In the Wonderland of Life Insurance!

HUMOUR

 

 

In the Wonderland	Pawan Verma takes a humorous dig at the functioning
	of Life insurance companies
of Life Insurance
	with a special focus on the role of actuaries.

 

- Seeing Beyond the Mundane

 

For all the uninitiated and the under-privileged who have been deprived of the fun of working in a Life insurance company, I would like to present a few glimpses of the same for their benefit. Have you ever imagined what a Life insurance company looks like? Let me suggest that you may visualize a typical Life insurance company as a bus transporting passengers to their respective destinations. There is this Sales Director who, immediately after sighting the bus, jumps into it, grabs the steering wheel and starts pressing the accelerator, while the Chief Underwriter keeps on pressing her foot constantly on the brake and the Compliance Head keeps on honking incessantly. While all this is happening, the Appointed Actuary keeps continuously looking into the rear view mirror and giving directions how to move forward.

In this entire melee, the Conductor, i.e. the salesman, keeps on enticing all the passengers outside to get inside the moving bus, irrespective of their destinations. However, he does not bother to stop the bus even if some passengers fall down from the moving bus accidentally unless they have paid the fare, i.e. the premium.

 

Who is the Actuary?

While all the actors in this play are familiar players, the Actuary is a relatively unknown face to the outside world as the tribe is mostly confined to the Life insurance industry, where he is treated like God. In fact, the only thin line of difference between God and an actuary is that God never thinks that He is an actuary. The actuaries are in fact, bright individuals who are professionally fond of handling figures – but of the excel sheet variety only. Their interests in vital statistics also remain limited to those relating to the insurance companies only. In fact, the literature on actuarial science provides some interesting role models one of which relates to a tall, young and handsome actuary who had two beautiful wives living separately from each other. As the story goes, the young actuary would often lie to them, telling each of them that he was with the other, and thus finding out time to go to office to do some actuarial modelling. 

 

However, all said and done, the role of an actuary is the backbone of the Life insurance industry. They are the ones who, with their analysis of the past trends and future projections, tell a Life insurance company in advance how many of its customers are going to die in a particular year. But, before you misunderstand it, let me clarify that they are different from the mafia, as the mafia goes a step further and decides who are the ones that are going to die! The actuaries are also different from the mafia in the sense that you can negotiate with the mafia and get some concessions from them.

 

The senior and experienced ones among the actuaries are appointed by the insurance companies and designated as “Appointed Actuaries”. As the role demands, they are expected to report both to their company head and the regulator. But being responsible professionals, most of the time, they report into themselves

only.  Their job is to keep a constant watch on the financial health of the insurance companies. However, as a result of the constantly falling top lines and rising expense lines year after year, most of these Appointed Actuaries have turned into disappointed actuaries today.

The Theory of Probability

Coming to predicting the future, unlike the astrologers, the actuaries do their jobs scientifically and get paid for it handsomely as well. They work on the theory of probability and by analyzing the historical data and trends; predict the probability of the occurrence of similar trends in future as well. As students of the actuarial science, the actuaries would have an absolute belief in the theory of probability and they would not allow any unknown factors, emerging trends or unexplained possibilities to impact their judgment. You must have heard the story of the old and veteran actuary who had a sudden chest pain while walking down the staircase. Suspecting it to be a heart attack, he immediately jumped down the staircase after doing a quick calculation that as per past data, the probability of a person having a heart attack while falling down from a staircase was much less than the probability of a person having a heart attack while climbing down the staircase. The rest is part of the sad history as the actuarial books have recorded the incident as one of the rare exceptions when the theory did not work.

Handling Complications

With their expertise in developing and handling complex actuarial models, analysing complexities with speed and accuracy becomes just the second nature of the actuaries. And they are never reluctant to showcase their skills. It happened once that an actuary was travelling in a train with a farmer. True to his nature, the actuary was boasting of his mental faculties trying to impress the farmer. As the train passed a flock of sheep in a meadow, the farmer asked, “Can you count the sheep in the flock and tell me?” The actuary looked at the flock and said with a winning smile, "There are 1,159 sheep out there." The farmer was impressed as he said, "Incredible! By chance, I happen to be the owner of the flock and I know that they are exactly 1,159. But how did you count them so quickly?" The actuary answered, "Easy, I just counted the number of legs and divided it by four.”

 

Camouflaged by Simplicity

 

The ever-increasing inclination to handling complexities, however, deprives the actuaries of the ability of handling simple and mundane situations. And that becomes possibly the only weakness that they possess as a tribe. A friend of mine told me the story of a young actuary who had come to seek admission to an advanced actuarial course. As the queue was long, the clerk told him to go to the end of the line. The young man came back five minutes later and said he couldn't because someone else was already there.

 

The situation is no different with experienced and qualified actuaries as well. Quite often they get cheated by small-time street vendors and shop keepers because these votaries of higher maths tend to forget the lower maths involving addition, subtraction, etc. I was myself witness to a scene when I once walked into the actuarial department of my office. What I saw was simply mind-boggling. There were three young actuarial interns, busily involved with something in the centre of the room. As I went closer, I saw one of them was holding a long board upright, the second was steadying a chair on a desk while the third intern was standing on the chair placed on the desk. He had one end of a tape measure and the first student had the other. Amused, I enquired what they were doing. They answered in a chorus, "We're trying to measure this board." Perplexed, I said, "Why don’t you lay it down on the floor and measure it?" They said, "We have already measured its length, now we are measuring its height.”

 

Mixing like Oil & Water

Though extremely dedicated and hard-working, the actuaries are often the most misunderstood professionals in the industry simply because of the inability of others to understand what they are doing. It is a well-known fact in the industry that oil and water mix better than actuaries and salesmen. While it is extremely difficult for a salesman to say “no”, an actuary would find it almost impossible to say “yes” to any proposal. While the actuary would constantly blame the Sales Director that he does not sell the product but sells the company itself, the Sales Director would have you believe that the actuaries do a useless job and can be dispensed with altogether.

Nothing illustrates this relationship better than the story of the Sales Director of an insurance company who had crash-landed in a paddy field after a plane accident. As he regained consciousness lying in the field, he looked around and asked an onlooker, “Where am I?” Startled, the onlooker asked him, “Are you the Sales Director of any company?” “Yes”, said the Sales Director, “but how did you know this?”

 

The onlooker laughed, “Well, your question reminds me of the eternal refrain I have been hearing from the successive sales directors of my company with reference to their targets – where am I? But, forget it”, he added, “let me help you with your query. You have crash-landed here after a plane accident. You are lying in a large paddy field which is ripe for harvesting…” Startled, the Sales Director sprang up on his feet and asked, “Are you an Actuary?”

 

Now, it was the onlooker’s turn to be surprised. He said, “Yes, but how did you come to know this?”  “Elementary, my friend,” said the Sales Director, “as usual, the information provided by you is absolutely correct, but thoroughly useless”.

 

Love-Hate Relationships

Professional jealousy and rivalries also are the factors why actuaries usually develop a love-hate relationship with the other professionals within the industry, Underwriters, in particular. While together they would espouse common causes, they would leave no opportunity to undermine the other once they get the opportunity.

This love-hate relationship is amply illustrated by the story of the two underwriters of a Life insurance company who were going to attend a conference along with their actuary. Travelling in a plane, the underwriters had taken the window and the middle seats. As the actuary came in, he settled down in the aisle seat next to them, kicked off his shoes, wiggled his toes and closed his eyes. After a while, the underwriter in the window seat moved and said, "Let me get up and get a soda for myself." "No problem," said the actuary, "I'll get it for you."

 

While he was gone, the underwriter picked up the actuary's shoe and spat in it. When he returned with the soda, the other underwriter said, "That looks wonderful, I think I'll have one too." Again, the actuary obligingly went to fetch it and while he was away, the other underwriter picked up the other shoe and spat in it. The Actuary returned and they all sat back, discussed business and enjoyed the flight. As the plane was landing, the Actuary slipped his feet into his shoes and knew immediately what had happened.

 

"How long must this go on?"  he asked, "This fighting between our professions? This hatred? This animosity? This spitting in shoes and pissing in sodas?"

(The author is former COO of Star Union Dai-ichi Life Insurance. The author undertakes that views expressed are his own; and that the article has been written in a lighter vein with malice to none.)

 

(First Published in the June 2014 issue of the IRDA Journal)

 

Theirs Not to Reason Why... Theirs But to Comply & Die

In a lighter vein, Pawan Verma narrates the travails of dealing with compliance at various stages of business in the domain of Life Insurance.

When I was invited to contribute an article for the current issue of the IRDA Journal, focusing on Regulatory Compliance, my immediate impulse was to have an interaction with the industry experts so as to develop a comprehensive and inclusive view on the subject before writing something meaningful. Following the impulse, I set up an interview with the MD & CEO of a life insurance company. Warming up for the discussion over a cup of coffee, I asked him,

“What keeps you awake at nights these days?”

The CEO was quick in his response, “Oh! I sleep like a baby.”

I was literally flummoxed and flabbergasted, wondering how could the CEO of a life insurance company sleep like a baby in these turbulent times when the top lines are sliding down day by day like the Indian Rupee and the expense lines are soaring up month after month like the Indian inflation, while the bottom lines are discovering new bottoms every Quarter. Sensing my confusion, he immediately clarified,

“Oh yes, I sleep like a baby…waking up every two hours and crying… worrying about any regulations that my guys might have violated today accidentally and for which I was going to be hauled up by the Regulators the next morning.”

“But a sensitive IRDA would understand the problems of a CEO”, I said hesitatingly.

“You see, it’s not IRDA”, he continued, “We are really living in difficult times. After we got liberated from the British Raj, we aimed to build up the Panchayati Raj. But, what we got in return was the License Raj. Unfortunately, as we threw away the shackles of the License Raj in 1991, we got saddled with the Compliance Raj. There’s no escaping the Raj. Even though we may want to give up on the Raj, the Raj is not giving up on us.”

Listening to him, I could realize the difficult times we were living in. I remembered the good old days when as a college student I had walked into a bank branch to withdraw some money. As the teller had some problems with the signature of the young lady ahead of me in the queue, he requested her to identify herself. The lady immediately took out a mirror from her vanity bag, looked into it and declared innocently, “Yes, it’s me only”. The teller smiled and gave her the money. I am sure, if it were present times, the same teller would have insisted on a photo Id card and a residence proof, as the minimum requirement.

 We Also Sell Insurance

However, not to be overtaken by pessimism, I decided to talk to some other professionals in the industry and met the Distribution Head of another life insurance company. I asked him what was on top of his agenda these days. He explained that he was running an extensive program to train his entire sales force. Perplexed, I asked him, “Yours is a pretty old company. I thought you would have already trained your sales staff over the period of time.”

He was candid, “You know, while insurance is a mundane and static subject, compliance is a very dynamic issue, acquiring new dimensions every day. Hence we continue organizing comprehensive compliance training programs very frequently.”

“That means your sales must be looking up…”, I said.

“Oh! We also sell insurance… when we are free from compliance,” he replied, “but contrary to your expectations, our sales are going downhill.”

“I don’t understand this...more agent meetings should obviously translate into higher sales.”

“You see, earlier my agents were able to sell, unmindful of the implications of the statements they were making to the customers. But, having undergone the in-depth compliance training, they are now careful about what they say to the customers and how they say it. It has obviously been impacting our sales.”

“There must be some better way of addressing the situation…” I mused.

“No Mr Verma, I had always thought that one could reason out the rationale behind the compliance circulars and follow them in spirit, and thus compliance and sales could go together. But no, that doesn’t work. Oil & water mix better than sales & compliance. Today, we are in a situation where theirs not to reason why, theirs but to comply and die.”

The Cost of Compliance

I was lucky to get the CFO and the Appointed Actuary together in one room in the next company. The CFO was brutally frank, “The cost of compliance today is too prohibitive to run a profitable business.”  The Appointed Actuary however, was more practical and down-to-earth and thought that one must comply with the regulations without ever questioning the rationale behind the same.

“Once we added some more information in a regulatory report than asked for,” explained the wise man, “but we were hauled up for tampering with the sacrosanct formats created by the Regulator.”

Evolution of Compliance Culture

It is not that everybody in the system is equally unhappy and pessimistic. Compliance has brought happiness to a lot of people in the industry as well. In one of the companies, I met an old lady who had been doing the compliance function for ages. She was highly positive about the way the compliance culture in the industry has evolved over the years. She recollected her first day in the company and the HR Head’s words,

“Here’s your appointment letter as the Compliance Officer. Find out what it means and do it.”

As per her, compared to the past, compliance was taken much more seriously in the company now. But there was another reason for her happiness. As she put it,

“Earlier, I always had the problem finding out what to do next. But thanks to IRDA, I don’t have to do the thinking any longer. They do the thinking and tell us what do, when to do and how to do. Moreover, now I feel more secure about my job because there is enough to do and it is sure to be there irrespective of the business cycles.”

The Man at the Centre

However, my journey seemed to be incomplete without meeting the man at the centre – the Principal Compliance Officer (PCO). While talking to the different functional heads, I had always enquired what they thought of the PCO. They were unanimous in their opinion that they had developed an instant dislike for the PCO in the very first meeting…only to save time later.

The meeting with the PCO however, was very enlightening. A firm stickler for compliance, he sincerely believed that a stricter compliance regime was the solution for all the ills of the industry.

“Look at the level of mis-selling happening in the industry. I am of the firm opinion that every insurance sale must be handled by at least three agents – the first to canvass the customer, the second to verify if the product was explained to the customer properly and the third one to certify that the due sales processes were followed in conducting the sale.”

“But the cost and the productivity…” I wondered.

“Forget the cost, productivity and business numbers. Once the compliance processes are fully in place, these mundane things will take care of themselves over a period of time.”

Disinterested Directors

Pondering over the issue, I shared my thoughts with my wife that I needed to talk to some Director on the Board of a company as I believed that the compliance culture in a company had to be driven from the top and it was the top management alone which could remove the bottlenecks within the system.

Not always very kind to my thoughts, she immediately shot back, “Look, in most of the bottles that I have seen, the neck is always at the top.”

Even though clean-bowled by the googly, I refused to give up batting. I set up a meeting with the Independent Director on the Board of a company and asked him what he thought was the Board’s role in driving the compliance culture within the company. Sounding like a management guru, he said,

 

“I agree with you. The compliance culture in the industry has to be driven from the top – by the Board of the company. But we need to bring in systemic changes to make the Boards functional and effective. You see, as the institution of Independent Directors has failed to deliver, you need to develop on the American pattern, a cadre of Disinterested Directors, who will not have any fiduciary interest in the company at all and thus will be able to drive the compliance culture.”

The high-level wisdom completely left me dumb-founded. I was wondering if our Directors were not already “disinterested” enough – interested to the extent of their sitting fees only. Otherwise, what could explain the sorry state of affairs in the industry?

Taking It to the Next Level

My attempts to get the regulator’s perspective on the subject were frustrated because regulators all over the world are known for their reticence. They only react after you do the act. Even though I don’t share the cynicism, seasoned industry observers are of the opinion that across the globe, the regulators’ studied silence on controversial matters  and refusal to give advance rulings on critical issues are effective weapons to perpetuate their authority. If they explain in advance the rationale behind the regulations they make, will they not look like ordinary mortals like us? Who will be afraid of them in that case and how will they impose penalties and generate funds?

However, it was partly because of my own persuasiveness and partly because of the openness of our own industry regulator, that I was able to get a few regulatory sound bites on the subject. On the condition of anonymity, a very senior official dealing with the issue told me about his dissatisfaction with the state of affairs in the realm of regulatory compliance.

“You see”, he said, “we are still at a very primitive stage in terms of enforcing compliance in our business operations and we owe it to the advanced world to take it to the next level without any further delay.”

“But, Sir, I think our policies on Corporate Governance, AML, etc. are very well conceived and are right in place. Where’s the problem?”

“That’s the problem…that’s the problem, Mr Verma, with all of you. You guys are never able to think beyond the mundane and the ordinary. The need of the hour is to take compliance to the next level - beyond the fore walls of your organization. Are you ensuring that the vendors who work for you and the suppliers, who supply you, say pen and paper, are compliant? Are you ensuring that they don’t use child labour, that they conduct their own businesses in a fair and transparent manner?”

“These are noble thoughts sir, but difficult to implement”, I muttered hesitatingly.

“Not at all”, he countered, “If you want to follow global trends and remain relevant in a globally integrated economy, you don’t have much of a choice. Tell me, as a good corporate citizen, should you not stop doing business with a supplier who does not conduct his own business in a fair and transparent manner?”

I nodded in acquiescence, living up to my innate wisdom of never ever arguing with a regulator. However, my confusion had got confounded manifold – what were my options if I found that the electricity company supplying me power was non-compliant? Or, for that matter, could I refuse to be regulated by a regulator if I felt that the regulator was not conducting his business in a fair and transparent manner?

Customer - the Helpless King

Having been sufficiently enlightened by the industry experts on the various dimensions of regulatory compliance, I thought of talking to someone to whom the entire industry professes to serve – customer, the king. But I hesitated…could someone’s experience on regulatory compliance be different from mine as a customer? I remembered the day the courier had knocked at my door to deliver my credit card.

“I have brought your credit card, but, I need to check your Id before I can hand it over to you”, he had said after asking my name.

Not liking his stance, I said, “Look here, you landed at my doors looking for me. You must trust me that I am the right person.”

“No Sir”, he insisted, “I can’t hand it over to you unless I see your Id proof.”

Fairly agitated within, I shouted at him, “How dare you ask me to prove my identity in my own house?”

The courier boy was calm but firm, “No point arguing it, Sir. This has something to do with regulatory compliance. You show me the Id or I take the card back.”

I gave him a nasty look, conveying “don’t mess with the Customer – the King”, but simultaneously discovered that my right hand was helplessly extended to hand over the Id proof.

The writer is former COO of a life insurance company. He is available at pawan.verma@rediffmail.com

(First Published in IRDA Journal September 2013)

Insured -----for Laughs

Pawan Verma

BEFORE I joined the life insurance industry, I had always believed that life insurance was a serious subject. For the simple reason that although we call it life insurance, we always deal with death and disabilities, trauma and accidents.

I discovered very soon that there was a lighter side to this otherwise serious business as well. On deputation to one of our overseas establishments on the very first day at office, I had a letter on my table for signature. Addressed to a customer who had just been insured for a big sum, it read, “It gives us immense pleasure to inform you that proposal for insurance has been accepted. The first premium under the policy has been adjusted by us and we note that the future premiums will be paid by the widows and orphans.”

Leaving aside the crudity of the message, I was wondering whether the life insurance industry in developed countries had moved so much ahead as to take as to take just one premium and leave the rest to the widows and orphans to pay! It was only when I demanded an explanation from the office assistant that I learnt that our customer was the Chief Executive of the Widows and Orphans’ Society, which had taken insurance on the life of its employee and was going to pay the future premiums.

The incident turned out to be only the beginning of the shape of things to come. As it happened one afternoon, when I was about to leave the office after a busy day, the telephone rang. There was a lady on the other side, saying in a rather concerned and nervous tone that she had just given birth to twins. She was enquiring if it would have any impact on her life insurance policy. Unable to hear her clearly because of a disturbed line, I asked her, “Will you repeat it, madam?” She was firm and decisive, “Not at all, Sir, if I can help it.”

It is not that the other side of insurance, that is, the non-life insurance, has any less life in it. The story goes that one wealthy lady, before going on a trip to Europe, got her entire wardrobe insured. After arriving in London, she found one of her gowns missing. So she sent a message to her insurance company, “Gown lifted in London”. The smart manager unwilling to entertain the claim immediately shot back, “Madam, what do you think our policy covers?”

What is interesting is that there is a lot of synergy generated between these two sides of insurance being managed by two different corporations in India. They immensely contribute to each other’s business. This is beautifully illustrated by the story of the rich farmer whose tractor was stolen. Since the tractor was insured, the insurance company’s manager came to help him fill in the claim forms.

As a value addition to the service provide by the company, the manager also offered the farmer another tractor, suggesting that he could use the same till the claim was processed and he could get the money to buy another one.

The farmer was too happy with the services offered. He said to the manager, “Well, if that is the way your company does its business, why don’t you insure my wife as well?”

(First Published in Hindustan Times, Edit Page, dated 14.02.2000)

The Ad Mad World

By Pawan Verma

Competition in the market place is fast changing the face of the Indian life insurance industry. Gone are the days when you could find an insurance agent with his hands in his own pocket. Being an industry insider, I am also aware of CEOs whose eyes earlier sparkled talking about plunging necklines and rising hemlines. Today, they have all developed hazy eyes and long faces, all the time brooding over plunging top lines and rising solvency margins.

During the earlier decades, competition was best reflected by the Cola companies and their cola wars. But, the new century belongs to the insurance companies and their Ad wars. And it is not the meek and the humble who will inherit the earth, but the ones who make the most noises, grabbing maximum mind share, but incidentally, at the same time, making life difficult for the industry regulator.

For a student of marketing, it will be quite interesting to research a topic like, “Insurance Ads ke Side Effects”. One may not be sure how much the sale of its insurance policies went up when a company stormed the print and electronic media with its Ads for Instant Insurance, but, we all know that the sale of instant coffee and instant food like burgers, went up drastically during the period. Likewise, the Viagra producers were the happiest lot, when a company advertised, “Always Up Never Down”, obviously referring to its investment returns.

However, this is just the trailer. As the industry moves on and competition gets tougher, the fight for customer mind share is going to be more intense and the voices more shrill. No longer are the Ads going to be simple and innocent, like, “Jeete Raho” or “Life mein hamesha rahen taiyar”. There is definitely going to be more spice and action, pricks and punches in the Ad speak of the companies.

Consider, for example, this sample of a future Ad war and judge for yourself :

Company A comes out with a tried and tested Ad line : “We cover your risk from Life to Death”
Company B would try outdoing it : “We take care of you from Cradle to Grave.”
Company C will further expand the scope of cover : “Risk covered : from Womb to Tomb”
Company D would apparently have the final word, “We cover your risk from Sperm to Worm”.
But if you thought that this could be the last word on the subject, you are mistaken. Company E would expand the scope further and announce, “Risk Insured – from Erection to Resurrection”.

So what, you would say, the General Insurance industry is already having an Erection All risk Policy and it is doing well in the market. But no, my dear, life insurance is different. I am afraid, the industry regulator would have a tough time, working overnight, watching the promise and the performance.