Kathmandu. Prabhu is the Deputy Chief Executive Officer (DCEO) of Mahalaxmi Life Insurance, Kishor Prasad Lamichhane. He has extensive experience working in the insurance sector. Summary of the conversation with the same DCEO Lamichhane on the latest situation, challenges and opportunities of the insurance sector in ##Insurance Talk##:
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## ##There is a rumor that Nepal’s insurance sector has been burdened by the burden of surrender. Why did that happen?
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## In the past 2-3 years, our country’s economic activity has slowed down. When the economy is hit by a recession, the first priority is given to rice, cotton and wool. I think, “I can do other things today, but tomorrow I can do something else.” That’s why everyone is forced to think about it. That’s why instead of paying premiums, they only pay attention to food, shelter, and cotton.
Another thing is that our agent friend seems to have insured a little more than his financial capacity, which seems to be a problem. However, we have been tightening it through financial underwriting. Because today’s income is affecting my financial plans in the future. Today, I cannot say that I will save money only for the future, ignoring the financial obligations I have to take care of my family.
Force selling or miss selling may have played a role here. You have also pointed out something. The agent gets a little more commission when he collects the premium for the first and second time. Then it gradually decreases. So, let’s sell it today. It will come tomorrow, the rest will surrender tomorrow, what will happen to me?
It may be. Some agents may have taken this as a full-time business or while fulfilling the monthly, quarterly or 15-day target given by the company, a few insurance policies may have become like that. However, we are very careful in underwriting such a situation. For the same reason, if we look at the surrender of Prabhu Mahalaxmi Life Insurance, the surrender ratio is low compared to new business and renewal business. However, as this business grows, the surrender also increases. When talking about the overall insurance sector, the surrender ratio increases in the same proportion as the companies are selling more insurance policies. There may be situations where some agents, knowingly or unknowingly, say that the insurance will be doubled no matter how long the term is. That increases the possibility of this kind of misselling.
How does surrender hurt you company owners?
It doesn’t hurt at all. Sadly, there is a lack of awareness about this. Our company should also provide additional training to agents on how to reduce surrender when training them. We teach them to teach them. However, agents should not tell their customers that they will get back less than what they paid when they surrender. The problem that comes to the office is that if the money is not paid for 3 years, it is understood that it will be returned. Then, if I am unable to pay or do not pay, I think that the money will be returned. Another aspect is that if I go to close the account, how much will I deduct, 1,500 rupees, and the amount will be returned. However, where we are, the provision of future value and surrender value is applied. We have to do the calculations as per the guidelines given by the Insurance Authority. Therefore, the company cannot give anyone even 1 rupee more. Calculation is calculation, whatever comes is given. However, this becomes a problem when the minimum information that should be disclosed while selling the product is not disclosed.
In this case, would you look at the accounts of the agencies through which you are selling policies and see which policies have caused the most problems? Even if you look at it this way, can such cases be reduced by some means in the future?
If I sell a policy to someone as an agent, some of my friends are surrendering it, not because they are incompetent, but because they have heard from others that this insurance is not good. Our insurance policy provides universal coverage. Despite that, some people come to surrender saying, “I am going abroad, it is no longer useful.” Apart from that, agents sell policies, but some things are not under their control. After two years, when the agent does not provide continuous service, surrender is also being done on the grounds that the company will not recognize me tomorrow. This is due to a lack of understanding and awareness of the whole matter.
Is lapse also a sad issue?
This is definitely a sad issue. Because getting new business is just as sad. Having to surrender again without retaining the business that has come is just as sad. In some cases, companies and we are also introducing schemes like interest discount in renewal insurance. That also encourages some people. However, I am afraid that tomorrow it will cause some inconvenience. The company will offer an interest discount, why did you have to pay on time. I wonder if a situation will arise where people will decide to pay when the interest discount offer comes. This also sometimes leads to a sharp increase in the size of the lapse around the quarter.
The insured who paid only one or two installments left 1-2 years. Where do you take that account and reconcile it?
This money stays in the life insurance fund. Someone has taken out insurance for a period of 15 years. Even if they do not take out insurance for 2-4 years, there is still an opportunity to renew it 1 year before the remaining period. Until then, we must keep that money.
Insurance is a very technical subject. It is a pity that the company, agent and insured do not understand it. That is why you are having trouble with payments. But, the trouble seems to be given by the company, right?
Yes. Our inability to make it relevant to the times is also a weakness of the company. We have made a guide book for agents. Even their study is not enough. Despite so many technical subjects, in some cases, those who have passed SLC or SEE can be made agents due to the provisions made under the Act. Some agent friends should sell policies only to their family members. And then there is a situation where they leave. This also increases surrender and lapse.
Do agents leave later because they cannot even meet their basic expenses by selling insurance policies?
I consider this to be a lack of understanding. Just as going to the office from 10 am to 5 pm is considered a job and opening a shop is considered a business, so too is being an agent a prestigious profession. Some people do not understand this. Life insurance agent comes as the fifth best profession in the world. This is a very good thing to say. But we do not have such an understanding. Therefore, this is a lack of understanding.
Does the agent profession seem a little cheap when you distribute licenses every week?
That may be right to some extent. But, on the other hand, if you come to me to become an agent, what will I look at? What will I not look at? We have provided full-time training. Even when all students are taught the same subject in school, some fail, some pass, and some pass with the highest marks. Similarly, no business is for everyone. It seems that some friends are doing well when they understand. Now professional agents have been born.
Insurance is force selling, all over the world. Some agents will ask up to 5 people or offer insurance. They are not successful in that. Then they give up because they cannot. Even today, many who have taken out life insurance have not actively taken out insurance themselves. Many agents may have come. And then they only took out insurance at the end.
An insurance agent brings the citizen’s documents to get insurance. Then what do you look for when getting insurance?
We look at it from the perspective of risk. At that time, the profession, health condition, family situation, income according to the proposed insurance amount of the person who wants to insure are considered. This is called medical and financial underwriting. As the insurance amount increases, the risk increases, so we also have to look at the reinsurance guidelines. However, despite looking at these things, surrenders and lapses do occur. The person is insured based on his income. We insure people between the ages of 18 and 35 with an insurance amount of 30 to 40 times the annual income. As per the regulatory provisions, we do it in a way that no one in any department interferes while insuring.
When you make a claim, do you also send a check for 50 thousand to the center?
As per the instructions of the Insurance Authority, we have given one level of underwriting authority at the provincial level, one at the branch and one at the sub-branch office under decentralization and the authority to pay claims quickly, Prabhu Mahalakshmi. They can pay claims by signing them themselves. However, if we have any doubts, we will look into it. We should get the medical part checked.
A comment has been created in the insurance market, that companies are starting to look at unnecessary documents that are easy to take when taking claims but are not required for payment.
In the general public, your comment is correct. However, when you look at the company, there are two sides to it. In the past, when an insurance offer comes, most of the time, the agent only asked for two signatures and you filled the rest yourself, looking at your suitability. Today, this has become very rare. If we have doubts about some documents, we call the person you are going to insure and inquire, check them. We even look at whether you are doing this profession or not, what kind of diseases you have suffered from. In some cases, if the documents that come at the time of claiming confirm, this person would not have insurance at all. The documents provided yesterday when insuring do not reveal that he is ineligible for insurance. However, the documents brought for claiming today reveal that he was ineligible for insurance. This has happened because there is little awareness about it. The responsibility for this lies with the insurance company. Now, if we talk about us, our company is one of the fastest in paying claims.
How do you view fraud?
Insurance policies that have been in existence for more than 10 years are generally not considered for fraud. Sometimes, while working, people get threats. If yesterday’s claim is not settled today, you will have to go home, and that is the only way to go. When studying past documents, it is confirmed that this is fraud from the documents they submitted. Sometimes, documents of treatment in places where there is no hospital are also found. From that, you know that some are frauds.
