Are we in a slow down or in a recession? Well if you have to believe some of the optimists we are long OUT OF the slow down. There are some people who believe that the mutual fund industry and the life insurance industry are booming – which means people are still investing, so there is no slow down. However there are many people who believe that we are in the midst of a slow down.

When the Life insurance industry was opened to the private sector about 8 years ago, most of the life insurance companies told me “We will break even in 7-8 years time, this is a long-term industry’. We are still waiting for the first genuine life insurance company bearing all its expenses to break even. Privately 2 CEOs have admitted that it will take another 4-5 years, though many CEOs are publicly saying 1-2 years.

One big problem is ‘persistency’ or customer retention. When a 23 year old MBA does the valuation of a life insurance company he looks at the current year’s premium received asks the company what is the average no. of years for which the policy has been sold for. Then he multiplies the two and arrives at ‘FCF’ (free cash flows) for 20 years and does a valuation. However, his 23 year old classmate is busy telling another customer “Sir you need to pay the premium only for 3 years”. Now how anybody can reconcile the two while doing a valuation is anybody’s guess.

Best joke I heard recently from the MD of a private bank. I asked him how come his life insurance sales is galloping. He has done a simple thing. He has incentivised all his staff – clerical too – and linked their remuneration to life insurance sales! I asked him about the fears of ‘misselling’ – he said do you know the meaning of an ‘underinsured’ and ‘under sold to’ market? It means we can find new ‘customers’ regularly for the next 3 years simply because of branch banking! I said what happens after 3 years, he looked at me straight and said “I would have moved on”.

Now if you are worried about ‘customer retention’ , ‘mis-selling’, ‘lapsation’ etc. (after all politically you have to say that) what should you do?

Create a team. Get a Senior Vice President to head it. Give him a Rs. 5 crore budget. Do an offsite at Goa if you are based in Mumbai. Simla if you are in New Delhi. Tell the board what you have done. Have fun. Policy holder, shareholder be damned!

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  1. Life insurance still offers 35 percent on endowment products. The best way or the fastest way to reach his target. Thats how banks and other insurers love these plans. Somehow the structure of plans is according to the agents and not according to the investors interest.

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