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June 28-30, 2011

Training the Life Insurance Sales Force: Challenges and Solutions

Debashish Banerjee vinni.viddi.vicci@gmail.com Symbiosis Institute of Operations Management, Nashik 1. Introduction
Lets start the talk by first discussing the bottom-line. If ever I am asked to sum up what sales training in a life insurance company actually is, I would perhaps come up with this answer: Truth lies everywhere and, partially, even in Error -Upanishads The 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 corporate relationships. 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 into the sales force so that, they are not only equipped with the knowledge about the products of the company and the 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 to day life insurance operations amidst tremendous sales pressure and aggression of the life insurance companies to obtain 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 this vicious 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 by proposing a modus operandi for an efficient insurance process, pointing out the changes 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. 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 Dilemma

Mr. Ram Manohar is a management graduate of a renowned B-School and is presently working as a Training Manager in the sales training department of ABC Life Insurance Company Ltd in an Indian suburb. His job responsibilities 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 the company - Never say Its not my job. Though relatively new to the system, Ram has been able to leave an impression as he has better communication skills, knowledge of the subject and rapport building capabilities with his fellow colleagues compared 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 family problems all round the year, few are bold enough to say that they never need a training to sell life insurance in India, 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 fully understood 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 is not 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 of the desired attendance, as expected Mr. Matthews gave him a call and pretty much to his surprise, he (Ram) was made 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 greatest premium and commission which is very good for the company. Now I want you to play your part, everyone knows that if a person does not have the license of IRDA (Insurance Regulatory Development Authority) he/she is 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 him his license. Do not worry about the process as I have already had a talk with Sridhar and it will be taken care of in future. Ram was speechless, for the first time in his life after getting the prestigious management degree he felt that subjects 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 an unethical person just because he had good contacts and only look for the temporary benefit of the company and his 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 reporting manager. 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 optimum choice? 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 end user customers? What is the tradeoff between sales and training to be kept in mind by the sales team, even after getting moulded 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 concepts of life insurance and risk management.

3. History of Insurance
Insurance 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 to lenders, as the price for writing off the loans, in case of the shipment being stolen. The inhabitants of Rhodes adopted the principle of general average, whereby if goods are shipped together, the owners would bear the losses in proportion if loss occurs due to jettisoning during distress (Captains of ships caught in storms, would throw 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 funeral and families of members who died. The friendly societies of England were similarly constituted. The Great Fire of 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 because of 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 in 1818, followed by Bombay Life Assurance Company in 1823, the Madras Equitable Life Insurance Society in 2

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1829 and Oriental Government Security Life Assurance Company in 1874. Prior to 1871, Indian lives were treated 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 was followed by the Bharat Insurance Co. in 1896 in Delhi, the Empire of India in 1897 in Mumbai, the United India in 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 Indian companies 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 insurance business. 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 and foreign 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 continued progressively 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, stricter controls on investments in life insurance companies, submission of periodical returns relating to investments and such 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 the Insurance 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 life insurance business in India. On 19th January 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 insurance business was nationalized and the Life Insurance Corporation of India (LIC) was formed on 1st September 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 in India to transact life insurance business provided the foreign shareholding did not exceed 26% (as per the FDI limits in the Indian life insurance industry a maximum of 26% of the capital can be owned by foreign insurance companies in their joint ventures in India. This may include contribution up to 14% by NRIs and Foreign Institutional Investors). The balance will be required to be held by Indians including the Indian joint venture partner.

4. Basics of Life Insurance and Risk Management

In 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 a particular 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 any contract 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 term dependent on human life and shall be deemed to include: The granting of disability and double or triple indemnity accident benefits, if so provided in the contract 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 and annuities. 3

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By omitting the special features, we may obtain a general definition of life insurance business and of life insurance 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 for payment of the sum assured only in the event of death of the life assured will be life insurance policy. A policy against accident only does not however constitute a life insurance policy, but a life insurance policy may provide 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 and agree 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 aged 50, or 10 persons, may die within one year. If the economic value of the loss suffered by the family of each dying 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 family of 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 Insurance The concept of life insurance rests on certain pillars, viz: Probability Theory and Law of Large Numbers The common sense notion that the probability is meaningful only over a large number of trails (happenings) is an intuitive recognition of the law of large numbers, which in its simplest form states that The frequency with which an event happens reflects 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 probability accurately 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 into to avoid possible losses as a result of small volumes. Principle of Profit/Benefit Life insurance is based on the principle of profit/benefit which states that irrespective of the number of premiums paid the insured will be paid the full sum assured whenever the contingency 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 taking the insurance) to disclose material facts about himself (if the insurance is taken on himself) to the insurer (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 in misrepresentation and the contract shall stand void-ab-initio and the customer wont get the claim. A summary 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 knows everything, 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 help of an example, when we go to buy medicines, it is our onus to check the expiry date as sometimes medicines purchased are not taken back by the shopkeeper same is applicable to life insurance and this principle 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 the contract. Principle of Insurable Interest There is no single definition of insurable interest, which is universally 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 be explained as follows:

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The doctrine is based on the principle of cause and effect, which states that having proved the effect and 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 the remote 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 an accident which was insured under the policy and not a disease which was not insured. Understanding Risk and its Types The term risk may be defined as the possibility of adverse results flowing from any occurrence. Risk is a condition where there is a possibility of an adverse deviation from a desired outcome that is expected or hoped for, there is no requirement that the possibility be immeasurable, only that it must exist. The degree of risk may or 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 Caused Catastrophic Risk leading to bankruptcy of the owner Non-Critical Risk not causing much damage as catastrophic risk Insurance does not cover catastrophic risk Based on Time Important Risk it takes lot of time to recover Unimportant Risk are like temporary illness or accidents Based on Financial Characteristic Financial 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 Spread Fundamental Risk - risk affecting a larger amount of population Particular Risk risk affecting only a limited number of people Life insurance companies generally deal with particular risks Based on Different Cause for Risk Dynamic Risks caused by perils which have national consequence like inflation etc Static Risks caused by perils which have no national consequence like theft, fire etc Static risks are more suited to management through insurance Based on Property of Risk Pure Risk the outcomes can be either a loss or a condition of no gain and no loss Speculative 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 Management As 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 all the cases and the other answers differently each time. Case I Friend1: 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: 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 II Friend1: 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 afraid that the number of accidents have gone up in our area, so you really need to be careful enough driving the bike. 5

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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 IV Friend1: 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: 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 V Friend1: 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: Absolutely, but I think you misunderstood a bit, I will only purchase the bike, you will be the one to ride 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 receives from 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 Industry

Now that we are familiar with the history and basics of insurance and risk management, we shall be able to comprehend 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 to twenty two insurers operating in the life segment. The potential and performance of the insurance sector is universally 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 domestic product (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 in the year 2000 when the sector was opened up for private sector. It had increased to 5.20 per cent in 2009. The insurance 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 USD Figure 1 Insurance Density in Select Countries

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Source Swiss Re, Sigma No. 3/2010, Data is in Percentage of Population Figure 2 Insurance Penetration in Select Countries

Figure 3 Insurance Density Growth in India

Figure 4 Insurance Penetration Growth in India 7

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

Mr. Ram Manohar (Training manager)

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 Local Market Spl. team selects the agents from the local area * Assignment to sales team Induction to company

I/P

Sales team target assignment *

SALES TRAINING *

Meeting the Customer (Sales Call) Sales team feels the sales pressure and pr. of targets Meets the customer (after call or reference)

Starts selling as soon as he meets *

Basic queries not answered *

Unknown Customer

Known Customer

Buys the policy *

Does not buy

Generally ends up buying *

Advisors leave with filled proposal form

Customer calls to get the original policy documents *

Advisor generally does not entertain the call *

Dissatisfied Customer *

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Long Term Impact on the Company Company reputation is adversely affected * First premium goes down due to bad WOM *

References stops from customers *

Renewal premium decreases *

O/P Figure 5

Long term loss for the company *

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 the Unit Managers (UM) select their team of advisors/agents, however that is done based on sales pressure and any team want to have as many advisors as possible irrespective of whether they all qualify the minimum 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 or taken 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 and starts 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: why should 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 of some friend or relative) or an unknown customer (usually during the end of the financial year end). The known customer generally ends up buying the product not because he understands it or always needs it but because of peer pressure and maintaining relationship. The unknown customer on the other hand feels the need is insurance only during the end of financial year when he seeks for some financial instrument to save his tax. When the customer does not get the original policy documents, he/she gives a call to the agents but the agent 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 are dissatisfied the renewal premium, references of other people stops or reduces which further hurts the reputation 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 in this process they tend to forget employee satisfaction. Tremendous sales pressure leads to mis-selling of life insurance which further leads to dis-satisfied customers.

6. Proposed Model of the Life Insurance Industry

We shall now go through the solutions of the problems stated above and step forward to design an efficient insurance process which shall not only bring profit maximization to the company but also bring about a large satisfied 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 after proper scrutiny and ensuring that they all qualify the eligibility criteria laid down by IRDA. The company should not go after quantity only it should also lay proper emphasis on quality of agents as it 9

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would directly affect the customer satisfaction index and would play a pivotal role in governing the sales of the company and its reputation. Most importantly, the sales training exercise shall not be skipped by the sales force as it is very essential to build an effective sales team for the company, however for that to happen all the departments like sales, training and the underwriting departments shall work in liaison rather than working as different independent units. This calls for inter-departmental (amidst various departments) incentives which would encourage better communication between different departments. This should come as an add on to the already existing intra-departmental (within a particular department) incentives in most of the practicing life insurance companies Example: For successfully completing the training, the agents reporting sales manager should have certain incentives and vice-versa. Since incentives within a department are already in place in most of the 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 initial phases of its association with the company, if at all need be the new sales force should be assisted with experience 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 proper need 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 mainly because 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 their personal benefit). However for this to get executed properly it is very essential, that the sales pressure burden 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 basic queries 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 is the duty of the sales team to clarify it to the customer that life insurance is primarily a protection device 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 life insurance 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 and the insurer, as discussed in the case study we should always follow the principle of - Never say Its not my job. He should also track whether the original policy documents has reached the insured in time or not as this shall result in greater customer satisfaction and in the longer run greater benefit of the company. Generally it is seen that the advisor does not entertain the customer complaints once the life insurance policy is sold, this is called a poor after sales service and it happens because the advisor is always busy getting new customers for the company. The advisor should not be completely blamed for this, it happens as a result of unattractive commission slab set up by the regulatory body for the renewal premium 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 the first year premium and the premium for rest of the years, this provides no motivation and incentive to the 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 regulatory body should understand the fact that the cost of acquisition is always greater than the cost of retention 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 the company (like policy processing expenses etc.). Hence, I would propose a competitive commission slab for the renewal premiums in place. If these changes are brought about in the company and are executed properly it would surely bring down the number of dissatisfied customers (I would not say eliminate the dissatisfaction in customers because satisfaction/dissatisfaction are intangible and to have complete control over others intangible traits is an arduous ask) During the phase of long term impact on the company, we should aim to reduce the number of dissatisfied customers and increase the amount of satisfaction within the customers as it impacts the flow of premiums and thereby governs the profitability of the organization in the long run. 10

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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 of life insurance in this country, it does not mean we resort to policy of recruiting a large quantity of agents, 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 before they go to work, generally when an agent is recruited he/she is made to show the brighter picture that they 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 to other 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 the smallest of things that can make the customer unhappy Example: 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 a short form asking only for material facts to be filled in by the customer. Moreover as per the rule, the proposal form should be filled in by the insured/customer but it hardly happens the customer loses interest in the product the moment he/she a cumbersome form to fill and so as to make things easy the agents 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 of introspection in the smallest of things in the insurance process and customer awareness The tradeoff between sales and training should be well understood by the advisors, where on one hand it is true that sales is essential for the company, we also cannot deny the fact that a proper training should always precede sales. Even the government should do much more to increase the awareness about life insurance, like different 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 insurance company before starting its operations have to submit a hefty amount of one hundred crores to the regulator 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 of which 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 short term, 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 insurers operating in the country so that it becomes easy for the customer to compare the various plans and choose 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 all the 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 the same concept of amalgamation 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 will bring in more healthy competition, because as a single entity it would become very difficult for the new insurers 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 in the country. As far as the training department of the life insurance company is concerned, there is an urgent need to update of the syllabus and the trend of the question paper, both of which have remained considerably unchanged though there has been fair amount of change and progression in the life insurance industry.

7. Conclusion
The solution provided by the proposed model shall definitely bring in more efficiency to the entire process of life insurance operations. It proposes the modus operandi for an efficient insurance process, pointing out the changes 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 working model is perfect, it depends on various other circumstances and work environment of the company but it 11

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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 better practiced 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 very demanding 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 saying Subvert the Paradigm - Late Dr. C.K. Prahalad

8. Assumptions
The 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 life insurance 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 and have a huge satisfied customer base, similarly there may be companies which operate in a worse manner than what is discussed in the paper. All the names of persons used in the paper have been randomly selected and it bears no resemblance with people of same name. They are not intended to hurt the emotions and sentiments of any person.

9. Acknowledgement
The author would like to thank Dr. Vandana Sonwaney [Director, Symbiosis Institute of Operations Management (SIOM), Nashik] for encouraging him to write this paper and also granting him the permission to present the same in the Tenth International Conference on Operations and Quantitative Management (ICOQM10) to be held at SIOM, Nashik from June 28-30, 2011.

10. References
1. 2. 3. 4. 5. 6. 7. S. Balachandran (2007), Life Insurance, Insurance Institute of India. P.I Majmudar and M.G. Diwan (2008), Principles of Insurance, Insurance Institute of India. S. Balachandran (2008), Practice of Life Assurance, Insurance Institute of India. George. E. Rezda (2008), Principles of Risk Management and Insurance. Insurance Regulatory and Development Authority: http://www.irda.gov.in. Institute of Actuaries of India: http://www.actuariesindia.org. Insurance Institute of India: http://www.insuranceinstituteofindia.com.

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