Insurance Lapsation and Consumer Behavior

OJAS INSTITUTE OF MANAGEMENT

B-1, SECTOR -16, ROHINI, DELHI-110089 AFFILIATED TO UGC

TABLE OF CONTENTS 1. Acknowledgement 2. Executive summary 3. Overview of Max New York Life 4. Brief details of New York Life 5. Overview of Max India limited 6. Introduction to Insurance 7. How does policy lapse 8. Consequences of lapsation 9. Why does customer quit? 10. Persistency 11. Lapse portfolio of Max New York Life 12. Persistency rate at max New York life 13. Products sold but not lapsed 14. Findings of lapsed portfolio Lapsation rate at MNYL channel wise Bucket of endowment products

Bucket of term products Bucket of long term products

15. Findings of the annual premium basis Channel wise % loss of premium on AFYP band Bucket of endowment products Bucket of term products Bucket of long duration products 16. Tele-calling survey and interaction Objectives Steps taken Sample 17. GAP- reports, findings from agent advisors Is renewal data received Are customer aware of reinstatement clause Post sales customer contact by agent Reminders letters Product opinion provide by agents Agents opinion on reason for lapsation 18. GAP-report, findings from customers Reasons and response for non payment of renewal premium Score cards for agents effectiveness and performance Do the customer wants to reinstate Customer awareness of reinstatement clause Numbers of letters received by the customers Post sale contact by agency/company Delivery time of the policy document

19. Global insurance market 20. Comparison of different companies on persistency 21. IRDA report-FEB- 2005 22. Premium wise market share of all companies 23. Recommendations

ACKNOWLEDGEMENT

Executive summary
Visit departments in the head office and understand their processes related to Lapsation and Reinstatement: 1. Policy Owners Service Department (P.O.S) 2. Claim Department 3. Under Writing Department Collect DATA for all the lapsed policies till date for the I.T. Department Organize, Statistically compile and analyze the Data on different parameters and benchmarks Comparison of the companys strategies with those used by other players of the industry Cost-Benefit analysis of the strategies Collect all the important document related to lapsation and reinstatement, study them and understand their importance If possible, then to study the processes used by L.I.C. for revival and lapsation Visit I.R.D.A. web sites for reference * It can be rightly concluded that MNYL is flourishing due to great Zeal to work and enthusiasm, efficient staff that can be judged from the fact that it ranked topmost out of many U.S. life insurance companies

In the beginning of the project report, the introduction is given about the MAX NEW LIFE INSURANCE. It is followed by the product profile and then is followed by details of the company. After completion of the above mention tasks, to provide with recommendations and also to include any other intricacy which arises during the progress of project.

Max New York Life

Max New York Life Insurance Company Limited is a joint venture that brings together two large forces- max India limited, a multi business corporate together with New York Life international, a global expert in life insurance. The very nature of insurance business makes the company highly customer sensitized

Vision
Become the most admired life insurance company.

Mission
Become one of the top three life insurance companies. Become a national player- dominant in north India. Be the brand of first choice among all stakeholders. Become the employer of choice. Be the principal of choice for agents.

Values
Together, Max India Limited and New York Life aim to become Indias preferred insurance brand. This vision will be realized through the companys unique set of values, which are as follows:Knowledge: - offer customers the best information possible enabling them to take decisions that better their lives. Caring: - understand customers and their needs thoroughly. Honesty: - Be transparent in dealings with customers. The company considers their customers as part o MNYL family

Excellence:-Offer innovative solutions with an objective professional advice

and a highly personalized service.

Achievements of MNYL
The company has emerged among the countrys leading private life insurance company having a sum assured over Rs. 15200 crores through over 446000 policies sold. Max New York Life has successfully built a team of over 1500 employees led by a strong, independent management team drawn from top industry backgrounds. The company has set up a state-of-the-art infrastructure across all 48 offices in 34 cities. The company has also set up a center of operational excellence at its corporate office in gurgoan. Max New York Life is among the top 25 companies in India to work in, according to a recent survey published in business world magazine, Great workplaces in India. There were about 120 companies that took part in the survey. Max New York Life was ranked 20th position. Max New York Life is the first life insurance company in India to be awarded the ISO 9001:2000 certification. The company also boasts of having one of the best agent advisors base in the country. The companys agent advisors have one of the highest productivity rates. In 2003, as many as 126 agents qualified for MDRT- that is more than all other private life insurers in the country put together

New York Life

New York Life has over 159 years of experience in the life insurance business. It is a Fortune 100 company that is trusted by millions worldwide, across generations. For more than 150 years, New York Life Insurance Companys unwavering financial protection to their clients and their families. Since becoming the first American life insurance company to pay a cash dividend to policyholders in mid-1800s, New York Life has continued to build a history of innovation-enhancing existing product lines, creating new financial products and maintaining a diversified portfolio to best accommodate customers changing needs and lifestyles.

Central to the companys success are New York Life agents, who are widely recognized as the best-trained professionals in the industry.

Financial Strengths
It all begins with financial strength, which allows New York Life to meet their future obligations towards their policyholders. Along with $144 billion in consolidated assets; New York Life holds a stable and diversified portfolio and consistently receives among the highest ratings for financial strength from life insurance industrys independence agencies. The companys capital position is the strongest in the industry giving it the strength to weather unexpected storms. Being a Mutual Company Life insurance business is a unique, People pay premiums for many years and receive nothing in return bur a promise that the incurred will be there, strong and solvent, decades from now, to pay a claim, fund a retirement, or meet nursing home cost A mutual life insurance company is a company that is not publicly traded. Therefore, it has no stock to be bought and sold and no shareholders. Instead, policyholders share in the ownership of the company. For this reason, unlike publicly traded companies that manage their business for the short term benefit of shareholders, the company is guided by the long-term needs and expectations of the policyholders. This makes the company, essentially, a partner in long term planning.

Capital and Surplus

New York Life: $10.8 billion Average of Top 25 insurers: $6.2 billion New York Life Surplus as a percentage of assets: 8.2% Average of Top 25 insurers surplus as a percentage of assets: 5.4%

Disciplined Investment Management

Wise investment and conservative sheet management are the foundation of New Yorks Lifes financial strength. The companys investment portfolio is diversified and stable. In fact, the majority of New Yorks Lifes assets are invested in fixed income securities, and 89% of these securities have investment grade ratings by the National Association of Insurance Commissioners.

Agents
New York life has a vibrant and highly committed sales force that sets it apart. In fact, New York life was one of the first issuance companies in the world to develop a network of dedicated career agents to sell its products. New York life agents rightfully earn the trust and loyalty of their clients. The companys agents have been leading the world in million dollar round table memberships-the most prestigious of life insurance honours-for49 consecutive years. The million dollar round is an association of leading sales professionals in the life insurance industry.

Max India Limited

Max India Limited is a multi-business corporate, driven by the spirit of Enterprise, focused on knowledge people and service-oriented businesses of Healthcare and Life Insurance. Max also maintains interests in Clinical Research, IT and Telecom Services, and Specialty Plastic Product businesses.

Vision
To be one of Indias most admired corporate for service excellence and a successful multi-business enterprise for its shareholders i.e. customers, shareholders, employees, JV partners, etc.

Mission
Establish niche service business in 2 areas of Healthcare, and Life Insurance, Rank in top 3 players in each niche. Partners with Best in Class world leaders. Maintain Traditional Business. Max is a young, modern Indian corporation, with a strong capability of recognizing opportunities ahead of their time. Max has been able to form and strengthen international alliances with global leaders across a wide spectrum of management activity. Max India is lead by a skilled team of professional managers and its recognized for commercially successful manufacturing and service delivery businesses. Max has created enviable history marked by tremendous growth in various fields and has been ranked among the Top Two Hundred Most Valuable Indian Companies by Business India.

Businesses
Healthcare Life Insurance Max New York Life Insurance Co. Ltd. IT and Telecom Services Cosmat Max Max Health scribe Limited Max Mind Crossing Clinical Research Specialty Plastic Products

Introduction to Insurance.
Insurance is a contract whereby one party mainly the insurer contracts with another, the policyholder, to perform a particular service. Insurance is also an economic device, whereby the individual can constitute a small relatively definite cost for large uncertain financial loss that would have to be borne if insurance was not available. Insurance contracts are of two types; indemnity and valued contracts. To indemnify an individual is to place the individual back into the position, which he enjoyed prior to the occurrence of the loss. In indemnity contracts a particular vale is fixed which is payable in case of loss. This value is based either on Reinstatement basis or Normal Value basis. In Reinstatement policies the company pays the market value as compensation. On the other hand in Normal Value policies the depreciated value is paid. All non-life contracts (except personal Accident policies) are Indemnity contracts. Life Insurance contracts are Value contracts. Since its not possible to either replace or compensate loss of human life we cannot fix a value. One can only mitigate the financial loss that shall be suffered if an individual doesnt live long or lives too long. Hence unlike non-life policies, an individual can have more than one life insurance policy insuring the same life. This is because an individual has unlimited Insurable Interest in his own life. The first premium paid is the consideration for the life insurance contract to come into force and the payment of the subsequent premium is the condition necessary for contract to remain in force. This subsequent premium is also known as Renewal Premium. To pay premium is an obligation of the policy-holder. This obligation is not conditional on the insurer making a demand for the premium. Although insurers send reminder notice before the due dates, and also later incase of default, the insured cannot escape the consequences of default on the ground that he was not reminder. The policy conditions state that if premium is not paid within the days of grace, the policy lapses.

HOW DOES POLICY LAPSE?

The policy conditions states that if the renewal premium, which is due on the policy, is not paid before or as the due date, then technically the policy is said to have lapsed. In spite of such strict conditions, insurers have practices, which are more policy owner friendly. Therefore in practice, the insurers give an extra 30 days time called the GRACE PERIOD from the due date, during which if the due premium on the policy is paid then the policy stays in force. Moreover during this period, renewal premiums can be paid without any penalties. This extra period is only available with respect to payment of renewal premiums and not otherwise. Insured Losses are covered during this period. When renewal premiums are not paid by end of grace period the policy lapses.

CONSEQUENCES OF LAPSATION
No claim arises on happening of any Insured Uncertain Event All Premium moneys paid by customer to the company are forfeited The liability of the insurance company terminates as far as the risk is concerned. The insurance contract terminates as the renewal premiums are the condition on which the risk cover is provided.

Why do customers quit?

Retention of the customers is important; therefore retention can be achieved by working on the dissatisfaction of the customers. According to a study conducted, retention of 5% more customers increases the profitability of the company by 23 to30%. The study also reported various reasons for the customers to quit. Following pie chart shows comparative contribution of various factors leading customers to quit.

Reasons for customer to quite

DEATH 1%3% 5% MOVE AWAY 9% FORM OTHER FRIENDSHIP 14% 68% COMPETITIVE REASONS PRODUCT DISSATISFACTION INDIFFERENT ATTITUDE OF SERVICE PROVIDER

DEATH MOVE AWAY FORM OTHER FRIENDSHIP COMPETITIVE REASONS PRODUCT DISSATISFACTION INDIFFERENT ATTITUDE OF SERVICE PROVIDER

1% 3% 5% 9% 14% 68%

Persistency
One of a key indicator of the quality of business conducted is the persistency level a particular company enjoys. The literal meaning of word is doing doing the same thing over and over again, irrespective of what hardships or difficulties one faces. In insurance business, it would mean, paying premium again and again.

How does persistency reflect upon the quality of business?

The business that a company procures at any particular stage needs to be sustained over a particular period of time. If the company is not able to do so it implies that a certain percentage of the customers whom the company had acquired had made an association with the company without being serious about it. For any company sales is continuous process, so every renewal premium is a point of sale and if ever there is a break in the multiple point of sale it indicates than t the quality of business is poor. Apart from this a low persistency would mean that the renewal efforts of the organization were not consistent.

Relationship between renewals and persistency

A renewal is a continuous process of collecting [premium, due, month after month. The overall persistency will be affected if collections are not up to the mark. Apart these renewals play an important role in maintaining a companys cash flow. For an insurance company flow. For an insurance company premium income is the cash flow and renewal efforts increase the inflow of the company.It is the cash flow on which a company sustains itself over a period of time.Future investment, developmental projects all require cash and that is funded through the cash a company collects.In case of insurance companies it is the new business premiums income and the renewal premium income which helps the management implement their growth plans, and the actuaries in their pricing and bonus calculation.

Factors which affect the persistency calculation

Extract of total business procured in the 1-year period. Number of policies active on the persistency calculation date. Policies that got the lapsed after being active for 13 months and thereon lapsed. Policies, which lapsed and later on are reinstated.

Lapse Portfolio of Max New York Life Objectives:

To study the lapsed data of the on various parameters such as AFYP band, products and agents and draw inferences there after.

Methodology:
Studied the as is process of lapsation, revival and reinstatement at MNYL Studied and analyzed the lapsed data on various parameters mentioned in the objective Contacted customers and agents to get their feedback Make recommendations to improve the persistency level of the company

Persistency Rate at Max New York Life

C A N L IS P R IS E C H N E -W E E S T N Y
A EC GNY B NA S RNE A CS UA C 3% 6 7% 6 1% 6 8% 5 9% 2 7% 6 BOE RKR C R OAE OP RT A EC GNY D E TM R E IN IR C A K T G GM T S S C LA DR R L O IA N U A

8% 7

CHANNEL

Total Sales AGENCY 349455 BANCASSURANCE 884 BROKER 800 CORPORATE 5521 AGNCY DIRECT 38 MARKETING GTMS 89618 SOCIAL AND 39491 RURAL

Total Lapse 85335 114 63 834 32 21151 25444

Persistency Ratio 264120 770 737 4687 6 68467 14047 76% 87% 92% 85% 16% 76% 36%

(a) It is measured that the highest persistency in regards to renewals amongst the various channels is shown by Brokers (92%), followed by Banc assurance (87%) and corporate agencies (85%). (b) It is also found that the least persistency is maintained by direct marketing (16%) and social and rural sector (c) The reasons as to the higher lapsation in the rural and social sector can be Contributed to the pressure on agents to make target sales in this sector where wrong selling o obligation purchases take place. This is done to meet the IRDA regulations

Product sold but not lapsed

PRODUCTS SOLD BUT NOT LAPSED
900 800 700 600 COUNT 500 400 300 200 100 0 827

130

269

417

451

28

33

CHANNEL Chendt18S Chendt24S Def_Anty_SP LG Lterm05S LG60 LPMB Lterm10S Lterm15S Lterm20S Lterm25S SPBOND

AGENCY 132 276 32 900 35 447 426 28 13 18 22 382

BANCASSURANCE 1 1 2 10 1

Chendt18S Chendt24S Def_Anty_SP LG Lterm05S LG60 LPMB Lterm10S Lterm15S Lterm20S Lterm25S SPBOND PRODUCT
BROKER CORPORATE AGNCY 1 4 4 27 1 10 40 1 2 DIRECT MARKET ING GTMS

28 12 18 20

382

SOCIAL AND RURAL 2 43 1 10 34

Finding of Lapsed Portfolio 1. Lapsation Rate at Max New York Life

AGENCY 13% BANCASSURANCE

CHANNEL-WISE CNTRIBUTION TO LAPSATION BROKER 64% AS % OF TOTAL SALES 8%

15% 23% 84% CORPORATE AGENCY DIRECT MARKETING GTMS SOCIAL AND RURAL

24%

CHANNEL
AGENCY BANCASSURANCE BROKER CORPORATE AGNCY DIRECT MARKETING GTMS SOCIAL AND RURAL

Total Sales
349455 884 800 5521 38 89618 39491

Total Lapse
85335 114 63 834 32 21151 25444

Persistency Ratio
264120 770 737 4687 6 68467 14047 24% 13% 8% 15% 84% 23% 64%

2. BUCKET OF ENDOWMENT PRODUCTS

90000 80000 70000 60000 COUNT 50000 40000 30000 7148 2009 20000 10000 0 14% 11% 5687 1349 465 8% 379 30 101 14 662 73 28% 32902 34% 40% 35% LAPSED RATE 30% 25% 20% 17% 17% 13973 12% 4198 504 12823 1764 14%15% 10% 5% 0%

83205

Total Issue Lapsed % Lapsation

ND T2 00 LP 6 EN DT 20 10 LP EN DT 25 06 LP EN DT 25 10 LP EN DT 25 15

LP E

Product LPENDT2006 LPENDT2010 LPENDT2506 LPENDT2510 LPENDT2515 Endt20. Endt60. ChEndt18A. ChEndt24A.

Total Issue 7148 662 1349 101 379 32902 83205 4198 12823

En dt 60 . Ch En dt 18 A. Ch En dt 24 A.

En dt 20 .

Lapsed 2009 73 465 14 30 5687 13973 504 1764

% Lapsation 28% 11% 34% 14% 8% 17% 17% 12% 14%

(a) Endowment products provide specified benefit amount weather the insured lives to the end of the term of coverage or dies ding that term. Each endowment policy specifies a Maturity date, which is the date on which the insurer will pay the policys face amount along with any bonus earned and other benefits attached. The maturity date is reached either at the end of the stated term or when the insured reaches a specific age depending on the product purchased (b) Endowment products share many of the common features of permanent life insurance policies. Cash value also builds in these policies. (c) The conclusion is that Endowment plan 25 years with installments payment mode have lapsed highest with 34% Lapsation rate, followed by Endowment Plan 20 years with installments payment mode.

3. BUCKET OF TERM PRODUCTS

90000 80000 70000 60000 COUNT 50000 40000 30000 20000 1370 461 823 152 904 162 972 313 912 203 10000 0
ST EP . . Et er m

84020

90% 80% 70% 51531 42465 60% LAPSE RATE 50% 40% Total Is s ue Laps ed % Laps ation

16936

30% 9480 1857 20% 4861 2919 10% 0%

Te rm . 60 A.

05 A.

10 A.

15 A.

20 A.

Lt erm

Lt erm

Lt erm

Product STEP. Eterm. Lterm05A. Lterm10A. Lterm15A. Lterm20A. Lterm25A. Lterm60A. Term.

Total Issue 84020 51531 1370 823 912 904 972 9480 4861

Lapsed 16936 42465 461 152 203 162 313 1857 2919

Lt erm

Lte rm

Lte rm

25 A.

% Lapsation 20% 82% 34% 18% 22% 18% 32% 20% 60%

(a) By definition, all term insurance products provide coverage for a sp the conclusion is that Endowment plan 25 years with 6 instilments period (b) Specified period of time, called the Policy Term, the policy benefits along with bonus and other add on, if any are only payable if (1) the insured dies with in the specified term as stated in the policy documents and (2) the policy is in forced when the insured dies. The length of the term varies with the policy and the plan purchased. (c) The information gathered shows that the highest lapsation of 82% is by Easy Term Plan followed by Level Term Product (60%) (d) After interacting with the agents and the customers it was found that the lapsation in terms bucket is due to the following reasons: 1. The term products offered by the competitors in the industry are preserved to be better by the customers. 50% of customers whose Term policies have lapsed do not wish to reinstate as they have purchased the term products from competing companies 2. The Term Products usually do not have ay saving element and therefore the customer does not loose on lapsation

4. BUCKET OF LONG TERM PRODUCTS

200000 180000 160000 140000 COUNT 120000 100000 80000 60000 1478 40000 20000 0 2461 WLNP. WLP. 41040 176605

70% 60% 50% LAPSE RATE 40% 30% 20% 9101 10% 468 0% Total Issue Lapsed % Lapsation

Def_Anty_AP.

Product WLNP. WLP. Def_Anty_AP.

Total Issue 2461 176605 9101

Lapsed 1478 41040 468

% Lapsation 60% 23% 5%

(a) Whole Life Products and Annuity product are of long-term nature. They are also called permanent life insurance products. Whole life products provide lifetime coverage usually on payment of level term premiums. The extra premium monies collected in the early years by the company are invested and the returns build the cash value, which is the savings on the policy. The cash value starts building only after three years the policy has been in force. (b) The analysis state that whole life participating policies were sold than non participating this shows the customers preference and need, more over non participating policies have higher lapsation rate (60%) due o the same reason (c) Whole life participating policy show a lapsation rate of 23% and annuity product show a very less rate of 5%

Finding of the annual premium basis 1. Channel wise Percentage Loss of Premium On AFYP Basis
10000000000 100000000 1000000 10000 100 1

BANCASSURA

CORPORATE

SOCIAL AND

AGENCY

BROKER

DIRECT

GTMS

Prem ium Expected Prem ium Lapsed Prem iumLoss R ate

CHANNEL AGENCY BANCASSURANCE BROKER CORPORATE AGENCY DIRECT MARKETING GTMS SOCIAL RURAL AND

Premium Expected 3109550849 14570372 6915045 58613364 69000 658333898 36279814

Premium Lapsed 403389738 1489707 4744099 8305019 4368752 141716017 9198679

Premium Loss Rate 13 10 69 14 6332 22 25

(a) Direct Marketing and Brokers are the channels which are loosing maximum amount of there premium money. (b) Agency and GTMS are contributing maximum to loss amount.

2.

Bucket of Endowment Premiums

EMBED Excel.Chart.8
40% 35% 30% 25% 20% 15% 10% 5% 0%

\s

LPENDT2006

LPENDT2010

LPENDT2506

LPENDT2510

product

PRODUCTS ChEndt18A ChEndt24A Endt20 Endt60 LPENDT2006 LPENDT2010 LPENDT2506 LPENDT2510 LPENDT2515

PREMIUM IN PREMIUM FORCE LOSS 46,743,327 17,250,638 121,108,316 13,279,440 443,590,834 55,656,421 692,309,624 81,542,743 83,675,994 15,811,127 10,703,046 64,056 12,446,994 3,094,362 1,747,447 129,730 3,907,299 202,228

LPENDT2515

800,000,000 700,000,000 600,000,000 500,000,000 400,000,000 300,000,000 200,000,000 100,000,000 0 ChEndt18A ChEndt24A Endt20 Endt60

PREMIUM IN FORCE PREMIUM LOSS LOSS RATE

LOSS RATE 37% 11% 13% 12% 19% 6% 25% 7% 5%

(a) The least amount of premium renewal income rate is in case of Child Endowment to Age 18 plan followed by Endowment 20 years with 6installment mode. (b) Higher amount of premium loss is in the case of Level Endowment for 20 years and 60 years. (c) Usually the financial constrains of he customers are the reason for non-payment of renewal premiums.

3. Bucket Of Term Premiums

700,000,000 600,000,000 500,000,000 400,000,000 300,000,000 200,000,000 100,000,000 Lterm20A Lterm25A Lterm60A Lterm05A Lterm10A Lterm15A 0 STEP Term

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

PREMIUM IN FORCE PREMIUM LOSS LOSS RATE

product

DUCTS STEP Lterm05A Lterm10A Lterm15A Lterm20A Lterm25A Lterm60A Term

PREMIUM IN FORCE 652,472,257 3,082,166 3,492,145 3,870,010 2,871,925 2,350,876 35,277,827 4,109,230

PREMIUM LOSS 124,772,147 797,441 370,115 863,490 410,567 574,554 5,385,280 3,517,680

LOSS RAT E 19% 26% 11% 22% 14% 24% 15% 86%

(a) In the bucket of term products highest rate of premium loss is by Level Term and Easy Term products. (b) On monetary basis Stepping Stone products have highest amount of lapsation.

4. Bucket of Long Duration Premiums

100000000 90000000 80000000 70000000 60000000 50000000 40000000 30000000 20000000 10000000 0 PREMIUM IN FORCE PREMIUM LOSS LOSS RATE

1800000000 1600000000 1400000000 1200000000 1000000000 800000000 600000000 400000000 200000000 0

Def_Anty_AP WLNP WLP

product

PREMIUM PRODUCTS IN FORCE Def_Anty_AP 88601792.08 WLNP 1042301.04 WLP 1645587676

LOSS PREMIUM RAT LOSS E 3981699.5 4% 3436406.5 33% 233020029 14%

(a) Whole Life products are the ones, which have maximum sales in the company and are most popular even through the participating plans have shown a higher trend toward renewal premium loss rate. (b) Amount wise Whole Life Non Participating policies are losing money

Telecalling Survey and Interaction

(A)OBJECTIVES: To collect information on random basis, on various parameters on lapsed policies in Max New York Life. To understand discrepancies between the actual flow of work and the ground realities, and formulating reasons of the same To collect feed back from agent advisors and customers To understand the problem faced by agent advisors and customers To ascertain the objectives of questions to be asked and there relevance to lapsed portfolio. To bring out the findings and observations To study the above and provide recommendations to harness the current As-in-process in the company and state the draw backs (B)STEPS TAKEN: 1) Firstly prepared two questioners on the basis of common Questions/quarries and problems faced by: a) Agent advisors b) Customers whose policy has lapsed (Copy of both provided) 2) Randomly tele - calling customers and agents from the sample selected 3) Filling in the data and information provided by them in the questioners 4) Assimilated the information and structured it into a comprehensive meaningful manner with the help of statistical tools. 5) After assembling the data, analyses were made and trends studied to pinpoint and highlight the discrepancies. 6) Recommendations were made for both the customers and agents (copies of both provided)

(C) SAMPLE
a. For Customers: there were in total 120 telephonic calls made to the HIGH VALUE Lapsed customers out of which 72 Leads were generated. The basis is as follows General office Delhi-Total Leads Highest sum assured More than one per customer More than one per Agent General office Delhi 2-Total Leads 20 General office Delhi 3-Total Leads 6 General office Mumbai 1-Total Leads 16 For Agent Advisors: there were in total 50 telephonic call made to the agent advisors with high lapsed portfolio out of which 28 leads were generated
b.

30 -10 -5 -5

*There fore in total 100 leads were used as sample.

GAP-Report (Findings From Agent Advisors): 1) Is Renewal and Lapsed Data Received by Agents

11%

14% 46%

YES NO SOME TIME DIFFICULTY 29%

a) The pie chart above shows that 46% of the Agents receive their monthly lapsed and Renewal Data from the General Office, 29% of the Agents do not receive it. Where as 14% only received it some time and not on regular basis where as 11% has difficulty in getting their data. b) The Agents think that lapsed data would be of help in maintaining persistency, however the lapsed data is not delivered even on request by the agent to the concerned Sales Manager c) The monthly detail list is put in the pigeonholes on agent basis but the sales managers do not confirm their collection by the agent, as few agents are not collecting them

2) Customer intimated about re instatement clause

C s m r Inim t dA o t u to e s t ae b u R in t t m n C u e e sae e t la s

3% 6 6% 4

ys e n o

a) Only 64% of the customers are verbally intimated as to the provision of reinstatement attached with the policy, where as 36% of the customers are not told at all b) 90% of the customers do not read the policy documents terms, provisions and conditions there in c) Out of the 64% only 5% of the customers are told about the reinstatement clause at the time of sales and rest only once the policy lapses d) Few of the customers who do not receive the letter of lapsation from the company and do not know the reinstatement clause, presume that there interest in the policy is forfeited and do not make an effort to confirm the same

3) Post sales contact with customer

P OS T S AL E S C ON T AC T W IT H C U S T OM E R S
14 12 No of times contact made 10 8 6 4 2 0 1 2 3 4 5 6 7 8 9 101112131415161718192021222324252627 Co un t of Ag e nts P O S T S A LE S CO NTA CT

a)

The average post sales customer contact maintained by agents is 4.3% annually; these figures do not take in account the contacts made as on renewal dates. The findings show that, the agents were maintaining rapport and building relations with the customers, the agents make good efforts. The customers are even contacted through phone calls, greetings cards and other tokens of appreciations on festivals and various occasions such as customers birthday etc.

b)

c)

4) The reminder letters, that are PRM01, PRM09, PRM14 are:

Not reaching the customer at all, or Reaching the customer late, even after the renewal premiums are paid, or Not all the three communications are delivered to the customer. Therefore if customers are told that their policies have lapsed they do not believe the agents and the customers trust in both the company and the agent is lost

5) Product option provided by agent

P o u t O tio P o id dB A e ts r dc p n r v e y gn

4 % 3% 2 6% 4 ys e n o s m tim s o e e

(a) It is seen that there is a great amount of competition taking place in the market, especially in the western and northern ones; customer attrition is high because, as the customer is leaving the product of max New York and purchasing a different category of product in another company. One of the contributory reasons is that the customer is not aware of other products and benefit available with Max New York Life (b) We even infer that only 64% of the agents briefly name the various product range available with the company, where as 32% do not even name the product options and only explain one product to the customers which they think is suited to customers needs. 4% of agents some times explain more than one product.

6) Agent opinion on reason for lapsation

A e t ' O in nO R a o F r g ns p io n e s n o L p aio ast n
7 %

1% 1 2% 5

Pr oa es n l S r ic ev e 5% 7 Po u t r dc S le a s

a) 57% of the agents are of the opinion that the main reason for a policy to lapse is the Personal Issue of the customer. In it Financial constraints and other priorities are covered b) 25% of the agents believe that the Service Issue is the reason leading to lapsation of a policy. Service Issue could be from the companys end: 1. Non response for complaint and endorsement 2. Non communication of changes, non delivery of letters 3. No calls or SMS received by customers 4. If request of changes as to mode of payment by agents on behalf of customers are cumbersome Service Issue could be form the Agents end: 1. Non communication of renewals dates personally to the customer 2. Non collection of renewal premiums on time and at convenience of the customers 3. Lack of interest shown to changes in the policies desired by the customers.

c) 11% of the agents are of the view that a policy lapses when product issue arises: No more need for the current product is feel by the customers. The customer perceives that there are better competitive products available in the market. Post sales changes option not available with product, as they arise with span of time. d) 7% of the agents themselves state that there are times when a policy lapses due to Sales Issue Wrong Product sold to the customer Obligatory sales made. Sales made to meet the target or to obtain Incentive benefits.

GAP-Report (Findings from Customers): 1) Reasons of customers for non payment of renewal premiums

NONE COUNTER OFFER-GWEN LATE AFTER FOUR MONTHS

4.17 1.39 2.78

2.78

11.11 1.39

AGENT ISSUE-WRONG SALES, POOR SERVICE, NO RESPONSE FINANCIAL CONSTR;\INS, WANTS SOME TO CALL HIM FINANCIAL CONSTRAINS, SATISFIED WITH AGENT AND COMP.

15.28 19.44

FINANCIAL CONSTRAINS, UNSATISFIED WITH AGENT WANTS TO REVWE AND PAY, SOME ONE TO CALL NOT HAPPY WITH ATTITUDE OF COMPANY OFFICER

8.33 5.56 1.39 8.33 11.11 8.33

HAPPY WITH AGENT AND COMPANY BUT OUT OF TOWN REPLACED FOR COMPETETOR'S PRODUCT, BETTER PERCIEVED WANT CHANGE IN MODE OF PAYMENT CONVERTED TO ANOTHER MNYL POLICY POLICY DOCUMENT NOT DELIVERED TILL DATE OR LATE PAYMENT MADE BUT NOT CREDITED TO ACCOUNT

Remarks

No. Total %

NONE COUNTER OFFER-GWEN LATE AFTER FOUR MONTHS AGENT ISSUE-WRONG SALES, POOR SERVICE, NO RESPONSE FINANCIAL CONSTR;\INS, WANTS SOME TO CALL HIM FINANCIAL CONSTRAINS, SATISFIED WITH AGENT AND COMP. FINANCIAL CONSTRAINS, UNSATISFIED WITH AGENT WANTS TO REVWE AND PAY, SOME ONE TO CALL NOT HAPPY WITH ATTITUDE OF COMPANY OFFICER HAPPY WITH AGENT AND COMPANY BUT OUT OF TOWN REPLACED FOR COMPETETOR'S PRODUCT, BETTER PERCIEVED WANT CHANGE IN MODE OF PAYMENT CONVERTED TO ANOTHER MNYL POLICY POLICY DOCUMENT NOT DELIVERED TILL DATE OR LATE PAYMENT MADE BUT NOT CREDITED TO ACCOUNT

8 1 14 4 6 8 6 1 6 11 1 2 3 2

72 72 72 72 72 72 72 72 72 72 72 72 72 72

11.11 1.39 19.44 5.56 8.33 11.11 8.33 1.39 8.33 15.28 1.39 2.78 4.17 2.78

(a) It can be concluded that it is the agents' poor service attitude and wrong product sales which has contribute 20% towards lapsed portfolio (b) The other inference taken out is that 16% of the policies lapsed as the customer had opted for a competitor company's products (c) 11 % of the policies lapsed as the customer was facing financial problems. (d) 11 % of the lapsed customer did not have any reason to state for nonpayment.

2) Total score of agents given by customer

428 430 425 420 415 Score 410 405 400 395 390 Product & Agents Courtesy Agents Concern Clear and Feature Explaion and Friendliness for best Undestandable By Agent Purchase with Sales Process Budget Made 404 415 421

a)

The data shows that total score given to the agents on attribute of Product and Feature explanation is 404 which is 56% of the total scale. The score given agents courtesy, appearance and friendliness is 415, which is 58% of the total scale.

b) c)

Agents concern that the customer purchases the best product as per the needs taking in to account the customers budget got a score of 421 which is 59% of the total scale. d) Agents ability to provide complete answers to customers question and making the sales process clear and understandable received a total score 428 which is 60% on scale

3) Does the customer want to reinstate?

NEED TIME TO DECIDE 26% 31% YES NO

43%

The above pie chat shows the number of customers in lapsed bucket willing to reinstate their policies or not Willing - 43% Not Willing 31% Have To Decide 26%

4) Customer awareness of reinstatement clause

68% 70% 60% 50% 40% 30% 20% 10% 0% NO YES 32%

a) Here we see that only 68% of the total number of customers whose policies have lapsed are aware of the reinstatement clause, fest of the 32%are not aware b) More over we the survey also brought out the fact that agents themselves do not know the reinstatement clause and do not communicate to the customer at the time of sales or lapsation c) 60% out of the 32% of customers who were not aware of the clause, when explained, were ready to consider reinstatement of their policies as maximum customers do not read the document provided to them

5) No. Of letter received by customer as%

17%

8%

1 2 3

7% 68%

The reminder letters, that are PRM01, PRM09, PRM14 are:

Not reaching the customer at all, or Reaching the customer late, even after the renewal premiums are paid, or Not all the three communications are delivered to the customer. There force if customers are told that their policies have lapsed they do not believe the agents and the customers trust with both the company and agent is lost Continuity and persistency on average delivery is not maintained The reading show that only 68% of the customers receive all the three letters where as it is mandatory by IRDA regulations to send letter of lapsation 32% of the customers are not aware of the changes as to their policies and even about lapsation

6) Post sales customer contact by agency/company

80% 60% 40% 20% 0% NO YES 21% 79%

a) Out of the customers who were contacted only 21%has been contacted again by the agent/company, post sales and 79% were not. b) This reflects upon the companys level of efficiency in relation to follow-up post sales. Following two points come into light: The sense of belongingness of the customer towards the company and acknowledgement of brand equity is minimum The satisfaction level of the customer is not measured as in the earlier years it has to be maintained at a higher level

7) Was policy document delivered on time to the customers?

9 %

N O YES

9% 1

1. We can conclude that 9% of the customer do not received the policy document with in the promised time by the company 2. There are 2% of customer who do not receive policy document at all or receive after a years duration 3. 5% of the customer stated that the policy documents delivered is not good condition

Global Insurance Market

At the global level, life insurance market has been bigger and growing faster, compared to non-life business. This is not so in all countries. The per capita life insurance premium is highest in Japan (US$ 3165) and the per capita non-life income is highest in Switzerland (US$ 1571). The figures relating to some of he biggest insurance markets in the world are given below along with the figures of Indian market.

COUNTRY USA JAPAN GERMANY U.K FRANCE ITALY S. KOREA CANADA NETHERLANDS SPAIN INDIA

Non-life (US$ RANK bn.) 460.61 89.11 68.05 65.66 38.45 27.5 14.1 24.3 15.7 17.1 2.46 1 2 3 4 5 6 10 7 9 8 30

Life (US$ bn. ) 443.41 356.73 55.63 152.72 75.15 41.5 36.4 21 21.5 19.4 9.42

RANK 1 2 5 3 4 6 7 9 8 10 19

The largest life insurer was ING Group with a premium of US$ 83 billions. The largest non-life insurer was Allianz with a premium of US$ 85.93 billions.

Contribution of Renewal Premium towards Total Premium.

INSURER
LIC INGVYSYA HOPC STANDARD BIRLA SUNLIFE ICICI PRUDENTIAL OM KOTAK TATAAIG SBI LIFE BAJAJ ALLIANZ MAX NEWYORK METLIFE AMPSANMAR AVIVA

TOTAL PREMIUM 2002-03 2003-04

54628.49 21.16 148.83 143.92 417.62 40.32 71.77 72.39 6.9.17 96.59 7.91 6.47 13.47 63167,6 88.51 297.76 537.54 989.28 150.72 253.3 225.67 220.8 215.25 28.73 31.06 81.5

RENEW 2002-03 2003-04

38651.73 3.5 19.51 14.36 53.52 5.11 19.56 0.5 5.79 29.28 0.21 0.15 46178.31 16.41 88.42 87.68 238.43 25.24 71.93 18.62 41.25 77.96 5.32 3.85 4.54

%SHARE 2002-03
70.7538 16.54064 13.10892 9.977765 12.81548 12.67361 27.25373 0.690703 8.370681 30.3137 2.654867 2.318393 0

2003-04
73.10444 18.54028 29.69506 16.31134 24.10137 16.74628 28.3714 8.250986 18.68207 36.21835 18.51723 12.39536 5.570552

IRDA Report FEB'2005

IRDA Report FEB'2005 Company Market Share Premium Wise (%) Life Insurance Corporation ICICI Prudential Bajaj Allianz Kotak SBI Life HDFC Standard Life TATA AIG Max New York Life Aviva Birla Sun life ING Vyasa AMP Sanmar MetLife India Insurance Sahara Life 77.88 6.69 2.86 2.81 2.29 1.94 1.46 1.06 0.87 0.83 0.56 0.48 0.26 0.01 No. Of Policies (%) 90.32 2.77 1.1 0.84 0.46 1.04 1.06 0.98 0.37 0.26 0.45 0.15 0.2 0.02

P re m ium W is e M arke t Sh a re

Lifi Insurance C orporation IC I P rudential IC B ajaj A llianz S B I Life TA TA A IG A viva ING V yasa K otak HD F C S tandard Life M ax Newyork Life B irla S unlife A MP S anm ar

MetLife India Insurance S ahara Life

RECOMMENDATIONS
When a policy lapses, neither the policy owner nor the insurer is benefited. The life assured losses the insurance risk cover. This signifies the reversal of the decision to arrange for the risk cover. They also loose the full benefit for which they have paid till then. On the other hand the insurers loose the expected future revenues and the calculations done in advance for the policy are hampered. The cost in the initial years of the policy are high as they include high administrative expenses and issue cost of the policy, its only when the policy completes there years the insurance company comes to a break even. The other factor is that the agents loose there income source and the efforts put in at the time of sales and during the currency of the term is wasted.As we see that lapsation affects all parties and because Lapsation is always not intended by the insured to happen (Lapsation may occur due to sheer neglect to pay or because of temporary financial difficulty). There fore there should be a great importance given to revive the lapsed policies and to reduce lapsation rate. 1) Lapsation and Renewal list to agents and General Offices: a) Renewal lists reach General offices on the 6th of every month and are received by agents on 10th there fore this time lag should be reduced by sending the lists on last day of every month b) The Agents should also be given from the Head Office, Renewal list either through Post, e-mail, SMS or Telecalling. This would reduce the time lag and the customers would be intimated in time about there renewal payments c) Lapsation list must be given to the agents on demand, directly from the Head Office. It can also be given to them by there respective sales managers along with renewal details d) It should be ensured that details are received by agents on regular basis, clearance, of Pigeonholes in General Offices should be checked by sales managers and head office to maintain supervision on random basis for the same

2) Customers to be educated about: a) Reinstatement Clause as one of the provision of the policy at the time of sales by the agents. b) Agents should be directly to make conscious efforts to ensure that the customers read the policy documents c) There should be Reading Material and Information Broachers about the companys performance, insurance information, future goals and aspirations send to the customers on quarterly and half yearly mode. This can be done by providing for a column in the proposal form to be filled by customers if they wish to receive the same. This in return would increase the sense of belonging generate interest and provide scientific insurance consciousness to the customers 3) The postal communication should: a) Reach the customers on time, the dispatch of all the written communication should be handled by a specialize staff. The letters should be dispatched well in advance so that they are received by the customer on time b) The specialized staff so appointed for the purpose should be made responsible to maintain persistency and quality in dispatching all the letters so that the customers are well informed about all the changes being made to the policy c) A customer should receive all the three letters in time 4) Product Options should be mentioned by the agents to the customers. As for now maximum agents only explain one product to the customers which they wish to sell after doing the need analysis. They do not provide for an optional product to the customers, this in return dissatisfies the customers optional product to the customers; this in return dissatisfies the customers, as they are lost to the competitors in the market on different products.

5) Agents should make extra efforts to: a) Collect renewal premiums be maintain good rapport with the customers. Customer contact apart from renewals should be increased specially on festivals and important occasions as birthdays, anniversaries, functions etc. as life insurance is a business which is done through reference sales, healthy and long terms relations should be maintain there own Data Base and Staff to ensure steady renewals. b) Like many all the agents who sell policies as part time business should be advised to maintain there own Data Base and Staff to ensure steady renewals. c) The agents are provided with Palm Tops by company but due to lack of knowledge they are still non-operational. The company should provide some training as to this regard.
d) The agents should be advised to maintain higher level of customer

services with regard to providing timely and efficient feedbacks to customers complaints, to ensure that customers request as to endorsement and changes are made in minimum time span.
e) Non-response to customers request should be eliminated.

6) Policy Documents: a) Should be delivered in time as promised to the customers. There are cases where the documents are with the agents even after one year of sales. These should be avoided as it leads to dissatisfaction of the customer, tarnishing the corporate image and lapsation of the policies. b) Many a time the document received by the agents or the customers are not in good condition this should be eliminated as the delivery of policy documents are the first communication from the customer. 7) The underwriting for maximum reinstated policies is done in the P. O. S. department in the head office; it should either be decentralized to the General Office or should entirely be handled by underwriting department as the chances of reinstating higher risk policies are greater. 8) The agents should be made to feel as the part of the family and there moral should be kept at high as they are the ones on which the renewals depends. They should be made feel special 9) Sales Managers: a) They Should be more concerned to the problems faced be the agents and should put more efforts to maintain there satisfaction b) The attitude and sense of superiority shown to the agents should be avoided and team work approach should be adopted c) As there are times when the sales manages are transferred from the General Office or quits the jobs, there the new Sales manager appointed to the existing agents should show interest in them and there needs