Back to Business

I am a insurance guy atleast it feels better to say so, so I proclaim my self as an insurance guy , well though I have a better qualification then most of the people in insurance industry to say that ( hey I always had this big mouth ) okay enough parag .. enough .. so back to how insurance companies are going to make profit (or big bucks ) going with the theme of the blog. Right now there are around 17 insurance companies fighting for market share in India including the new Future- Generali and IDBI – Fortis. With only 3.5% of Indian population insured these companies have a great market to cover, with respect to market share LIC has around 74% of share and the rest companies are fighting for the remaining 36 %. Insurance initially was started by the merchants in Britain who used to go for long voyages , if any ship sank or was looted by pirates (which at that time had high chances .. common johny depp fans..its time to say yay!) then all the merchants used to compensate the one who lost his goods. Insurance basic purpose is public service to help the victim during the time of loss of goods or loved one (well that is debatable, but we will stick to basic definition), But then the question comes how do these companies makes profit?? A Life Insurance company devices the product keeping in mind the mortality rate ( total people expected to die out of 1000 according to the age group), morbidity (The health index) , profit that the came from the investment, expenses , lapsation ratio (ratio of people not continuing with their policy) and various other factors. The product development and calculation is done by Actuaries (who are a rare species), then there are sales guys, operations guys. Now with more Unit linked policies coming the difference between a mutual fund and a insurance is reducing as in insurance you get insurance along with units whose NAV (Net Asset value) changes along with market as in Mutual funds and then again the expense cost cut by insurance company is more than the mutual fund AMC cost. Will write in detail about the difference between the two. Normally an insurance company makes profit in 6-7 year of their operation and a insurance policy comes in green in about 4-5 years thanks to the medical cost and the first year commission (30% of total premium). Well that is past that everyone know now lets talk about what is going to be the future of insurance. Well if I wear my futurist cap and see the sector the first things that comes is that the insurance product are going to be more diversified i.e. catering to health, micro financing, as now the biggest challenge is to cater it to untapped market i.e. rural areas. In the future we can see more innovative product coming up. In underwriting the future is expert system as underwriting is one of the critical systems where company undertakes the risk, with expert system the decision will be more consistent and precise and cane be easily customized for new product. The future of servicing is that companies will start focusing on their core competency and outsource the rest to other companies. Customer service is going to be a key differentiator with more and more services going on self service mode. The response will become a key differentiator and in next 5 years only the companies who have a substantial customer base will remain and there will be a consolidation in the insurance market. Investment will be one of the important and critical function which will keep creating value for the customer and thus help in attracting new business. Also from the sales point of you the company which has more FOS (Fleet on street) , will keep increasing its top line with logging more insurance policies , the FOS will become the key whether that is its direct advisors or business partners. With respect to service/Technology, I suggest (thanks to Milind Gore , AVP in my department) that the details of policy, customer information will be stored in the data mart and customer will be recognized with just a client id , so a customer can walk into the branch , fill his client id , add some documents like medical sheets, payment slips and others and there is no data entry to be done. Also this will help the insurance company in risk mitigation as the retention limit of the customer will be known. Also it will decrease the customer service cost by a huge percent as the insurance company will have consistent data and since all the application will use the same data so there will be data consistency across all the customer touch point. It will give me cross sell opportunity and in a sense would be one stop solution for most of the problem… okay guys I am planning to write a paper on these so will post that …whuff enough gyan for today… but guys keep watching next post will be on a lighter side and quite interesting …chalo now me signing off from here …