f

insurance claims.

2. Insurance essentially has an

e lement o f soc ia l

responsibility. So, there will be

lot of goodwill generated for

the insurers.

Often, the moral hazard is at play

as far as insurance is concerned.

Insu rance i s main ly a imed at

mitigating the adverse effects of

risk and as per the Law of Uberrima

Fides (Utmost Good Faith), the

insured has to take reasonable

precautions to minimise the risk.

Due to the moral hazard, a sense

of recklessness seeps in because

the insu red fee l s that he has

insurance to fall back upon if there

is a loss. I t i s important for the

insuring public to remember that

the insu rance cont racts a re

cont racts fo r indemni ty - the

insured cannot make a profit out

of his loss.

Going forward, insurers also need

to network with Manufacturers of

automobiles . Thus, when a person

buys a new car, he would get an

insurance cover along with the

new vehicle. Safety standards for

veh ic les a re be ing

tightened.Accessor ies l ike Seat

belts, child seats, air bags etc. are

becoming life-saving accessories.

Thus , IRDA could s t ipu late the

veh ic le s tandard nor ms fo r

cover ing vehicles under Motor

Insurance.

There are two ways in wh ich

insurance companies can play an

act ive ro le . The f i r s t i s t ighter

underwriting controls and stricter

c la ims p rocess ing. Th i s i s

someth ing that the in su rance

companies have already been

do ing. The second way i s to

reduce the c la ims cost in the

ind i rect fash ion as has been

described in this art icle. In any

case, insurers have an important

ro le in fu l f i l l i ng the i r soc ia l

responsibility.

CONCLUSION

The number of road accidents has

been steadily increasing over the

years. The situation is alarming. A

deve lop ing count ry l i ke Ind ia

cannot sit back and watch such

accidents occurring with alarming

alacrity. It is time to wake up and

smel l the cof fee�.! Accidents

lead to los s o f p rec ious l i ves ,

thereby affecting the families who

were dependent on the

deceased. The in su rance

companies have to put pressure

on S tate Governments and

Central Government in their quest

for promoting road safety.So far,

in su re r s have been adopt ing

stricter underwriting controls like

No C la im d i scount , h igher

premium rat ing on Sports cars,

higher premiums for older vehicles

etc. But this is not enough. Insurers

need to fulfil their social obligation

by giving more teeth to the Loss

Prevention Association of India, by

networking with several bodies

and by mainta in ing regu la r

communication with the insuring

publ ic at large.Al l the insurers

need to share a common platform

for h igh l ight ing such i s sues of

public concern.


IMPORTANCE OF EMPLOYEES' ETHICS

An organization's image is projectedwell when its performance, both interms of its financial position as well asHuman Resource policies are sound.For achieving better results by anorganization on its financial front, workcontribution from the employees playsa key role. Therefore it is often said inthe Management Principles, that asatisfied employee will bring intremendous benefits to his/heremployer. We all hear and read fromNewspapers that organizations likeInfosys, give priority to its HumanResources policies appealing to thedeep senses of its employees, bothmentally and physically, which aloneultimately bring good results to theOrganisation.

When an ideal situation is created inthe organization, behaviour of theemployees also takes a right direction.A sense of oneness also develops.Once this kind of atmosphere is built,organizations tend to grow.

Image of any Organisation dependson the behaviour of the people whowork for it. It goes without saying that,good image is essential for long termsurvival of the business. In organizationswhere Human ResourceManagement Policies are positive, itbecomes an obligation on the part ofits employees to behave in an ethicalway at their work place.

Behaving in an ethical manner by theemployees in their workplace adds to

their own reputation too with theimage of organization. This results indevelopment of good work culture,whereby progress, growth, glow andsuccess of the organization is ensured.Having good work ethics helps inbuilding good image both of theemployer and the employee.

Employees need to understand theirethical responsibilities in -relation totheir job and follow them strictly.

The word 'Ethics' is derived from Greekword 'ethos' meaning character. It isalso defined as- "science of moral dutyor the science of ideal humancharacter". Synonymous terms incommon usage are righteousess,justness and honesty.

In the workplace, employees playdifferent job roles and are expectedto follow certain ethics in performingtheir role, with the ultimate goal ofachieving and bringing success to theorganization to which they work for.This is called as 'Employee Ethics'which in other words can mean asmoral law binding the workingcommunity in the work place.

ESSENCE OF EMPLOYEES' ETHICS

Duty consciousness, dil igence,punctuality, work excellence andfrugality are some of the work relatedethics. Observing work ethics by theemployees results in better andconducive environment which isimportant for an organization to excelin its performance. Even in this present

world of 'Computer era', contributionof human factor is essential, asmachines can work only with the aidof data fed into the machines.

It is important to treat work as a dutyand it is one of the essences of thework ethics. Every organizationexpects employees to do his/her duty.To quote from from Bhagawat Gita"Performance of duty is superior toinaction and man attains the highestperfection when he is devoted to hisduty. Each individual is obliged toperform those duties which have beenallotted to him and complete them asbest as he can" No personalconsideration should stand in the wayof performing a duty. In the words ofthe great Swami Vivekananda "Everyduty is holy and devotion to the dutyis the highest form of worship of God".

Thus, it is a universal truth that duty isdevotion and work is worship. In theworkplace duty conscious employeesperceive their duties as moreimportant than their rights, and put theinterest of the organization ahead oftheir own.

Doing the job diligently is anotherimportant element of work relatedethics. No matter how menial the job,an employee is expected todemonstrate care and effort whileperforming duties in order to producethe best results to the organization.Consequences or ill effects that arelikely to take place by doing the workwithout dil igence should be

TOWARDS A BETTER WORKINGCULTURE IN THE PLACE OF

EMPLOYMENTBy : Shri T. S. V. Subramanian,

Deputy Secretary, Insurance Institute of India, Mumbai.

120 THE JOURNAL

understood well by the employees.Today's customers are having moreawareness and their expectations areincreasing day by day. To fulfil lincreasing expectations of customers,organizations are compelled to givespecial attention to quality of productsand services. In such conditionsemployees are required to be diligentin all aspects of their jobs.

Adhering to time schedule withoutbothering for personal difficulties is avirtue. Punctuality of employeesensures orderly flow of work andoperations and thus the efficiencylevels of the organization areimproved. Keeping punctuality showseffective time management.

BENEFITS OF QUALITITATIVE ETHICS

Today's organizations, to face thecompetition effectively, are tryingconstantly to offer better qualityproducts at lower prices. Soemployees are required todemonstrate the qualities ofcommitment to work, excellence andfrugality in the workplace. The presentyoung generation is striving hard forexcellence with a view to achievingsomething great in life. Organisationcan use that spirit effectively and canoffer quality products/services withlower price to the consumers.

Work excellence also benefits theemployees. It enhances thereputation of individuals and alsohelps them to secure a bright future.Excellence gives identity to theindividuals and pride to the product.Achieving excellence can lead tounprecedented growth andcontribution to the organization. Thereis a lot of ethics involved incommitment to work excellence.

Frugality is 'using resources as muchas necessary'. Within the limitedresources, there must be optimalutilization. When the resources are

utilized frugally, there is great possibilityof control over cost, which in turnbenefits the organization- betterproducts at lesser prices.

Commitment to the organization,conflict resolution through negotiationand accepting organizationalchanges are the importantorganization related ethics.Relevance of these ethics are:

Commitment to the organization:Combining the personal objectiveswith the objectives of the organizationis a commitment to the organization.Committed employees are alwaysready to work hard by using theirenergies and time. During difficulttimes of the organization, they areready to give up a lot for thebetterment of organization.Commitment cost the employees insome ways. They have to sacrificesomething in the larger interest of theorganization. As the sense ofcommitment cannot be imposedupon people, it should comevoluntarily, therefore, it is a virtue.Commitment to the organizationcreates a sense of belongingness inthe minds of employees.

Conflict resolution through negotiationis another important organizationrelated ethics. Conflict is inevitable inthe workplace. It must be resolvedthrough negotiation. Acceptingnegotiation as a means for resolutionof conflict is ethics. When conflict isresolved through negotiation, itbenefits all the parties to the conflictand the organization can carry itsactivities smoothly.

Accepting organisational change isanother important organizationrelated ethics. In the present fastchanging world, the organization andthe people who change according tothe changes prevailing in the businessworld are surviving and thriving.

Therefore employees have to acceptthe changes introduced by theOrganisation. Resisting changeswithout considering their necessity andbenefits is not acceptable. Ascommonly said and believed, changeis a sign of growth and without changethere cannot be growth. Change iswhat keeps us fresh and innovative;change is what keeps us from gettingstale. An organization withoutadopting changes cannot survive.Employees have to acquire newknowledge and skills in order to copewith changes.

DIFFICULTIES

It is most unfortunate that today alarge number of employees considerthat ethics has l ittle practicalrelevance in the workplace. They failto understand the consequences ofunethical behaviour. Selfishness is thebasis of all unethical activities. Oneneed not to forego one's self interestbut one should not attempt to fulfill selfinterest by sacrificing common interestof all. Employees have to be loyal tothe organization, which gives thembread and butter.

There are reasons for growing numberof unethical activities being adoptedby the employees in the present times.A few of them, like- Law makersthemselves become law breakers,religion is mixed with work ethics,people with muscle and moneypower dictate terms and so on. So,people are losing their confidenceand beliefs in the ethical values.

Ethics in workplace can be ensured byframing a code of conduct, welldefined policies and procedures andby conducting ethics trainingperiodically. In any case it is anaccepted fact that employees' ethicsplays a crucial role for the well beingof the organization.


Life insurance is a simple concept - youbuy a policy that pays to yourbeneficiary or beneficiaries when youdie. The Reader�s Digest�s GreatDictionary of the English languagedefines �Concept� as an idea to helpsell or publicise a commodity. TheRandom House Dictionary of theEnglish Language describes�Concept� as a general notion or anidea of something formed by mentallycombining all its characteristics orparticulars. Life Insurance is universallyacknowledged as an institution whicheliminates risk, substitutes certainty foruncertainty and comes to the timelyaid of the family in the unfortunateevent of the death of thebreadwinner.

Thousands of agents all across thecountry are transforming theiragencies by capitalising on a newopportunity - selling the concept of lifeinsurance. In the process, they arebeing rewarded with significant salescommissions. While the boost inincome potential alone offers greatmotivation to sell the concept of lifeinsurance, these agents have learnedthere are many other benefits as well.

In every market place, there is alwaysa core group of people who are willingto try something new. They are called�early adapters�. The concept sellingin life insurance has passed this earlyadapter stage and now has hit themainstream, where most insurancecompanies give importance to theconcept selling over product selling.Because, companies want tocapitalise on the close relationship wehave with our customers. Yet inspite

CONCEPT SELLING IN LIFE INSURANCEBy: Shri Sekhar Chandra Sahoo,

LIC of India, Mumbai.

of the lure of higher income, manyagents have not embraced thisopportunity.

Objections of agents not to market the�concept� of life insurance:-

1. I don�t feel qualified orknowledgeable enough to sellthe concept.

Knowledge is power. You canlearn anything new if you makethe commitment of time andenergy to do so.

2. I don�t want to disrupt myagency by learning how to sellsomething new.

Yes, selling something new is astep out of the comfort zone.However, once that step hasbeen taken, your comfort zoneis enlarged forever. It is a fact oflife.

3. It would be like selling a varietyof attractive products and Idon�t feel comfortable sellingthat either.

Actually, concept selling is morelike selling life insurance products,but more on that in a minute.

4. Selling the concept is too muchresponsibility.

The fact is that as an agent you havealready accepted the awesomeresponsibil ity for handling yourcustomer's most valuable possession,i.e. their life and family members.Adding the concept to the mix is notdifferent. Accepting responsibility canbe liked by your customers.

Many Purposes of Life Insurance :

Life insurance is far more than just adecision of how much to buy. Cashvalue life insurance can strengthenyour financial foundation and protectyour goals. Depending on yourfinancial situation, life insurance can beused for a variety of purposes, such as :

� Death Benefit - ensures thatthose who are most important toyou will be taken care of in theevent of your death.

� Disability protection - ensuresthat your premiums will be paidand your insurance will remaininforce if you are disabled andunable to work.

� Retirement planning - fundsaccumulate on a highlyeffective tax - sheltered basis toprovide for future retirementneeds.

� Cash Accumulation features -money for future emergencies oropportunities can accumulate inyour policy.

For each of us, a stable financial futuredepends upon

a) Providing a good standard ofliving.

b) Saving money for future needsand

c) Retiring without money worries.

Unfortunately, your financialfoundation can be destroyed bycertain events like:

a) dying prematurely

122 THE JOURNAL

b) becoming disabled

c) failing to plan

d) saving too little.

You can build a stable financialfoundation with life insurance andenjoy the safety and strength itprovides. Keep in mind, though, thatthe younger and healthier you are, theless you will pay for coverage. Lifeinsurers really, really like to have theirpolicyholders around for a long, longtime. Whatever kind of policy you buy,you should make sure it providesenough of a death benefit to meetyour family's needs if you are notthere.

Types of Life Insurance Policies :

There are four basic types:

i) Whole Life Products : This is apermanent coverage, wherethe cost is literally stretched outover your entire life, or what theinsurance company expectsyour entire life period to be. Theassurance in this case is payableon the death of life assuredwhenever that may happen.

ii) Pure Endowment Products :When the benefit is payable onlyat the end of the selected periodprovided the life assured is alivethen, it is called a PureEndowment assurance.

iii) Term insurance products : Terminsurance products offer deathrisk cover for a limited term andare good for only a certainperiod of time.

iv) Endowment Products :Endowment Assurance Plan is acombination of "pureendowment assurance" and"term insurance" for a fixedperiod. It also includes a buildup

of value in cash in addition toyour death benefit. You canborrow against your cash value,but your death benefit will bereduced.

Making life insurance a way of life byknowing the concept :

Contingent insurance is defined ineconomic behavioural terms as"an exchange of money now formoney payable contingent on theoccurrence of certain events." Lifeinsurance is operated under theassumption that the loss of human lifeor parts of human body such as theleg, arm, brain and eye etc. can becompensated to a certain degree, bypecuniary means. Risk and trust arethe main thrust of the life insuranceindustry. The impetus to insure againstunexpected contingencies is basedon a requisite awareness of certainforms of risk. The willingness to pay nowin exchange for future protectionrequires a sense of trust that protectionwill be given when needed. Thepractice of life insurance is linked to astatistical form of rationality. Itinevitably defines and re-defines risk,security, control, responsibility, trustand the meaning of death and goodlife.

We have been raised to believe thatlife insurance is not for the person whodies ; it's for the people who live onafterwards. Well, with a concept, lifeinsurance is for the person who is goingto die, to make that death - and life -a little easier.

The concept sounds simple enough.Let us take other examples of conceptselling in life insurance :

� "retire from work, not life".

� "pay Rs. 7.94/day and enjoy a riskcover of 10 lacs".

� "Buy term and invest thedifference".

� "replacing an existing lifeinsurance policy with a new one".

� "insurance is for security, notinvestment".

Concept Learning :

For learning any new concept there isa certain set procedure, by which thelearning becomes faster and easier.One gets to know the underlyingconcept with clarity.

Let us take an example from our dayto day commonplace experiencegiven by Shri M.S. Ranade in his article"Concept Mapping".

� A few random words like grass,horse, plants, cow, living-things,animals are given to you toremember and derive somepattern out of them. It may reallymean nothing at the first glance.But do take a minute and reflecton the words, with a view tounderstanding a pattern out ofthese.

� If one has to understand themproperly, rearrange them as aconcept map, as follows :

1. Living things, (super-ordinate concept), at thetop.

2. Animals and plants at thenext higher level (co-ordinates)

3. Horse and cow underanimals : grass under plants(subordinates of therespective co-ordinates)cow and horse eating grass(a sequential relation)

4. Here we have learnt thehierarchical relationship


too, i.e. super-ordinate, co-ordinate and sub-ordinateswhich helps understandingand memory.

At base level it is like photographs orsnapshots of the place seen by you.

The next higher level could be thesymbols, lines etc. i.e. not yet thewords.

Example could be the lines andsymbols in the drawing or a sketch,which is a representation of the reality.The earlier one was the actualrepresentation of the scene, reality.

The next higher level will be theabstract levels i.e. the words; these areconcept - labels or words. What doyou mean by say: acid? Anyone withelementary chemistry background willat once understand it? He has theconcept label fixed in his mind forACID.

Here to explain we have followed the

following sequence for easiercomprehension and storage.

� Define the structure of theconcepts.

� Go to know the sub-concepts.

� Understand the inter-relationships between the same.

� Understand the generalattributes.

� Then the critical attributes.

� Then the spatial, hierarchical,cyclic etc relationships

� If this process is followed the newknowledge acquisition will beeasier.

Finale : Everything in our world - frommarketing to technology to distributionto capital markets - is changing fasterthan ever. But entrepreneurs who lovechange, get a chance to gain market

share and profits. And since there arealways more competitors than marketleaders, there's a huge demand forchange. More innovation ! Morecompetition ! More change!

When the global and domestic lifeinsurers battle for a "right" conceptionof insurance for their economicinterests, they simultaneously defineand re-define the concept of risk,security, control, responsibility, deathand good life.

Approximately 75% of the insurablepopulation are waiting for investingmoney. The only question is where toinvest and with whom ! You alreadyhave an established relationship withyour customers who trust you with theirmost valuable asset i.e. their lives andfamily members. "All you have to do isask and sell the concept of l ifeinsurance". You are merely enlargingthe role that you already play in yourcustomers' lives as a trusted advisor.

The Society conducted a seminar on 28th September, 2004 on, �The Future & Potential of Health Insurance in India�, forthe benefit of members of the Society. Nearly 75 members attended the seminar. It was inaugurated by Shri H. S.Wadhwa, Chairman-cum-Managing Director, National Insurance Co. Ltd., Kolkata. The seminar was designed by ShriP. C. James, AGM, National Insurance Co. and the programme co-ordinator was Shri S. Dev Roy, AGM (Retd.) TAC. Theseminar had a wide coverage in the local newspaper.

AROUND THE INSTITUTESIndian Insurance Society, Kolkata

Shri H. S. Wadhwa, CMD, National Insurance Co.lighting the lamp to inaugurate the seminar.

A view of the audience.

124 THE JOURNAL

Shri G. Ramesh, Chairman, Pondicherry Insurance Institutedelivering his address.

Pondicherry Insurance Institute

i) The Institute conducted a programme on �Selling Skills� on 11th July, 2004 at L.I.C. Branch Office, Cuddalore, forthe benefit of agents. 35 agents participated in the programme. The faculty for the above topic was Shri S.Krishnamurthy, a leading Consultant.

ii) The Institute also conducted an educational programme on �Personality Developments, Effective ConversationalSkills, Happy Living and Motivating Self and Others� on 29th August, 2004 at the premises of Pondicherry InsuranceInstitute, for the benefit of members. 35 members participated in the above programme. The faculties were ShriN. Alagappan, Divl. Manager, United India Insurance Co., Pondicherry and Shri B.S.T. Shah, Divl. Manager, UnitedIndia Insurance Co., Chennai.

Indian Insurance Institute, Kolkata

The Institute continued to undertake many useful activities for the benefit of the members in spreading insuranceeducation. It organized many training programmes. Details of various activities undertaken by the IndianInsurance Institute during the period July-December, 2004 are:

1. An information desk was set up by the Institute at Hotel Hyatt Regency, Kolkata on 18th July with the activesupport of Life Insurance Study circle. Able and relevant information were provided by the members of theInstitute who managed the �Information Desk�. During the programme, information tools like Agents Desktop,Plans at a Glance and C.Ds containing publicity matters were sold.

2. As a part of 48th Insurance week celebration, a service counter was set up by the Institute in the groundfloor of the Eastern Zonal Office of L.I.C. of India, Kolkata from 1st to 7th September. Members and staff ofthe Institute provided information on the different insurance products of L.I.C of India to the needed generalpublic. A quiz programme was also conducted by the Institute on 3rd September during the Insuranceweek celebration which received good response.

3. The Institute dedicated the year 2004-05 as �Year of Agents�. Towards that, the Institute conducted manyprogrammes for the benefit of the agents. Following are the details of the same:

a) On 14th August, a training programme was conducted for the agents which was inaugurated by theMarketing Manager, L.I.C of India, KMDO I. Speeches on interesting topics were given by some of themembers of the Institute on subjects like �Individual Pension Plans�, �How to sell high end sum assuredpolicies�. A powerpoint presentation was made during the programme by an officer of L.I.C of Indiahighlighting the features of �Bima Plus� policy. 38 agents from different branches of L.I.C of India tookpart in this programme.


b) Another training programme for the agents was organized by the Institute on 18th December and washeld in the premises of the Indian Insurance Institute. About 30 participants attended the programmein which different insurance plans and its features were explained.

4. Institute conducted for the benefit of the aspirants of AAO promotion, a programme on 24th July on 'Howto face interview?' in the Conference hall of the Zonal office of L.I.C of India. Regional Manager-PR&CC,L.I.C of India and Secretary- Insp. Eastern Zone, L.I.C of India spoke on various aspects of interview andgave some tips on getting through successfully in the interview. About 70 participants attended theprogramme. A set of practice questionnaire named ' Model questions for AAO interview' compiled by theIndian Insurance Institute was distributed to the participants.

5. Annual debate competition organized by the Institute was held on 21st August on the motion 'Proposal forimposing service tax on insurance premium is unhealthy'. Equal number of participants spoke in favour andagainst the motion. The programme was well received and enjoyable to about 30 members who attended.

6. The second Liaison Person's meet organized by the Institute was held on 27th November. Suggestions likeproviding solution to papers no.24,81,82 and 89 of Institute's examination, declaring the result of Mayexamination in time to enable the successful candidates sit for the immediate AAO examination weremade by the participants. One of the member suggested that a mock examination be conducted onsubjects like 81,82,89 etc., 15 days prior to I.I.I's examination. Secretary of the Institute mentioned on thefuture plans of the Institute like launching of its own Web site, organizing oral tuition class and publishingguides for some subjects of the I.I.I's examination. Suggestions also came to make the periodical of theInstitute 'Beema Beekshan' more informative and to include in it the market position of the private insurers.

7. Annual Convocation of the Institute was held on 4th December which was attended by impressive numberof members. Dr. H.Sadhak, Director, MDC, L.I.C of India was the chief guest. In his address he appreciatedthe role played by the Indian Insurance Institute in bringing out more professionally qualified insurancepersons. He urged the need for bringing out original insurance products for which the professionally qualifiedpersons can contribute well. Successful candidates in the Fellowship examination of I.I.I. received theircertificates from the chief guest. Shri S.J.Gidwani, Secretary General, I.I.I was the guest of honour of thefunction. Successful candidates in the Associateship examination received their certificates from the handsof Shri Gidwani. The function also included distribution of prizes on various competitions. Function concludedwith vote of thanks by the Vice-President of Indian Insurance Institute.

Dr. H. S. Sadhak, Director, MDC deliversat the annual convocation.

Sri. R. Kandwal, RM-P&IR, EZO, LIC of India giving awaycertificate to a member.

126 THE JOURNAL

S. K. Desai Memorial Essay Writing Competition and D. SubrahmaniamAward Essay Writing Competition 2004-05 of the Insurance Institute of India

For the year 2004-2005 the Insurance Institute of India, Mumbai invites original contributions for the above EssayCompetitions from the members of the Associated Institutes in the form of either an essay, work of research or apaper of most outstanding merit on any insurance subject of current or historic importance whether Life orGeneral Insurance or allied subjects. The details of the competition are :

S. K. Desai Memorial Essay Writing CompetitionThis competition is designed to motivate large number of diplomaholders and other members of the AssociatedInstitutes to involve and contribute original articles or research oriented papers of very high standard. The awardcomprises a Gold Medal, Cash Prize of Rs. 15,000/- and a merit certificate.

The competition is also open to the members of the Insurance Institutes in the Afro-Asian regions.

D. Subrahmaniam Award Essay Writing CompetitionThis Essay competition specially designed to motivate the younger members who are resident in India, in involvingthemselves in the educational and research activities of the Institute in promoting Insurance Education andTraining in the country. The Award known as �D. Subrahmaniam Award�, consists of a cash prize of Rs. 10,000/-and a merit certificate. The members who are residents in India and upto the age of 45 only are eligible toparticipate in this competition.The papers must be forwarded in a floppy with 3 hard copies before 31st March, 2005.

Topics for the Technical Paper Competition 2004-2005.The Insurance Institute of India, organises annually a Technical Paper Competition for the benefitof its members both on Life and General Insurance subjects. The topics for the paper are decidedby the Institute. Participants may submit the paper on any one of the subject defined by theInstitute. The Authors of the selected papers are awarded a cash prize of Rs.5000/- and MeritCertificate separately for Life and General Insurance subjects. Accordingly, following topics aredecided for Life & Non-life branches for the year 2004-05 Technical Paper Competition:

TOPICS FOR LIFE BRANCH(i) Impact of Solvency Margin and Taxation on Life Insurance including Service Tax in India and

the World over.(ii) E-business opportunities in Life Insurance Market(iii) Opening of the Life Insurance Industry - A critical analysis of last four years.

TOPICS FOR NON-LIFE BRANCH(i) Scope and Opportunities for Insurance outsourcing in India.(ii) Catastrophic Risk Management in Insurance(iii) Expanding Health Insurance Coverage - Ways and Means

The members of the Institute may submit the paper for this competition in triplicate, withoutindicating name and address in the body of the paper so as to reach i.i.i. Mumbai on or before15th April, 2005.

Contribution of ArticlesThe Institute invites original and quality oriented articles from the members on insuranceand allied subjects for publication in the Journal. The articles may be sent in a 3½� floppywith a hard copy and a brief bio-data of the author. A suitable honorarium will be paidfor the articles which have been approved for publication in the Journal.


EXAMINATION TIME-TABLE MAY 2005MORNING SESSION 9.30 A.M. TO 12.30 P.M.AFTERNOON SESSION 2.00 P.M. TO 5.00 P.M.

Sub No. Subject Title Examination & BranchSunday, 8th May 2005

MORNING SESSION01 Principles of Insurance Licentiate - Life & Non-Life21 Information Technology Associateship - Life & Non-Life30 Principles and Practice of Life Insurance CIS - Life32 Principles and Practice of General Insurance CIS - Non-Life81 Mathematical Basis of Life Assurance Fellowship - Life85 Reinsurance Fellowship - Non-Life

Section-I Principles & Practice of Insurance & Survey and Loss Assessment Surveyors Examination

AFTERNOON SESSION02 Practice of Life Assurance Licentiate - Life11 Practice of General Insurance Licentiate - Non-Life26 Life Assurance Finance Associateship - Life31 Insurance Salesmanship CIS - Life & Non-Life56 Fire Insurance Claims Associateship - Fire66 Marine Insurance Claims Associateship - Marine77 Engineering Insurance Associateship - Miscellaneous79 Liability & Engineering Insurance Associateship - General89 Management Accounting Fellowship - Life & Non-Life97 Legal Aspects of Industrial Relations Fellowship - Life & Non-Life98 Data Processing Fellowship - Non-Life

S - 06 Motor Insurance Surveyors Examination

Sunday, 15th May 2005MORNING SESSION

12 Insurance Business Environment Licentiate - Life & Non-Life23 Application of Life Assurance Associateship - Life52 General Fire Hazards Associateship - Fire62 Commercial Geography Associateship - Marine72 Motor Insurance Associateship - Miscellaneous & General82 Statistics Fellowship - Life86 Risk Management Fellowship - Non-Life

S - 05 Engineering Insurance Surveyors ExaminationAFTERNOON SESSION

25 Life Assurance Management Associateship - Life54 Fire Insurnace Underwriting Associateship - Fire63 Marine Clauses Associateship - Marine73 Personal Accident, Sickness & Misc. Insurance Associateship - Miscellaneous78 Miscellaneous Insurance Associateship - General90 Human Resource Management Fellowship - Life & Non-Life

S - 07 Miscellaneous Insurance Surveyors ExaminationSunday, 22nd May, 2005

MORNING SESSION22 Life Assurance Underwriting Associateship - Life51 Fire Hazards of Specific Industries Associateship - Fire61 Cargo Loss Prevention Associateship - Marine67 Marine Insurance Associateship - General71 Agricultural Insurance Associateship - Miscellaneous83 Group Insurance & Retirement Benefit Schemes Fellowship - Life87 Law & Economics of Insurance Fellowship - Non-Life

S - 02 Fire Insurance Surveyors ExaminationAFTERNOON SESSION

24 Legal Aspects of Life Assurance Associateship - Life55 Consequential Loss (Fire) Insurance Associateship - Fire57 Fire & Consequential Loss Insurance Associateship - General65 Marine Underwriting Associateship - Marine74 Liability Insurance Associateship - Miscellaneous88 Marketing & Public Relations Fellowship - Life & Non-Life

S - 03 Marine Cargo Insurance Surveyors ExaminationSunday, 29th May 2005

MORNING SESSIONS - 08 Loss of Profit Insurance Surveyors Examination✶✶✶✶✶

AFTERNOON SESSIONS - 04 Marine Hull Insurance Surveyors Examination✶✶✶✶✶

✶✶✶✶✶ Only Delhi, Mumbai, Kolkata & Chennai Centre.

128 THE JOURNAL

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