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Evaluating Insurance Companies
5
MUSTs to look for in an insurance co
Ever since the floodgates to the life insurance sector were thrown
open to the private sector, there have been a plethora of
insurance plans for individuals.
Individuals have been spoilt for choice. On last count, 13 life
insurance companies were competing for business, the LIC included.
But
the million-dollar question is: what are the parameters on which
an individual can evaluate an insurance company before finally
taking the plunge and buying life insurance from that company?
Here, we have laid down a few guidelines on how to evaluate a life
insurance company.
1. History/track record of the insurance company
It's important that the insurance company, with whom you are about
to enter into a contract for the next 25 years or so, has a sound
track record behind it. It would also help a great deal if the
said company has had some experience in the financial services/
asset management business; especially so, if it has dealt with
customers at the retail level.
That way, the company would have a better understanding of the
pulse of the retail investor. It would also be easier for an
individual to evaluate the historical performance of the company
before making a selection.
2. Expertise of the tie-up partner (foreign)
Historically, in the Indian context, life insurance always meant
the Life Insurance Corporation (LIC). As a result, post-privatisation,
none of the new insurance companies had the expertise to carry on
the business of life insurance without the aid of an experienced
partner.
This led to the arrival of the foreign partner on the scene. This
was understandable since insurance products are quite complicated
and therefore difficult to design. The foreign partner brings
significant value to the table in terms of setting up the correct
systems, processes and service standards.
Besides, the tie-up also helps in customising the product range as
the foreign partner already has vast experience in product design.
While evaluating a foreign partner, consider its experience in the
life insurance business, its track record in paying out bonuses
and its credit rating by an international credit-rating agency.
3. Quality of the insurance agents/advisors and
service standards
The
insurance agent is the interface between a company and the
individual. It is here, therefore, that the quality of screening
of the agents before recruiting them and the training imparted to
the company's agents comes to the fore.
Often in their bid to expand aggressively, insurance companies do
not screen agents judiciously, which gives way to unethical
practices in the system. Should you come across an unprofessional
and unethical insurance agent, you can reconsider taking insurance
from that company.
To
some it may seem unfair to punish the insurer because of its
agents, but we believe an insurance company needs to do its due
diligence before enrolling agents.
An
insurance agent is the 'ambassador' of the company, and if the
company is not too concerned about the image its insurance agent
is creating in the minds of individuals, then you can very well
imagine its standards of service and ethics.
Service
standards are important for another reason. The company should
have processes in place in case of issues like policy servicing
(especially in case of agents quitting), transparency, and
providing customised solutions to individuals.
Service quality standards are also highlighted in case of claims
disbursement; do individuals face any problems in claim
disbursement, is claim disbursal prompt?
It
is always advisable to ask the insurance agent about the track
record of the company with respect to claims and ask for proof if
need be.
4. Management style, underwriting norms
The
management of any company is crucial for it decides on the
long-term policies to be adopted by the company. This plays a key
role in terms of the company's outlook and its style of
functioning.
This is also reflected in what kind of underwriting norms the
company follows. For example, some insurance companies are very
aggressive in their approach towards garnering business; i.e. for
them, the quantity of business generated is more important than
the quality of lives insured.
This might impair the company's business in the near future, if
many claims were to arise. Claims have an impact on profits and
therefore, bonus declarations.
The
more the claims, the lesser the company's profits; the lesser the
profits, the lesser the bonus that can be declared.
5. Prudent and sound financial management
Sound financial management should be an important consideration
while selecting an insurance company. The kind of returns an
insurance company can generate is a direct result of how well it
manages its finances.
Prudence can be gauged with the help of various parameters like
good underwriting norms, low management and administration
expenses and sound fund management (especially in the case of unit
linked insurance plans).
Compiled by Eisen |
