Life insurance: Pitfalls cos must avoid at all costs

Kamalji Sahay Posted online: Tuesday, Jan 21, 2014 at 0000 hrs
Being a business of utmost good faith, life insurance requires certain preconditions that must be satisfied and values of market conduct that must be honoured before any transaction is concluded.

Since the insurer is an organisation specialising in the business and the insured is mostly an individual requiring service and benefits, the responsibility for a valid and effective transaction is definitely more with the insurer. To play its desired role in the market and contribute to wholesome growth of business in accordance with law, life insurance companies must avoid certain practices.

The foremost among them is the tendency to fineprint terms and conditions of an insurance plan and not explain them to the prospective buyers. Anxiety to secure more proposals in a short time further accentuates the problem. In such a case, the focus shifts from need-based selling to almost forced selling, and this is the genesis of misselling.

A large number of complaints received by insurers indicate shock and surprise by the policyholders about premium to be paid under half yearly or yearly modes, which he had understood to be the yearly instalment. This is an instance of a deliberate error pushed into the policy records by the salesman with the motive of earning higher commission and reward.

This is also a major cause of first-year lapse and has adverse implications for the financial health of the company. Efficient financial underwriting of proposals can take care of such issues. Insurers must avoid deploying untrained or partially trained sales personnel. Professionalisation of the sales cadre at all levels is an urgent issue. Companies must avoid chasing business at the cost of the customer who, as Gandhiji, said “is the very purpose of the business”.

Insurers need to avoid the temptation to stray into territory of other financial products. The product development exercise should begin with financial protection as the fundamental purpose. To remain in the business of insurance, companies must deal with insurance only and shun use of words like investment, growth and returns. These words must be avoided and substituted by words like risk and savings premium, cost of protection for family, provision for old age, annuity for life and reversionary bonus, etc.

Truth can never be out of fashion; hence, there is no need to substitute such terminologies with more trendy nomenclature with potentially misleading connotations. The product features may be innovative and distinct, but they need to be simple to understand and equally simple to benefit from should the contingency arise.

Even though telemarketing and networking with policyholders is very much in practice, I would not hesitate to suggest avoiding these channels to extensively interact with customers. Insurance is a business of trust and relationship; and these two elements cannot be initiated or cultivated through mechanical activities. Periodic interface with customers can go a long way in development as well as in conservation of business. Technology must be fully leveraged to communicate with the custome,r but dependence on technology alone for this purpose must be avoided.

Claim settlement is the ultimate act in the business of life insurance. Whether it is maturity claim or death claim, any delay or denial must be avoided, unless there is a legal issue to be resolved or a prima facie suspicion of fraud. Empathy must be the prime motivator in dealing with even the most complicated cases. The promise made years ago must be fulfilled even if it involves walking some extra miles.

* The writer is advisor (Life Reins),GIC Re and former MD & CEO, Star Union Dai-ichi Life

What not to do

* Avoid tendency to fineprint terms and conditions of an insurance plan

* Ensure efficient financial underwriting of proposals

* Avoid deploying untrained or partially trained sales personnel

* Don’t stray into territory of other financial products