1. Introduction:
In Indian Life Insurance Sector there is an urgent crying need to boost the morale of the agency force, so that the vast untapped retail Indian Life Insurance Market could be secured through widely over thousands of insurance offices spread throughout the country.
Whereas there will be stiff and bitter competition to have the Insurance Business in Corporate & Tied Market which is more and more becoming Broker-driven / or being tied up with various Bancassurance Schemes but we must need to realize that the huge business available in Indian untapped unorganized sector could be grabbed through insurers’ own agency force who will have more commitment if nurtured properly. Hence the importance of managing agents effectively is of utmost importance. So far as the Insurers’ Operating Offices are concerned – attention must be given for careful selection of agents to attract the best talent.
Further, periodic and systematic training program has to be carried out for these agents in their area of knowledge, skill and attitude. Operating Offices have to specify and document the budget allotted to each agent and confirm the outcome of the Annual Performance Review to the Marketing Department at Regional Level.
Performance of Operating Heads regarding procurement of business should be motivated; similarly an agent force should be exposed to regular practical training program covering Product Knowledge, knowledge to acquaint appropriate premium scale of each product, computation of competitive premium and various other Marketing Skills. In the Indian Insurance Market, there is a rapid entry of new players, inclusion of new markets under the directives of IRDAI, new products and new people in this Life Insurance Industry that is changing the very nature of the insurance business in our country. With this coming of current era, several positive developments have taken place, which include:
i) Overall market growth and expansion of coverage;
ii) Innovative and custom made products brought into the market;
iii) New channels of distribution have emerged out;
iv) Greater emphasis on customer service has been entrusted.
These developments, however, have not been without certain shortcomings. Among these, some major areas need quick attention and improvement in order to reap the benefits of liberalization. For instance, the rural sector remains largely untapped despite IRDAI regulations to encourage rural coverage. High potential products like Rural Micro Life Insurance with the rider on Health and Accident coverage remain underutilized due to low level of consumer awareness.
There has to be created a ‘need to insure’ in the mind of the rural populace. This is crucial, especially in life insurance, which offers many types of protection for life, disability or incapability to earn due to illness or retirement as well as provide savings or allowing tax benefits. Customer service by the agents has improved only marginally and there is huge scope for further improvements.
Increased competition has also given rise to a need for the agents who are well-trained, skilled and experienced persons in the various phases of insurance operations. That prompted the author to come forward with this idea of telling all the individual agents that their first basic need in their professional career is to understand exactly about the needs of their prospective clients.
First of all the agent must need to understand who the prospective client is. A prospective client is any individual who has at least one of the following needs:
i. To provide sufficient funds for the dependents incase of premature death;
ii. To build a contingency fund to take care of the emergencies that may arise;
iii. To save funds for children and marriage;
iv. To provide protection for family members against home loans and other debts in the absence of family income provider;
v. Wants to save funds for retirement;
vi. To have eagerness for any other funds requirement;
vii. Any individual whom the insurance agents come across and who has any financial need as stated above.
In Life Insurance Sector, it is important for the life insurance agents to understand that there are distinct differences between the clients’ real and perceived needs. Real needs are those that can straightway be told as ‘the actual needs’ of a client that need to take priority over all other needs, whereas perceived needs are most often being imagined or thought to be utmost important by the client but to be identified and consequently also to be analyzed for quantification & ability for its fulfillment by the concerned client of the agent – for example, he/she is wanting to buy an expensive car when there is adequate public transport available and the client also may has insufficient savings or income to buy the same. These perceived needs can be understood by analyzing an individual’s thoughts and desires.
Real needs are determined by use of financial planning techniques and analysis. Perceived needs can be understood by analyzing an individual client’s thoughts and desires. So the life insurance agents need to advise appropriately about the real & perceived needs of their clients. Now let us examine the critical areas where the agents may face problems in advising their clients about these concept of the real & perceived needs – as deliberated in details as given below:
Different financial needs occur at different stages of the life cycle of an individual customer. However, when the time comes for such financial planning, an investor may shy away from actually making those investments. One young personnel might aspire to have Rs. 10,00,000/- ten years from now, but for fulfillment of this requirement he definitely needs to sacrifice some of his leisure activities and save & invest regularly in determined, confirmed & dedicated manner in Life Insurance Policies.
The second problem is that these clients often fail to understand the importance of saving for the future requirements and do not appreciate the benefits that this will bring. They most likely want to give priority to their present needs as opposed to their future intangible needs.
Individual may not understand their real needs and may fail to prioritize them sensibly. There can be cases where an individual might choose to invest in child plans first, whereas their priority need would be to provide financial protection for their family in the event of their premature death, illness, disability or incapability to earn.
2. Agents’ focus should be identifying the real need of his customer:
The primary job of a life insurance agent is to help their clients in identifying their real needs and that process starts with educating the clients about the vivid basic concept and importance of various life insurance products. Subsequently through the proper guidance by the agent will definitely improve the understanding of the prospective life insurance clients in identifying their real needs. So at first the life insurance clients need to find out their current & future needs and once these needs are identified, these needs must be quantified in terms of monitory value and invariably to be prioritized.
For the said purpose the agent must review their financial planning of his/her clients. For that purpose the agent should meet with their clients regularly to review whether their financial planning needs which may have been changed over the time. If so, then new investment through life insurance should be made to suit these changed circumstances.
For that purpose a life insurance agent’s basic task is to understand their client’s real needs and then recommend the suitable products amongst the available life insurance policies in the Indian market. Any individual that a life insurance agent faces or comes across in his/her professional career, asking for the utility & usefulness of a life insurance and also who has any financial need is a prospective client.
Prospective clients may have various needs which they themselves may not be aware of. In such a case it is the duty of the insurance agent to make the prospective client to realize his/her needs and recommend suitable insurance protection and / or investment products to meet those requirements, as life insurance companies and other financial institutions offer a range of products which cater for the different needs of an individual.
Here the typical stages of the human life that is involved may be the following:-
1) Childhood – Here the need for the parents to :
a. Financially secure the children in the event of premature death of the parents;
b. Provide for their future financial responsibilities, such as education, marriage etc.
2) Young unmarried – Here mainly the protection needs like cover for self, provide family in case of premature death, disability, health protection for dependent parents, saving for short-term needs for the marriage, houses like, home-loan for flat and long-term needs like, retirement, etc.
3) Young married – This type of persons have two distinctive phases:
a. Young married with children – Here also the protection need comes as the first preference – for the life cover against death for both spouses. A family floater health insurance plan covering the couple and children is needed. Providing for the children’s future – like education, marriage, etc. and small contribution towards a retirement plan may start and that may be stepped up later.
b. Young married with older children – Here the most desired need to cover first is the protection needs, i.e. the adequate financial protection for the family in the event of premature death of the prime member or the income provider. In this phase the health insurance cover needs to be enhanced with the increase in age. Need for providing for the children’s future – like education, marriage, etc. continues. Here the individual should step up investment towards retirement plan.
4) Pre-retirement – Here the main emphasis is solid investment for retirement period and the income protection needs. Individual in this phase needs to leave inheritance to children and review the health cover to ensure that it is adequate.
5) Retirement – After retirement individual needs to invest funds wisely to ensure an adequate income during retirement and here the vivid & must go for him for the detailed estate & inheritance planning. Here the review of health cover must also be made to see whether it is adequate.
3. Factors that affect the various life stages:
Now every client will not go through all the life stages discussed above. But presence of several other factors also influences the individuals in their various life stages significantly. The main other factors that affect the assureds’ need are detailed below:
1. Age of the client: The younger the age of the individual, the lower their liabilities will be. When a person grows older they will complete their higher education and become employed. Their protection needs will increase due to the new responsibilities they take on such as marriage and a family.
2. Marital status and the dependents of the client: When any individual gets married and starts having a family of his/her own, his/her responsibilities will definitely increase and the people will wish to provide for their family. They are also likely to be thinking of buying a home, a car and taking annual vacations to enjoy travel trips, etc. These can all result in increased financial liabilities. With all these responsibilities and increase in liabilities your clients may found that protection needs have become very important for an individual after marriage.
3. Employment: Any individual’s employment status can influence his/her financial planning needs and investment capacity. An individual can be employed as a:
I. Self -employed; or
II. Public sector employee; or
III. Private sector employee.
IV. In addition, a person may have a short professional career (such as a professional sportsman) or they may be unemployed.
I. Self -employed: If the person is self-employed he/she needs to consider mainly two important factors as below:
a) Self employed individuals may have fluctuating income; and
b) They may be the sole income provider for their families.
The need for the life insurance is relatively high amongst the self-employed. Once this particular need is taken care of then the focus can be shifted towards other needs such as child investment plans and retirement plans which may come in the later part of life.
II. Public Sector employee: If an individual works in any public sector organization, then their need for life insurance, pension plans and other medical treatments related health insurance plans may not be high. The main reason for this possibly is because the public sector managements make contribution towards provident funds, pension funds and gratuities under retirement benefit schemes for its employees. Public sector employees are also offered benefits such as life insurance for the individual and health insurance policies for the employees & his/her family.
III. Private Sector Employees: The need for pension plan, life insurance, etc. is definitely greater for the private sector employees. While most of the private sector employees provide benefits such as gratuity and provident fund, many of them do not provide any pension benefits. Some companies provide life insurance for the individual and health insurance for the employee as well as for his/her family, and some may give option to the employees to contribute towards the premium for these insurance plans. However, some other private sector companies do not provide any of these benefits and the employees need to make their own arrangements.
4. Absolute understanding of your customers:
It is highly essential for the life insurance agent to understand the difference between the real and perceived needs of his/her clients immediately, whenever, the client approaches to him/her. Basically the real needs are the actual needs of a client which should take priority over the others, whereas the perceived needs are considered to be important by the client but there he/she needs to be properly advised & guided by the agent – for example when a person wanting to buy an expensive car when there is adequate public transport and the client has insufficient savings or income to buy one. Real needs are determined by the use of financial planning techniques and analysis. Perceived needs can be understood by analyzing an individual’s thoughts and desires.
As we have already discussed different financial needs occur at different stages of lifecycle of an individual. However, when the time comes for financial planning, an investor might shy away from actually making investments. A young man might aspire to receive Rs. 10 lacks after ten years from now, but for this he needs to sacrifice some of his leisure activities and save as well as invest regularly.
The second problem may be recognized as the failure of the client to understand the importance of saving for the future and do not appreciate the benefits that this saving will bring. They will want to give priority to their present needs as opposed to their future intangible needs.
5. Basic tips for all agents to focus on:
The basic job of the life insurance agents is to help their clients in identifying the real needs vividly following the four distinct steps:
a. Identification of the real needs: Agents must help their clients in understanding their real needs by educating them about the concept of insurance & importance of various life insurance products.
b. Identification of current & future needs: Agent should help their clients to understand actual current & future needs considering the difficulties that might crop-up.
c. Quantification & prioritization of real needs: Once the needs are identify – they must be quantified in monetary value and in terms of absolute priority.
d. Review of the entire financial planning of the specific client: Clients should meet with their agent on regular basis to facilitate review whether their financial planning needs have changed over time vis-à-vis any new innovative / attractive product is launched in the market befitting to his/her requirements. If so, their new insurance /investments products should immediately be made available to the clients/assured befittingly to suit the changed circumstances.
e. Communicating the same transparently & adequately with citing the relevant products explaining the benefits of those products and analyzing the vivid reasons to prefer that.
6. How to select appropriate life insurance policy for your client?
Before buying life insurance policy, your clients must decide what is right for them and their family. But please don’t forget, your client’s family also needs to be protected by as social security, veteran’s benefit after retirement, and other savings requirements/plans.
Before your client decides on term or permanent insurance, think about how well they can save. Permanent insurance forces you to save through the build-up of cash value. Depending on the kind of policy you have, the rate of return may be low. Sometimes a cash value policy must be held for several years because most have no cash value at the end of the first few years. Studies show more than 20 percent of people buying cash value (permanent) policies lose their policies within 2 years of purchase. More than 50 percent lose them within 10 years.
Think about tax in your client’s situation. If he /she are in a high tax bracket, permanent insurance may be good because the savings built up in the policy are tax-deferred. Also the face value of a life insurance policy will be available to their family immediately after your death. With ordinary investments your family may have to wait for the benefits or be forced to sell investments at a loss. Death benefits of any life insurance policy, permanent or term, are not taxable for income tax purpose.
Deciding what kind and how much insurance to buy will require study. You can’t do a good job on a hit-and-miss basis. Actually, the job will never be finished. Both in your situation as the advisor or solicitor for issuance of insurance policies – please mind that it is always possible that any time the terms, conditions, benefits and provisions of the products may change, so new possibilities will be open to you if you have the required product & knowledge. No one can give you an exact formula, but you might keep all these suggestions in mind. So-
1. Study clients’ needs as a family. You must make the decisions as to which are the most important needs now and how much he / she can afford to pay for insurance that will protect him / her in what way in future.
2. Please insure first the risk that would be most damaging, if it occurred.
3. Review client’s insurance needs meeting him / her at least annually and more often if there is a change in the family: marriage, birth, new home, more possessions, etc.
4. At the same time it is always suggested for the clients to select the insurance company through its agent that he / she can trust. The client’s most valuable guide in buying life insurance is a reputable agent. A competent agent will take into account your needs now and any future needs you may have. The client may want to review his / her program with your agent periodically as family needs change. Having any trusted agent may ensure that the assured are not over-protected or under-protected with their life insurance cover.
7. Planning for availing life insurance cover wisely:
Life Insurance, wisely planned, can make a viable & significant contribution to a family’s economic security. The basic idea of life insurance is simple, but the details can be hard to understand. Learning these details helps you get the most for your client’s money. It also helps you to help your client to calculate freely his/her payment capacity and also to find the basic need of his / her family to have some alternate income should the assured die.
Of more than 100 different kind of life insurance on the global market today, all can be roped into one of five main categories. By looking at how each type works, its advantages, and disadvantages, and types of situations appropriate for each type; you will be able to make the best decision about which type of life insurance is best for you.
There are five basic types of life insurance all along available in Life Insurance Sector / Market as given below:
1. Term Insurance
Term insurance is relatively cheap especially if you don’t have many assets or emergency reserves, but do have financial dependents. Many term policies offer a guaranteed renewable clause which means your right to renew the policy is unrestricted.
2. Whole Life Insurance
Sometimes called Straight Life Insurance, whole life gives you lifelong protection. Your premiums at the beginning are higher to help cover the costs of providing you that protection later in life when term premiums get costly.
3. Universal Life
First issued in 1980, the universal life insurance policy is a combination of term insurance and a currently tax-deferred saving plan. You are guaranteed a minimum rate of return.
4. Variable Life
A guaranteed minimum death benefit is stated but it may increase if the cash value of the policy goes up. The cash value of variable life is invested in your choice of stocks, bonds, money, market funds, and any combination.
5. Variable Universal Life Insurance
This policy is a combination of variable and universal life insurance. You can choose where to invest your premium money and assume all the investment risks associated with that choice like variable life insurance.
Universal variable life is also called flexible premium variable life. This policy mixes the flexible features of universal life and the investment options of variable life. As with universal life, you can raise or lower your premiums in a single policy. As with variable life, you have the right to choose how your cash value will be invested.
The insurance company is not required to make any guarantee on your cash value. With universal variable life, the value of your cash fund is tied to the market value of the assets in the cash value fund. In theory, you could have Rs.1,50,000 in cash value one day and Rs.1,00,000 in the next, depending upon market fluctuation.
So one of three main problems connected with universal variable life is that you can lose in your insurance cover. The ability to hedge your investment bets by choosing different types of investments and the ability to change investment vehicles free of charge a certain number times per year are among the advantages of variable universal life insurance .
8. Knowledge on life insurance products / options available in india is must for an agent:
a) Traditional products for the common requirement:
Traditionally, insurance policies have been sold as Whole Life plans and Endowment plans. Over the years, the long-term whole life plans become popular in India, during the LIC’s monopoly market. Under pure whole life plan, premiums have to be paid until death and the sum assured becomes payable immediately after death.
Since earning & paying capacity would cease or would be highly reduced after normal superannuation age of 58 or 60, the policy holder would find it difficult to keep the policy in force by paying the premiums.
Such policies would therefore, invariably lapse or become paid up for reduced sum assured, thus invariably depriving his family of the full sum insured in their dire need. The premiums under these plans are payable for selected term (Limited Payment Whole Life or under Pure Whole Life (say, up to the age 80/85) term, which is later. In case of with profit policies, the policy continues to participate in profit even after the maximum stipulated premiums have been paid.
Again the sum assured under whole life policy becomes payable only on death of the life assured. The result therefore is that the whole life plans are not remained popular; even they provide more cover in compared to endowment assurances in relation to premium.
In LIC of India, just before the privatization of life insurance sector, during FY1998-99 just around just over 30 thousand policies out of 148 lakhs policies were secured under whole life assurance policies. Endowment assurance plans, with its many variations have been popular right from the early days of Indian Insurance Industry and the most popular amongst them is Endowment with profits.
b) Term insurance plans as the security for loan borrowed:
Term Insurance Plans offer death risk cover for limited term. There can be for constant, increasing or decreasing cover. Convertible Term Assurance Plans are instances of constant sum.
Decreasing Term assurance is popularly granted, when policyholder needs it as a security against a housing loan. The sum assured is so arranged that at any time, it is equal to the outstanding loan.
A schedule of outstanding loan or subsisting life cover (against that o/s loan) may be printed on the policy itself. You may avail Convertible Term Assurance Plan where your policy can be converted into an Endowment or Whole Life type of contract at the end of selected term of 5,6 or 7 years.
During this period this policy will be treated as a Term Insurance and the life assured is expected to exercise his/her choice of conversion before two years of expiry of this term, so as to obviate adverse selection against the insurer during last two years.
If no option is exercised, the assurance comes to an end at the end of the selected term. This policy is useful to those whose earnings being less now, cannot afford to pay higher premiums in the initial years.
Under pure Term Assurance Plan, if the death of the life assured does not take place within the selected term, the assurance comes to an end on completion of this term. Premiums collected already are not refundable. However, a variation of this plan can be devised by refunding all the premiums collected, if life assured survives the term.
In effect it means that the interest earned on the premiums is utilized to keep the policy in force as well as to grant a free term cover for a few years beyond completion of the term, even though the premiums collected are refunded. Bema Kiran and Bima Sandesh are examples of these types. Bema Kiran’s provision of refund of premiums on maturity and free term assurance for extended period of ten years – has become popular.
c) Unit Linked Plans for multiple benefit:
But now Life Insurance provides duel benefit of for investment as well as pension benefit through the same scheme of investment first through by the Unit Trust of India by introducing the Retirement Benefit Scheme (RBP) by one time investment long back during FY1971-72.
This plan catered the need for any resident of India between age 12 and 55 years 6 months for a period of either 10 years or 15 years with a target savings amount between Rs.6000/- to Rs. 75000/- to be contributed in equal half yearly or annual installments over the chosen period. Persons over 50 years can go for 10 years plan. No medical examination is necessary.
A small part of the contribution (i.e. premium) needed to be utilized for providing life cover, the balance being invested in units. There existed also the provision of free accident insurance benefit of Rs. 7500/- to Rs. 15000/-depending on the nature of injuries. In case the member dies before the end of the plan period, his/her legal heirs may be entitled to units to his/her credit and the amount of insurance cover.
d) Interest sensitive products for who caters to the interest to the ‘investing’ instinct:
The main complaint against Life Insurance Policies is ‘In life insurance returns are not good enough’. Related to interest sensitiveness is the objection of inflation. Since the value of Indian currency ‘Rupee’ is falling, due to inflation, the sum assured selected today may be almost ‘zero’ after say, 20/25 years and it affects all types of savings – even in Life Insurance cases.
So insurers being aware of this kind of problem endeavor to bring out plans, which invariably try to compensate the low return of life policies by –
a) Providing additional benefits accruing to the policy, with every year that elapses, in the form of additions, on a pre-determined scale.
b) Allowing a periodical return of a portion of the sum assured, without reducing the death cover either during the initial years of the policy or towards the end of the policy term.
Basically interest sensitive products cater the interest to the ‘investing’ instinct of the policyholders. Since he/she gets periodical repayments of the sum insured there is no necessity to grant loan within the surrender value of the policy. Hence loans are not granted under such policies.
Investment oriented policyholder, can take advantage of the then current investment climate and put that refund money in high interest bearing investments.
e) Combination plans for who prefers mainly for death cover:
Since the life insurer cater to the needs of different types of customers. Though the Endowment and Whole Life are the basic plans sold by the insurer, it becomes necessary to combine these elements (even together with the annuity element in some cases) in one single policy, so as to satisfy the needs of certain policyholders, who would like to be covered for maximum death risk, with not much provision for ‘maturity’ element.
LIC’s Jeevan Mitra is an example of this kind of policy. Here the basic sum assured becomes payable on maturity, but on death double the sum assured becomes payable. In case of accidental death, one more sum assured falls to be paid. Even LICI has come out with a Triple cover Jeevan Mitra, where the death cover is three times the basic sum assured. Accidental death would result in payment of 4 times the basic sum assured under this policy.
f) Annuity plans may be considered for people around fifty:
Annuities start where life insurance ends. It is called the ‘reverse’ of life insurance. In annuity plans, a person agrees to pay to the insurer a specified capital sum assured, may be, by installments, in return of a promise from the insurer to make a series of payments to him/her so long as he/she lives. Medical examination of annuitants is never insisted upon. The risk, that is sought to be covered, under annuities, is of living too long.
Annuities are two types:
1. Immediate Annuity: Here the purchaser of an annuity pays a lump sum, called purchase price, in return for a promise to receive monthly/quarterly/half-yearly/yearly annuity. The first installment starts at the end of the month, quarter, half-year or year as the case may be. LIC’s Jeeven Akahay is an example of immediate annuity plan.
2. Deferred Annuity: Here the annuity is purchased by paying in installments or by a single premium, and the annuity payment starts after a lapse of selected period, called deferred period annuity. This annuity, when it starts, can be a life-annuity.
Therefore, it is always suggested that you need to do a lot of home work before you suggest a life insurance policy to your prospect – instead of requesting casually for availing a life policy whenever you meet with your client and you cannot say a valiant ‘No’ to him/her as he/she is following your suggestions only for your pursuing him / her obstinately with your lots of frequent requests – thus creating an obligation in him / her for taking a life insurance policy from you.
So for availing a life insurance policy coverage befitting to your client’s need – first of all being the agent, you must know the various products available in Indian Life Insurance market – understand the pros & con of each of these products – subsequently please compare the plans vis-à-vis your client’s requirements.
What kind of preference you have for your client -try to put your experience and exposure that you have acquired through your study and as derived from your market revelation, as per the availability in market & from your known reference / reach, in a very competitive package rate.
References: Different contemporary discussions & information as collected & collated from various text materials.
