Insurance may be described as a hedge against life ¡ ¦s uncertainties. To that end, it can never be taken too seriously. Every year, the person insuring himself bets that he will not be living another year and the Insurer is betting that he will. If the person lives, and loses the bet, he pays the insurer a small premium; if he dies, the insurer pays the lump sum ¡ ¥jackpot ¡ ¦ to the person ¡s nominee.
While the person taking up the policy has only one life to bet on, his insurer is playing the same game with millions of other people like him. Since the insurer ¡ ¦s risk is spread, he can offer huge odds. Moreover, the insurer invests the premium he receives each year, and has employees (called Actuaries or Actuarial Officers) who calculate the odds on each policy based on Mortality Rates, the mortality experience of the insurer, and the return on investment which the insurer is likely to get. These in essence, form the framework of determining the premia paid by policy holders, and the returns expected from the policies.
It is the Life Advisors of each company who are responsible for creating the relation between the insurer and the policy holder. He meets with the prospective policy holder, and in conjunction with him, determines which policy would best suit his needs. Indeed, it is through the Life Advisors that every Life Insurance Company manages to maintain a personal relationship with its clients.
The Insurance Sector in India is one in which the entry of private players has only recently been permitted. Previously, this was a sector which was totally regulated by the Government, and its Public Sector Companies.
A look at the above chart depicting the market - share of the various players will tell us that the majority of the market is still in the reins of the Life Insurance Corporation of India. This is not surprising given the extended monopoly period which LIC has enjoyed.
However, the competition among the private players, for the remaining market share, is fierce, and the margins dividing them are relatively small. Hence, it is the requirement of each company to constantly try and establish an identity for itself, and to provide to its customers, both existing and prospective, that which its competitors can ¡ ¦t. In other words, to establish one or multiple Points of Differentiation.
Again, the customer for life insurance in India lands up paying a rate of premium which has been determined upon data which is sadly antediluvian. As stated earlier, the insurance premia are calculated by the insurer ¡ ¦s actuaries after taking into account mortality rates, and mortality experience. In India, neither private insurance companies, nor the LIC are permitted to conduct the nation ¡V wide studies required to determine the mortality rates. The information is provided by the government, for a fee, from data taken during the Census. Since this data in itself is old, and mortality rates have significantly decreased in the last 14 years, the customer is actually paying more premium than he should for a life insurance policy.
Life insurance companies are able to pass on this benefit to the consumer, as they can afford to charge low premium rates, and yet keep the customer happy. Hence, the customer does ultimately gain an advantage for the dropping mortality rates.
