4. basics of life insurance and risk management

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Training the Life Insurance Sales Force: Challenges and Solutions

Debashish Banerjee

[email protected]

Symbiosis Institute of Operations Management, Nashik

1. IntroductionLets start the talk by first discussing the bottom-line. If ever I am asked to sum up what sales training in a lifeinsurance company actually is, I would perhaps come up with this answer:

Truth lies everywhere and, partially, even in Error

-UpanishadsThe entire department of sales training actually does not restraints itself only with the delivery of training, to

be honest enough training sessions or classroom interactions are only the prologues to a voluminous and very

sophisticated novel based on finely interwoven and great management seeking interdepartmental corporaterelationships.

It is necessary to have a knowledgeable, convincing and confident sales team, for the growth of a life

insurance company. It is the responsibility of the sales training department to imbibe these essential traits intothe sales force so that, they are not only equipped with the knowledge about the products of the company andthe sales techniques but also well aware of the basics concepts, meaning and use of insurance for the larger

benefit of the organization and customers alike. However, the problem lies in the fact that in a practical day today life insurance operations amidst tremendous sales pressure and aggression of the life insurance companies toobtain more and more revenues and beautify their balance sheets, this entire process of training is either

neglected or taken very casually resulting in forced sales and large number of dissatisfied customers and in thisvicious circle which further results in loss to the organization.

In this paper, I have tried to inspect this problem in greater detail and provide a solution to the same byproposing a modus operandi for an efficient insurance process, pointing out the changes required in training andthe tradeoff between sales and training to be followed by the sales team so as to have a more profitableorganization as well as a larger satisfied customer base. We shall go through this insightful journey in the

following succession:

Mr. Ram Manohars Dilemma (Case Study) History of Insurance Basics of Life Insurance and Risk Management Current Scenario of the Indian Life Insurance Industry (The Challenges) Proposed Model of the Indian Life Insurance Industry (The Solutions) Conclusion

I shall try to ensure that the paper embodies a memorable expedition into the world of sales training, including

interesting analogies wherever required for better understanding of the subject matter.

2. Mr. Ram Manohars DilemmaMr. Ram Manohar is a management graduate of a renowned B-School and is presently working as a TrainingManager in the sales training department of ABC Life Insurance Company Ltd in an Indian suburb. His jobresponsibilities includes taking different training sessions, updating self knowledge, maintaining good

relationships with all the other departments, having a good sense of empathy, motivating and helping others,having an effective man management technique and above all strictly adhering to one of the core values of thecompany -Never say Its not my job.

Though relatively new to the system, Ram has been able to leave an impression as he has bettercommunication skills, knowledge of the subject and rapport building capabilities with his fellow colleaguescompared to his predecessor in just a matter of eight months. However this has never helped Ram realize

hundred percent attendance of the target sales force in his classroom, as few are always sick, few have familyproblems all round the year, few are bold enough to say that they never need a training to sell life insurance inIndia, and the famous few who would rather love to spend time with Mr. Sridhar Acharya, the sales head of the

company, than spending time in the classroom attending his training session.Ram always tracks the number of agents who attend his training sessions, as mapping the productivity of the

employee before and after the training is one of his Key Responsibility Areas (KRA). The huge drop in the

number of trainees as the financial year end is progressing, is not fully understood by Ram, but it is fullyunderstood that he should expect the call of Mr. Angelo Matthews, Rams reporting manager and the head of


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sales training of the company, sooner than later. Moreover, Ram is also aware of the fact that if the situation isnot controlled quickly then his own performance appraisal of the year will be adversely affected.

One fine day, when Ram was delivering his usual training sessions to a class which only had fifty percent ofthe desired attendance, as expected Mr. Matthews gave him a call and pretty much to his surprise, he (Ram) wasmade to recognize Mr. Nitin Singh in a very soft tone. But it was only after few minutes Ram realized that the

person in discussion was not only a member of the other fifty percent not attending the session but also one of

the famous few and a team member of Mr. Sridhar.Matthews continued Look Ram, I know your numbers are not that great, but still I feel I should give you a

chance to improve your rating this year, Nitin is in Sridhars team and is too busy to attend your training,however the chap has done his job amidst tremendous sales pressure and collected a premium of one lakh rupees

per annum for a period of thirty years by selling the ULIP (Unit Linked Insurance Plan) with the greatestpremium and commission which is very good for the company. Now I want you to play your part, everyoneknows that if a person does not have the license of IRDA (Insurance Regulatory Development Authority) he/sheis not eligible to sell life insurance products in the country, so I would want you to mark his attendance for the

five day training, allow him to sit for the exam, ensure that he passes the exam in the first attempt and get himhis license. Do not worry about the process as I have already had a talk with Sridhar and it will be taken care ofin future.

Ram was speechless, for the first time in his life after getting the prestigious management degree he felt thatsubjects like business ethics, organizational behavior, strategic management and the likes were of no use as they

were not helping him reach a decision, whether to grant the license of selling life insurance products to anunethical person just because he had good contacts and only look for the temporary benefit of the company andhis own appraisal or to bring the mis-selling of the life insurance product into limelight and look forward for the

long term benefit of the company and customer satisfaction, sacrificing his own appraisal for this financial year.But he has to decide pretty soon as by the end of day he has to submit his plan of action to his reportingmanager.

After going through this case there are various questions that come to our mind like:

Amidst a plethora of options what should Mr. Ram Manohar do and what should be his most optimumchoice?

What should an insurance company do to stop these kinds of problems? How will Ram justify his ground, given a flowery designation albeit limited powers to operate? What is beneficial for the long term growth of the company, both sales and training department

working independently of each other or working in close liaison with each other?

What shall be the best process flow starting right from induction of an agent to having satisfied enduser customers?

What is the tradeoff between sales and training to be kept in mind by the sales team, even after gettingmoulded the way the insurance company wanted him/her to be?

However before moving on to solve this mammoth problem looming large at the Indian life insurance

industry, we should first have a fair amount of knowledge about the history of insurance and the basic conceptsof life insurance and risk management.

3. History of InsuranceInsurance has been known to exist in some form or other since 3000 BC. The Chinese traders travelling

treacherous rapids would distribute their goods among several vessels, so that the loss from any one vessel being

lost would be partial and shared, and not total. The Babylonian traders would agree to pay additional sums tolenders, as the price for writing off the loans, in case of the shipment being stolen. The inhabitants of Rhodes

adopted the principle ofgeneral average, whereby if goods are shipped together, the owners would bear thelosses in proportion if loss occurs due to jettisoning during distress (Captains of ships caught in storms, wouldthrow away some of the cargo to reduce the weight and restore balance. Such throwing away is called

jettisoning). The Greeks had started benevolent societies in the late 7th

century AD, to take care of the funeraland families of members who died. The friendly societies of England were similarly constituted. The Great Fireof London in 1666, in which more than 13000 houses were lost, gave a boost to insurance and the first fire

insurance company, called the Fire Office, was started in 1680.The origins of insurance business as in vogue at present, is traced to the Lloyds Coffee House in London.

Traders, who used to gather in the Lloyds Coffee house in London, agreed to share the losses to their goods

while being carried by ships. The losses used to occur because of pirates who robbed on the high seas or becauseof bad weather spoiling the goods or sinking the ship. Life insurance, in its present form, came to India from the

United Kingdom (UK) with the establishment of a British firm, Oriental Life Insurance Company in Calcutta in1818, followed by Bombay Life Assurance Company in 1823, the Madras Equitable Life Insurance Society in


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1829 and Oriental Government Security Life Assurance Company in 1874. Prior to 1871, Indian lives weretreated as sub-standard and charged an extra premium of 15% to 20%. Bombay Mutual Life Assurance Society,

an Indian insurer which came into existence in 1871, was the first to cover Indian lives at normal rates. This wasfollowed by the Bharat Insurance Co. in 1896 in Delhi, the Empire of India in 1897 in Mumbai, the United Indiain Chennai, the National, the National Indian and the Hindustan Cooperative in Kolkata. Later, were established

the Cooperative Assurance in Lahore, the Bombay Life (originally called the Swadeshi Life), the Indian

Mercantile, the New India and the Jupiter in Mumbai and the Lakshmi in New Delhi. These were all Indiancompanies started as a result of the Swadeshi movement in the early 1900s.

The Indian Life Assurance Companies Act, 1912 was the first statutory measure to regulate life insurancebusiness. Later, in 1928, the Indian Insurance Companies Act was enacted, inter alia, to enable the government

to collect statistical information about both life and non-life insurance business transacted in India by Indian andforeign insurers, including the provident insurance societies. Comprehensive arrangements were, however,brought into effect with the enactment of the Insurance Act, 1938. Efforts in this direction continuedprogressively and the Act was amended in 1950, making far-reaching changes, such as requirement of equity

capital for companies carrying on life insurance business, ceilings on share holdings in such companies, strictercontrols on investments in life insurance companies, submission of periodical returns relating to investments andsuch other information to the Controller of Insurance as he may call for, appointment of administrators for

mismanaged companies, ceilings on expenses of management and agency commission, incorporation of theInsurance Association of India and the formation of councils and committees thereof.

By 1956, 154 Indian insurers, 16 non-Indian insurers and 75 provident societies were carrying on lifeinsurance business in India. On 19

thJanuary 1956, the management of the entire life insurance business of 229

Indian insurers and provident insurance societies and the Indian life insurance business of 16 non-Indian life

insurance companies then operating in India was taken over by the Central Government and the life insurancebusiness was nationalized and the Life Insurance Corporation of India (LIC) was formed on 1

stSeptember 1956

by an Act of Parliament.The Insurance Regulatory and Development Authority (IRDA) was established in 1999 to regulate and ensure

the orderly growth of the insurance industry. The IRDA was authorized to allow companies incorporated inIndia to transact life insurance business provided the foreign shareholding did not exceed 26% (as per the FDIlimits in the Indian life insurance industry a maximum of 26% of the capital can be owned by foreign insurancecompanies in their joint ventures in India. This may include contribution up to 14% by NRIs and ForeignInstitutional Investors). The balance will be required to be held by Indians including the Indian joint venture

partner.

4. Basics of Life Insurance and Risk ManagementIn this section we shall go through the following concepts:

What is life insurance? Basic principles of life insurance Understanding risk and its types Different ways of risk management

What is Life Insurance?Bunyon has defined life assurance contracts as follows:A contract of life assurance is that in which one party agrees to pay a given sum on the happening of aparticular event contingent upon the duration of human life, in consideration of the immediate payment of the

smaller sum or certain equivalent periodical payments by another.The Insurance Act 1938 does not contain a definition of life insurance contract. But section 2(11) of the act

defines life insurance business as follows:Life insurance business means the business of effecting contracts of insurance upon human life, including anycontract whereby the payment of money is assured on death (except death by accident only) or the happening of

any contingency dependant on human life, and any contract which is subject to payment of premiums for a termdependent on human life and shall be deemed to include:

The granting of disability and double or triple indemnity accident benefits, if so provided in thecontract of insurance

The granting of annuities upon human life The granting of superannuation allowances and annuities payable out of any fund applicable solely to

the relief and maintenance of persons engaged or who have been engaged in any particular profession,trade or employment or of the dependents of such persons.

The above definition contains certain special features such as the inclusion of superannuation allowances andannuities.


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By omitting the special features, we may obtain a general definition of life insurance business and of lifeinsurance contract. It means the business of effecting contracts whereby a person (insurer), agrees for a

consideration (that is payment of a sum of money or a periodical payment, called the premium) to pay to another(insured or his estate) a stated sum on the happening of an event dependent on human life.

The definition of Life insurance business in the Act is wide enough to include the business of effecting a

policy assuring a sum payable in the event of the life assured attaining a specified age, though nothing more

than a refund of the premiums is offered in the event of his earlier death. Similarly, a policy providing forpayment of the sum assured only in the event of death of the life assured will be life insurance policy. A policyagainst accident only does not however constitute a life insurance policy, but a life insurance policy mayprovide for additional benefits in the event of an accident.

The mechanism of insurance is very simple. People who are exposed to the same risks come together andagree that, if any one of them suffers a loss, the others will share the loss and make good to the person who lost.

Example:There are 1000 persons who are all aged 50 and are healthy. It is expected that, on average, 1% of persons aged50, or 10 persons, may die within one year. If the economic value of the loss suffered by the family of eachdying person is taken to be 20,000, the total loss would work out to 2,00,000. If each person in the group

contributed 200, the common fund would be 2,00,000. This would be enough to pay 20,000 to the familyof each of ten persons who die. Thus, the risks are shared by 1000 persons, although 990 of them did not suffer

any loss.

Basic Principles of Life InsuranceThe concept of life insurance rests on certain pillars, viz:

Probability Theory and Law of Large Numbers The common sense notion that the probability ismeaningful only over a large number of trails (happenings) is an intuitive recognition of the law oflarge numbers, which in its simplest form states that The frequency with which an event happensreflects the actual probability of the event occurring more closely if the cases involved are larger. The

requirement of a large number has dual application, first to estimate the underlying probabilityaccurately the insurance company must have a sufficiently large volume of data. The larger the sample,the more accurate will be the estimate of the probability and second, once the estimate of the

probability has been worked out sufficiently large number of insurance contracts must be entered intoto avoid possible losses as a result of small volumes.

Principle of Profit/Benefit Life insurance is based on the principle of profit/benefitwhich states thatirrespective of the number of premiums paid the insured will be paid the full sum assured whenever thecontingency occurs, unlike principle of indemnity which governs general insurance wherein the main

objective is only to make good a loss.

Principle of Utmost Good Faith (Uberrima Fides) It is the duty of the insured (the person takingthe insurance) to disclose material facts about himself (if the insurance is taken on himself) to theinsurer (the insurance company). Material facts include essential information related to the policy like

disclosing the past medical history etc. Non disclosure of material facts to the insurer will result inmisrepresentation and the contract shall standvoid-ab-initio and the customer wont get the claim. Asummary of the doctrine of utmost good faith was given in the case of Rozanes v. Bowen [1928] as

follows:As the underwriter knows nothing and the man who comes to him to ask him to insure knowseverything, it is the duty of the assured to make a full disclosure to the underwriter without being

asked of all material circumstances. This is expressed by saying it is a contract of utmost good faith.

Principle of Caveat Emptor [ Let the Buyer Beware] We can look into this concept with the helpof an example, when we go to buy medicines, it is our onus to check the expiry date as sometimesmedicines purchased are not taken back by the shopkeeper same is applicable to life insurance and thisprinciple is called caveat emptor. Most commercial contracts are subject to this doctrine. In most of

these contracts each party is able to examine the item or service which is the subject matter of thecontract.

Principle of Insurable Interest There is no single definition of insurable interest, which isuniversally accepted, but it can be similar to the following:

The legal right to insure arising out of a financial relationship recognized under law, between the

insured and the subject matter of insurance.

Principle of Proximate Cause The principle of the legal doctrine of proximate cause may beexplained as follows:


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The doctrine is based on the principle of cause and effect, which states that having proved the effectand traced the cause, it is not necessary to go further. The law does not concern itself with the cause of

causes. The law provides the rule causa proxima non-remota spectatur- the immediate cause not theremote or distant one should be regarded which was evolved by courts to solve the difficulty.

Example:The insured fell from his horse suffered some injuries which forced him to lie in cold and damp

conditions so that he contracted pneumonia and eventually died. It was held that he died from anaccident which was insured under the policy and not a disease which was not insured.

Understanding Risk and its TypesThe term risk may be defined as the possibility of adverse results flowing from any occurrence. Risk is acondition where there is a possibility of an adverse deviation from a desired outcome that is expected or hopedfor, there is no requirement that the possibility be immeasurable, only that it must exist. The degree of risk mayor may not be measurable. Greater the uncertainty greater is the risk.

The various types of risk are as follows:

Based on Extent of Damage Likely to be CausedCatastrophic Risk leading to bankruptcy of the ownerNon-Critical Risk not causing much damage as catastrophic riskInsurance does not cover catastrophic risk

Based on TimeImportant Risk it takes lot of time to recoverUnimportant Risk are like temporary illness or accidents

Based on Financial CharacteristicFinancial Risk risk which has monetary value associated with it

Non-Financial Risk risk which does not have monetary value associated with it (emotional loss)

Insurance covers only financial risk

Based on SpreadFundamental Risk - risk affecting a larger amount of populationParticular Risk risk affecting only a limited number of peopleLife insurance companies generally deal with particular risks

Based on Different Cause for RiskDynamic Risks caused by perils which have national consequence like inflation etc

Static Risks caused by perils which have no national consequence like theft, fire etcStatic risks are more suited to management through insurance

Based on Property of RiskPure Risk the outcomes can be either a loss or a condition of no gain and no lossSpeculative Risk the outcomes can be a gain, a loss or a condition of no gain and no loss

Insurance covers only pure risks as it cannot be used as a tool to make profit but instead it should be

used as a tool to cover the loss

These are the various types of risks that we come across in day to day insurance operations.

Different Ways of Risk ManagementAs per Mehr and Hedges there are primarily five ways of managing risk, however I would like to discuss the

same through an example perhaps a conversation between two friends wherein one asks the same question in allthe cases and the other answers differently each time.

Case IFriend1: I heard that you are going to buy yourself a new bike, it is really very good news however I am afraidthat the number of accidents have gone up in our area, so you really need to be careful enough driving the bike.Friend2: I think you are right, its better I do not buy the bike now and commute with the local transport only.

This kind of risk management is called risk avoidance.

Case IIFriend1: I heard that you are going to buy yourself a new bike, it is really very good news however I am afraid

that the number of accidents have gone up in our area, so you really need to be careful enough driving the bike.Friend2: Ah! You do not worry friend, I will not be the selected one to die as soon as I ride the bike.

This kind of risk management is called risk retention.

Case III

Friend1: I heard that you are going to buy yourself a new bike, it is really very good news however I am afraidthat the number of accidents have gone up in our area, so you really need to be careful enough driving the bike.


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Friend2: There is perhaps nothing to worry; I will only drive the bike with the helmet on

This kind of risk management is called risk reduction.

Case IVFriend1: I heard that you are going to buy yourself a new bike, it is really very good news however I am afraidthat the number of accidents have gone up in our area, so you really need to be careful enough driving the bike.

Friend2: Yes even I am quite nervous, why dont you become my pillion rider every time I ride my bike.

This kind of risk management is called risk sharing.Case VFriend1: I heard that you are going to buy yourself a new bike, it is really very good news however I am afraidthat the number of accidents have gone up in our area, so you really need to be careful enough driving the bike.

Friend2: Absolutely, but I think you misunderstood a bit, I will only purchase the bike, you will be the one toride the bike

This kind of risk management is called risk transfer.

Now the basic thing we need to understand is what a life insurance company does to the premium it receivesfrom the common man. The answer is at different circumstances it uses different risk management techniques,we transfer the risk to insurance companies and the insurance companies share it with a big pool of people and

at times can even avoid the risk if the policy conditions are not met.

5. Current Scenario of the Indian Life Insurance IndustryNow that we are familiar with the history and basics of insurance and risk management, we shall be able tocomprehend the current scenario of the Indian life insurance industry better.

Since opening up, the number of participants in the industry has gone up from one (LIC) in the beginning totwenty two insurers operating in the life segment. The potential and performance of the insurance sector isuniversally assessed with reference to two parameters, viz., Insurance Penetration and Insurance Density.Insurance penetration is defined as the ratio of premium underwritten in a given year to the gross domesticproduct (GDP). Insurance density is defined as the ratio of premium underwritten in a given year to the total

population (measured in USD for convenience of comparison). The insurance penetration was 2.32 per cent inthe year 2000 when the sector was opened up for private sector. It had increased to 5.20 per cent in 2009. Theinsurance density stood at USD 54.3 in 2009 from USD 9.9 in 2000.

Below we get to see few graphs which tell us the true story of the current situation of Indian insurance

industry and they are arranged as follows:

Insurance density in select countries (Fig. 1) and insurance penetration in select countries (Fig. 2) Insurance density growth in India (Fig. 3) and insurance penetration growth in India (Fig. 4) YOY

(Year on Year)

Source Swiss Re, Sigma No. 3/2010, Data is in USDFigure 1Insurance Density in Select Countries


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Source Swiss Re, Sigma No. 3/2010, Data is in Percentage of Population

Figure 2Insurance Penetration in Select Countries

Figure 3Insurance Density Growth in India

Figure 4Insurance Penetration Growth in India


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Moreover if we move on to see the insurance operations of the current life insurance industry it is as follows:A Trainers viewpoint: Here we will go through the hierarchy of ABC Life Insurance Company Ltd and the

insurance process with which Mr. Ram Manohar (as discussed in the case study) was mainly concerned.

ABC Life Insurance Company Ltd

Employee Level Employee name

3 Mr. Angelo Matthews Mr. Sridhar Acharya(Sales training head) (Sales head)

2 Mr. Ram Manohar(Training manager)

1 Mr. Nitin Singh(Advisor)

The above flowchart shows the company hierarchy wherein the fixed dark line depicts the direct reporting to

and the dotted line represents also responsible to.

Insurance Process:

At the Time of Recruitment

I/P

Meeting the Customer (Sales Call)

Local Market

Spl. team selectsthe agents fromthe local area

*

Assignment to

sales team

Induction to

company

SALES

TRAINING*

Sales team target

assignment*

Sales team feelsthe sales pressure

and pr. of targets

Meets thecustomer (after

call or reference)

Starts selling as

soon as he meets*

Basic queries not

answered*

Advisors leavewith filled

proposal form

Customer calls toget the original

policy documents

*

Advisor generallydoes not entertainthe call

*

DissatisfiedCustomer

*

Unknown Customer Known Customer

Buys the policy*

Generally ends up buying*

Does not buy


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Long Term Impact on the Company

O/P

Figure 5

In the flowchart above the red boxes (the boxes with the asterisk) represent the problem areas with the

current insurance operations/process and they can be enumerated as follows:

During the phase of recruitment, the special team usually the Agency Development (AD) team and theUnit Managers (UM) select their team of advisors/agents, however that is done based on sales pressureand any team want to have as many advisors as possible irrespective of whether they all qualify theminimum eligibility criteria or not, hence the emphasis is given on quantity and not quality.

The sales training which is very essential for successful sales in the target market is usually skipped ortaken casually by the sales team.

The sales team, training team and the underwriting team works independently of each other. A new sales person is burdened with huge targets as soon as he joins the company without imparting

him adequate knowledge about the subject matter of sale.

During the phase of a sales call, the sales team immediately starts telling about his own product andstarts selling it without understanding what the actual need of the customer is.

Due to lack of knowledge, he could not answer the basic queries of the customer at times, eg: whyshould the customer go for a ULIP and not a combination of Term Insurance and Mutual Fund.

The sales person generally meets two types of customers either known customer (through reference ofsome friend or relative) or an unknown customer (usually during the end of the financial year end). Theknown customer generally ends up buying the product not because he understands it or always needs itbut because of peer pressure and maintaining relationship. The unknown customer on the other handfeels the need is insurance only during the end of financial year when he seeks for some financialinstrument to save his tax.

When the customer does not get the original policy documents, he/she gives a call to the agents but theagent generally does not entertain their call as he is busy with his new client/customer, and this leads to

dissatisfied customer base.

During the phase of long term impact on the company, we can see that the moment the customers aredissatisfied the renewal premium, references of other people stops or reduces which further hurts thereputation of the company and results in a long term loss of the same.

Despite of being long in the business of life insurance the penetration in our country has been very low(approximately 4.8% of the population).

The companies are more concerned with beautifying their balance sheets and achieving targets and inthis process they tend to forget employee satisfaction.

Tremendous sales pressure leads to mis-selling of life insurance which further leads to dis-satisfiedcustomers.

6. Proposed Model of the Life Insurance IndustryWe shall now go through the solutions of the problems stated above and step forward to design an efficientinsurance process which shall not only bring profit maximization to the company but also bring about a largesatisfied customer base.

The various changes required to make the insurance process stated above are as follows:

During the phase of recruitment, the team of agents should be chosen by the UMs or AD channel afterproper scrutiny and ensuring that they all qualify the eligibility criteria laid down by IRDA. Thecompany should not go after quantity only it should also lay proper emphasis on quality of agents as it

References stops

from customers*

Renewal premium

decreases*

Companyreputation is

adversely affected*

First premiumgoes down due to

bad WOM*

Long term loss forthe company

*


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would directly affect the customer satisfaction index and would play a pivotal role in governing thesales of the company and its reputation.

Most importantly, the sales training exercise shall not be skipped by the sales force as it is veryessential to build an effective sales team for the company, however for that to happen all thedepartments like sales, training and the underwriting departments shall work in liaison rather thanworking as different independent units. This calls for inter-departmental (amidst various

departments) incentives which would encourage better communication between differentdepartments. This should come as an add on to the already existing intra-departmental (within aparticular department) incentives in most of the practicing life insurance companies

Example: For successfully completing the training, the agents reporting sales manager should havecertain incentives and vice-versa. Since incentives within a department are already in place in most ofthe life insurance companies the agents shall be motivated to work more getting encouragement and

benefits from both the related departments.

Moreover, the new sales team should not be overburdened with huge sales targets at least in the initialphases of its association with the company, if at all need be the new sales force should be assisted withexperience sales person so that the new joiners get ample time to learn the tricks of the trade.

During the phase of a sales call, instead of immediately selling the product to the customer properneed analysis of customer needs to be done. This will help in determining the actual requirement of

the customer and then accordingly the suitable product can be discussed. Generally in todays day to

day insurance operations the need analysis is not done because of lack of proper training and mainlybecause the sales team is under so much of pressure to achieve targets that they go on to sell the

product with the highest premium (generally ULIPS) and the highest first year commission (for theirpersonal benefit). However for this to get executed properly it is very essential, that the sales pressureburden is reduced and the sales team is encouraged to get quality business.

Proper sales training is required as mentioned earlier so that the sales force could answer the basicqueries of the customer at times. Example: Why should the customer go for a ULIP and not a

combination of Term Insurance and Mutual Fund?

Generally, the very basic need of life insurance is not properly understood by the common man and it isthe duty of the sales team to clarify it to the customer that life insurance is primarily a protectiondevice not a tax saving device or only an investment vehicle (as we have seen in the section of

basics of life insurance), this misconception is the reason as to why people generally purchase lifeinsurance to save tax and earn more money through investment rather than purchasing it for protection

of the family or the near and dear ones if any contingency occurs in the future.

The job of the agent doesnt end the moment he makes an insurance contract between the insured andthe insurer, as discussed in the case study we should always follow the principle of - Never say Itsnot my job. He should also track whether the original policy documents has reached the insured intime or not as this shall result in greater customer satisfaction and in the longer run greater benefit ofthe company.

Generally it is seen that the advisor does not entertain the customer complaints once the life insurancepolicy is sold, this is called a poor after sales service and it happens because the advisor is alwaysbusy getting new customers for the company. The advisor should not be completely blamed for this, ithappens as a result of unattractive commission slab set up by the regulatory body for the renewalpremium brought into the company. If we go through the commission slab of agents there is a

tremendous drop in value of the commission (as a percentage of the premium received) between thefirst year premium and the premium for rest of the years, this provides no motivation and incentive tothe agents to go back to their earlier customers both for solving their queries (if any) and collecting

their renewal premium. It should be discouraged as the life insurance companies and the regulatorybody should understand the fact that the cost of acquisition is always greater than the cost ofretention and if the company is only concerned with getting as many new customers as possible

without caring about its already existing customers it would increase the operating expenses of thecompany (like policy processing expenses etc.). Hence, I would propose a competitive commissionslab for the renewal premiums in place.

If these changes are brought about in the company and are executed properly it would surely bringdown the number of dissatisfied customers (I would not say eliminate the dissatisfaction in customersbecause satisfaction/dissatisfaction are intangible and to have complete control over others intangibletraits is an arduous ask)

During the phase of long term impact on the company, we should aim to reduce the number ofdissatisfied customers and increase the amount of satisfaction within the customers as it impacts theflow of premiums and thereby governs the profitability of the organization in the long run.


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There are few more proposals that I would like to make over and above the solutions provided above to

increase the efficiency of the insurance process and they are as follows:

Though it is understood by now that good amount of agents are required to improve the penetration oflife insurance in this country, it does not mean we resort to policy of recruiting a large quantity ofagents, the most important thing that should be dealt with is that there should be a proper career

orientation program given to the agents so that they are well aware of their job profile even beforethey go to work, generally when an agent is recruited he/she is made to show the brighter picture thatthey can earn as much as possible and they are their own boss etc and are never told that they will be

required to work equally hard going different places to sell the hope, dreams and brighter future toother people in the form of an intangible service better known as life insurance.

Today is the era of Customer is King and the insurance companies should always keep track of thesmallest of things that can make the customer unhappyExample: The life insurance companies should do away with the voluminous insurance proposal form

consisting of 3-4 pages, rather they (the regulatory body should issue the guideline) should introduce ashort form asking only for material facts to be filled in by the customer. Moreover as per the rule, theproposal form should be filled in by the insured/customer but it hardly happens the customer losesinterest in the product the moment he/she a cumbersome form to fill and so as to make things easy theagents resort to a malpractice of filling the form on their behalf and only asking them to sign at proper

places. Hence there is a major requirement ofintrospection in the smallest of things in the insuranceprocess and customer awareness

The tradeoff between sales and training should be well understood by the advisors, where on one handit is true that sales is essential for the company, we also cannot deny the fact that a proper trainingshould always precede sales.

Even the government should do much more to increase the awareness about life insurance, likedifferent campaigns so that people restore their belief in life insurance companies as few of them see

the life insurance companies as harmful bodies playing with peoples money.

Actually one of the main reasons of tremendous sales pressure lies in the fact that, every life insurancecompany before starting its operations have to submit a hefty amount of one hundred crores to theregulator and thereby want to achieve the breakeven point and profit as soon as possible but in this

myopic approach it ignores two very vital things, viz employee and customer satisfaction, both ofwhich are important for the long term profit of the company. Hence, company should not only look to

reach the breakeven quickly but also consider employee and customer satisfaction.

Earlier I discussed the importance of need analysis of the customer, that can well work in the shortterm, for the long term I would like to go a step further and propose the setup of a Common Life

Insurance Council, which would be an organization having the representatives of all the life insurersoperating in the country so that it becomes easy for the customer to compare the various plans andchoose the best plan of the company which best suits him. This shall be under the purview of the

regulator and shall also be a boost to all the companies as it would add one more Point of Sale (POS),moreover in todays scenario it is not possible for the customer to go through the desired product of allthe companies. This initiative would bring in the desired flexibility.

There has been talks of amalgamation in the general insurance sector only, I would propose to have thesame concept ofamalgamation in the life insurance sector because at present we have twenty two

life insurers in our country and the amalgamation of the tail end insurers or the market laggards willbring in more healthy competition, because as a single entity it would become very difficult for the newinsurers to compete with the older existing ones. Any amalgamation in insurance space should fully

ensure the protection of the interest of the policyholder, while contributing to a more vibrant market inthe country.

As far as the training department of the life insurance company is concerned, there is an urgent need toupdate of the syllabus and the trend of the question paper, both of which have remained considerablyunchanged though there has been fair amount of change and progression in the life insurance industry.

7. ConclusionThe solution provided by the proposed model shall definitely bring in more efficiency to the entire process oflife insurance operations. It proposes the modus operandi for an efficient insurance process, pointing out thechanges required in training and the tradeoff between sales and training to be followed by the sales team so as to

have a more profitable organization as well as a larger satisfied customer base. I would not say that this workingmodel is perfect, it depends on various other circumstances and work environment of the company but it


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certainly is a small step towards a better life insurance industry in India and as we all know it is always betterpracticed than preached. Perhaps it also engulfs in itself the answer to Mr. Ram Manohars dilemma, as the case

study is a common occurrence in many life insurance companies, it is time to change or else it will be too late.The best thing in favor with us is the large untapped population which makes the life insurance sector a verydemanding one in the future.

We have to be the torchbearers of the change, so now if someone says Dont tell me what all changes are to

made in the process, we have been following it through ages, its time for us to revert back sayingSubvert the Paradigm

- Late Dr. C.K. Prahalad

8. AssumptionsThe various assumptions that were made in this paper are as follows:

The problems and solutions discussed about the life insurance process are for an average/nominal lifeinsurance company operating in India. It is worth mentioning that there may be companies which

perform way too good not to have any of these problems and to the contrary are highly profitable andhave a huge satisfied customer base, similarly there may be companies which operate in a worsemanner than what is discussed in the paper.

All the names of persons used in the paper have been randomly selected and it bears no resemblancewith people of same name. They are not intended to hurt the emotions and sentiments of any person.

9. AcknowledgementThe author would like to thank Dr. Vandana Sonwaney [Director, Symbiosis Institute of OperationsManagement (SIOM), Nashik] for encouraging him to write this paper and also granting him the permission topresent the same in the Tenth International Conference on Operations and Quantitative Management (ICOQM-

10) to be held at SIOM, Nashik from June 28-30, 2011.

10.References1. S. Balachandran (2007), Life Insurance, Insurance Institute of India.2. P.I Majmudar and M.G. Diwan (2008), Principles of Insurance, Insurance Institute of India.3. S. Balachandran (2008), Practice of Life Assurance, Insurance Institute of India.4. George. E. Rezda (2008), Principles of Risk Management and Insurance.5. Insurance Regulatory and Development Authority: http://www.irda.gov.in.6. Institute of Actuaries of India: http://www.actuariesindia.org.7. Insurance Institute of India: http://www.insuranceinstituteofindia.com.

4. basics of life insurance and risk management

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