THE JOURNAL Published on 15th November, 2020 of Insurance Institute of India

VOLUME NO. VIII ISSUE NO. II MUMBAI OCTOBER - DECEMBER - 2020

AWARD WINNING ARTICLES 2020

THE JOURNAL OF INSURANCE INSTITUTE OF INDIA FRAUD CONTROL MEASURES

Merit Winner S.K. Desai Memorial Essay Writing Competition ORGANISATIONAL CHALLENGES

ULIPS OR MUTUAL FUNDS Cost V/S Utility of Investing in Fraud Control Merit W inn Measures by Insurers er THE JOURNAL OF INSURANCE INSTITUTE OF INDIA Organisational ChallengesD. Subramaniam AwardBefore Essay WritingInsurance Competition Industry Due to Rapid Introduction of Technology, THE JOURNAL OF INSURANCEin INSTITUTEner OF INDIA Technical Paper Essay Competition (Life) rit W Artificial Intelligence and Data Analytics Me

ULIPS or Mutual Funds - What Will the Millennials Choose?

THE JOURNAL OF INSURANCE INSTITUTE OF INDIA

Abstract is known as “Opportunity Fraudster” while the other type is “Professional Indian insurance industry has immense Me INSURANCE PENETRATION Fraudster”. The opportunity fraudsters rit W growth potential. One important factor are normally law abiding people but do in ne 1980), Gen Y (1981-1996). Gen Y is that inhibits growth and development not mind claiming more than they should r Abstract Role of Technology in Making of Micro-Insurance also called as millennials with a further of the industry is increasing Insurance as they believe it ignorantly that insurers breakup of older millennials (1981-1989) Fraud. Since there are no strong penal do not stand to lose, when “small” Artificial intelligence and data analytics and younger millennials (1990-1996). measures are available in Indian Penal More Effective Technical Paper Essay Competition (Micro) Abstract frauds are committed. with the help of technology are soon Millennials preferences are changing Code, the fraudsters are committing Whereas on the other hand, this will going to change the way our legacy MICRO-INSURANCE The main aim of humans over the world and they are changing the Apart from traditional methods of open up myriad of organizational frauds all across the country, especially insurance business is carried out. The generations is Wealth Creation. People financial investment market also with in rural and semi-urban areas. Internal Auditing and Investigation of Abhishek Das challenges for the insurers. Although Technical Paper Essay Competition (General) Nirjhar Majumdar new age digital insurers and Insurtechs ner look for ways to manage their money THE JOURNAL OF INSURANCEin INSTITUTE OF INDIA less aversion to risk, openness to Claims, the insurers are using Artificial Vaishno Devi Divine, Flat-302, these challenges can be handled by W Block No. O/17, Flat No. 31, would be the torch bearer for this rit in the most efficient manner. In present alternate investment products like crypto According to one estimate, the volume strong collaboration between insurer e Intelligence based Machine Learning 4th Main, Nagendra Block, transformation. Whether we call these M times with the high cost of living clubbed currencies and their general outlook of Baishnabghata Patuli Township, of insurance fraud in India is about Rs. and insurtech. The experience of insurer Algorithms to prevent and detect frauds. Hanumanth Nagar, new kids in the block as innovators or with a desire for a wealthy lifestyle, the living in the present. Kolkata – 700094. 40,000 crore. There are two types of coupled with the technology of insurtech These are not too costly as compared Near PES Degree College, disruptors, their tech savvy workforce need for better investment decisions has [email protected] people who commit frauds. One category to Utilities that the insurers can get out can create wonders. So, partnership will As per the survey conducted by Bangalore – 560050. would be handy for the greater good. become the need of the hour. The best be the key to solve this problem. investment plan is one which not only ASSOCHAM and India First Life [email protected] It is difficult to ascertain whether this October - December 2020 3 Another important aspect to this takes care of our needs but also creates Insurance during recent past to study shift is a boon or bane. On one hand, it The Paradox of Rising Premiums and Low Insurance scenario is upskilling the workforce wealth over time. Having an investment savings and investment patterns 26 will help insurers gain better efficiency 39 October - December 2020 of insurer. Therefore, investment in plan, and investing according to it is of individuals aged between 18-35, and create satisfied customer base. Penetration human capital would be critical. Hiring essential for wealth creation. October - December 2020 and retaining employees would become N. Sheela The population is categorised as Baby more important, as skilled and engaged Flat No.18, Anjali Flats, Boomers (1946-1964), Gen X (1965- employees would create a positive 100 Lake View Road, West Mambalam, Chennai - 600 033. [email protected]

even innovation in the insurance sector in India. This paper seeks to unravel the dichotomy that the insurance Abstract sector faces in this country today- A population so large and underserved “Innovation is the only way to that it has scope for multiple insurance win.”- Steve Jobs (co-founder, Apple Abstract players to spread their arms wide Computer) The insurance industry in a vastly without competition, and yet an abysmal These few words sum in itself the future income earner of the family or loss of populous, demographically varied and insurance penetration which counts Neha Singh need, scope and prospect of every social property are critical risks faced by every culturally diverse country like India amongst the lowest in the world. We Jyoti Homes, Viman Nagar, or economic venture and the same household, but for a minimal income resembles a maze. While the growth focus on how insurance premiums, Vishakhapatnam - 530009. is applicable in the context of Micro family, marginal exposure to these risks of a large number of private players in driven by certain actuarial practices and insurance, the topic being discussed and is enough to push them into deeper the insurance as well as reinsurance risk management techniques pushes up [email protected] explored in this article. poverty and threaten their very existence. sectors has allowed the industry to the cost for purchasing the right kind bring forth extremely sophisticated of insurance. The paper further tries 53 Micro insurance is a specialized segment As per the International Labor and nuanced insurance products for to bring to light the fact that despite of the insurance sector which majorly Organization, over 80 percent of the the populace at large, a large number statutory mandates in a country like caters to the vulnerable section of Indian economy is in the informal sector, of factors including general apathy October - December 2020 society. Death or illness of the primary while only 6.5 percent constitutes the towards the insurance needs of people THE JOURNAL OF INSURANCE INSTITUTE OF INDIA formal sector. In such a socio-economic and businesses, and high premiums, context, risk assessment and pooling which in the eyes of the insured convey and financial inclusion of the population no immediate benefits, has impeded become all the more necessary. Micro the spread, growth, penetration and M insurance products that are customized er it W Arun Kumar in Health Insurancene and Wellness House Number 352, sector -4, r October - December 2020 THE JOURNAL OF INSURANCE INSTITUTE OF INDIA Panchkula, Haryana – 134112. [email protected] Technical Paper Essay Competition (Health) 75

HEALTH INSURANCE

Technical Paper Essay Competition (Pension) PENSION er inn W it er M

Is Pension, Effective and Adequate Solution to the Challenges of Ageing?

adequate pension systems by analyzing the global trends. It looks at the vital Abstract post-retirement needs of the individuals India faces a double burden of disease. by considering their relevance in today’s Soniya N. Rupani Firstly, due to communicable or world. It uncovers the role of insurance B/54 Ashtavinayak Building, infectious diseases and secondly, due companies to make the pension industry to Non communicable and man-made a robust and sustainable one. The paper D.L. Marg, Chinchpokli E, health conditions. The country is also looks at the World Bank’s approach Mumbai 400012. transitioning from “The age of receding Abstract towards inclusive, sustainable pension [email protected] pandemics” to “The age of degenerative infrastructure for Primary Health. Since penetration. The advancement in medical facilities and man-made disorders”. In terms of the Bhore Committee Report (1948), and new technological innovations for it has been established that wellness Keywords Burden of Disease measured in DALYs, keeping oneself healthy is leading to approx.50% of the share is attributed to and primary health is the foundation an improved life expectancy amongst Longevity, Pension, Defined NCDs. A high share of stroke, injuries, to ensuring decentralized, free of cost individuals. Though this is a positive Contribution, Defined Benefit, Adequacy, hypertension, diabetes, cancer and and universal health for all that can be technological advancement on one Sustainability, Effectiveness, Insurance, respiratory disorders has been due State administered. However, the public side, it also has its post effects on the Annuities. to insufficient and suboptimal public infrastructure has been insufficient, thus other which needs to be looked upon opening a gateway for private players in seriously. Retirement income will wellness and primary health insurance. continue to be a focus area for financial experts. Pension systems vary across A primary health and wellness seeker different economies based on the with a paying capacity is inclined demographic profile of the subscribers. towards private care considering factors This paper is an attempt to highlight the like better quality of care, freedom to intricacies of effective, sustainable, and meet specialists, lesser waiting time and

Pranav Warhady C-22, National Insurance Academy October - December 2020 Campus, 25 Balewadi, Baner Road, N.I.A. P.O. Pune - 411045. October - December 2020 59 84 E-Books

The emblem of III speaks about “Achievement through application of knowledge”. III as a pioneer educational institute in Insurance Domain has always endeavoured to use the latest technology in order to impart, promote systematic insurance education and training as well as spread insurance awareness in our country.

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02 Editorial 77 Role of Technology in Making of

THE JOURNAL Published on 15th November, 2020 Micro-Insurance More Effective of Insurance Institute of India

03 Cost V/S Utility of Investing in Fraud VOLUME NO. VIII ISSUE NO. II MUMBAI OCTOBER - DECEMBER - 2020 Control Measures by Insurers Technical Paper Essay Competition AWARD WINNING (Micro) ARTICLES 2020

THE JOURNAL OF INSURANCE INSTITUTE OF INDIA FRAUD CONTROL MEASURES

Merit Winner S S.K. Desai Memorial Essay Writing Competition ORGANI FUND SAT TUAL IONAL MU CHAL PS OR LENG ULI Cost V/S Utility of Investing in Fraud Control Merit W ES inn er (Life) Measures by Insurers DIA ion THE OF IN it JOU UTE Or RNAL STIT ompet ls D OF IN CE IN C g . S SU RAN nia ani ub RAN NSU Essay s ram CE IN OF I er len at an STIT RNAL ap ion i UTE JOU l P Mil In am OF IN THE ca e du a Aw DIA ner echni h str l Cha ard t Win T ill t y Du Essay eri t W Ar e lle Wr M Wha tifi to R ng iting ds - cial ap es Compe un Inte id Intr Befo tition ual F llige o re r Mut nce an ductio Ins o d Da n of Technouranc ULIPS ta e e? Analy lo S.K. Desai Memorial Essay Writing Choos tics gy,

ION T HE JOU RAT RN ET AL EN is known as “Opportunity Fraudster” OF P Abstract INSU E R NC AN while the other type is “Professional CE RA is INST U Gen Y Indian insurance industry has immense M IT INS l) 96). er Fraudster”. The opportunity fraudsters eri UTE ra -19 urth t W OF e 1981 th a f growth potential. One important factor i IN en n Y ( ls wi 989) are normally law abiding people but do n DIA G ), Ge nnia 81-1 ne ( e 1980 mille s (19 that inhibits growth and development r ion c d as nnial 6). not mind claiming more than they should tit n calle lle -199 also lder mi 1990 of the industry is increasing Insurance Abst R pe ra of o als ( ng as they believe it ignorantly that insurers ract o om u akup lenni angi le C bre r mil ch Fraud. Since there are no strong penal o DIA y nge es are e do not stand to lose, when “small” Ar IN sa Ins er you renc ng th tific More f OF s w ract s ov le and refe angi measures are available in Indian Penal ial in T Tech UTE r E Abst man Peop ials p re ch ith frauds are committed. w tellig ec TIT e Lo f hu ion. llenn ey a lso w ith th ence n INS p aim o reat Mi d th et a Code, the fraudsters are committing e he and W h ical CE ain lth C ey ld an ark g lp o da here E n M AN l Pa nd he m ea ir mon wor ent m s to oing f tec ta an as o f o P IC UR a a T s is W e the ent the estm nnes to frauds all across the country, especially Apart from traditional methods of to c hnol alyti op n the fective l ape RO- INS nic tion nag pres l inv ope cryp in hang ogy cs en u oth o OF h enera o ma . In ncia isk, like sura e th are s p m er ha g r INS AL c g ys t ner bed fina to r ucts Internal Auditing and Investigation of Ab nce e wa oon c yriad nd, y Es U RN Te r wa man lub rsion rod k of in rural and semi-urban areas. his n bus y ou halle of this sa RA OU er k fo ient ing c ave ent p tloo Nirjhar Majumdar hek ew a ines r le nge orga will i y E J nn miums loo effic of liv e less stm l ou Das ge d s is c gacy t s for t niza n Co NCE TH i st cost e, th inve enera Claims, the insurers are using Artificial Vaishno igit arri hese he i tiona Mak t W re the mo igh estyl rnate eir g Block No. O/17, Flat No. 31, woul al ins ed o chal nsur l m ri P in he h y lif as alte nd th According to one estimate, the volume Dev d be urers ut. T s leng ers. pet e with t ealth ons h es a Intelligence based Machine Learning 4th i Divi t the t an he trong es ca Altho i es r a w ecisi enci ent. Ma ne, Fl rans orch d Ins col n be ugh ing tio M tim re fo nt d st curr res Baishnabghata Patuli Township, of insurance fraud in India is about Rs. in, N at- form bea urtec an labor han n ising desi stme e be the p by Algorithms to prevent and detect frauds. H agendr 302, n ation rer fo hs d in ation dled of ( ith a nve r. Th ng in ted anum a B ew k . Wh r th surte bet by Mi R w etter i hou y livi nduc Kolkata – 700094. 40,000 crore. There are two types of ant loc ids i ethe is co ch. T ween c f or b f the t onl y co ife These are not too costly as compared N h Naga k, d n the r we uple he ins Mi ro o eed f ed o h no urve rst L ear r, isrup blo call d wi expe urer ) n e ne hic tes he s ia Fi tudy people who commit frauds. One category PES tors ck as thes ca th th rienc ox e th one w rea per t Ind to s [email protected] to Utilities that the insurers can get out Deg w , the inn e n cre e tec e of i cro-Ins d ecom n is lso c As and ast Banga ree C ould ir tec ovato ate w hno nsu b t pla but a ent AM cent p lor olle be h h sa rs o be on logy o rer tmen eeds stm OCH g re rns e – ge, and vvy w r the k ders. f in ara ves ur n inve ASS urin atte das 560050. It y for t ork ey t So, surte P n in of o g an nce d ent p 5, abhi is di he g forc o so part ch u o care avin it is sura estm 18-3 October - December 2020 3 she fficu rea e An lve t ners ranc he i akes e. H g to In d inv een k19@gm sh lt to a ter g othe his p hip w T t t er tim ordin s an etw ift is sce ood. r imp robl ill ra h ov acc ving ged b ail.com a bo rtain sce orta em. t ealt sting . sa als a wi on o whe nari nt as e e w inve ation ividu 39 26 ll he r ba ther o is u pect and h cre ind 20 Oct lp in ne. O this of i psk to t en lan, ealt aby of er 20 ober an sure n o nsu illing his P p or w as B emb - De d cre rs g ne h rer. the tial f sed Dec cembe ate ain b and hu Ther wo sen egori 65- ber - r 2 sati ette , it man efor rkfor es s cat (19 Octo 020 sfied r effi cap e, inv ce la , ion i en X cus cienc an ital w estm hee ats pulat 4), G tome y d re oul ent N. S ali Fl e po -196 r ba tainin d be c in 8, Anj Th 946 se. mo g em ritic o.1 33. rs (1 re im ploy al. H Flat N Road, 0 ome port ees iring View - 600 Bo em ant, wou e hennai ploy as s ld be Lak , C ees w killed com 100 balam ould and e am crea enga st M a.com te a p ged We icindi osit la@l ive n.shee

or ect e s nc sura vel e in nra th to u in ks e tion ee nc va er s ura A nno ap ins ay- n i is p the tod eve Th at try ed ia. y th un erv e Ind om co ders nc in hot this un ura dic in nd ins e es e a ple th fac larg ulti de al Abs tor so m wi sm t tly sec on for s by ract vas d lati pe r arm n a a an pu sco ei et a “ in ried po as d th y nts Inn t stry va t h rea and ou ov ac du lly ia at i sp n, h c e w atio str e in ica Ind th to titio ic . W in. n is Neha Singh Ab nc ph ike h ers pe n wh rld ”- S th ura gra l wt lay om tio wo , C te e o ins mo ntry gro p t c tra he ms om ve nl e de ou he s in ou ne in t iu nd pu Job y w Th us, e c e t er th pe st rem s a ter) s ( ay ulo ers hil lay wi nce we e p tice co- to in op div . W te p ce ura e lo nc rac up Th fou co p lly aze va ran ins t th ura l p hes ese nd me tura m f pri su gs ins aria us N fe er, p ea cul s a r o in to on ow tu s p d eh nee w w Ap rop rne ble be s re ry am n h ac que kin a S d, or ple ert r o em um ll a ust s o in hni ht in o sco ds ho y a f th res e n we ind d cu certa c rig s Jyo gh r e pe sum us re c e f arg as he cate fo by nt te the trie ti H con an in eho ritic am a l nce d t isti r en me ing er om is om d p its fam ld, al ily of ra we ph fo riv ge as rth te Vishakh es, ap ic ros elf ily bu ris or lo nsu llo so cts d ana rch r fu spi Vim pli ve pe th , m t fo ks ss Competition e i s a ely du er m pu pe de ap in cab ntu ct o e fu is e ar r a fac o a b g e f th h m pro m risk for pa hat ike neh atnam an sur le re a f e tur no in mi d tors xtre ce nu st The t t l a. Nagar, an in t nd ver e p ugh al e nim by ec h e ran rge y co e. fac ntry npsingh ex ce, he th y s ov to xp al eve s fort su la th the nc the ou - 53 plo the con e s ocia ert pu osu inc ry g d in e, a apa le ura ht a c 0009 red to te am l y a sh re om rin ce rg ral eop ns lig in @g in pic xt o e nd th to e b uan t la ne f p of i to tes 53 mail . th be f M A thr em the d n e a ge s o , ng da .co Mi is a ing ic s p eat int se an lac ing ed ms bri an 20 m cro rtic dis ro er en o d risk opu lud ne iu y to ry m r 20 ins le. cu O the the ee s e p inc nce rem ve to e of t ura ss rga In ir v per th rs ra h p con tatu cemb he nc ed niz tern ery cto nsu hig d s De ins e i and In atio at ex fa e i d ure d er - cat ur s a dia n, ion ist of th an ins de tob ers anc sp n ov al en rds es, he pe Oc to e ec w eco er Lab ce. wa ss f t im soc th sec iali hile no 80 or to ine s o as and iet e v tor zed o my pe TH us eye , h n y. uln w se fo nly is rce E d b e fits tio De era hic gm rm 6. in nt JO IA an th ne tra ath ble h m en al 5 p the of U D in be ene or s ajo t c se er in th RN IN ich ate , p ill ec r on cto cen fo e A F wh edi ne tion ly tex r. t c rm L O E O m wth ss o t, In on al F T im gro of f an ris su st sec IN TU o d, th d fi k a ch itu to S TI n rea e p na ss a s tes r, U S 4, sp rim be nc ess oc th RA IN r - he ar co ial m io- e N CE t y me inc ent ec M CE N secto . in a lus an on e IN RA ar su ll th io d om ri S U m ra e n o po ic t TI S Ku r 352, 4112 nc m f t oli W TU The Journal n 13 e o h n F IN u be – m pr re e p g i TE O Ar um na co odu nec op n O L N ya rd. ct es ula n F IN NA se Har ba s t sar tio H e R on) Hou , hat y. n e DI OU si ula cilom are Mic r A E J n e nchk ici O cu ro alth TH e Pa r@ cto sto h ma ber miz (P t ku - D ed un. ece I on o ar mb iti t er 2 n et n 020 s o u Te omp i 75 ra ch C ut nce a n ay l ica s l P r Es e So ap pe t nd er HE Pa a We E AL l u ssa TH ca q y I N e llness C NSUR chni om NSIO Te d Ad p ANCE PE n et ner a itio in e n (H W v it i ? ea er ect g lth M ff ) n, E Agein io of ns s ge Is Pe en Chall

zing aly an l y ita s b v als em the du st at vi ’s sy s ndi ay n i od io look the n t e ns It i nc pe . of ce ra ry e nds ds an u t t re ee ev ins qua l t n rel of indus r de ba ent ir le n pe a lo m ro io pa g re the e ns ch he ti th The A t -re ring rs pe . oa bst st de ve the ne ppr r po si o e o a ion a on nc ak ble k’s I ct c t u m n ens ndi s by I to aina Ba p a f tie ld. s st ld ble Fi ac ili or ie su or So rst es ac for w n W aina n l l f s pa and st iya in y, d a ca on om t the su B/5 N fec u do di ti o c at , 4 . t e u e va t obus s ive A R to io to ble b n m no ng t r us D sh up N us d co i in di a look l .L t an on m ur ct ent al lea o inc y, . M av i hea co ise mu de ra m c is ongs als ds c Mu ar in l mm ase n st e ogi y am ve ar n. a g aya tr th ni of Ab nc th y ti w tio d equ , m , k an con u s a ca di va hnol al nc to ra d ce so bai Ch B si ni nd bl se ad c he ta posi et fine , A an n 4 in u p t di cab se e o as in te lf c a ne n e fit ur iya. 0 ch ild an ioni tio r e. fr The w e xpe is o he pe D ne 00 p in demi ng ns. le a co ast ne e s on t rds on, e Ins ru 1 ok g an n nd the ru ones ife thi nt on o si B s, p 2. li , d fr Th d ly ct and g l h e ts n w en d s an E man- cs” om “ e c man- , d Bho u n ed g m c po ey P fine ene i0 , B t o u it h re epi ov ce ffe u K y, e iv 2 ur o T u e as re C fo ke pr Thou an e ed vit D ct 4@g d made “T he a nt mad b r m s. dv t l l e n, ffe ap en h ry i an een omm Pr i al a pos ook il ia io E m p o e a g s e d p imar of Insurance an al s l w ut y, ai r f di g e o es i vidu c it be e nc Long rib lit l. N ox.5 Di s e o f to rima ttee y H di ogi s o m fina bi co C sea or f rec en tab in ol ha t co s ont na m D 0% o se der d edi s ry l R ea o ds in for ros C ai h s. mea s” eg an u hea ishe ep lt chn als ee nt ea ac t s. ype A f ene n d ring o h. S te it n e ar us ie hi th . I g un lt d t rt ch em s ary . S it r rten gh e s su n t rat Sta ive dece h h (19 in ide, hi tir u v he rs nu es sh r er ive t is at 48 ce s w oc s t be An pi sio ar har ed ms e a rsa n th w er . Re a f tem on ri e to rat n e e i in inf d l h tr e el ), th ly ys d th i or , d o s D of ras m ea ali fou lne o us be s se ubsc nsu y d iab f at A t ini l zed n ss io to ba s ight d f i et st tr LY op ru st th , f dat er e sion s he hl n fici so es roke ib s, en ct er fo r i s inu n ie t g , a e rd , ute w in ur ed r al ee on nt Pe of hi e nt er ca , i d el g a g e h . H o o s. e to abl an s h n nju to ln as o l t f co c rt conom ofil pt in d as ce r es at b w ha pe e pr m ta sub r an ies s a e e ev t c st ex nt c tte us b , A wa en er a re i a , s o een d pr nd y f i , t n b ffe aph an ve pt d im p o nsu he e di is cti ima ue wi ar rimar r f pu ogr r fe l th y h pr fici bl m pe ef pu a p y ivat ent, t i de pa of b to eal hea e p c y is s lic war ay th h em cie l d ing a lth lay u ad Th a ike s pr ca nd in er s c ric w su s i A nt mee bet iv pac el r n ce i ter at i lnes an dy an t q e c ty ce. ha ur sp ual ar is s s ar ns ec i e c in e W l I ial ty o cli ek v a , is of ca nsi ned er na ion ad ts, d ra t Ro l r er P Na r 5. es e, f ing 2, ne 04 se ree f -2 , a 1 O r wa ac C us , B 41 0 cto dom t to p di - 02 b iti rs m e r 2 er - n Ca wa un e g o ale P mb De time a B . ce ce 5 .O De m 2 . P - be nd I.A er r 2 N. tob 02 Oc 0 5 Nirjhar Majumdar 84 9 Institute of India

Since 1974 Volume XXXVV

OCTOBER - DECEMBER 2020

Editorial Team M. C. Chaturvedi 86 Is Pension, Effective and Adequate Shashidharan Kutty Solution to the Challenges of George E. Thomas Ageing? 26 Organisational Challenges Before Archana Vaze Insurance Industry Due to Rapid Technical Paper Essay Competition R. K. Duggal Introduction of Technology, Artificial (Pension) P. K. Rao Intelligence and Data Analytics Madhuri Sharma Pranav Warhady D. Subramaniam Award Essay Non-Theme Article Writing Competition Editorial Associate Abhishek Das 94 Systemically Important Financial Sneha Pednekar Institutions (SIFIs) Email: [email protected] 39 ULIPS or Mutual Funds - What Will Deepak Godbole the Millennials Choose? Technical Paper Essay Competition Printed and Published by (Life) SNEHA VIKAS PEDNEKAR on behalf of INSURANCE INSTITUTE OF INDIA, Printed N. Sheela at RMOSS PRINTS PVT. LTD., C/449, MIDC Pawane, TTC Area, Near Mayur Cold Storage, Turbhe, Navi Mumbai 400708 and Published from INSURANCE INSTITUTE OF INDIA, Plot No. C-46, G Block, 97 Indian Real Estate Title Disputes- Bandra- Kurla Complex, Bandra (East), an Outcome of Asymmetrical Mumbai 400 051. Information Based Market: Real Estate Title Insurance- A Finance Editor : M. C. Chaturvedi Panacea 53 The Paradox of Rising Premiums Editorial Support, Design and and Low Insurance Penetration Dr. Kalyan Mukherjee Printing by Technical Paper Essay Competition 105 Impact of Covid-19 on Health and RMOSS PRINTS PVT. LTD. (General) Life Insurance (Released on 8th Website: www.rmossprints.com September, 2020) and Ensuing Arun Kumar Email: [email protected] Deliberations at III Virtual Round 61 Solutions for Health and Wellness Table on Covid-19: Learnings for the Insurance Ecosystem Insurance Notice to Readers Technical Paper Essay Competition 110 Call for Papers Publication of papers and other (Health) 111 Guidelines for Contributors contribution in this Journal does not necessarily imply agreement with Soniya N. Rupani 114 Program Calendar statements made or opinions expressed; for which the respective writers alone This journal is for distribution among members only and not for sale at any retail are responsible outlets or bookstores.

October - December 2020 1 THE JOURNAL OF INSURANCE INSTITUTE OF INDIA

he current [October – December 2020] issue of the Journal has been devoted, as in previous years, to the publication of the prize winning articles of various T competitions of the institute. We are happy to note that the current year has also witnessed a good outcrop of innovative and well researched articles on various areas of insurance.

We are ten months into the Covid Pandemic and the cases continue to mount at the global level, with the winter bringing in its wake, the fears of a second and, in some instances, even a third wave. The silver lining on the horizon is the prospect of a vaccine that would usher a speedy resolution to the ongoing crisis. Indeed, quite a few companies have emerged as front runners in the race and one or two are already in the stage of being accorded such approval. While the vaccines would certainly improve things, there is a vast backlog of economic devastation and interruption of businesses and livelihoods that need to be set right. We can only hope that year 2021 would see a full restoration of normalcy. At any rate, things would never be quite the same and we would need to come to terms with what has been called the new normal.

As the world prepares for a new order that we shall call the ‘Post covid era’, it may be worthwhile to consider that even if ‘we cannot control the volatile tides of change, we could at least build better boats’. What the pandemic and other systemic risks of the current era are teaching us is the need to develop Resilience – the capacity to adapt

EDITORIAL to dramatically changed circumstances and move on, while maintaining one’s core purpose and integrity. The good news for those who find such capacity is that they can often find new opportunity [the other side of risk]. For instance, the institutionalizing of practices like work from home and on line learning are ground breaking new realities that have come to stay. Can businesses capitalize on the opportunities they provide?

Editorial Team

2 October - December 2020 THE JOURNAL OF INSURANCE INSTITUTE OF INDIA FRAUD CONTROL MEASURES

Merit Winner S.K. Desai Memorial Essay Writing Competition Cost V/S Utility of Investing in Fraud Control Measures by Insurers

Abstract is known as “Opportunity Fraudster” while the other type is “Professional Indian insurance industry has immense Fraudster”. The opportunity fraudsters growth potential. One important factor are normally law abiding people but do that inhibits growth and development not mind claiming more than they should of the industry is increasing Insurance as they believe it ignorantly that insurers Fraud. Since there are no strong penal do not stand to lose, when “small” measures are available in Indian Penal frauds are committed. Code, the fraudsters are committing frauds all across the country, especially Apart from traditional methods of in rural and semi-urban areas. Internal Auditing and Investigation of Nirjhar Majumdar Claims, the insurers are using Artificial Block No. O/17, Flat No. 31, According to one estimate, the volume Intelligence based Machine Learning Baishnabghata Patuli Township, of insurance fraud in India is about Rs. Algorithms to prevent and detect frauds. Kolkata – 700094. 40,000 crore. There are two types of These are not too costly as compared [email protected] people who commit frauds. One category to Utilities that the insurers can get out

October - December 2020 3 FRAUD CONTROL MEASURES THE JOURNAL OF INSURANCE INSTITUTE OF INDIA of these measures. In this paper, an realities of doing business and adopting Insurance business is based on two attempt has been made to list the efforts various fraud control measures. They are basic principles, Uberrima Fides (Utmost made by insurers to manage Insurance also investing money and manpower in Good Faith) and Insurable Interest. If Fraud to the extent possible. setting up Fraud Management verticals proposer gives false information about within the organisation. They are also the person or the asset to be insured, Keywords investing in Artificial Intelligence (AI) it may not always be possible to detect Insurance Fraud, Incurred Claims Ratio, enabled fraud detection tools now the authenticity of the information. At IAIS, Life Insurance, Health Insurance, available at reasonable cost. least in India, it is next to impossible to Motor Insurance, Prevention and place hands on the full medical history In this paper, we shall see the types Detection of Fraud, Artificial Intelligence, of a person seeking insurance. Again, of frauds perpetrated by the people Internal Auditing. it is sometimes difficult to gauge who including organised gangs, triggers of will ultimately benefit from an insurance frauds identified by insurers through India is a huge market for life and contract. The professional fraudsters their years of experience and expertise, general insurance as insurance make best possible use of these inherent measures already taken by them in penetration and density are still tottering weaknesses of the insurers. at 3.71 and 74 USD respectively (source: tackling the scourge of insurance frauds IRDAI Annual Report 2018-19)1, against and the utilities that the insurers can get IAIS says in its report that all frauds the global averages of 6.09 and 682 by investing in Fraud Control measures. need not necessarily be the handiwork USD respectively. While the industry This will enable us to analyse the of professional fraudsters. There are is desperately trying to gain a better Costs and Utilities of investing in these two types of people who commit growth momentum, some crooks and measures. frauds. One category is known as organised groups of fraudsters are “Opportunity Fraudster” while the other This paper is all about establishing the out there to dent the profitability and type is “Professional Fraudster”. The fact that it is worth investing money, even the sustainability of the insurers. opportunity fraudsters are normally manpower and time in fraud control The fraud industry is flourishing like law abiding people but do not mind measures as the rewards to the insurers never before as the fraudsters have claiming more than they should as they far outweigh the costs associated found in this industry an opportunity believe it ignorantly that insurers do not with setting up fraud detection and to get returns of 500% or even 1000% stand to lose, when “small” frauds are management system. soon after buying insurance products. committed. They feel that insurers are For some classes of business, they 1. What is Insurance Fraud? flush with limitless funds and a person are able to make the insurers bleed who had a few “No Claim Years” can Insurance fraud is a scam perpetrated underwriting losses. Of late, insurers make the insurers pay more than they by the policyholders or intermediaries have been able to identify 80 districts of are supposed to. Professional fraudsters or even by the insurance employees, the country which have perfected the art actually take up committing insurance to reap an illegitimate profit from an of committing insurance frauds. There frauds almost as an occupation. They insurance contract. It is a deliberate act are rings of fraudsters that operate like target multiple insurers, cheat them as committed against the insurer. Insurance corporate firms with modern electronic much they can and go on committing fraud, internal or external, can take gadgets, software and “educated” men the crime until they are caught by the place any time during the term of the and women as employees. These rings insurers. When many professional contract. Insurance Fraud is not defined are in constant lookout for opportunities fraudsters form groups, they are capable in Insurance Act, 1938. However, it is to commit various types of Insurance of committing more complex and defined by International Association Frauds. extensive frauds. of Insurance Supervisors (IAIS)2 as Insurers now understand that penal “an act of omission intended to gain Insurance fraud had existed even when measures in India are not strong enough dishonest or unlawful advantage for a the industry was at a nascent stage in (under IPC) to severely punish the party committing the fraud or for other Europe. Fraud control measures used insurance fraudsters working in groups. related parties”. IRDAI has accepted this to be taken even in those ages. Such So, they are waking up to the new definition of Insurance Fraud. measures are well chronicled in the

4 October - December 2020 THE JOURNAL OF INSURANCE INSTITUTE OF INDIA FRAUD CONTROL MEASURES pages of history of insurance industry. In Table-1: Losses Incurred by Insurers as a Percentage of the value of Claims Settled 1380, Genoa had punished perpetrators of insurance frauds. In 1435, a Barcelona Country Classes of Business Amount (as % of value of claims) ordinance prohibited insurance of the Germany All classes of business 10% same products several times. Fraud was Australia All classes of business 10% rampant in marine insurance industry Canada All classes of business 10%-15% in those days as it was found that the Spain Motor 22% policyholders and captains of ships had United Kingdom Personal Lines 7% worked in collusion to make fraudulent Scandinavia All classes of business 5%-10% insurance claims. United States Motor 11%-15% Later life insurance industry had also United States All classes of business 10% experienced similar fate. In fact, life Source: Atlas (2017) insurers always had more difficulties of the value of claims paid across all fraud (life and non-life taken together) in underwriting and classifying risks as classes of insurance business. The in our country was 6.25 billion USD the number of customers was much following table gives the countrywide last year. This amounts to more than more than in general insurance. The life estimate of the magnitude of losses. Rs. 45,000 crore, i.e. about 9% of the insurers had to insure a large number total premiums collected by all types of people, in order to strike a balance In UK, the amount of fraud has been of insurers in a year. The report also between mass and homogeneity. So, life estimated to be 2.5 Billion USD mentions that most of the frauds take insurers everywhere have to handle a annually. In US, the Federal Bureau of place in the first policy year itself. That huge number of customers. That means, Investigation (FBI) estimated that the means, the fraudsters are generally a few individuals can commit frauds and total value of insurance fraud is 40 interested in making money very quickly unless the insurers set up a near fool- Billion USD annually. In Germany, half and then pack their bags to start their proof system of detecting and managing the claims related to theft or damage fraudulent operations all over again at frauds, they are likely to suffer say at of smartphones is fraudulent in nature. some other locations. least 10% of the value of claims. While Insurance Fraud is such a deadly menace insurers are in the business of managing today that it has become an industry 3. Nature of Insurance Frauds risks of people, they run the risk of today and if its value is calculated in India incurring losses in their own business worldwide, it would rank 56th among top as well. companies in US. At this stage, it will be useful to have a look at the types of insurance frauds Life insurers experience another kind In India too, insurance fraud is fast being perpetrated in India now. IRDAI of fraud which is laundering of money becoming an industry. According to has already classified insurance frauds through life insurance policies. This does one estimate, the volume of insurance into three types as under: not just affect the insurers and insuring fraud in India is about Rs. 40,000 public but also the entire economy. crore. That is really too heavy for the • Internal Frauds (caused by the 2. Volume of Insurance Fraud market characterised by low insurance employees) penetration and density. While no • Intermediary Frauds (caused by the We were discussing the incidence of official record exists to determine the agents, brokers, corporate agents insurance frauds in the distant past. total insurance frauds being committed including banks, TPAs) Let us see the magnitude of insurance annually, certain statistics are worth frauds in recent years. According to mentioning here. According to a report • Policyholder Frauds (caused by 4 the May, 2017 issue of the “Atlas at moneycontrol.com , more than 56% policyholders or groups of people in 3 Magazine” (henceforth mentioned as of life insurers of India reported a rise the guise of policyholders) Atlas), insurance fraud in some major of life insurance fraud by 30%. The developed countries of the world has report (prepared by practicing actuaries), Let us discuss Internal Frauds that been found to be the extent of 10% says that the size of the insurance are prevalent in almost all insurance

October - December 2020 5 FRAUD CONTROL MEASURES THE JOURNAL OF INSURANCE INSTITUTE OF INDIA companies. This is happening due to Internal Frauds have been taking place IAIS Report on Frauds two reasons – misuse of positions and by misappropriation of funds, fraudulent says that internal frauds leakages. The people holding senior financial reporting, forging signatures, positions can make money fraudulently falsifying documents and recycling of mostly happen in the by various ways. One way can be to claims proceeds towards new insurance organisations with invest money in companies with dubious proposals (without the knowledge of the complex organisational track records of performance. Some policyholders/claimants). structures. More the such executives have actually been Intermediary Frauds are also of various suspended from services following CBI compartmentalisation types. Most common is taking premium investigations. The leakages can be of responsibilities amount from the policyholder and not intentional or unintentional. When the passing it over to the insurer. There is less is likely to be the processes are not efficient enough, such non-disclosure or mis-representation identification with the leakages are commonplace. Internal about the risk resulting in insufficient frauds happen when some employees perpetrators of crimes and premiums. Using policyholders’ become too greedy to make money by more chance is there for money for third party payments of fair means or foul. When that is coupled proposal deposits is also one kind of committing frauds. Again, with the fact that they have easy access fraud. Splitting of policies without the to the system with all its loopholes, more the employees consent of the customers is another committing fraud is only a matter of are frustrated about the type of fraud. Then, there are umpteen time. The perpetrators sometimes are growth prospects within cases of mis-selling of policies. While under a foolish notion that they are not the policyholder thinks that he has the organisation, more affecting the interests of policyholders. purchased a single premium policy, what They do not know that by committing is there the chances of he was sold was nothing but a regular such acts of fraud, they are causing the fraud. Again, if decision premium policy and the policyholder policyholders’ money to be depleted, making is concentrated ultimately finds it difficult to keep such resulting in lower returns under policies policies in force, while intermediary is in the hands of a few (in life insurance) and increase in able to pocket handsome commission. tabular premiums (in case of life, health, people, there can be more But, most dangerous type of fraud motor and other classes of insurance). incidence of fraud. is helping the uninsurable persons No wonder, there are many money taking insurance cover of high sums. knowledge of the policyholders by suits pending against the fraudulent Ultimately, both the claimants and declaring the policies as lost. Needless employees of the insurance companies. agents benefit immeasurably when the to say, they forge the signatures of IAIS Report on Frauds says that life assureds die by paying one or two the policyholders and arrange to send internal frauds mostly happen in premiums under the policies. money to bank accounts not belonging the organisations with complex to the policyholders but created under organisational structures. More the IAIS Report points out that, the name of the policyholders through compartmentalisation of responsibilities intermediaries sit in a position of trust forged KYC documents. Unless active less is likely to be the identification between the policyholders and insurers. involvement of employees is not there, with the perpetrators of crimes and Since trust forms the basic element of such acts of frauds can not take place. more chance is there for committing insurance business, the same trust can In many cases, the insurance agents frauds. Again, more the employees are be abused if proper control measures are are not traceable after the frauds are frustrated about the growth prospects not in place. committed. within the organisation, more is there In some cases, Intermediaries Over the years, the insurance agents the chances of fraud. Again, if decision commit frauds in collusion with the and brokers have become so clever that making is concentrated in the hands of a employees. For example, they can get they know the basic weaknesses of the few people, there can be more incidence the policies surrendered without the insurers. They also know insurance laws of fraud.

6 October - December 2020 THE JOURNAL OF INSURANCE INSTITUTE OF INDIA FRAUD CONTROL MEASURES pretty well now. They know that when a purchased online without undergoing price of health insurance cover is going policy has run for a minimum of 3 years, any medical examination! The products up every year. While it is practically the contract can not be called in question can be purchased with the help of impossible to eliminate this fraud under any circumstances. So, they are aggregators or directly through the web altogether, it can certainly be controlled making wrong use of the newly amended portals of the insurers. It has been found significantly. Buying of health insurance Section 45 of the Insurance Act, 1938. that policies purchased through the sites policies by suppressing pre-existing Many of the policies which resulted in of aggregators are much riskier for the diseases (PED) or manipulating pre- death claims just after three years from insurers. The fraudsters usually prefer policy health check-up findings or the date of commencement of policies the “Aggregator Route” while buying submitting fake/fabricated documents fall under this category. There are insurance products online, instead of to meet policy eligibility conditions or evidences to prove that the life assured visiting the websites of the insurers. submitting exaggerated/ inflated medical suffered from some dreaded disease at bills or lodging claims under multiple The professional fraudsters have become the time of taking the policy on the basis policies or even fudging data in group very efficient in picking up terminally ill of false statements. But, such evidences health covers – health insurance frauds patients of the locality and buy insurance are not enough to repudiate claims. are of countless types. policies under their names. When the life Worse cases are those which result into assured dies and the claim is paid, the Frauds are not just committed by early claims within say one year of taking claim amount is distributed between the policyholders/claimants. Health service the policy but the death is reported to fraudsters, claimants, doctors, lawyers providers are hand in glove with the the insurer just before the expiry of and even village level administrators. The customers committing the frauds. warranty period of three years. This is size of such death claims are within 2 Frauds by healthcare providers also deliberately done to deprive the insurer and 10 lakhs in 85% to 90% of cases, so include preparation of bogus claims by time to investigate such cases properly that the insurers are not too suspicious fake physicians, billing for products and and arrive at a repudiation decision. So, about these cases at the beginning. After services not rendered, billing prepared many of such claims are to be settled, committing many such insurance frauds, for higher level of services, change too. If the insurer rejects such claims, the fraudsters leave the place quickly in diagnosis of the patients and fake the claimants are sure to drag the insurer and start their operations elsewhere. documentations and fudging of records to the Consumer Forum and the insurer (Source: Economic Times July 6, 2017; of patients. According to a reliable is sure to get a snub from the forum for Author: Shilpy Sinha) estimate, false health insurance claims not admitting such “legally admissible” are at least 15% of the total value of There are huge fraudulent claims under claims. All insurers without exception are claims paid by the insurers. That means, Pradhan Mantri Jeevan Jyoti Bima suffering from such acts of fraudulent the insurers are paying about Rs. 800 Yojona (PMJJBY) as insurers receive behaviour on the part of claimants. In crore worth of bogus claims every year. umpteen claims on policies taken on these cases, there is blatant misuse of Health insurance is already a bleeding the lives of non-existing and dead the latest provisions of the Insurance business with high Incurred Claims people through manipulating Anganwadi Amendment Act of 2014. Ratio. records. (Source: Economic Times July There is another source of fraud these 6, 2017; Author: Shilpy Sinha) That It will be worthwhile to mention that days. Now, insurance policies of really is a matter of grave concern. The even in the top first world country like heavy sums can be purchased online. policyholders have become aware of the US, health insurance frauds consist of The proposer need not go anywhere. shortcomings in the administration of 90% of total insurance frauds of 120 Just filling up a few forms online and such mammoth schemes and have a free billion USD. In that hugely developed attaching of KYC documents and run in committing frauds, especially in country with easily accessible health the insurance policy is purchased the countryside. records and sophisticated billing system, without any hassles. This can be a it is surprising that it is possible for Health insurance. This fraud is now all delightful onboarding experience for the insurance frauds of such magnitude pervasive in the society. It is because customers. Now, even a life insurance to take place. Indian health insurance of heavy leakages and frauds that the policy worth 50 lakhs of rupees can be industry is in a more precarious position

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Table-2: Incurred Claim Ratios of Prominent Insurers in Health Insurance Business impressive in the overall scenario. PSU insurers cover the segments of Name of Insurer Direct Premium No. of Persons Incurred “Government Sponsored Schemes” Received (Rs. Insured People Claim Ratio and “Group Insurance Schemes” and Crores) (in ’000) these are perhaps pushing the ICRs up. Bajaj Allianz 2597.03 24685 85 While insurance is ideally to be sold in HDFC Ergo 1973.17 9605 62 large numbers, an insurer has to take all precautions to ensure that the claims ICICI Lombard 2796.32 15179 76 experience is never too much for it to IFFCO Tokio 928.71 22015 102 handle. The ratio for the industry as a Reliance 1126.79 27464 94 whole is really alarming at 89.34. This is an ominous sign for the industry and the SBI General 1132.51 2748 52 insurers who are bleeding the most have Tata AIG 1119.41 2248 78 to do something urgently to change the National Insurance 6060.43 147728 115.55 course of the game.

New India 8779.72 87561 103.19 It is a known fact that Incurred Claims Oriental Insurance 4677.39 30325 113.86 Ratios in excess of 80% is a matter of grave concern. If this goes on for a few United India 5801.77 54468 110.95 years more, the concerned insurers will Apollo Munich 2194.44 5116 63 find doing health insurance business unsustainable. Some may say that high Max Bupa 947.02 5433 54 Ratios may be due to poor underwriting Religare 1825.57 10713 55 and not doing “Due Diligence” before Star Health 5401.29 11617 69 accepting a risk. That is true but the fact is, Underwriting Capacity is there Industry (taking all 37694.63 4,72,035 89.34 with all insurers and the underwriting small and big players) rules are pretty standardised across Source: IRDAI Annual Report, 2018-19 the insurance companies. The problem lies elsewhere. As the insurer expands and cannot possibly survive with the some private insurers doing brisk its operations more and more, insuring ongoing level of frauds. Let’s look at the health insurance business, e.g. Bajaj crores of individuals either through Incurred Claims Ratios of some of the Allianz, IFFCO Tokio and Reliance are individual or group insurance, the prominent general insurers, collecting in experiencing alarming Ratios. We find fraudsters find it more convenient to the financial year 2018-19, from health that the correlation co-efficient between push bad lives or even make collusion insurance portfolio. the number of policies insured by with hospitals/nursing homes to commit insurers and Incurred Claims Ratio of the The last row of the table is arrived at by frauds. It is easier to commit frauds concerned insurers is 0.71. Therefore, taking the business and claims figures in government sponsored schemes it is clear that there is a strong positive of all insurers doing health insurance or group schemes as there are many correlation between the number of business in India. From Table-2, it is relaxations in selecting lives and making persons insured by insurers and the clear that the insurers who have insured claim payments. The total Net Premiums Incurred Claims Ratios. This proves a very large number of people all across earned by the PSU insurers were Rs. that bigger insurers including the PSU the country are worst hit in terms of 20,053.58 crore as against Rs. 9,812.99 insurers are not properly maintaining adverse Incurred Claims Ratios. In fact, by all general insurers taken together control mechanism as they expand their all PSU insurers have the Ratios in and Rs. 7,828.06 crore for all standalone scale of business. excess of 100%, i.e. their new business health insurers taken together. The premium is found to be insufficient Stand-alone health insurers together smaller companies are perhaps able to pay health insurance claims. Even have a Ratio of 61%, which is quite to exercise better control over each

8 October - December 2020 THE JOURNAL OF INSURANCE INSTITUTE OF INDIA FRAUD CONTROL MEASURES and every proposal and claim, with or Motor Insurance Frauds. This is for 2018-19, we find that three out of without fraud analytics. Standalone perhaps the most commonly committed four of them have above 100% Ratio, Health Insurers are not doing business in fraud in the country. The experts believe with the average being 107.73. The Rural areas and doing very little business that 50% of Third Party (TP) motor average Ratio for the private insurers in Semi-Urban areas and it is a known claims are bogus. But, frauds also take is 76 but most of the bigger private fact that insurance frauds happen mostly place in the category of “Loss/Damage insurers have the Ratio in excess of in those areas. to Own Vehicle” (OD). Many claims are 80. Hence, the picture is scarier than lodged on the basis of fake accidents what we noticed in the case of Health Some General Insurers are more and papers prepared with the help of Insurance. What is more unsettling is serious at controlling frauds than their legal professionals. Most well-known that the Ratio is sharply increasing in peers. Whatever has been mentioned fraud in this space is claims padding, respect of bigger insurers, insuring just now about the variability of ICR is with very few customers knowing that very large number of cars. Even in true but we also find that many of the this is both illegal and unethical. Frauds 2017-18, the Incurred Claim Ratio insurers showing low ICRs are doing also take place by arranging false FIR/ was 89.48 for PSU insurers. There certain things exceptionally Police Report by giving false information is hardly any reason to believe that well as regards management of Frauds. to the authorities. there was a spurt on motor accidents In Table-3 below, the commendable in the country by 20% in the last efforts made by these insurers are If we look at the Incurred Claims Ratios year. mentioned. of Motor Insurance of the PSU insurers

Table-3: Efforts of some Insurers in Controlling Frauds

Insurer ICR Special Efforts taken in Controlling Fraud HDFC Ergo General 62 • The company has established a sound Risk Management Framework (RMF) capable of Insurance Company addressing all risks. The RMF is headed by a Chief Risk Officer.

• It has a strong Audit Committee which recruits Internal Auditors with domain knowledge. They conduct Risk-based auditing.

• Its designated Risk & Loss Mitigation Units (RLMU) uses Fraud Analytics to nab the fraudsters and inform the cases of frauds to Police.

ICICI Lombard 76 • The company has implemented Enterprise Risk Management with prime focus on Fraud General Insurance Management and Cyber Security. Company • Apart from heuristic techniques, the company is using AI based technologies like Machine Learning to detect frauds very fast.

Apollo Munich 63 • The company has set up Enterprise Risk Management system to tackle all risks on an (Stand Alone integrated basis. Health Insurance • Internal Auditing has been outsourced to a Chartered Accountant firm in order to get the Company) units audited independently and professionally.

• The company does Fraud Analytical modelling to detect frauds accurately.

Star Health 69 • Risk Management Committee of the insurer is headed by a Chief Risk Officer and the (Stand Alone committee reviews the risk situation at regular intervals of time. Health Insurance • The company has a strong Internal Audit department that ensures functioning of units as Company) per corporate guidelines. Source: Annual Reports of the concerned insurance companies

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Table-4: Incurred Claim Ratios of Prominent Insurers in Motor Insurance Business In soft frauds, the claimants seize the opportunity to inflate claim amounts of Name of Insurer Net Earned Premium Incurred Claim Ratio otherwise legitimate claims. Hard frauds (Rs. Crores) are committed in pre-meditated fashion National Insurance 4953.86 127.50 by seasoned fraudsters. These are more dangerous types as even doctors, New India 9834.42 87.54 lawyers and other such professionals Oriental Insurance 4343.52 112.62 carefully plan the scheme of frauds. In United India 4796.40 120.79 fact, cost of motor insurance is going up because of such frauds taking place Bajaj Allianz 4216.25 62 in larger numbers and mostly in areas Bharti Axa 1015.12 75 outside the city limits. Motor frauds Cholamandalam MS 2412.06 84 have become extremely organised these days. Drivers, garage mechanics, Future Generali 1013.73 69 lawyers, insurance intermediaries all are HDFC Ergo 2021.22 82 sometimes involved in staging frauds. ICICI Lombard 5035.65 74 New types of Frauds are also affecting IFFCO Tokio 2618.04 87 the insurance industry. Most notable Reliance General 2118.58 85 is Cyber Fraud. Insurers’ offices are all linked through dedicated networks. Royal Sundaram 1731.48 89 But, there are fraudsters who are Shriram General 2015.82 69 able to break into the systems of SBI General 929.64 87 insurers containing all private financial information of crores of customers. Tata AIG 2790.21 70 One fraudulent company named Tuneer Industry (taking all 55212.04 90.60 Capital copied the website of LIC in 2012 small and big players) and kept on collecting huge customer Source: IRDAI Annual Report, 2018-19 information, before a legal action was taken by the insurer against the Let’s take a look at the Incurred Claims at claims stage or they are not able fraudulent company. Many insurance Ratio figures of the insurers doing to identify the fraudsters who have companies are still using outdated motor insurance business. To make perfected the art of hoodwinking the software, browser and development the analysis more meaningful, let us insurers and plundering public money kits and these are not secure at all. consider the insurers that were among with impunity. Something has to be done Hardwares of many users are susceptible the top procurers of business in 2018-19. very seriously by the insurers who are to cyber-attacks. (Source: NIA class on on the brink of disaster. Cyber Frauds & Tools to Detect it by If we analyse the data of Table-4, we Manoj Mhansurekar). find that most of the prominent insurers Motor Frauds can be internal and are living dangerously. If we take top external. Internal frauds are those in All cyber frauds are committed via ten insurers in terms of premiums which the employees, managers or networks like WAN, Wi-Fi, sms and underwritten by them in 2018-19, even Board Members are involved. e-mails. Fraudsters use viruses, Trojans, we shall readily find that 7 out of 10 Most frauds are however external in worms, Logic Bombs etc. They can are having Incurred Claims Ratios in which policyholders and claimants also resort to telecommunication frauds excess of 80. Either the insurers are not commit the frauds in collusion with the using hacking, phishing, SQL injections, applying Due Diligence while accepting agents, brokers and even Third Party Phreaking and Morphing. Sometimes, the risks or they are not scrupulously service providers. These frauds are also they give fake advertisements (e.g. assessing the extent of the damages categorised as Soft or Hard Frauds. Samsung giving free telephones).

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Cybercriminals use secure softwares to that is why they select Life Insurance Let us now see the indicators of Frauds stay anonymous. They use proxy servers Frauds as the “Right Instrument”. Again, which are intermediary related. The and it is extremely difficult to know their such frauds are generally committed by following indicators need to be kept in locations. Cyber attacks mostly take the “Trusted” people. Life insurers, through mind: forms of Phishing Scams, Ransomware, their rich experience, have been able to 1. Intermediaries trying to bypass KYC malware and Remote Access Trojans identify the following indicators of Fraud. norms while submitting proposals, (RAT). Motivation behind these attacks is Let us first see the indicators of frauds purely financial and often informational committed by the employees: 2. Intermediaries submitting fake gain. Although insurers have not yet 1. Unusual employee behaviour, documents (for example, fake complained of large scale cyber frauds School Certificate), in order to prove committed against them, these types of 2. Key employees not taking leaves and the risk as a standard one, frauds are likely to be committed in near sitting late in the offices to do some future as the insurers start using latest “Urgent Pending” jobs, 3. Splitting of proposals without technologies like AI more and more and obtaining the consent of proposers, scale up their operations in remotest 3. Employees showing extra interest in 4. Bringing too many policies that parts of the country. Very recently, the assignments of co-workers, result in early claims (i.e. claims Cognizant Technology Solutions Corp., 4. Blind trust on some particular arising within two or three years), a global IT major of Indian origin has employees, become a victim of a Ransomware attack 5. Receiving regular complaints against that has caused business disruptions of 5. Key documents of the insurance the particular agents from customers its clients. Cognizant confirm that they contract like Policy Bond, proposal as regards mis-selling, poor have been hit by a “Maze” Ransomware papers found missing in some cases, servicing, misbehaviour etc. group. Now, we can imagine what can happen to the major insurers handling 6. Suppliers/contractors showing 6. Retention of Policy Bonds by agents lakhs of crores of Rupees if the providers interest in dealing with some for months and sometimes for years, of IT security themselves can be victims particular employees only, 7. Collection of premiums from of cyber-attacks. 7. Actual expenses exceeding the policyholders of Micro Insurance 4. What are the indicators of budgeted expenses on a regular policies but not remitting the same Insurance Frauds? basis, to the insurer in time,

Now that we have a fairly comprehensive 8. Work getting done without 8. Proposing insurance of non-existent idea about how Insurance Frauds are seeking permission of Competent persons and later lodging death perpetrated in India, the next logical part Authorities, claims by submitting forged death certificates (mostly in Micro- of our journey will be to understand the 9. Bank reconciliations not taking place Insurance), broad indicators of Insurance Fraud in for months, each class of insurance business. Once 9. Adjusting Renewal Premiums we are able to identify the indicators of 10. Loan/Surrender payments made towards new policies (without fraud, it will be easier for us to set up a without collecting the necessary informing the policyholders), only to Fraud Control mechanism. papers, show inflated business figures, Life Insurance 11. Issue of policies without 10. High rates of lapsations and underwriting the proposals, Let us first consider the indicators of Life surrenders in cases of certain Insurance Frauds. These frauds happen 12. Late lodgement of collected cash, agents, because some people still consider Life 11. History of financial impropriety Insurance Frauds as victimless crimes 13. Lack of control of policies returned shown by agents while working with and that they will hardly be caught. The undelivered with a note “No Such previous employer(s). perpetrators want to get rich quickly and Person”.

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Indicators of fraud \ related to 2. Claims made immediately after “Word files” with no dates or official policyholders/claimants. The following enhancement of the sum assured, seals, are well known indicators: 3. Proposals of insurance with a history 14. Claims not accompanied by pre/post 1. Discrepancies found in the KYC of frequent change of insurers, hospitalisation papers/bills, documents as regards full name, 4. Proposals for a sum assureds date of birth, full residential address 15. Claims with apparent discrepancies disproportionately high as compared etc., found in the diagnosis of different to level of income or type of doctors/surgeons, 2. Taking insurance cover at a place occupations of the proposers, far away from the actual place of 16. Claims that suppress medical history 5. Proposal from a non-traceable residence, of the past, person, especially the one whom the 3. Taking first life insurance policy courier could not find in the locality, 17. Claims without the signatures of at an advanced age (50 plus) for a the insured in the pre-authorisation 6. Second claim in the same year for an plan that offers high risk cover at form, acute medical illness/minor surgical moderate price, illness or orthopaedic minor illness 18. Claims with exactly similar pattern/ 4. Not submitting an acceptable proof in the same policy period as the format/clinical details from the of income (in case of high sum main claim, particular providers, assured cases), 7. Claims from a hospital located far 19. Claims for hospitalisation for the 5. Concealing full details about other away from the policyholder’s stated management of lifestyle diseases, insurance policies, place of residence, 20. Claims for uncommon types of 6. Proposals coming from areas which 8. Claim from a hospital which many illnesses, e.g. malignant malaria, are known to be fraud-prone, insurers have already put under monkey-bite etc., “Watch List” or even “Black List”, 7. Reporting of lower age (falsely) to 21. Claims for surgical conditions treated get insurance at lower cost, 9. A large number of claims coming conservatively, from some particular hospitals 8. Claimants opening a bank account although many other hospitals 22. Claims for medical conditions like just before lodging a claim. of same quality exist in the liver disorders being treated in the very first policy year (indicative of These are the indicators of fraud. neighbourhood, Pre-Existing-Disease), Now, insurers have to find a Control 10. Bills coming from a hospital showing Mechanism that can prevent the fraud no landline number, registration 23. Claims where the clinical findings do from taking place or if the frauds still number or Pin Code of the locality, not correlate with diagnosis or line take place, to detect them quickly. of treatment, 11. Submission of bills where the Indicators of fraud in health insurance doctors’ qualifications, Registration 24. Claims with unjustified admissions sector of the industry. Numbers etc are missing, in ICU, The following can be considered as 12. Bills from the hospitals which 25. Claims with a high proportion of important indicators of fraud: are found to be “Too Perfect” pharmacy costs or fees of the 1. Multiple claims with repeated (everything chronologically physicians (more than say, 50% of hospitalisations (under a specific mentioned, high quality papers with the total values of claims), policy at different hospitals or at coloured prints etc.), one hospital for one member of the 26. High value claims coming from a family and different hospitals for 13. Bills which are full of tamperings, lesser known hospitals/nursing other members of the family), overwritings etc. and printed on homes of Tier-II or Tier-III cities,

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27. Claims with no intimation of 2. No witness available to provide the 5. Fraud Control Measures With hospitalisations till the submission correct account of the accident, Their Costs and Utilities of claims documents with all hospital papers, 3. Many passengers in the vehicle but Now that we have taken a look at the no children or senior citizens, nature of insurance frauds in India and 28. Claims from family members also the indicators of many such frauds, exerting too much of pressures to 4. Passengers suffering multiple we are in a position to discuss the type settle claims immediately (and also injuries but no major damage to the of Fraud Control Mechanism that can displaying unusually high level of vehicle, detect and manage the frauds effectively. knowledge as regards policy terms, As we have seen in the previous sections 5. Inconsistencies found in the medical terminology and eagerness of this paper, insurance frauds can information surrounding the claim to negotiate settlement amount) after take place at the proposal stage of the (e.g the circumstances of the claims submission of bills, policy or at any time during the term not matching with the accounts of a policy. The insurance regulator, 29. Claims where family members given by the claimants), IRDAI has been aware of the scourge are unwilling to be contacted over 6. There is a definite pattern in the of insurance fraud and brought out its telephone or are in no mood to co- claiming behaviour, circular on the matter in January 20135, operate. clearly laying down a roadmap for the The above mentioned indicators of fraud 7. Claimants behaving too aggressively insurers as regards setting up Fraud are very much relevant to all insurers at the office of the insurers, Control measures. The guidelines are as of the country. While it is not possible under: 8. Reporting of loss of such parts of to say that the fraudulent acts are sure the car which can easily be hidden • All life and general insurers to happen when these indicators are by the owners (e.g. seat covers, (including standalone health found, there is good chance that further audio systems, other expensive insurers) must set up a Risk investigations and further documents accessories), Management Committee (RMC) as from the policyholders may enable the part of their Corporate Governance insurers to prevent/detect frauds in some 9. Too many claims of same nature policy. RMC should launch a Risk of them. Then it will be possible either under a single insurance policy, Management Strategy for the entire to reject the proposals for insurance organisation and keep on reviewing or reject the claims (and cancelling the 10. The claimant is totally calm and it from time to time. contracts, too), as the case may be. It unflustered even after suffering is always better to detect possibility of enormous loss/damage, • Every year, the insurers are fraud at the proposal stage itself as it supposed to send a Responsibility 11. Claimants submitting handwritten is quite difficult to establish fraudulent Statement to IRDAI, clearly certifying receipts of the costs of repairs work motives of the policyholders later. the adequacy of the Control System done, in preventing and detecting frauds in Indicators of fraud in Motor Insurance 12. Lodging of claims immediately after the organisation. (TP and OD) increasing the insurance cover. • The insurers must launch a Board These frauds are generally policyholder approved “Anti-Fraud Policy” and related although collusion with agents, When the insurers know the indicators this policy should clearly be available brokers and third party service providers of frauds, they can set up appropriate in the websites of the companies. are very much there. The following Control System in the organisations. Then they can also discuss whether indicators can surely be mentioned: • The insurers are supposed to identify benefits that are likely to come by the potential areas of fraud and 1. Accidents occurring in late hours setting up the control systems are worth develop procedures for monitoring and in sub-urban areas of the investing money, time and manpower of fraudulent activities on a regular country, into it. basis.

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• The insurers are expected to co- the insurers collect the evidences of about the importance of these questions. ordinate with law enforcing agencies fraud and take further necessary action The result is, they answer the questions to detect fraud and take necessary against the fraudsters with the help of casually without knowing that the legal actions against the perpetrators law enforcement agencies. On the basis answers given by them form the bedrock of frauds. of all the experiences of preventing of the insurance contracts between fraud, detecting fraud and responding them and the insurers. Sometimes, We can have a look at the diagrammatic to it quickly, the insurers should be even the agents/brokers advise them presentation of Fraud Control able to redesign their Fraud Monitoring to suppress certain material facts. So, mechanism that the insurers can Framework from time to time and after the insurance contracts are not always adopt in managing frauds, as shown that Communication should again go to formed on the basis of “Utmost Good by Deloitte in their report6 on Fraud the stakeholders. This process has to go Faith”. In any insurance contract, be it Framework (henceforth called Deloitte on without any break. life or health or motor or properties, a Report). reasonably high level of honesty and integrity on the part of the contracting Figure-1: Graphical presentation of Fraud Control Framework parties is of paramount importance. Since, it is not possible for the insurer to know important details about the life and properties of the proposers, it is incumbent upon the proposers to answer each and every question correctly so that proper classification and underwriting of risks can take place.

The question is what control mechanism can the insurer set up to ensure that the proposers are encouraged to answer to the questions of the proposal form correctly? Firstly, the agent advisors, Source: deloitte Report on Insurance Fraqud Framework (2013) brokers, banks have all to be trained properly. The intermediaries have to In this paper, we may follow the Deloitte In this section, we can start discussing understand the importance of collecting framework of monitoring fraud in the subject with the first initiative, i.e. right information from the proposers. India. According to this framework, Communication and then proceed to In case the agents are found to be each insurer has to first launch a the other initiatives to be taken by the not discharging their duties properly, communication campaign to let insurers. suitable punitive action has to be taken employees, intermediaries and insuring against them. They can, for example, be Communicating to stakeholders about public know about the menace of fraud barred from submitting any proposals the Fraud Monitoring Framework and how the insurer plans to combat the for a few months. In extreme cases, fraud. This has to be the first step. The It is saddening that even twenty years the agency should also be terminated. second step has to be setting up Control after opening up of the industry, the Unless such exemplary actions are measures to prevent fraud from taking common people are not aware that they taken, message will not reach all and place. Since, this will never be foolproof are committing a fraud by not answering sundry. There are ample opportunities in the age when insurance frauds have the questions of the proposal forms under Agency Regulations, to take action become an industry, the insurers have with the best of their knowledge. Most against the agents aiding and abetting to develop capabilities to detect frauds of the proposers of the rural areas and frauds. Insurers only need to incorporate when they sneak in anyway. After the also a good number in the urban areas them into their Fraud Monitoring fraud is detected, it is important that either have partial or no knowledge Framework and start implementing

14 October - December 2020 THE JOURNAL OF INSURANCE INSTITUTE OF INDIA FRAUD CONTROL MEASURES them. While training the field officials, from the “Whistle-blower”. The identity more of “Customer Education” type and it is to be made clear to them that the and safety of the employees reporting must be written in jargon-free language organisation has taken a zero tolerance frauds under the “Whistle-blower’s (both in English and local vernacular). policy as regards insurance fraud and Policy” must be protected, for sure. Prevention of Frauds that the perpetrators of frauds will be In fact, insurers have been able to nab taken to task. Utility of such measures many perpetrators of frauds with the We can now discuss the fraud can be immense as the policyholders help of special information obtained from prevention measures which the insurers and agents will be more careful while the whistle-blowers. Cost of setting up are adopting in the country or can adopt submitting proposals. Very few insurers a Whistle-blower’s Policy is nothing but in future. Then, we can also discuss the are serious in this area as their prime the utility can be huge for the insurers. costs involved in using these measures concern is found to be on selling as and what utilities can be forthcoming to Right communications should reach many policies as possible. But there insurers by investing on these measures. the policyholders as well. Alongside is more “Utility” in accepting right the Policy Bonds, the insurers should Analysis of Insurance Nexus Report proposals and saying “No” to doubtful distribute a booklet on the “Obligations proposals. of the policyholders/claimants” in which It will be better if we first look at a Communications should also reach the policyholders should be informed of worldwide survey made by Insurance all levels of employees about the the basic tenets of an insurance contract Nexus, a consultant, on the reasons of companies’ Anti-Fraud policies. and why violation of the basic principles large scale insurance fraud across the Employees must clearly know that they of the insurance contract can never be world. This figure has been reproduced have a responsibility to report all acts of accepted under any circumstances. The in the Atlas magazine to which reference fraud that are taking place within their customers have to be informed that has already been made. Figure-2 knowledge. There has to be a clearly collecting claim money is not a right helps us to understand the inherent structured “Whistle-blower Policy” in under the contract. In Motor and Health, weaknesses of the insurers. Needless to place. This is a genuine need these it nearly becomes so after a few “No say, Indian insurers are not immune to days. The ground level employees Claim years”. This booklet should be these weaknesses. are generally aware of how frauds are Figure-2: Common Weaknesses of Insurers leading to the Frauds being committed in the organisation at operational level. Many of the insurance frauds take place in rural or semi-urban areas where healthcare services are not upto the standard and people are not willing to disclose facts after fraud has already taken place due to pressure from influential people of the locality. Since people know each other very well, an employee may know whether the statements made in the proposal forms are correct or incorrect. May be, the life to be assured is a death bed patient and a lot of things are going to be stage managed. The employee feels that he should report the daylight robbery that is about to take place soon but do not know how he should report such cases of frauds. The organisations should have a system to get the right information

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If we look at the top six weaknesses appallingly low investment on fraud been proved in the courts of law. The of the insurers leading to frauds, we control measures on the part of many insurance companies can name the shall readily find that many of these top insurers although launching such perpetrators of frauds in their websites are weaknesses of Indian insurers as measures is not necessarily too costly so that all potential fraudsters can be well. Like most of the insurers surveyed for them. careful. Cost of such measures is nil (43%), Indian insurers too are not but it can be costly if the parties named Supply side Frauds always able to capture quality data on and shamed accuse the insurers of the insured people and properties. Our Many of the frauds are committed libel or slander. The insurers can adopt insurers do not possess right data as only by making use of the laxity in this measure by taking necessary legal regards the age, occupation, address, supervision by the insurers. Sometimes precautions. The return from such income and health conditions of the there are loopholes in the systems and measures can be great. customers. Undetected frauds are also processes and these are not set right for New vertical to manage fraud a problem with insurers. Out Internal a long period of time. The perpetrators Audit mechanism and “Whistle-blower’s become aware of such loopholes Some insurers are so serious about Policy” are not yet too strong to prevent and start committing frauds. In large preventing frauds that they have or detect frauds. Many of the frauds organisations, operations and software created new department in the continue for years and are detected quite developments take part in different organisation under the name, “Risk & “accidentally” one day when a lot of locations. So, by the time the developers Loss Mitigation”. This is a step in right damages have already been done to the plug the loopholes, frauds amounting direction. When some people have the insurers. Our big insurers have issues to a few crores may have already taken sole responsibility to prevent frauds and with data protection and privacy. They place. These are “Supply Side Frauds” detect frauds, they are totally committed are not sure how much of data should be and courts punish the insurers only, to this job only and are expected to give shared among industry players, in order when such frauds are found. The court the insurers desired results. True, these to combat the fraud jointly. They believe has to say that the insurers should better employees are not able to work in other they stand to lose if they share data with be careful to repair the systems and important areas of the operation but that their competitors. prevent such frauds from taking place. is a cost which is more than outweighed by the benefits they bring for the Let’s discuss the next three weaknesses. Therefore, it is very important to ensure organisations. HDFC Ergo has a similar Siloed organisational principles are that the needed job is done on a war department with two functions. One the hallmark of many insurers of the footing and responsibility is fixed on function is to go for field investigations country. These insurers are quite big persons who do not report about such on a regular basis. The other function and each department maintains its own loopholes in time or the persons who is to use Fraud Analytics and send identity. The top management is not keep the complaints unattended for suspected cases to Fraud Control Unit always willing to share sensitive data months. A sense of urgency is to be (FCU). with the subordinate offices leading created among the employees (and to disconnect between various units also field officials) to report any such Taking the fraudsters to the courts and that is capitalised by fraudsters in loopholes in time. The people who ICICI Lombard has been able to reduce committing crimes. Inadequate access report such faults in the system should Personal Accident related insurance to external data also stands in the way be properly rewarded. The cost of such frauds in Uttar Pradesh by dragging the of preventing fraud. Unless the insurers rewards can always be much less than fraudsters to courts of law. Earlier, that have a system to make a full profiling of the financial losses prevented by them. state was notorious in making fraudulent the customers, using various financial Naming and Shaming Personal Accident claims. Through a lot data and social media habits of the of efforts, the insurer has been able to customers and intermediaries (and also An effective way to prevent frauds is by detect a few frauds there. After that, they of employees), it is extremely difficult “Naming and Shaming” the perpetrators lodged FIRs against all the perpetrators to assess the fraudulent motives of in the public domain, especially in cases of frauds. As a result of this, Lucknow people these days. Finally, there is an where the guilt of the fraudsters have High Court was compelled to order a

16 October - December 2020 THE JOURNAL OF INSURANCE INSTITUTE OF INDIA FRAUD CONTROL MEASURES comprehensive investigation into the sellers beware), which is going against Pre-authorisation before matter. The whole incident has been able the insurers. a hospital admission to prevent fraud to a large extent in Uttar Pradesh. Tele-Underwriting to prevent fraud is another measure to prevent fraud. Under this Taking the assistance of the Cyber Another fraud control measure which Branch of Police many insurers are increasingly resorting measure, the policyholder to is “Tele Underwriting”. When a Tele is supposed to clearly The insurers have to be very active Underwriting takes place (in select mention the type of whenever they find that some fake cases), there is a greater possibility company is collecting money under that the person talking to the medical treatment/surgery he is their names. HDFC Ergo came across examiners appointed by the insurers will planning to undergo in the one such company which was operating share his personal medical history. The hospital. Pre-authorisation in Delhi, Noida and Meerut by offering proposers become aware that whatever requests for scheduled the type of insurance cover which had they will say to the medical professional never been offered by the insurer. They will be recorded for future use. So, in surgeries must reach the were able to bust the racket with the his own interest, he avoids giving wrong insurer at least 24 hours help of the Cyber branch of the Police information. The people interested in before the admission department. Some such acts can put a disclosing correct information will never into the hospital. Pre- lid on the fraudulent activities. The cost object to such kind of underwriting of such operations involving the Police practice. This control measure is not too authorisation enables was not heavy but the actions were able costly as cost of making phone calls is the insurer to know the to prevent the activities of the fraudsters very low these days. Cost of recording type of treatment that the greatly. In US, even doctors are pulled the statements of the proposers is also policyholder is supposed up for colluding with policyholders for low. But, this control measure can collecting claim money fraudulently. save crores of rupees of the insurers to undergo. The actual Even they have to spend years in jail for since it should prevent fraudsters from treatment/surgery can not committing such fraudulent acts. Such committing fraud to a large extent. be widely different from measures do not involve too much of costs but a lot of initiatives. The Utilities Proper pre-authorisation can prevent the one mentioned in Pre- are far more than costs involved. fraud authorisation request in Contracts to be properly worded writing. Pre-authorisation before a hospital admission is another measure to To prevent frauds from taking place, in place, the policyholder finds it difficult prevent fraud. Under this measure, the insurers can make certain contracts to commit a health insurance fraud. worded in a very explicit manner. In fact, the policyholder is supposed to clearly the wordings should be such that there mention the type of treatment/surgery Insisting on Spot-Photos and sending is no scope of any ambiguity as regards he is planning to undergo in the hospital. own people for inspections interpretation of any clause. Our policy Pre-authorisation requests for scheduled contracts are still heavily loaded with surgeries must reach the insurer at least Some insurers are making it a rule complicated product features not easily 24 hours before the admission into the that any motor insurance claim has comprehensible by most policyholders. hospital. Pre-authorisation enables the to be intimated immediately after the The insurers should take a drive to insurer to know the type of treatment occurrence of the accidental event and simplify the policy conditions. This will that the policyholder is supposed to “Spot Photos” should be sent to the prevent some frauds from taking place. undergo. The actual treatment/surgery insurers. In some doubtful cases, the In the absence of policy conditions in can not be widely different from the one insurers are sending their employees to simple terms, the court is applying the mentioned in Pre-authorisation request check the vehicles for themselves. The principle of “Contra Proferentem” (let the in writing. When this measure is properly employees also visit workshops where

October - December 2020 17 FRAUD CONTROL MEASURES THE JOURNAL OF INSURANCE INSTITUTE OF INDIA repairs are made, to ensure that there is Hunter (an Analytic Engine) of Experian notable among the suggested measures no fraudulent nexus between the insured to prevent frauds. National Hunter is a are as under: and the workshops. These initiatives, Fraud Detecting Database developed • The insurers should come together though not much expensive, sends the by the Data scientists of the Experian. to launch a nationwide campaign to right signals to the people planning to A high Hunter Fraud Score indicates educate the policyholders, TPAs and commit frauds. possibility of Fraud in any particular hospitals to make them understand proposal or claim. However, the what insurance fraud is and what Checking financial details more insurers are yet to share all their fraud their implications are for the honest innovatively related data on a regular basis. While insuring public and the society. Life and health insurers are checking the 43 public and private sector banks are • The insurers should join hands financial information of the proposers regularly sharing their data on fraudulent to develop model clauses for more innovatively these days. In large transactions, insurers are yet to do so as incorporation pertaining to fraud, sum assured cases, the proposers they think it will compromise the security into the policy contracts, so that the submit certified copies of the Income of their customer data. If the insurers fraudsters can not find loopholes in Tax Returns (ITR). Now, the insurers need to prevent fraud more effectively, the contract and keep on committing are not just looking at the ITR, they they have to share more data and get fraud, only to get away with impunity are checking the Bar Code also. The maximum benefits from the global at the end. In the absence of any law PAN No. mentioned in ITR and that consultant, Experian. But, the insurers in the country on Insurance Fraud, mentioned in Bar Code must match. are already getting some benefits from the insurers have to take necessary First ten digits of Bar Code is PAN their association with Experian. Costs are precautions while wording the policy No. If there is a mismatch, the ITR is certainly not prohibitive for any insurers. contract. not authentic. Genuineness of ITR-V Similarly, the general insurers have can also be checked by verifying the created a database of proven fraud • The insurers should also decide acknowledgement online in the site of cases with the help of LexisNexis Risk on how to respond to events when Income Tax authorities. The insurers Solutions. The insurers have started to fraud is suspected and when fraud should only spend some time to do these use these databases extensively and is established. Insurers have to things, before rushing to issue policies this is helping them to prevent many make judicious use of the “Code and that can enable them to prevent health and motor insurance frauds in of Conduct” and ethics set for the fraud. There is hardly any cost involved many cases. The Utility that the insurers medical practitioners by the Medical here in preventing fraud. What is needed receive by using these databases is Council of India. Insurers can take is more commitment in checking each immense. up the matter with the medical and every case. regulator and this itself can act as Industry level co-operation can prevent deterrent against commission of Insurers taking the help of Experian and frauds even more Lexis-Nexis frauds in health and life insurance Let us come to FICCI Report on Health spaces. Private life insurance companies of Insurance Frauds8. Although the report India have hired the services of an is on Health Insurance Fraud and • The industry should take initiative Ireland based Data Analytics company recommendations of preventing such to develop Third Party evidence to get tech enabled fraud detection frauds, most of the control measures based standard medical protocols assistance. In fact, Life Insurance suggested in the report can be of use to and treatment guidelines. This can Council has selected Experian to set-up other lines of insurance as well. FICCI happen for a vast majority of the a Fraud Repository Framework for the has suggested some measures which cases of hospitalisations for which insurers. Under this Framework, the the insurers can collectively take at the claims are preferred. insurers have developed a database of “Industry” level to curb the fraudulent fraudulent customers, their locations transactions on the part of policyholders/ • The industry should develop a and their modes of operation. This claimants, intermediaries, hospitals, structured training program for helps the insurers to use the National medical Practitioners etc. The most fraud investigators together with

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a mandatory examination on the considered as fraud prone and a “Red Many insurers are using lessons learnt. The investigators Alert” is generated. That means, it is predictive analytics to so developed should also be given better not to accept such proposals at further learning inputs from time all. Proposals earning somewhat better assess the intentions to time with the change in the score (but not satisfactory enough), are of the proposers at the patterns of frauds committed. If assigned “Amber Alert”. That means the proposal stage itself. these investigators are licensed by insurer has to probe further into these The Fraud Analytics use IRDAI, that would put additional cases through further medical tests, responsibility on them to investigate underwriting at Video Conferencing Machine Learning to learn each case with the best of their mode etc to assess the quality of the about the activities of the abilities. The organisations like risks. Then, it is upto the sagacity of the fraudsters in the past. National Insurance Academy and insurers to decide whether to accept Then the Analytics are Insurance Institute of India should such proposals and at what terms. Sum actually conduct such training assured may have to be reduced. Some in a position to predict programs at their premises. restrictive clauses may be imposed. which proposals may Even extra premiums may be imposed result in fraud, since • Industry should also train Police in some cases. Finally, if a satisfactory and Public Prosecutors on the way score is generated by the system, then a such models are very frauds are committed and the way “Green Alert” is shown and that means efficient in “Identifying they are expected to look after the the insurer can accept the proposal the Outliers”. Based on interests of the honest policyholders safely. the place of residence, and the insurers. Police are not Such Fraud Analytics have been generally aware of the ways income, occupation and developed by a lot of consultants, insurance mechanism work. Even educational qualifications, ranging from big names like Deloitte Public Prosecutors know little about and Accenture to the various start-ups the Analytics software is insurance contracts. These parties working in tandem with the insurers. able to generate a “Score” too, need thorough training but of According to the FICCI Report on different kind from the training for for each proposal. “Health Insurance Frauds”, the costs of Fraud Investigators. such analytics are “Medium” and the than tech enables methods which the Predictive Analytics are preventing complexity to develop and administer is insurers have started to adopt across frauds also “Medium”(source: FICCI Working the industries and also across the Paper on Health Insurance Frauds geographies. Many insurers are using predictive (2013). Therefore, it is clear that no analytics to assess the intentions of Indian insurer should either find it too Fraud Analytics companies are more the proposers at the proposal stage costly or too difficult to operate. The interested in enabling insurers getting itself. The Fraud Analytics use Machine Utility that the insurers can get from quality risks. For that, they not only Learning to learn about the activities such analytics is profound. At global work with the historical data of the of the fraudsters in the past. Then the level, the insurers can not imagine insurance companies, but also with that Analytics are in a position to predict life without Fraud Analytics. In Indian of other service providers and even the which proposals may result in fraud, conditions, these will prove to be even information about the policyholders since such models are very efficient in more useful as the traditional methods available in various social media “Identifying the Outliers”. Based on the may not be enough to keep track of platforms. The purpose is to “Profile” place of residence, income, occupation what is going on in the far off areas of each proposer and examine whether and educational qualifications, the the market. The benefits will certainly the concerned people can pose risks Analytics software is able to generate outweigh the costs in the long run. In to the insurers. Very sophisticated a “Score” for each proposal. The fact, many experts believe that traditional analytical engines are available whom proposals getting a very poor score are fraud control methods are costlier the fraudulent proposers will find it

October - December 2020 19 FRAUD CONTROL MEASURES THE JOURNAL OF INSURANCE INSTITUTE OF INDIA very difficult to deceive. Probability of is extremely difficult to determine such system also enables the insurers to see making right predictions increases with unknown factors or “a set of factors the data gathered from public domain the increase in the size of the data. As working together” in perpetrating the and also data belonging to many other Indian insurers are large repositories frauds. Data Mining thus helps insurers industries. This enables the insurers to of data, the Fraud Analytics companies in modifying many functional strategies get an all round view of the proposers/ should get near perfect results with their and even underwriting rules and claim intermediaries/hospitals etc over several predictions. settlement guidelines, thereby preventing years. When Blockchain functions with frauds. Machine Learning and IoT, the insurers View of Indian academicians on Fraud can get more information about the Analytics Allotment of CIBIL type score can people under review. The author of this paper had opportunity prevent possible frauds to discuss the issue with various Another interesting fraud control This Blockchain initiative can eliminate academicians of repute. They have measure can be to assign something like processing multiple claims from the mentioned that AI based Fraud Analytics a CIBIL score to each insured person of same accident or even unlicensed/ are not at all costly. Excellent Open the country. If the insurers join hands to terminated agents/brokers selling Source free analytical tools like R, develop a database of insured persons insurance products fraudulently and WEKA, Python, PowerBI, RapidMiner, and their claim histories, that can benefit pocketing the premiums. Past history of KNIME along with MYSQL can be used all insurers in deciding whether to accept frauds of some policyholder/intermediary very conveniently to prevent and detect such risk and at what terms. A “Score” will be immediately known. Insurers frauds. What is required is to build a can be allotted to each individual on the need to invest money to use Blockchain “Fraud Analytics Team” committed basis of his past medical histories. Some system but Utility is so great that to work either independently or with common Customer ID can be given to insurers all over the world are now using experienced external consultants. It may each insured person like PAN No. To this for fraud prevention and detection. give desired results within a few months. make such a measure functional across Detection of Fraud GIC Re and PSU insurers (general) have the industry (primarily in the health started using these analytics. insurance domain), costs will not be too While it is best to prevent frauds from much to bear. Systems of the insurers being committed, it may not be always Advanced Fraud Solutions are also need to undergo some modifications possible to prevent them altogether available and they should be powerful enough no matter howsoever effective is In one of their recent reports on Data to generate a score on real time basis. communication strategy and Fraud Analytics for insurance industry, The utility that can be derived from the prevention measures. So, it is required Insurance Nexus9, a US based Analytics measure will really be substantial. This to detect frauds so that the loss to company says that in their advanced measure has been nicely suggested in insurers can be mitigated by recovering fraud solutions, they use Handwriting IRDA Journal’s May, 2011 issue10 by the amount lost to the fraudsters. Scanning, Image Processing, Geocoding Dr. Dhiraj Goud. and XDIF information in addition to using Internal Auditors are detecting good historical fraud data of the insurers. This Blockchain is already preventing frauds number of frauds enables the consultant to catch hold of Blockchain is a transformative The Control Measure which all the frauds more quickly and accurately. technology that can prevent insurance insurers use is “Internal Auditing”. The frauds. Under this technology, on auditors, appointed by the insurers Data Mining can modify underwriting a distributive ledger, the insurers from among the employees of the rules in preventing fraud record permanent transactions with organisations, are expected to develop Data mining is an AI enabled control granular access controls to protect data an expertise to check the books of system to prevent fraudulent activities. security. Storing claims information accounts of the operational units and Data Mining together with “Experience in a shared ledger helps insurers detect frauds, if any. To name a few Analysis” helps insurers to understand identifying suspicious behaviour of of its jobs, they need to see whether any hitherto unknown patterns of the policyholders or intermediaries lodgement of cash is made according fraud. Using the traditional method, it or service providers. The Blockchain to company’s rules, whether bank

20 October - December 2020 THE JOURNAL OF INSURANCE INSTITUTE OF INDIA FRAUD CONTROL MEASURES reconciliations are taking place every teams. (Source: Claims Management: Many insurers set up month, whether excess payments are Taking a Determined Stand against Triage team to make not made to the policyholders and field Insurance Fraud by Kuhnt, Lorenz and officials. Many of the frauds are found Mussig of McKinsey) best possible use of to be claims related. So, the Internal Getting claims investigated by the financial resources Auditing has to be done very thoroughly, specialists allocated for detecting to verify whether the excess payments Predictive Analytics are also used in fraud. A triage specialist have been made fraudulently or by the claims stage. Very early or very late mistakes. They have to report any acts of uses his experience reporting of death can be symptoms serious financial irregularities. While the to decide whether it is of fraud. Of course, the analytical internal auditors can detect fraud, they engine takes into account various worth spending money can also educate the employees how to other factors before throwing a “Red on investigation of a do their work properly to prevent fraud Alert” in such cases. When there is from taking place. suspected fraud case. He “Red Alert”, investigations have to be makes a clear cost benefit This control measure is a must. It may stronger to detect and prove a fraud. so happen that the cost of salaries, daily HDFC Life considers investigation analysis to take this allowances etc paid to the auditors, of early claims as a very specialised decision. He also decides taken together, during the whole year job and an insurance employee does whom to give a particular may exceed the total excess payments not have the time to spend days in job of investigation on the detected (fraudulently or otherwise). investigating the genuineness of a claim. Still, investment on maintaining a vigilant The insurer has outsourced the job basis of the expertise and audit team is a must because in the to professional agencies. The claims workload of the concerned absence of powerful internal auditing, which are too doubtful are sometimes investigators. The triage the frauds may blow out of proportion. investigated by two independent is also responsible for So, whatever are the costs, the utility of agencies. Such measures improve the maintaining an Internal Audit is always chance of detecting the fraud. Cost conducting regular agreed upon. of investigations through outsourced training of investigators Introducing “Triage” function for agencies is surely on the higher side and claims handlers. optimum utilisation of Resources but the insurers find it worth investing in. After all, the claims payable have impersonating themselves or their family Many insurers set up Triage team to increased substantially these days as members. Fraud Analytics can detect make best possible use of the financial term assurance plans are flavours of such incidence of frauds. resources allocated for detecting fraud. the times. So, if frauds to the extent A triage specialist uses his experience Government should make hospitals to of several lakhs or even crores can be to decide whether it is worth spending share treatment papers saved by incurring some costs (which money on investigation of a suspected The life insurers do not always get can certainly be within the affordability of fraud case. He makes a clear cost copies of old treatment records, Case the insurers), the insurers do not mind. benefit analysis to take this decision. He History Sheets etc from the government The predictive tools do not suggest the also decides whom to give a particular and private hospitals. They need to insurers to investigate each and every job of investigation on the basis of take up the matter with the government claim thoroughly. It mostly suggests the expertise and workload of the so that the records are made available insurers to concentrate on cases which concerned investigators. The triage is to them for the greater interest of the can affect the bottom-lines of the also responsible for conducting regular insuring public. Before opening up of companies. training of investigators and claims the sector, the government, through handlers. Additionally, the triage sets In a large number of cases of Insurance a circular of the health ministry had up KPI based system to continuously Frauds, it has been found that frauds directed the government hospitals to assess the performance of investigating are committed by policyholders by provide all old treatment papers to LIC.

October - December 2020 21 FRAUD CONTROL MEASURES THE JOURNAL OF INSURANCE INSTITUTE OF INDIA

After private companies came in the knowledge of automobile parts can be Bill Checking System can be improved market, the circular should have been expected to detect frauds. Investment on to detect fraud amended to include the private life getting quality Surveyors can enable the The insurers should set up sophisticated insurers too. The private players should Motor Insurers save huge money. bill checking systems which can easily jointly appeal to the government to spot a fraudulent bill. The insurers amend the circular. This will enable the Putting Barcodes and Holograms to should also cross-check various insurers to detect a lot of frauds in the Detect Fraud relevant documents like FIR, Medical life insurance claims. Many of the motor insurance frauds take Bills, Lawyers’ Statements etc. to find Recruiting Pharma Graduates place on uninsured second hand cars. any serious discrepancy there. All such Many private insurance companies The owners of cars buy fake insurance systems are not too costly and yet can are recruiting pharma graduates these policies (at half the normal premium) go a long way in detecting fraud. days, so that the health conditions of from the perpetrators of fraud. The the life assureds can be better assessed insurers have started to put Barcode Some Consultants are detecting frauds by properly studying the medicines and QR code on the insurance policies. very fast with Fraud Detection Software prescribed by the doctors, whether those 3D Hologram stickers are also fixed on medicines were at all required by the the policies. By scanning these Codes According to Health Insurance life assured and ultimately whether the and Holograms, the Police can check Association of US11, 1 USD invested on policyholders and the hospitals are trying the details of the insurance policy. fraud detection software has been able to to extract money wrongfully from the The Police can check the authenticity save 11 USD of the insurers. Consulting insurers. So, these pharma graduates of the barcoded Policy No. by visiting companies like Accenture has been using can detect frauds much better than the the websites of the insurers. In fact, Big Data to detect Insurance Fraud in generalists of the industry. Now, the the insurers have given training to real time. This consultant has done away cost of having a good number of pharma thousands of Police Officers on how with traditional SQL based software that graduates in payroll is definitely high. to check the authenticity of a motor takes huge time in detecting fraud and But, insurers must have understood insurance policy. True, the insurers have in many cases, unable to detect fraud the utility of recruiting them because to invest on all such activities but in the at all. Accenture creates custom-built these employees with relevant domain end, it will make the car owners buy analytics for the benefit of particular knowledge can save crores of Rupees insurance policies from the insurers and insurers, which can process structured of the organisation by way of detecting that will be a very big benefit. and unstructured claims data to detect health insurance frauds. The knowledge suspicious patterns. It uses affordable of pharma graduates can also help life Insurers tying up with motor and secure open-source Hadoop insurers in detecting frauds in respect of manufacturers to install anti-fraud architecture. Its predictive analytics is their health insurance products that give technology able to set red flags by analysing old “Fixed Benefits” to the policyholders/ schemes of frauds. It can process data claimants. The insurers have started to encourage real time and understand the latest car manufacturers to develop cars with trends in fraud making. The package is Knowledgeable surveyors can detect in-built technologies that can detect very user friendly and no knowledge of Motor Insurance Frauds frauds. Technologies like “Telematics” SQL is required to use the package. To detect fraud in Motor Insurance, both and “Dashcams” can be used by insurers in Third Party (TP) and Damage of Own in detecting frauds. If someone says that By installing the Accenture built Vehicles (OD) sections, the importance injuries happened because of a collision, fraud detection software, a state rum of the efficiency of the Surveyors need telematics can check what the speed department settling claims under not be over emphasised. The surveyors was at the point of contact. “Dashcams” Workers’ Compensation’ insurance should be well conversant with the can record pictures of everything that policies, has been able to experience perils covered, exclusions, warranties/ happened at the time of accident. Such favourable Return on Investments (ROI) conditions etc. Only the surveyors who technologies can detect frauds for the within six months of investing in fraud know these clauses well and also have insurers. detection analytics. Actually, the package

22 October - December 2020 THE JOURNAL OF INSURANCE INSTITUTE OF INDIA FRAUD CONTROL MEASURES helped them detect frauds to the tune of model on rare events can lead to is a specialist job and they need not be 150 Million USD annually. Such is the inaccurate predictions. So, Deloitte also involved with it too much when they power of new age analytics that it can uses Un-supervised technique which have already well set underwriting turn around the business fortunes of the analyses each event to decide how systems in place. The companies who insurance companies very quickly. similar it is to the majority of the events. have set up tech enabled fraud detection It uses stochastic modelling which can tools believe that the tools can do Cognitive Methods of Interviewing be applied to rare events. But, it can everything to prevent and detect frauds. Claimants can detect fraud also declare many non-fraud items But, according to a report by McKinsey 13 Many companies are using special as fraud items. Hence, Deloitte uses on Insurance Fraud , the companies Cognitive Interview technique to detect a combination of two techniques and who are successfully preventing fraud. This is happening primarily in detect maximum number of frauds at the frauds are the ones that have a system general insurance space. They have minimum of cost possible. of manual recognition of frauds via checklists and fraud manuals. Claim developed sophisticated interrogation Fraud control mechanism is in place Investigators and Claims Handlers are techniques in which varying or repeated everywhere in the industry. According to generally people in severe pressure to questions are asked on identical points the estimates of Atlas, fraud prevention finish jobs as the claims are to be settled and interviewee finds it difficult to hide budget has increased significantly as per the norms of the companies the truth. If something suspicious comes in 79% of the insurance companies and the regulator, i.e. IRDAI. In fact, out during such interrogations, more worldwide. Insurers of many countries Investigators and Handlers should ideally thorough Investigations take place. This are automating claims settlement system be two sets of people as two jobs are technique has been able to detect frauds so that human intervention is reduced different. and save a lot of money of the insurers. to the minimum. This is bringing results because fraud takes place with the help So, insurers have to devise other ways A Deloitte Model makes Cost vs Utility of human manipulations only. to detect fraud. Some companies make Analysis in detecting Frauds it mandatory to pass the claim papers Response Let us now look at the Deloitte developed through many employees so that frauds Fraud Analytics12 system for the Indian Once fraud is detected, it is imperative do not go undetected. So, we find that insurers. This predictive modelling that the insurers are able to quickly get both manual and tech enabled control system incorporates costs to insurers in hold of the evidences from hospitals, measures are to be used in tandem to their consideration. Insurers can incur Police Stations and various other get better results. Then only it is possible costs in two ways. Cost of classifying a government departments. If these are to get a high Utility as compared to costs Fraud case as non-Fraud is the value of not collected quickly, the evidences can involved. either be taken away by the fraudsters the Fraud while the cost of classifying a In the McKinsey Report mentioned or at least tampered. Then, it will be non-Fraud case as a Fraud is the same above, the consultant has suggested difficult to stop making payment of as the expenses for conducting the a “Good Practice” framework for use money or recover them, if already Investigations. by all major insurers of the world. The paid. The insurers should also inform strategy is based on the principle of Let C (i, j) denote the Cost of predicting law enforcement agencies about the “Zero Tolerance” to Insurance Fraud and class i as class j. Let M (i, j) denote frauds committed so that they can uses seven levers both for core fraud the number of observations as class j initiate actions against the perpetrators management processes (detection, when they should have been in class immediately. i. So, expected mis-classification cost investigation and prevention) and the 6. Conclusion is 1/N ∑ M (i, j). C (i, j). In order to related support systems (performance minimise this quantity, the consultant Insurers agree that frauds affect their management, IT systems, skill building uses two techniques, Supervised and bottom-line and also their honest and organisation). Unless the top Unsupervised. Supervised technique policyholders. However, most of them management is serious about making is one where models are built on rare still do not consider it a top management necessary changes in these seven events based on labelled data. Statistical job. They believe “Fraud Management” levers to address insurance fraud, no

October - December 2020 23 FRAUD CONTROL MEASURES THE JOURNAL OF INSURANCE INSTITUTE OF INDIA tangible benefits can be expected. So, is very often measured by the growth measures are getting desired results. the consultant advises the insurers to of premium income and market share. The need is to focus on fraud prevention integrate all these seven functions to While a healthy top line is important and detection in addition to business arrest insurance frauds. That requires for the image of insurers, what matters procuration. some investments to be made. at the end of the day is the growth of bottom-line as that only determines Data Analytics can hasten detection Figure-3 presented below is a volume of surplus, shareholder value of fraudulent activities and patterns. diagrammatic presentation of and solvency margin. In health and But, human intervention will always be McKinsey’s seven lever model of motor insurance, most of the premiums required to turn Analytics generated insurance fraud management. It shows earned are spent on settling claims. reports into actionable insights. At the that there should at first be clearly drawn There has also been a steep rise in Life end of the day, an expert employee or up fraud management policy followed insurance frauds. Rise in claims under executive of an insurance company has by setting up of Fraud Control measures Term Insurance policies are too much to review the red-flagged accounts and under “Detection”, “Investigation” and for the insurers and reinsurers to bear take the final call, whether to accept the “Prevention”. These control measures and very soon there can be a rise in the proposal or reject it or give a counter will function at optimum level only premium under term assurance plans by offer to accept the proposal at a very if there is a proper Performance 15-40% as reinsurers are contemplating high loading of extra premium. If it so Management system (rewarding the increasing the premiums payable by quality performance of preventing/ happens that someone who is non- the insurers for the ceded portion of detecting/investigating frauds), fraudulent in nature is offered insurance insurance cover. The insurers have setting up of sound IT system in the at a high cost, he or she will be very to prevent frauds if they want to keep organisation, skill building programmes dissatisfied with the insurer and may not the cost of insurance cover affordable. to improve the effectiveness of Fraud even buy that insurance cover. That is Now that many of the insurers will be Control teams and the necessary change a cost to the insurer. But, if such cases answerable not just to the policyholders in organisational structure (giving are too few in number, the insurer gets a but also to their shareholders, they have ample freedom to Fraud Control Unit to lot of utility by avoiding proposals which to prevent frauds from taking place. For function as an independent vertical). they think are fraught with fraudulent that, both traditional methods and new intentions. Only a well-trained team Insurers are mostly concerned about AI enabled methods have to be deployed. of insurance employees knows how their top line growth as their success The insurers who have launched all such to take various factors into account before taking the final decision. In fact, Figure-3: Diagrammatic Presentation of McKinsey Model of Fraud Management their continuous involvement in the CORE PROCESSES Fraud Control exercise can fine tune the “Machine Learning Analytics” further. Prevention Fraud Strategy Detectio Investigation (Setting-up (defining fraud and (setting Fraud There are some different types of costs (selecting right declaring “Zero fraud protectio people involved while the insurers make use of Tolerance to indicators units & & Analytics. While preventing or detecting Fraud” to protect and co- involving techniques) honest customers) ordinators external fraud, the insurers should ensure that partners) the quality of customer experience SUPPORT FUNCTIONS does not suffer. Sometimes there can be some hassles in the onboarding process. Customers may be worried Organisat Performance IT Skill ional about the safety and security of personal Management Systems Building Structure data. Utility of fraud analytics is beyond any doubt. But, the insurers have to ensure that fraud control measures are not taken at the cost of customer Source: McKinsey Report on Insurance Frauds satisfaction. Insurers should obtain

24 October - December 2020 THE JOURNAL OF INSURANCE INSTITUTE OF INDIA FRAUD CONTROL MEASURES consent of policyholders before the interests of the policyholders. Its 5. IRDAI Circular on Insurance Fraud analysing data on their demographic and “Bima Bemishal” initiative is a laudable Monitoring Framework (2013) occupational details. customer education programme. IRDAI available at https://www.irdai.gov.in/ may also sensitise the policyholders admincms/cms/LayoutPages_Print. In India, data protection and privacy are about insurance fraud and its aspx?page=PageNo1871 controlled by Information Technology ramifications for the industry. The Act, 2000 and Personal Data Protection 6. Deloitte: Insurance Fraud Framework regulator may also ensure that Fraud Act, 2018. The people of this country (2013) available at https://www2. Control initiatives really become a top including the insurance customers are deloitte.com/content/dam/Deloitte/in/ management function of the insurers worried that the companies using their Documents/financial-services/in-fs- and a Board approved Fraud Prevention personal data can pose serious problems insurance-fraud-framework-noexp. policy is implemented throughout the to their privacy and security. There is pdf organisations. already an increasing concern in the 7. Report on Experian India: Available corporate world that incidence of data Finally, insurers together with the at https://www.experian.in/experian- breach may expose the companies to regulator should try to convince the india-launches-new-fraud-solution- mistrust, devaluation of shares in the lawmakers the need to enact insurance for-banking-and-insurance market, fall in market share and even fraud law at the earliest. That will act 8. FICCI Working Papers on Health legal suits. If that happens in insurance as solid deterrent against committing Insurance Frauds (2013) available industry, the cost can be substantial of frauds. Most countries with mature at http://hsrii.org/wp-content/ as compared to utility gained from the insurance markets have such laws in uploads/2014/07/Health_Insurance_ Data Analytics in controlling fraud. The place. For example, Insurance Fraud Fraud.pdf Indian insurance industry has not yet is classified as a crime in all the states 9. Report of Insurance Nexus : The suffered that kind of loss yet although of US. The Fraud Act, 2006 of UK Role of Data and Analytics in Data Analytics including AI enabled describes insurance fraud as a crime and Insurance Fraud Detection : https:// Fraud Analytics are being used by most punishable by law. The Fraud Control www.insurancenexus.com/fraud/ of the private insurers and some PSU measures will provide more Utility to role-data-and-analytics-insurance- insurers, too. To protect the interests of insurance in comparison to Costs if such fraud-detection the customers completely, the insurers laws are enacted in India. TJ should set up a system through which 10. Goud, Dr. Dhiraj : “New Vistas in References they can share customer data within the Health Insurance”, IRDAI Journal framework of Information Technology 1. IRDAI Annual Report 2018-19 May, 2011 available at www.irdai. Act and Personal Data Protection Act. available at www.irdai.gov.in org.in 11. Accenture Report on Insurance Insurance Core Principles (ICP 21) is a 2. IAIS (2011): Application Paper on Fraud Analytics: https://www. provision of IAIS that deal specifically Deterring, Preventing, Detecting, searchtechnologies.com/insurance- with insurance frauds. It is a guideline Reporting and Remedying Fraud in fraud-detection-solution to the insurance regulators of various Insurance countries on how insurance frauds are to 12. Deloitte Presentation on Fraud 3. May, 2017 issue of Atlas Magazine: be controlled. Here, IAIS mentions that in Insurance available at https:// https://www.atlas-mag.net/en/article/ insurance frauds cause not just financial actuariesindia.org/GI/2cigi/ insurance-fraud-detection-and-cost- and reputational damages to insurers Claims&FraudAnalytics_ to-industry but also cause social and economic DebashishBanerjee.pdf losses to the nations. IAIS expects, 4. Report on insurance fraud: https:// 13. McKinsey Report on Insurance Fraud the regulators, e.g. IRDAI to monitor www.moneycontrol.com/news/ available at https://www.mckinsey. fraud control activities of the insurers business/personal-finance/ com/industries/financial-services/ more closely. IRDAI is on the job of fraudulent-insurance-claims-how- our-insights/claims-management- developing insurance market in the bonafide-policyholders-pay-for- taking-a-determined-stand-against- country and also on the job to protect them-3666941.html insurance-fraud

October - December 2020 25 ORGANISATIONAL CHALLENGES THE JOURNAL OF INSURANCE INSTITUTE OF INDIA

Merit Winner D. Subramaniam Award Essay Writing Competition Organisational Challenges Before Insurance Industry Due to Rapid Introduction of Technology, Artificial Intelligence and Data Analytics

Abstract Whereas on the other hand, this will open up myriad of organizational Artificial intelligence and data analytics challenges for the insurers. Although with the help of technology are soon these challenges can be handled by going to change the way our legacy strong collaboration between insurer insurance business is carried out. The and insurtech. The experience of insurer new age digital insurers and Insurtechs coupled with the technology of insurtech would be the torch bearer for this can create wonders. So, partnership will transformation. Whether we call these be the key to solve this problem. Abhishek Das new kids in the block as innovators or Another important aspect to this Vaishno Devi Divine, Flat-302, disruptors, their tech savvy workforce scenario is upskilling the workforce 4th Main, Nagendra Block, would be handy for the greater good. of insurer. Therefore, investment in Hanumanth Nagar, It is difficult to ascertain whether this human capital would be critical. Hiring Near PES Degree College, shift is a boon or bane. On one hand, it and retaining employees would become Bangalore – 560050. will help insurers gain better efficiency more important, as skilled and engaged [email protected] and create satisfied customer base. employees would create a positive

26 October - December 2020 THE JOURNAL OF INSURANCE INSTITUTE OF INDIA ORGANISATIONAL CHALLENGES atmosphere that would translate into Overview of Challenges regulatory requirements and statutory happy customer. In insurance, a happy obligations. Let’s understand our first customer is usually a loyal customer. Product innovation, ever increasing challenge in detail. customer demands and new-age The C-suite leadership of insurers insurers are combinedly driving the Challenge – 1 will have to play a key role in the industry towards new horizon. transformation journey of insurer Thorough Analysis of Processes from legacy business to being a fully BigTech firms – including Google, As a stepping stone, the defined process connected digital enterprise. Data is the Amazon, Facebook, Apple, and Alibaba – should be figured out, followed by the new oil in 21st century. Due to insurance have had an eye on the financial services pain areas and eventually harnessing being an old business, insurers has lot sector for years and can no longer be the opportunities. Clear consideration of data. However, this data is entrapped ignored. For example, Alibaba’s Ant need to be made regarding elimination, in suboptimal systems and processes. Financial has already launched a health outsourcing and automation. There is Hence, like oil, it will become difficult to insurance product. always an associated cost in terms of extract. Lack of data can create serious valuating the processes, determining gaps and cause process flow issues, so Due to previous acquaintance with the the correct technology (or solution) it needs to be assessed as an end-to-end BigTech firms, it won’t be surprizing and implementation of the technology process. Insurers that lack data, or the if customers show an inclination even (or solution). Therefore, this exercise partners and models that generate it, towards their insurance products, requires engagement right from higher would suffer the most. if made available. These tech giants management, else it is bound to fail have garnered massive personal and All these data are related to customers, miserably. behavioural customer data. Leveraging so in the new phase of insurance upon this data by using their analytics Let’s take one example of technology business the focus will shift from and artificial intelligence supremacy, here, say Automation, we need to new product offerings to customized there is high possibility of the tech understand that it can’t be applied product offerings, their experience and giants severing customers with highly everywhere and this is due to the fact outcomes. Artificial intelligence will play personalized offerings. that the cost incurred should also a role in improving the experience, data provide adequate return on investment. analytics would be required for assessing As result of technological disruption, Also, if the cost of implementation is individual risk to macro trends, while insurance industry will face many more than savings (time/effort) , then technology would enable accessibility to organizational challenges. The foremost the technological intervention is simply customers. amongst the myriad of these challenges not worth the investment. In other Introduction is the complete analysis of all the words, oversimplification is just a false Insurance industry for long has remained processes of insurance value chain. positive outcome. untouched by innovation, there hasn’t This will help determine where the When an insurer decides to take the been too many changes to note. technological intervention would be technology route, involving an Insurtech However, the industry in on the brink of worthwhile and where we still need to makes most sense. Although cost a major tech transformation. Artificial search for better alternatives. However, efficiency and regulatory oversight intelligence, data analytics along with this isn’t an easy exercise at all, given the might look to be the big hurdles, but technology is going to change the way complexities of the business involved, considering the changing customer we interact and deal with customers. ranging from sourcing new business expectations and new kids (i.e., Not only that, it will have a huge impact from different business channels to Insurtechs and new-age insurers) in the on achieving operational excellence as management of in force business; from block, disruption is bound to happen. well. Fintech has transformed the way reinsuring the portfolios to operational financial services industry operates, excellence to seamless and stress-free In the last few years, China’s growth similar role will be played even by settlement of claims for customers, story has been an inspiration for Insurtech for shaping the insurance while keeping a check for fraudulent countries all around the globe, along industry. claims; last but not the least meeting the with its other sectors the insurance

October - December 2020 27 ORGANISATIONAL CHALLENGES THE JOURNAL OF INSURANCE INSTITUTE OF INDIA industry has also seen growth in retail stores focuses on the experience for Reliance’s retail unit, aimed at tens many folds. China is expected to be rather than just selling units, so of millions of small shops across India. the biggest market of insurance in the insurance should also follow the suit. Facebook’s WhatsApp has already years to come. Before we move towards been working on gaining regulatory The idea was to design an ecosystem understanding other organizational approval for payment services in India. which can provide the customers challenges, let’s take a bird’s eye view This partnership will also be able to link one-stop shop to conduct business of how China is handling technological up with Reliance’s telecoms business, and ease of payment is just one innovators/disruptors in the legacy and WhatsApp itself has an enormous crucial component to building effective business of Insurance. presence in India with more than 400 ecosystem. China has developed a model million users. (Source: livemint.com) China’s Insurtech Story: of payments + social + mobile + data. An example is Tencent with its combination It won’t be incorrect to say that this In order to unlock the sections that have of payment, social media and contextual partnership might want to replicate low insurance penetration, China made messaging in a single app (WeChat). China’s WeChat model in India. a very strategic move in developing This platform generates 38 billion efficient micropayment systems. Coming back to our challenges, once messages every day, producing a rich Although, quick and easy payment the thorough analysis of processes source of data to feedback into insurers’ constitutes only one part of the sphere. has been performed and the pain areas analytics engines. To keep a customer engaged in the identified. The next challenge would be to understand the impact on delivery platform, the surrounding ecosystem Recent development in India: needs to be managed accordingly. pyramid and be aware of the implications In recent times, the mindset has Recently, Facebook acquired 9.9% stake of the same. really evolved in terms of considering in India’s Reliance Jio. The deal will give Challenge – 2 insurance like other retail products. Like WhatsApp an inside track on payments Understanding the Impact on Delivery Pyramid

Social Before taking a closer look into this Media challenge, let’s keep afloat and under the insurance delivery pyramid first. e-Shop Chat At a high level, the insurance delivery pyramid consist of three layers:

- IT & Support Functions (Bottom layer): This will include the information technology, human resources, finance Wallet / and legal. WeChat Voice Call Payment - Operations & Marketing (Middle layer): This constitutes underwriting, risk management, claims, capital management and marketing.

- Product development & Market File Viedo Transfer Call intelligence (Top layer): This comprises of New product R&D, Data Analytics, Location Growth Strategy and Business Sharing Intelligence.

Now let’s jump into our challenge Figure 1 Features of WeChat piece in detail. At the current stage, the

28 October - December 2020 THE JOURNAL OF INSURANCE INSTITUTE OF INDIA ORGANISATIONAL CHALLENGES

roles. Upskilling of resources will make this an achievable objective. Let’s take underwriting for example. Underwriting is all about assessing the risks. With the current environment, this risk assessment is mainly done with the information supplied on application form and other required evidences (mostly on paper evidences and sometimes images). In future, risk assessment Current State Future State could be done using multiple complex IT, HR & Other Support Function Operations & Marketing Product Development & Market Intelligence variables from non-traditional sources

Source: Deloitte Analysis (may be social media as well). The future underwriters will receive inputs from a Figure 2 Insurance delivery pyramid cognitive system, and they should be insurance delivery pyramid is bottom there will be demand for enhanced equipped and well-versed with tools that heavy with the majority of volume-heavy skillset as the work-experience would can manage these inputs. transactions and reporting processes still be handy. (regulatory reporting, claims processing, Now, with rise of demand for the The bottom layer - IT & Support document verification, etc.) being new skillsets, necessary upgradation Functions: This layer would witness carried out by individuals. With artificial would be required in recruitment and decrease in headcounts as a result of intelligence in foreground, insurers training engines to ‘hire + train’ skilled standardized and automated processes. will look to automate many of these employees with stronger domain Data platforms on cloud, third-party transactions/processes. Therefore, competencies to handle more complex analytical tools and outsourcing would changing the shape of delivery pyramid decision-making roles. Eventually, the be instrumental for causing this shift. by squeezing the bottom and middle shift towards a highly skilled workforce layer and swelling up of top layer, It is to be understood very clearly would also lead to a need for enhanced wherein thought leadership would be that technology won’t replace FTE as talent retention. expected from every seat. a sustainable competitive advantage. Shifting the approach to talent: As However, job roles would transform The top layer - Product development & technology will start playing a bigger across the value chain. These job roles Market intelligence: With the advent of role in insurance companies, the focus would have renewed job descriptions data analytics and artificial intelligence, would shift towards building a talent with data analytics as the key skillset. there will be growth in this layer due pool of individuals with skillsets like data The successful transformation of a to demand of such roles. Dynamic science, agile coaching and customer company would depend upon striking pricing strategies can be designed experience design. Organizations can balance between transitioning to new based on lifestyle pattern intelligence upskill their employees by systemic technology with one hand and employee and recognition, using the new skillsets. training programmes, they can partner upskilling on other hand. This brings us Also, focused and customized marketing with Universities and online learning to our next challenge, i.e., upskilling the campaigns would be the new poster boys. platforms. manpower to embrace new challenges. Not only this, human resources will The middle layer - Operations & Challenge – 3 Marketing: Automation of services also have to come up with a long-term would see drop in workforce in these Upskilling the Manpower to solution to attract, engage and retain areas, while digitization at organisation Embrace New Challenges talent. There can be several ways of level would see evolution of conventional Insurers will require to reallocate doing this, like offering non-management marketing. The workforce would not FTEs from their current roles to more career tracks, establishing communities necessarily become redundant, in fact complex and judgement-intensive to initiate discussion forums and have

October - December 2020 29 ORGANISATIONAL CHALLENGES THE JOURNAL OF INSURANCE INSTITUTE OF INDIA

Figure 3 Impact on FTE in the insurance value chain. This table shows how the FTEs would increase or decrease in various processes. current techie FTEs act as reformers for Now upskilling the workforce is just half Hence, partnering with Insurtech will the company. battle won, yet another milestone which give insurers an edge to attract and needs to be achieved by the organization retain emerging fresh talent, that is Nurture a culture of learning: is finding suitable tech partner. So, let’s missing from insurance. We like it or Organizations may hit a dead end take a look at this challenge. not, but insurance is perceived as slow even after adopting sophisticated ancient town of a booming financial methodologies (like agile sprints) Challenge – 4 industry, and with this association with with new technologies. To harbour a Finding Long-Term Tech Partner insurtech the insurer can become a productive environment, companies Talent acquisition and retention is a dynamic organisation and transform the will need to build a culture of learning tricky and expensive endeavour, this way insurance operates in future. and not penalizing for failures. In short, exercise becomes even more difficult the companies will have to develop Insurers worldwide are increasingly with the millennial and Gen Z employees. an appetite for experimentation. In teaming up with insurtechs and other Traditional insurance is a vintage experimentation there will be failures at technology start-ups. However, finding business, and the new generation finds it time, however, it will teach something the right partner is not the challenge, difficult to adjust with the slow pace and as well. This cultural shift would make with so many players around a low innovation sector. insurance companies a better place to partnership can be achieved. The main work, and will develop workforce who Now, creating a digital talent pool in challenge is finding a long-term tech tend to come from team cultures that insurance company is even more difficult partner. Insurance as such is a long- encourage learning from failures. as insurance isn’t cool enough for this term relationship with the policyholders. generation. Anyway new tech start-ups Now some “experts” might argue that Even the great Albert Einstein has said: and established IT majors (like Google, all general insurance businesses are “Anyone who has never made a Microsoft, etc.) create a lot of room to just one year contracts, but we still mistake has never tried anything new.” accommodate them. need renewals and cross-selling. Hence,

30 October - December 2020 THE JOURNAL OF INSURANCE INSTITUTE OF INDIA ORGANISATIONAL CHALLENGES insurance, whether general or life, being Insurers and tech partners view The criteria for measuring successful a long-term business find its ground. fundamental of business through their partnerships often focus on persistent different lenses: business needs, which includes: For this symbiotic relationship to work, it has to be mutualism wherein Investment, deliverable, risks, - to help cut costs, both parties involved benefit from the methodologies, resources, timeframe - increase revenues, or association. The insurer being the - these are some of the fundamental veteran in this relationship will have aspects of partnership. Generally, insurer - improve customer experience. to take lead and be ready with all the and tech partner measure it in different Next challenge which would come up is preparedness, so that all stakeholders ways. While there is a possibility of whether the partnership of insurer and gain and a meaningful deliverable is a certain relation dynamic getting tech partner is working, are they together made possible. developed in the partnership, it can also moving towards achieving the end cause misunderstanding resulting in Insurers want to tie up with tech partners product, while successfully addressing poor outcomes. Insurer can deal with due to following reasons: the roadblocks. this by clearly outlining the workplan - to be able to encash upon the new and timelines with the tech partner. Challenge – 5 oil of 21st century (i.e., data) and This will enable insurer to adapt with Assessing the Partnership with discover untapped opportunities the pace and style of tech partner, while Insurtech also helping the tech partner understand - to overpower operational challenges the dynamics of working with a large The success of partnership between or solve a complex business problem enterprise. insurer and tech partner is greatly - to improve the experience for their agents or end customers

- to inculcate a culture of innovation in the wider organisation and embark on the journey of being agile

- to fill in the digital talent gap in the organisation.

Where do insurers start searching for Figure 4 Business needs for establishing partnership the right tech partner? Smooth onboarding of tech partner: depend upon whether the solution Insurers will have to keep a track of Financial services companies often have provided addressees the insurer’s market developments and start attending tedious and highly detailed procurement problem(s). There is a possibility of tech conferences to explore untapped process. These burdensome activities insurer incorporating a solution just opportunities, establish relationship can really put immense pressure on because it is trendy, without realizing with venture capital investors and tech the small Insurtech or start-up, who whether the solution provided fits the accelerators, and collaborating with might lack resources or bandwidth to need or not. data and information providers. This will tackle these needs. These challenges eventually help build relationships with can be addressed by assigning a The insurer as we have discussed earlier potential partners. Also, while engaging Project Manager for the onboarding and also, will have to lead the partnership. in these activities insurer will be able aligning the tech partner. This Project Insurer should first acknowledge the to better understand the current and Manager can implement the earlier problem(s) at hand, before exploring upcoming solutions in the market on one designed streamlined processes, develop tech partnerships. This will help insurer hand, whereas on the other hand keep a standardized template forms and arrange realize what their need is, hence an eye- track of new products, evolving business speedier legal plus technical reviews to opener to find the suitable tech partner models, latest technology trends and make the overall onboarding journey who can develop an innovative solution changing customer expectations. seamless. and integrate into the business.

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It would make sense to have a dedicated team for innovation solutions whose primary responsibility would include finding emerging problems for the insurer. This can be a small team which can regularly interview senior leaders to be well versed with current and emerging problems. Their other set of responsibilities would be determining which set or problems can be solved with organic innovation and which by inorganic innovation. Organic innovation means developing a solution internally by using resources in hand, whereas inorganic solution means trying to invent a solution through partnership and investment. This team can also chalk out the scope of partnership by determining if a full integration of solution is Figure 6 Metrics for measuring the partnership with Insurtech required, or intervention is required only for specific capabilities, or just an a metric because it is something that implementation of the same. Roadmap advisory relationship would be enough. can be tracked will not be efficient. for the implementation of solution

Figure 5 Organic vs Inorganic Innovation

Develop meaningful metrics for the Proposed solution scale up: At times through production pipeline need to partnership: A clear objective needs the partnership between insurer and be designed, roles and responsibilities to be decided by the insurer regarding tech partner can break once it moves need to be in place for accountability what they want to achieve through the from proof of concept, pilot, testing to of various teams involved, and defined tech partnership, along with this the scaling the solution in preparation for effort estimation metrics need to right metrics need to be identified to a wider rollout. The proposed solution established. Incorporating the agile track the progress and value of solution may not work at scale due to unforeseen methodology in the scale-up process to the business. Growth in existing and scenarios, which include technology will help establish better transparency new markets, customer satisfaction infrastructure incompatibility, nature of between insurer and tech partner, hence index, employee engagement, decrease business model, low score on cost- yielding a better product eventually. in losses and operational efficiency benefit analysis. Future of insurers rely on tech can be included in potential metrics. Insurer will have to layout proper partnerships: Partnering with insurtech The metrics need to be in sync with checks and balances while moving from will help insurer achieve multiple venues insurers’ business strategy, choosing proof of concept stage of solution to ranging from nurturing innovative

32 October - December 2020 THE JOURNAL OF INSURANCE INSTITUTE OF INDIA ORGANISATIONAL CHALLENGES thinking to achieve growth, dealing with (SMEs) face. The cyber security Challenge – 7 business roadblocks and improving part of the solution monitors SMEs’ upon customer feedback. Strong three main points of a cyber attack – Capital Required for New Tech foundation to such partnerships will websites, emails and endpoints – to Acquisition fetch insurers discover new routes to make sure they are protected 24/7. excellence. Even after efficiently tackling the Moving on to our next challenge. This challenges, there will still be need of one is a critical challenge in the whole Recent examples of Insurtech capital for new tech acquisition. Strong process, it is to have the internal collaboration: partnerships need to be backed by stakeholders on board to work together strong funding mechanism, and this - AXA XL + Assurely: A subsidiary of towards achieving the wider objective. partnership needs to be designed in a AXA Group, AXA XL collaborated way that reflects and supports progress. with Assurely (an Insurtech Challenge – 6 To achieve this, insurer can seek based in New York) to develop Gain Stakeholder Buy-In Early inspiration from venture capitalists by a crowdfunding protection On taking a staged approach for budgeting insurance product for issuers A buy-in early on regarding the proposed and releasing funds. Staged approach and investors. The product is solution and preferred tech partner provides the advantage of getting started called CrowdProtector. It offers needs to be established with the crucial with a small initial investment and issuers protection against investor business stakeholders. This needs to funding releases are tied to milestones. complaints and lawsuits while be done before commencing with the This approach as a result ensures project serving as an assurance to partnership. progress along with achieving timelines. investors that they may get their Taking a staged approach route will also principal investment back if the The first step is getting buy-in from allow insurers to shut projects which issuer misappropriates funds senior management, however it’s also doesn’t achieve the desired outcomes, or misrepresents information in important to keep leaders in loop whose and help secure remainder of investment offering documents. business units would be impacted capital. eventually as a result of partnership, - MetLife Korea + LemonClick: such as Claims, Underwriting, Marketing. Mapping the tech funding with venture MetLife Korea joined hands It won’t be a bad idea to include those capital funding model: with LemonClick (an Insurtech leaders who would be involved in aggregator) to develop a policy- the partnership either at its outset or Stage-1: Ideation and prototyping loan product accessible via mobile while the solution is built - such as This stage of tech funding would be app. A cost-efficient prototype was Procurement, Legal, IT. This will help the similar with seed stage of venture capital developed within months, after team get ready for potential issues that funding. Once the insurer is convinced which the fully-automated product might cause obstacles. was released, and then customer with the idea of the Insurtech, and the feedback was used for further Once the internal stakeholders are on prototype design has been approved, improvements. board, the next big challenge is funding an initial funding can be released to the capital required for the tech acquisition. Insurtech. - Swiss Re + OZON: Swiss Re Corporate Solutions along with Venture Capital Funding Tech Funding OZON (a French cybersecurity Stage-1 Seed Stage Ideation & Prototype Insurtech) launched CyberSolution 360°. This combines cyber insurance Stage-2 Start-up Stage Initial model validation IT and cyber-attack protection services Stage-3 Early Stage/ Series A Successful UAT Handshake in a risk management solution that Stage-4 Expansion Stage/ Series B Production deployment is specifically tailored to the risks small and medium-sized enterprises Stage-5 Pre-IPO Stage Final roll out

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Stage-2: Initial model validation direction and drive for initiatives is missing in insurers on a holistic basis. Next funding can be released once the Some functions might have experts, protype or sample solution is ready and who would intermittently drive small Insurtech is able to provide a minimum initiatives. This lack of centralized effort viable product of the proposed solution. within the organization would be our Stage-3: Successful UAT next challenge. After the successful completion of Challenge – 8 UAT and identification of agreed improvement areas, a big amount (may Lack of Centralized Effort Within be half) of the remaining balance budget the Organization can be released. This is in line with Integration and navigation through the the Series-A funding of venture capital legacy systems is a difficult objective funding. to achieve, majority of the tech Stage-4: Production deployment enhancements fail owing to this hurdle. Figure 7 Innovation solutions team as Insurers will have to move towards a Once the agreed improvements have moderator between insurer and insurtech two-tier model, that has the experience been sorted, it’s the time for scale- wisdom of old business and using their up. After scale-up has been achieved, - Accessing the involvement required by talent and energy towards achieving synching the solution with production the Insurtech. the new improved digital business. The environment is very critical. As this is higher management of insurer will have - Understanding the recent tech trends achieved, less hiccup is expected going to build a culture that is not just about and organization needs from senior ahead. This is similar to Series-B funding incorporating new technology, but management. of venture capital. transforming the business model. This - Determining which set or problems can From stage-1 to stage-4, IT handshake will eventually be the new business as be solved with organic innovation (within needs to work in parallel, as this can be usual. the organization) and which by inorganic a time consuming affair and a critical Generally, every Business Unit have innovation (with support from outside of hurdle in the final deployment and roll- their own expert, hence there can be organization). out of solution. multiple inputs at different point in time. - Coordination between internal Stage-5: Final roll-out To navigate through this bureaucracy, stakeholders and Insurtech. Once the UAT has been performed after Insurtechs might tend to work on deployment of solution in production the periphery. We discussed about - Implementation of the metrics environment, the solution is ready for innovation solutions team in challenge-5. for measuring the partnership with final roll-out. Hence, time for release of The innovation solutions team would Insurtech. last instalment of funds. also be capable of ensuring that the - Steering the collaboration through partnership stays on track and achieve proof of concept to scale-up, and By following the above approach the its objective. risk of loosing the capital invested in eventually towards final solution the Insurtech decrease with each step, This project management by implementation. as it takes the insurer closer to the final innovation solutions team will provide a Now, Insurtech might have the solution. Moreover, there’s always an centralized effort by the insurer, which desired data analytics capabilities and option to stop the proceeding in case of else would be lacking throughout the technology, but they lack insurance an unforeseen scenario. endeavour. business sense. Insurers will have to Usually, there is no company-wide vision The roles and responsibilities of develop FTEs with an eye for business and strategy for data analytics, therefore innovation solutions team can include: acumen.

34 October - December 2020 THE JOURNAL OF INSURANCE INSTITUTE OF INDIA ORGANISATIONAL CHALLENGES

Challenge – 9 The objective of this partnership is to Insurer and Insurtech monitor real-time marine risks and to Gap Between Data Analytics identify risk accumulations for enhanced partnership is supposed Expertise and Business Sense underwriting and reinsurance programs. to flourish over the years The companies use earth-observation Insurer and Insurtech partnership is to come. Although, technology, artificial intelligence, supposed to flourish over the years to and machine-learning techniques to business integration come. Although, business integration develop transparent algorithms that will would remain an area of concern. There would remain an area determine cargo exposures with more is sufficient technology available for accuracy. of concern. There is middleware, so this won’t cause much sufficient technology trouble. Instead, areas such as advisory This is a good example of tech savvy and implementation would need extra Insurtech closing the lacunae in available for middleware, care. This is the area where business insurance value chain. Insurers can so this won’t cause much integration specialists would play a partner with Insurtechs to enhance their crucial role. These are people who capabilities. trouble. Instead, areas have ample experience in the insurance such as advisory and industry, they would play the role of Last but not the least, we reach to our guiding light in this phase. final challenge: ‘Change Management’. implementation would need extra care. This is From the point of conception of idea, the Challenge – 10 onus lies on insurer to translate it into the area where business Change Management a robust business model. Introducing integration specialists technology won’t transform business on As per Wikipedia, Change management its own, this would be part of the whole would play a crucial role. is a collective term for all approaches to metamorphosis of the organization from prepare, support, and help individuals, These are people who legacy business to a fully connected teams, and organizations in making have ample experience in digital enterprise. organizational change. the insurance industry, In simply words change management is they would play the role nothing but a ‘mindset change’. of guiding light in this This challenge might sound a bit phase. philosophical, but when one think thoroughly, this does make sense. Let’s discuss internal first. As an Organizations definitely face this industry, our processes need to evolve, challenge of resistance to change. our strategies need to evolve, our Humans have forgot the very basis of life products need to evolve, and for all these cycle – EVOLUTION. As a community, to evolve the skillset armoury of insurers be it cognitive or behavioural - humans Figure 8 Role of Integration Specialist need to evolve. The major challenge from need to evolve. This is the foundation a soft skill perspective is the mindset, Let take a look at an example which will of all our work. We have never liked which needs to change. This process demonstrate how data analytics and the same kind of movies, music, food, of evolving the skillset of employees business knowledge can create wonder. culture, vehicles, clothes, then how can should start from the top management. we afford not to evolve on knowledge Aon & Skytek (Dublin-based Once the ball gets rolling, then the onus font. InsurTech): Both these companies lies on both the employer as well as the began collaborating in early 2019 We need to deal with this problem in two employees. This phase would undergo to track marine risk accumulations. folds, viz, internal and external. rapid evolution as technology keeps

October - December 2020 35 ORGANISATIONAL CHALLENGES THE JOURNAL OF INSURANCE INSTITUTE OF INDIA changing form, hence thought leadership external. This will be the most difficult of customers still prefer to buy is required from every employee. part of our game plan, i.e., changing the insurance products from agents/ For this kind of shift to happen at an customer mindset. brokers. industry level, even strong collaboration  Further analysis was conducted To understand this, let’s study the below between regulator-insurer-insurtech is to identify the dimensions that results from PwC India’s Insurance required. influence customers to engage with Technology Adoption Survey 2019. a particular mode. On an average, Renowned American writer Elbert This survey of customers, agents convenience appears to be the Hubbard has brilliantly quoted the below and insurers explored how the entire primary reason, with 42% of the lines: insurance customer ecosystem in India respondents choosing a particular is changing as a result of emerging “One machine can do the work of fifty mode of insurance purchase based trends and evolving customer needs and ordinary men. No machine can do the on it. expectations. work of one extraordinary man.”  Offers/schemes plus price comes Insurance is a push business and is next with an average of 21% All we need to do is think different, think considered as a complex product for respondents selecting the same. This out of the box and think innovative. which customers rely on face-to-face is followed by direct approach by an Once this is in our work culture to be interaction for better understanding of agent with 16% of the respondents innovative, every individual will graduate the product’s features and pricing. selecting it. from becoming an employee to a knowledge worker. Following interpretations can be drawn The above analysis demonstrates that from the above survey results: with 55% of customers buying insurance Once we have conquered the internal offline, there is a lot of scope for online hiccups, we need to proceed towards  55% [36% (from agent) + 19% business. Also, customer mindset needs achieving the same result for the (from insurance company staff)] to be change if this has to be achieved.

Figure 9 PwC India’s Insurance Technology Adoption Survey 2019

36 October - December 2020 THE JOURNAL OF INSURANCE INSTITUTE OF INDIA ORGANISATIONAL CHALLENGES

Furthermore, as convenience is the Homeowner’s or renter’s 2) Emerj.com | Artificial Intelligence primary reason for choosing a particular in Insurance – Three Trends That mode, more emphasis needs to be put insurance policy can be Matter on ease of doing business. Hence, our bought under a minute https://emerj.com/ai-sector- technological advancement should (and usually at a lower overviews/artificial-intelligence-in- eventually focus on this aspect. cost than is available insurance-trends/ Examples of Some New Age elsewhere), and about 3) Deloitte | Insurance Analytics: Insurers a third of Lemonade’s Organizing Analytics capabilities Lemonade: to get value from Data Analytics claims are paid within 3 solutions. A Deloitte point of view - Launched in late 2016, Lemonade seconds of being filed. on Data Analytics within the Dutch is an American Property & Casualty Insurance industry insurance company that has a unique business model, based - Zhong An and Ping An - have https://www2.deloitte.com/content/ on behavioural economics and undeniably been the centre dam/Deloitte/nl/Documents/financial- technology (artificial intelligence and of attraction of Insurtech. services/deloitte-nl-fsi-insurance- chatbots). Micropayments has revolutionized data-analytics-within-the-insurance- the insurance business in China. industry.pdf - Homeowner’s or renter’s insurance Smart technology and agile business policy can be bought under a minute practices have worked wonders for 4) PwC | Analytics in Insurance: (and usually at a lower cost than is these companies. Balancing Innovation and available elsewhere), and about a Customers’ Trust Conclusion third of Lemonade’s claims are paid https://www.pwc.ch/en/ within 3 seconds of being filed. There needs to be an amalgamation of publications/2018/IVW_ human intelligence and data analytics, Trendmonitor_02-18_extract.pdf - Lemonade keeps a flat 25% fee of a in order to rationalize the outcomes customer’s premium while setting and maximize benefits out of the whole 5) PWC | New age insurers are aside the remaining 75% to pay exercise. This handshake between technology and data driven claims and purchase reinsurance. human brain and computation will Any money that is left in the claims https://www.pwc.in/assets/pdfs/ enable unlock the hidden potential of account at the end of the year is publications/2017/new-age-insurers- available big data. Artificial intelligence given to charities chosen by policy are-technology-and-data-driven.pdf coupled with data analytics is definitely holders in an annual “Giveback”. In going to disrupt the insurance industry 2019, Lemonade gave $631,542 to 6) Deloitte | How robotics and cognitive for the greater good, and technology 26 charities. automation will transform the is destined to play a pivotal role in the insurance industry entire process. TJ Zhong An and Ping An: https://www2.deloitte.com/content/ Bibliography - Ping An — the world’s largest dam/Deloitte/us/Documents/ and most valuable insurer, worth 1) Towards data science.com | How Are process-and-operations/us-cons- US$217 billion as of January 2018. Insurance Companies Implementing how-robotics-and-cognitive- Artificial Intelligence (AI)? automation-will-transform-the- - Zhong An — founded in 2013, it insurance-industry.pdf is China’s online-only insurance https://towardsdatascience.com/ company. Since inception, it has how-are-insurance-companies- 7) McKinsey & Company | The acquired 460 million users and implementing-artificial-intelligence- insurance switch: Technology will written more than 5.8 billion policies. ai-aaf845fce6a7 reshape operations

October - December 2020 37 ORGANISATIONAL CHALLENGES THE JOURNAL OF INSURANCE INSTITUTE OF INDIA

https://www.mckinsey.com/ 14) inc.com | Insurance Is Changing https://www.asiainsurancereview. industries/financial-services/ In A Big Way That Will Affect You: com/Magazine/ our-insights/the-insurance-switch- Here Is What You Need To KnowA ReadMagazineArticle?aid=42557 technology-will-reshape-operations new carrier is disrupting the entire 20) Insurance Journal | Swiss Re insurance industry with a new Partners with Insurtech Firm OZON, 8) E&Y | Five tech trends that will define business model, while technology Offering Cyber Risk Solution in the future of insurance companies help legacy carriers France transform themselves to compete in https://www.ey.com/en_om/ rapidly changing market insurance/five-tech-trends-that-will- https://www. insurancejournal.com/news/ define-the-future-of-insurance https://www.inc.com/joseph- international/2019/02/05/516769. steinberg/insurance-is-changing-in- 9) KPMG | Get the most out of your htm a-big-way-that-will-affect-you-here- insurtech partnership is-what-you-need-to-know.html 21) Swiss Re Corporate Solutions | https://home.kpmg/xx/en/home/ CyberSolution 360° 15) livemint.cm | The mega Jio- insights/2019/08/get-the-most-out- Facebook deal might have Paytm https://corporatesolutions.swissre. of-your-insurtech-partnership-fs. quaking in its UPI boots com/insurance-solutions/cyber/ html cybersolution-360.html https://www.livemint.com/ 10) Reuters | China’s Ant Financial companies/news/the-mega- 22) Insurance Journal | Aon Partners amasses 50 million users, mostly jio-facebook-deal-might-have- with Insurtech Firm Skytek to Track low-income, in new health plan paytm-quaking-in-its-upi- Marine Risk Accumulations boots-11587728958399.html https://in.reuters.com/article/ https://www. china-ant-financial-insurance/ 16) coxblue.com | The Five Stages of VC insurancejournal.com/news/ chinas-ant-financial-amasses-50- Funding Explained international/2019/03/05/519597. million-users-mostly-lowincome-in- htm new-health-plan-idINKCN1RO0KF https://www.coxblue.com/vc- funding-stages-explained/ 23) PwC | Competing in a new age of 11) theguardian.com | How artificial insurance intelligence could help make the 17) Wikipedia | Venture capital financing https://www.pwc.in/assets/pdfs/ insurance industry trustworthy https://en.wikipedia.org/wiki/ consulting/financial-services/ https://www.theguardian.com/ Venture_capital_financing competing-in-a-new-age-of- sustainable-business/2017/jan/28/ insurance.pdf insurance-company-lemonde-claims 18) Insurance Business America | AXA XL joins forces with insurtech 24) KPMG | Insurtech 10: Trends for 12) mymoneyblog.com | How is to offer crowdfunding protection 2019 Lemonade different than Mutual insurance https://home.kpmg/xx/en/home/ Insurance? https://www.insurancebusinessmag. insights/2019/02/insurtech-10- https://www.mymoneyblog.com/ com/us/news/breaking-news/ trends-for-2019-fs.html lemonade-vs-mutual-insurance.html axa-xl-joins-forces-with-insurtech- 25) PwC | Insurance 2020: Forcing the to-offer-crowdfundingprotection- pace – The fast way to becoming a 13) Valuepenguin.com | Lemonade insurance-161363.aspx digital front-runner Renters & Home Insurance Review 19) Asia Insurance Review | 151-year- https://www.pwc.com/gx/en/ https://www.valuepenguin.com/ old seeks scrappy start-up for insurance/publications/assets/pwc- lemonade-insurance-review mutual benefits life-insurance-2020.pdf

38 October - December 2020 THE JOURNAL OF INSURANCE INSTITUTE OF INDIA ULIPS OR MUTUAL FUNDS

Merit Winner Technical Paper Essay Competition (Life) ULIPS or Mutual Funds - What Will the Millennials Choose?

Abstract 1980), Gen Y (1981-1996). Gen Y is also called as millennials with a further The main aim of humans over breakup of older millennials (1981-1989) generations is Wealth Creation. People and younger millennials (1990-1996). look for ways to manage their money Millennials preferences are changing in the most efficient manner. In present the world and they are changing the times with the high cost of living clubbed financial investment market also with with a desire for a wealthy lifestyle, the less aversion to risk, openness to need for better investment decisions has alternate investment products like crypto become the need of the hour. The best currencies and their general outlook of investment plan is one which not only living in the present. takes care of our needs but also creates N. Sheela wealth over time. Having an investment As per the survey conducted by Flat No.18, Anjali Flats, plan, and investing according to it is ASSOCHAM and India First Life 100 Lake View Road, essential for wealth creation. Insurance during recent past to study West Mambalam, Chennai - 600 033. The population is categorised as Baby savings and investment patterns [email protected] Boomers (1946-1964), Gen X (1965- of individuals aged between 18-35,

October - December 2020 39 ULIPS OR MUTUAL FUNDS THE JOURNAL OF INSURANCE INSTITUTE OF INDIA

Life Insurance is the most preferred salient features, proper training to sales investing according to it is essential for investment for almost 70% of personnel and field force, encouraging wealth creation. Planning is required millennials followed by mutual funds on line selling are the key features for because it works like a road map. This 69% and fixed deposits 64%. People any insurance company in making ULIPs not only can create wealth in long term, who support Mutual funds place their the first and best choice of Millennials. but can also assists in financing of needs arguments that Mutual funds outscore as and when it comes. An investment ULIPs on parameters like returns, Introduction plan consists of the following: - transparency, liquidity, and flexibility. The main aim of humans over Investment Funding: Even before one ULIPs made their appearance almost generations is Wealth Creation. People can start investing money, it is essential 15 years ago and, over time, have look for ways to manage their money to start saving money. It is ultimately our transformed into very different products in the most efficient manner. In present savings which can fund all investment from what they used to be earlier. times with the high cost of living clubbed needs. Against the availability of life cover in with a desire for a wealthy lifestyle, the ULIPs, investors often debate that a need for better investment decisions has Investment Objective: For any person, it combination of mutual funds and term become the need of the hour. Wealth is important to have a right objective of insurance rivals the benefits of ULIPs. creations requires an investment option investment. Because goal-less investing that helps us cover all the relative cost will be ineffective. Two investment From the time ULIPs were introduced attached to money. Investment is placing objectives are: (a) wealth creation, and in the early 2000s to where they have one’s money in avenues that multiplies (b) Need based investing. reached today, these products have it and thus wealth creation is the result become a value-packed proposition of judicious investments. Wealth refers Wealth creation: When investment is for the customers. The ULIPs are to basket of assets; cash, land, property, done for wealth creation, the investment now smart, investor-friendly, more gold, shares, bonds all added together. horizon is endless. What it means by transparent, cost and the tax-efficient. For investors, wealth is created by endless horizon? Just keep buying (no Though Mutual funds are introduced buying or investing in these assets with selling) right investment options month long back, ULIPs give a tough an expectation that the price will move after month, and see the wealth grow competition to them nowadays. higher. This rise in price over a period with time. According to IRDAI annual report of time is what will lead to growth in Need based investing: Here we identify 2017-2018, ULIPs registered a growth wealth. Buying physical assets like our other needs of life like home of 22.72 per cent premium from land and built up property gives you purchase, car purchase, child’s future, Rs52845.26 crore in 2016-2017 to income if you utilise the asset to create foreign tour etc. There will be two types Rs64850.90 crore in 2017-2018. something which you can then sell for of needs here: (a) short term needs, and Accordingly, the share of unit-linked income. Hence, financial and physical (b) long term needs. Investment vehicle products in total premium increased to assets can give you both income and for each will be different. 14.13 per cent in 2017-2018 as against wealth. In property for example, income 12.63 per cent in 2016-2017. When comes from rent and wealth comes from Category of Population – Who mutual funds are intended for achieving an appreciation in value of the property. Are Millennials? short- and medium-term goals, ULIPs Similarly, in shares, income comes help in achieving medium- and long-term from dividends and wealth comes from India being a young country where two- life goals. Being one of the strongest change in price. third of the population will consist of products, providing a triple advantage of later millennials (20-35years) by 2021, investments, life insurance cover and tax Investing can help build wealth in the the study on the investment pattern benefits, ULIPs are surely becoming one long term which can be done through and behaviour is important to pave way of the most preferred investment tools an investment plan. The best investment for success of the Indian economy. by Millennials. Introduction of innovative plan is one which not only takes care of The population is categorised as Baby products, wide publicity through social our needs but also creates wealth over Boomers (1946-1964), Gen X (1965- media, investor education about the time. Having an investment plan, and 1980), Gen Y (1981-1996). Gen Y is

40 October - December 2020 THE JOURNAL OF INSURANCE INSTITUTE OF INDIA ULIPS OR MUTUAL FUNDS also called as millennials with a further Gen X mostly believes in fixed returns. & long-term investment, term insurance breakup of older millennials (1981-1989) They have a set parameter of measuring for risk cover, health insurance for and younger millennials (1990-1996). any financial instrument’s quality – medical expenses and for wealth creation Millennials preferences are changing how much will they get at the end or equity-based products. the world and they are changing the maturity, and is it guaranteed? The most financial investment market also with popular financial instruments for them Risks Involved in Stock less aversion to risk, openness to are Pubic Provident Funds, Post Office Investment alternate investment products like crypto Instruments, and Bank Fixed Deposits 1. Market risk currencies and their general outlook of or Recurring Deposits. Generation living in the present. (As per outlook X had grown up in a totally different Market risk is a risk which may result in money issue Mar 2020). environment from that of Generation losses for any investor due to the poor Y. This generation has seen not only performance of the market. There are When come to financial security, Baby financial stability, but also family a lot of factors that affect the market. boomers and Gen X had job security stability. Most of this generation has A few examples are a natural disaster, and retirement benefits. Millennials have lived in a joint family system. Major inflation, recession, political unrest, different aspirations when compared to financial decisions like buying a home fluctuation of interest rates, and so on. their parents which has affected their or car have come later in their lives, Market risk is also known as systematic way of spending money and managing when most of their responsibilities risk. The only thing that an investor finances. Millennials in India are taking have been fulfilled, and surplus funds can do is to wait for the things to fall in very seriously the FIRE (Financial have then been used for such large place. Independence, Retire Early) movement. investments. This generation believes in Millennials are taking to investments 2. Liquidity risk the power of saving money, and tries to such as mutual funds, as opposed to avoid loans and extravagant spending at say, fixed deposits, gold or post-office Liquidity risk refers to the difficulty to any cost. schemes that their parents sought to use redeem an investment without incurring for their savings. A lot of millennials opt a loss in the value of the instrument. It Known for their independence, for systematic investment plans (SIP) for can also occur when a seller is unable to impatience, optimism, confidence and their mutual fund investments. One of find a buyer for the security. social media craziness, this Generation the popular methods is to choose equity- Y has a different set of aspirations The risk of being unable to sell an linked savings schemes which come from their predecessors. They like an investment at a fair price and get with a short lock-in period and have un-tethered lifestyle and have different the money out in times of need. To tax benefits. Millennials may also opt priorities if you compare them to sell the investment, the person may for unit-linked insurance plans (ULIPs) Generation X. While goals like buying need to accept a lower price. In some more than their previous generations. a home, children’s education and cases, it may not be possible to sell Millennials are indeed faced with more retirement planning might have heavy the investment at all in situations like choices than the previous generation, weightage for them too, it is the delay moratorium. Sometimes due to lack of thanks to the emergence of online in saving for these goals that defines buyers in the market, we might not be marketplaces and more awareness about this generation. They believe in instant able to redeem our investments when we savings and investment products. They gratification of their dreams and don’t need them the most. are choosing to save but are also looking want to wait until tomorrow. Flexibility for experiences — exploring the world 3. Concentration risk and higher risk appetite are the major is just one of them. This is a generation attractions of Millennials in terms of Concentration generally means focusing that is trying to strike a balance between investments. They look for products on just one thing. Concentrating a savings and spending, wanting to do which are easy to use, simple, flexible considerable amount of a person’s a bit of both. Millennials in India are with minimum lock-in facility. They investment in one particular scheme experiencing a world that is constantly prefer Fixed Deposits in Banks for is never a good option. Profits will be changing, and therefore their method of Savings, Public Provident Fund for safe huge if lucky, but the losses will be saving may differ.

October - December 2020 41 ULIPS OR MUTUAL FUNDS THE JOURNAL OF INSURANCE INSTITUTE OF INDIA pronounced at times. The best way to same thing in the stock market, we’d Mutual Funds minimise this risk is by diversifying your have to invest much more capital to get portfolio. Concentrating and investing the same results. A mutual fund is a professionally heavily in one sector is also risky. The managed type of collective investment more diverse the portfolio, the lesser the Mutual funds & ULIPs also invest in a scheme that pools money from many risk is. variety of different sectors. So, a large investors and invests typically in cap fund may invest across different investment securities (stocks, bonds, Not only stock investment is the riskiest industries like financials, technology, short-term money market instruments, investment, it requires extensive health care, and materials. Again, if we other mutual funds, other securities, research and knowledge before investing try to match this through individual and/or commodities such as precious for a novice investor. The costs of stocks, we’d have to spend a lot of metals). The mutual fund will have frequent stock trades can add up quickly money to get the same returns. a fund manager that trades (buys for individual investors. Gains made and sells) the fund’s investments in from the stock’s price appreciation Low Minimum Investment - Anyone can accordance with the fund’s investment can be cancelled out by the costs of start investing in most Mutual Funds & objective. completing a single sale of an investor’s ULIPs with as little as Rs 100. shares of a given company. Therefore, Characteristics of mutual funds while investing in stocks it is required Professional Management - Fund o The ownership is in the hands of the to compile a basket of stocks instead managers and analysts wake up each investors who have pooled in their of one stock alone. Also, it is necessary morning with one goal – to research, funds. to sufficiently diversify between large analyse and study current and potential and small companies, value and growth holdings for their mutual fund/ULIPs and o It is managed by a team of companies, domestic and international pick the best funds to help the investor investment professionals and other companies, and also between stocks meet their financial goals. service providers. and bonds—all according to our risk Lower costs - Buying stocks and bonds tolerance. o The pool of funds is invested in a costs the investor more (set up of a portfolio of marketable investments. In the above scenario, the millennials DEMAT account/ transaction fee etc). o The investors share is denominated narrow down their choice between Because they manage large amounts of by ‘units’ whose value is called Mutual Funds and ULIPs (UNIT LINKED money on behalf of lakhs of individual as Net Asset Value (NAV) which INSURANCE POLICIES) which offer the investors, mutual funds/Insurance changes every day. benefit of investing in stocks, fairly good companies are able to take advantage to reduce transaction costs. returns, safe, small amounts of regular o The investment portfolio is created savings. according to the stated investment Systematic Investment Plans (SIPs) - objectives of the fund. Advantages of Mutual Funds SIPs make it simple to invest regularly and ULIPs in a mutual fund /ULIP plans with as Structure of Mutual Fund little as Rs 100 a month. The money is Diversification - Mutual funds as well automatically debited a day or two before The structure of Mutual Funds in India is as ULIPs offer investors a great way that day every month and invested in a three-tier one. There are three distinct to diversify their holdings instantly. that scheme so the investment habit gets entities involved in the process – the Unlike stocks, investors can put a small regularized and with ease of operation. sponsor (who creates a Mutual Fund), amount of money into one or more trustees and the asset management funds and access a diverse pool of Transparency - The investments that a company (which oversees the fund investment options. So, we can buy units Mutual Fund / insurance company make management). The structure of Mutual in a mutual fund as well as ULIPs that are publicly available every month, so if Funds has come into existence due to invests in as many as 20 to 30 different needed, we can see what fund manager SEBI (Securities and Exchange Board of securities. If we were looking for the is doing. India) Mutual Fund Regulations, 1996.

42 October - December 2020 THE JOURNAL OF INSURANCE INSTITUTE OF INDIA ULIPS OR MUTUAL FUNDS

5. The board of directors of such AMC has at least 50% directors who are not associate of or associated in any manner with the sponsor or any of its subsidiaries or the trustees.

The other entities are:

The Transfer Agents

The transfer agent is contracted by the AMC and is responsible for maintaining the register of investors / unit holders and every day settlements of purchases and redemption of units. The role of a transfer agent is to collect data from Under these regulations, a Mutual Fund The second layer is Trustees. The mutual distributors relating to daily purchases is created as a Public Trust. fund is required to have an independent and redemption of units. Board of Trustees, i.e. two third of The Fund Sponsor is the first layer in the trustees should be independent Custodian the three-tier structure of Mutual Funds persons who are not associated with in India. SEBI regulations say that a The mutual fund is required, under the the sponsors in any manner. An AMC or fund sponsor is any person or any Mutual Fund Regulations, to appoint any of its officers or employees are not entity that can set up a Mutual Fund to a custodian to carry out the custodial eligible to act as a trustee of any mutual earn money by fund management. This services for the schemes of the fund. fund. The trustees are responsible fund management is done through an Only institutions with substantial for - inter alia – ensuring that the AMC associate company which manages the organizational strength, service has all its systems in place, all key investment of the fund. capability in terms of computerization personnel, auditors, registrar etc. have and other infrastructure facilities are been appointed prior to the launch of any There are eligibility criteria given by SEBI approved to act as custodians. The scheme. for the fund sponsor: custodian must be totally delinked from 1. The sponsor must have experience The third layer is AMC (Asset the AMC and must be registered with in financial services for a minimum Management Company). The sponsors SEBI. or the trustees are required to appoint an of five years with a positive Net Unit Holders worth for all the previous five years. AMC to manage the assets of the mutual fund. Under the mutual fund regulations, They are the parties to whom the 2. The net worth of the sponsor in the the applicant must satisfy certain mutual fund is sold. They are ultimate immediate last year has to be greater eligibility criteria in order to qualify to beneficiary of the income earned by the than the capital contribution of the register with SEBI as an AMC. mutual funds. AMC. 1. The sponsor must have at least 40% Types of Mutual Funds based on 3. The sponsor must show profits in stake in the AMC. structure at least three out of five years which 2. The chairman of the AMC is not a includes the last year as well. Open-Ended Funds: trustee of any mutual fund. n These are funds in which units are 4. The sponsor must have at least 40% 3. The AMC should have and must at all open for purchase or redemption share in the net worth of the asset times maintain a net worth not less throughout the year. management company. than Rupees Ten Crore (100 million). 5. Any entity that fulfils the above 4. The director of the AMC should be a n All purchases/redemption of these criteria can be termed as a sponsor person having adequate professional fund units are done at prevailing of the Mutual Fund. experience. NAVs.

October - December 2020 43 ULIPS OR MUTUAL FUNDS THE JOURNAL OF INSURANCE INSTITUTE OF INDIA n Basically, these funds will allow companies. These are considered returns depend on the performance investors to invest as long as they high-risk funds but also tend to of the target fund. These funds can want. provide high returns. also be referred to as multi manager funds. These investments can be n There are no limits on how much can v Debt funds - These are funds that considered relatively safe because be invested in the fund. invest in debt instruments e.g. the funds that investors invest in company debentures, government n They are an ideal investment for actually hold other funds under them bonds and other fixed income those who want investment along thereby adjusting for risk from any assets. They are considered safe with liquidity because they are not one fund. investments and provide fixed bound to any specific maturity returns. periods. Unit Linked Insurance Plan v Money market funds - These (ULIP) Close-Ended Funds: are funds that invest in liquid n These are funds in which units can instruments e.g. T-Bills, CPs ULIP is life insurance solution that be purchased only during the initial etc. They are considered safe provides for the benefits of protection offer period. investments for those looking to and flexibility in investment. The major advantage that a ULIP has over the n Units can be redeemed at a specified park surplus funds for immediate but traditional wealth creation tools is the maturity date. moderate returns. Money markets are also referred to as cash markets benefit of a Life Cover. ULIP being a n To provide for liquidity, these and come with risks in terms of combination product, premium amount schemes are often listed for trade on interest risk, reinvestment risk and paid under ULIP consists of risk a stock exchange. credit risks. premium and investment component. Risk premium may be for life or health n Unlike open ended mutual funds, v Index funds - These are funds that once the units or stocks are bought, or any other authorized purposes. Unit invest in instruments that represent they cannot be sold back to the Linked Insurance Policies (ULIP) as an a particular index on an exchange mutual fund, instead they need to be investment avenue is closest to mutual so as to mirror the movement and sold through the stock market at the funds in terms of their structure and returns of the index e.g. buying prevailing price of the shares. functioning. As is the case with mutual shares representative of the BSE Interval Funds: Sensex. n These are funds that have the v Balanced funds - These are funds features of open-ended and close- that invest in a mix of asset classes. ended funds in that they are opened In some cases, the proportion of for repurchase of shares at different equity is higher than debt while in intervals during the fund tenure. others it is the other way round. Risk and returns are balanced out this n The fund management company way. offers to repurchase units from existing unitholders during these v Income funds - Under these intervals. schemes, money is invested primarily in fixed-income n If unitholders wish, they can offload instruments e.g. bonds, debentures shares in favor of the fund. etc. with the purpose of providing The most popular types of mutual funds capital protection and regular income in India are listed below: to investors. v Equity funds - These are funds that v Fund of funds - These are funds that invest in equity stocks/shares of invest in other mutual funds and

44 October - December 2020 THE JOURNAL OF INSURANCE INSTITUTE OF INDIA ULIPS OR MUTUAL FUNDS funds, investors in ULIP is allotted units example, depending on their investment ULIP is life insurance by the insurance company and a net needs, they can shuttle between stock solution that provides asset value (NAV) is declared for the funds, bond funds, and diversified funds. same on a daily basis. Similarly, ULIP The Fund Value reflects the growing for the benefits of investors have the option of investing corpus by way of net asset values, or protection and flexibility across various schemes similar to the NAVs. On maturity, this Fund Value is in investment. The major ones found in the mutual funds domain, paid. In the case of death, higher of the i.e. diversified equity funds, balanced Sum Assured promised or the available advantage that a ULIP funds and debt funds to name a few. Fund Value is paid. has over the traditional Generally speaking, ULIP can be termed The Funds wealth creation tools as mutual fund schemes with a life insurance component. It should not be The first feature is the choice of funds is the benefit of a Life construed that excluding the insurance available. Every insurer offers a variety of Cover. ULIP being a element there does not exist any three basic types of funds which are: combination product, apparent differentiation of mutual funds 3 Equity Funds: These funds invest from ULIP. When an investor purchases premium amount paid primarily in the equity market unit in a ULIP, he or she is purchasing under ULIP consists and hence follow an aggressive units along with a larger number of investment strategy. The risk of risk premium and investors, just like an investor would presented by these funds is high and purchase units in a mutual fund. investment component. so is the return generating potential. Risk premium may be for This product requires policyholders 3 Debt Funds: On the other end of to make regular premium payments, life or health or any other the spectrum are debt funds which part of which are utilized to provide follow a conservative investment authorized purposes. insurance coverage, while the remaining strategy. These funds invest in the Unit Linked Insurance portions are pooled with assets from debt and bond market and hence other policyholders, then invested in Policies (ULIP) as an have a low-risk strategy. The returns equity and debt instruments, much from these funds, as obvious, are investment avenue is like mutual funds. Mortality charges also conservative and low. closest to mutual funds and ULIP administration charges are thereafter deducted on a periodic 3 Balanced Funds: Investors who in terms of their structure (mostly monthly) basis by cancellation wish to earn returns higher than and functioning. As is of units, whereas the ULIP fund those generated by the debt funds the case with mutual management charges are adjusted from but are averse to the high-risk NAV on a daily basis. Policyholders strategy of equity funds find respite funds, investors in ULIP must commit an initial lump sum in balanced funds. These funds is allotted units by the payment when they first buy into a ULIP, are a combination of equity and insurance company and a followed by annual, semi-annual, or debt funds and follow a moderate monthly premium payments. Although investment strategy. The risk is net asset value (NAV) is the premium payment obligations vary moderate and the returns are decent declared for the same on from product to product, in all cases, which are higher than debt funds but a daily basis. they are proportionally invested towards lower than equity funds. a designated investment mandate. But of the premium paid. In the case of ULIPs are unique in that they offer The Life Cover death, higher of the Sum Assured or the flexibility to investors, who may adjust Since ULIPs are insurance plans, Fund Value is paid. Thus, the life cover their fund preferences throughout insurance cover is available and is promised under ULIPs is guaranteed to the duration of their investment. For expressed as a percentage or multiple be payable on death.

October - December 2020 45 ULIPS OR MUTUAL FUNDS THE JOURNAL OF INSURANCE INSTITUTE OF INDIA

Charges another. If your investment strategy plan continuity. This withdrawal can be The premiums that are paid would be changes over the plan tenure, the plan made any time after the first five years subject to certain charges before they allows you to change your investment of the plan and a limited number of are invested in the chosen fund. These funds through switching facility which withdrawals are also free of cost. is free of cost up to a specified extent in charges include the premium allocation Top-ups charges, administration charges, fund one policy year. ULIPs also provide the facility of management charges, mortality charges, Partial withdrawals etc. and are deducted every year or every making additional investments into month depending on the type of charge The unique part about ULIPs which is the plan through the facility of top-up and policy terms. absent in other insurance plans is the premiums. Thus, the policyholder can facility of partial withdrawal. In ULIPs, use any surplus fund for investment Switching the policyholder can withdraw the in the plan apart from the premiums Switching means transferring Fund Value partially for any financial which are paid and reap the benefits of investments from one chosen fund to requirements without hampering the good returns.

Comparison of Mutual Funds and Unit Linked Insurance Plans Point of Comparison Mutual Funds ULIP ULIPs are a blend of investment and insurance Product type Mutual funds are purely investment products. products.

Returns are moderate to high. Net Asset Value The chances of higher returns are more. Some depends on the kind of investment funds and Return on investment equity-oriented investment gives better returns. market performance. However, it does not give However, it does not give assured returns. assured returns.

Except ELSS, Mutual funds generally have a Lock-in Period ULIPs have a lock-in period of 5 years now. lock-in period of just one year.

Term It can be short, medium or long-term. Long-term only

Mutual funds investment is liable for taxation One can claim tax deductions up to Rs 1.50 Taxation Benefits as per the application tax bracket. The only lakh under Section 80C of the Income Tax Act. exception is ELSS.

ULIPs have an in-built investment feature that Equity-oriented Mutual funds are very risky, provides the insured sum in case of death of Risk while Bond-oriented ones are relatively less the policyholder. Hence, they are relatively less risky. risky.

ULIP have lower liquidity and one needs to wait Liquidity Mutual funds are more liquid, except ELSS. for the completion of the lock-in period.

ULIP investors have an option to get Mutual funds do not provide any life insurance comprehensive and complete protection by Insurance and riders coverage. Therefore, they do not have any adding riders. It also comes with Life Insurance riders. coverage.

More transparent about the fees and portfolio Less transparent due to asset allocation and Transparency handlings. hidden expenses.

Mutual funds have low expenses due to ULIPs have higher charges, due to the Expenses management by professional fund managers. complicated nature of its portfolio.

46 October - December 2020 THE JOURNAL OF INSURANCE INSTITUTE OF INDIA ULIPS OR MUTUAL FUNDS

Areas Where Mutual Funds Return: Score Over ULIPs Historically, equity mutual funds have outperformed ULIPs. Over a long period, even a small difference of 2-3% can significantly change the corpus due to compounding. After the re-introduction of long- term capital gain (LTCG) tax on Average 5 years CAGR return on ULIPs and Mutual Funds equity and equity oriented Mutual ULIPs Mutual Funds Funds in the Union Budget of Large-cap 15.0% 16.2% 2018, attention of people in India Multi-cap/Flexi-cap 12.7% 18.6% has turned towards ULIPs as they Mid/small-cap 23.4% 28.5% are not subject to capital gain tax. (Source: Ace MF, Morningstar. Returns as of February 27, 2018) Taxation rate on short-term gains from the redemption of debt funds is Difference in corpus over different period and returns by investing Rs10lakh per one’s income tax slab, while the Years long-term capital gains are subject 5 10 15 20 to tax @20% (excluding Cess) after indexation. Also, the premiums paid Returns 10% `16.1 lakh `25.9 lakh `41.7 lakh `67.2 lakh towards risk cover under ULIP is 12% `17.6 lakh `31.0 lakh `54.7 lakh `96.4 lakh eligible for Tax exemption under 13% `18.4 lakh `33.9 lakh `62.5 lakh `1.1 cr Section 80C up to Rs.1.5 Lakhs. Another comparison is taken from Paisabazaar.com which collected data from From the angle of taxability, ULIP three financial houses – HDFC, ICICI and Tata which have both mutual fund and definitely seems to be a better ULIP offerings up to 31st January 2018. choice. However, it has to be stated here that taxation is not the only HDFC: parameter that you should consider HDFC Life ULIPs HDFC Mutual Funds for selecting an investment product. Fund Fund Name 3-year 5-year Fund Name 3-year 5-year There are many other key factors category return return return return which we should keep in mind Large Large Cap 7.48 12.44 HDFC Top 10.15 15.82 before selecting any investment Cap Fund 200 Fund product. Multi cap Diversified 14.04 N/A HDFC Capital 14.21 20.73 Purpose of Investing: Equity Fund Builder Fund Mid cap Opportunities 16.31 19.82 HDFC Mid-cap 16.35 25.82 ULIP alone cannot provide adequate Fund Opportunities insurance cover to a person. A Fund person already has insurance cover through term insurance or any other ICICI: cover can buy ULIP as an additional ICICI pru life ULIPs ICICI Mutual Funds option since it contains insurance Fund Fund Name 3-year 5-year Fund Name 3-year 5-year element along with investment. category return return return return Similarly, if a person invests in Large Blue-chip 8.81 13.83 ICICI Prudential 11.18 17.34 Mutual fund alone and not insured, Cap Fund Focused blue-chip it will lead to big loss to the family Equity Fund in case of untimely death of that Multi cap Multi Cap 11.59 17.01 ICICI Prudential 12.16 18.48 person. Adequate insurance is first Growth Fund Multicap Fund and foremost for any person before Mid cap Not Available -- -- ICICI Prudential 13.18 25.31 investing. Midcap Fund

October - December 2020 47 ULIPS OR MUTUAL FUNDS THE JOURNAL OF INSURANCE INSTITUTE OF INDIA

TATA: A detailed comparison can be carried out between Mutual fund and ULIPs TATA AIA Life ULIPs TATA Mutual Funds showing how much wealth they will create in a specific time period Fund Fund Name 3-year 5-year Fund Name 3-year 5-year considering their returns are same. In category return return return return such a comparison, for a long time, say for around 18-20 years, corpus created Large Large Cap Equity 8.80 15.03 Tata Large 9.43 15.06 by a Mutual fund will remain higher Cap Fund Cap Fund and only after 20 years or so, the ULIP corpus will beat it. Multi cap Equity Fund 8.31 13.70 Tata Equity 16.40 23.05 P/E Fund Transparency: Mid cap Whole Life Mid 16.77 25.91 Tata Midcap 13.27 24.84 The disclosures of the underlying Cap Equity Fund Growth Fund portfolio of a ULIP are not as transparent as that of a Mutual Fund. In addition It can be seen that mutual funds returns are higher than the returns generated by to that, the exact break-up of load on ULIP except TATA AIA ULIP Mid Cap where in the returns are higher in ULIP in 3 a ULIP plan is not available, unlike a years as well as 5 year than Mutual Funds. In Large cap as well as Multi cap the Mutual Fund scheme. Apart from the returns in Mutual funds are higher than ULIPs. loading, expense ratio which in regard to a Mutual Fund plan is also mandatorily Another study by Morning Star confirms the same. The data is as on 10th March required to be stated clearly in the 2019. mutual fund fact sheet. From returns to Large Cap: ULIPs vs Mutual funds: Morningstar Category Index: S&P BSE 100 TR underlying portfolios to sector allocation of investments, one can clearly find all Instrument Category Average Top Performer Bottom Performer the information in the online platform of an AMC and various other websites. ULIPS 16.12 20.49 12.09 The benchmark, expense ratio, and exit load is also disclosed by AMCs Mutual funds 17.1 21.02 13.55 and is available on various websites. Besides, many analysts and investment advisors track mutual funds. ULIPs also Mid Cap: ULIPs vs Mutual funds: Morningstar Category Index: S&P BSE Mid Cap TR disclose the same information but they are not widely tracked by the analyst Instrument Category Average Top Performer Bottom Performer community.

ULIPS 21.05 23.73 17.46 Cost:

Mutual funds 22.76 25.82 8.9 ULIPs used to have very high charges in past but now they compete with mutual fund schemes on charges. If a person invests in a ULIP via online, he Multi Cap: ULIPs vs Mutual funds: Morningstar Category Index: S&P BSE 500 TR does not have to pay administrative or Instrument Category Average Top Performer Bottom Performer fund allocation charges. Mutual fund schemes also have very competing ULIPS 12.95 17.3 8.83 expense ratios. Investors can further reduce the expense ratios by investing Mutual funds 18.68 25.45 12.83 in direct plans.

48 October - December 2020 THE JOURNAL OF INSURANCE INSTITUTE OF INDIA ULIPS OR MUTUAL FUNDS

Charges:

Charges ULIPs Mutual Funds

Premium allocation Will be deducted (upfront from premium before Nil Charges investing Nil

Policy administration Will be deducted from premium Everymonth Nil Charges upfront

Expense for managing the fund, these are Expense for managing the fund, these are Fund management deducted from NAV value hence will not be visible deducted from NAV value hence will not be visible Charges/Expese ratio to the investors. The maximum cap is 1.35% to the investors. It ranges between 1.2% to 2.5%

Charges redemmed by insurer from the accumulated units on monthly basis to cover for Mortality Charges Nil insurance. This charge will change based on age and insurance company.

Exit load/Surrender Nil, Mandatory lock in period of 3 years for ELSS Yes, if surrendered between 1to 5 years. Charges (After 1 year) alone

Please note that GST will be charged on all these charges.

Liquidity: Areas where ULIPs score over is tax free. This is irrespective of whether the funds are invested in Liquidity is the most important factor Mutual Funds equity or debt. This makes ULIPs to be considered while investing. An Unit Linked Insurance Plans (ULIP) quite tax efficient and the post-tax investment option should be easily have got a lot of bad press and many returns can hence be attractive. liquidated in times of need. Mutual advisors have trashed them as products Funds are highly liquid in nature. Except not worth investing in. ULIPs made u When a person buys a term plan ELSS wherein the lock-in period is 3 their appearance almost 15 years ago with a mutual fund scheme, he is years, other funds can be redeemed at and, over time, have transformed into essentially combining life cover with any time and money will be available very different products from what they investment returns. Though we may to the investor within 3 days. Whereas used to be earlier. The product used think the combination is better than under ULIP the lock-in period is 5 years to be costly several years ago as the ULIPs, we ignore the costs involved. even though partial withdrawal facility is various charges added up to make In ULIPs, there is a mortality cost for available, it can be availed after lock-in them expensive. But that has been the life cover provided. This cost is period only. corrected largely now. The ULIPs now levied on the sum at risk which, in being offered by various insurance simple terms, is sum assured less Flexibility: firms currently come at low costs the fund value. As the policyholder Mutual funds are way more flexible than and compares well with a MF (mutual pays subsequent premiums and the ULIPs. Mutual fund investors can switch fund)/term insurance combination. fund value grows, the sum at risk from one scheme to another within a Against the availability of life cover in reduces and then becomes zero fund house or to another fund house, ULIPs, investors often debate that a after a certain period. As soon as the which enables investors to switch from combination of mutual funds and term sum at risk becomes zero, mortality poorly performing schemes to better insurance rivals the benefits of ULIPs. cost is not deducted. Therefore, in ones. On the other hand, ULIPs provide Are they right? Technically, they are but a unit-linked plan, the policyholder some flexibility to investors to switch is it the whole picture? bears the cost of insurance only for from equity to debt and vice-versa within u One major advantage of investing in a short duration. In case of a term the same plan only. ULIPs today is that the withdrawal plan, the policyholder pays higher

October - December 2020 49 ULIPS OR MUTUAL FUNDS THE JOURNAL OF INSURANCE INSTITUTE OF INDIA

premiums compared to the mortality followed and there is less churning Few people place an cost charged in ULIP and that too for making it comparatively less risky. argument that ULIPs have a longer duration. So, which saves u Mutual funds (except ELSS plan) you more money – Term plan with a range of charges like are liquid in nature. we can redeem mutual funds or ULIPs? the premium allocation our fund any time we want to, by charge, administration u Few people place an argument that paying the applicable exit loads. This ULIPs have a range of charges like liquidity, though helpful in a financial charge, fund management the premium allocation charge, crisis, tempts us to withdraw your charge, mortality charge, administration charge, fund funds early. This temptation does etc. These charges make management charge, mortality not allow us to create disciplined ULIPs unattractive. While charge, etc. These charges make savings for our future goals. ULIPs the charge structure ULIPs unattractive. While the have a five-year lock-in period charge structure in ULIPs was wherein withdrawals are not allowed. in ULIPs was always always a negative point, new plans As such, a unit-linked plan forces a negative point, new available in the market to address us to create wealth and makes us plans available in the this concern. Many unit-linked financially disciplined. These forced market to address this plans have reduced the allocation savings give us a good corpus which charge drastically. Where the helps us in meeting our financial concern. Many unit- allocation charge is applicable, it is obligations in future. If liquidity is a linked plans have reduced either reduced or nullified from the concern, in case of an emergency, the allocation charge second or third policy year. Even many banks provide a loan against drastically. Where the the policy administration charges these policies. allocation charge is in many plans have been reduced to zero. In fact, over a long run, the u When we consider the tax applicable, it is either average charges in a unit linked implication on mutual funds and reduced or nullified from plan become very much competitive ULIPs, ULIPs emerge as the clear the second or third policy in comparison to overall charges winner. Short term or Long-term year. Even the policy in mutual funds. It even rivals the capital gains from all mutual funds administration charges expense ratio of a mutual fund are taxable. This tax implication scheme. So, if we are investing with makes mutual funds less attractive. in many plans have a long-term perspective and buy Three types of tax benefits are been reduced to zero. plans with a lower charge structure, available under ULIP. 1. Investment In fact, over a long run, made is eligible for tax exemption we wouldn’t have to worry about the the average charges in a inherent costs in a unit linked plan. under Sec. 80C up to 1.5 lakhs. 2. Death and Maturity benefits are unit linked plan become u Mutual funds are better for high tax free under Sec 10(10D) subject very much competitive risk-taking individuals because to certain conditions. 3. Partial in comparison to overall they churn out more stocks in withdrawals are also tax free. These charges in mutual funds. comparison to ULIP Funds. Even tax exemptions are not available in if we invest in debt mutual funds, mutual fund investments. Another would attract long term or short- the risk is high because of active area where tax implication is applied term capital gains tax, depending on participation in market movements in mutual funds is Switching. If the tenure of investments. In ULIPs, and frequent churning of underlying switching is done between funds however, switching between the assets. In a ULIP, on the contrary, under Mutual funds i.e, from equity different funds is completely tax- the passive investment strategy is to debt or vice versa, the funds free.

50 October - December 2020 THE JOURNAL OF INSURANCE INSTITUTE OF INDIA ULIPS OR MUTUAL FUNDS

When it comes to fulfilling future goals is used to purchase the annuities that As per the survey such as buying a new home, child’s we will receive for the rest of our life. conducted by education, retirement planning etc., The annuity plans have different annuity savings are a must. Without long term options that we may opt for, as per our ASSOCHAM and India savings plans, it is difficult to balance financial needs. First Life Insurance short term needs and future goals. ULIPs during July-August help us save systematically and help us Choice of Millennial 2018 to study savings plan for these future goals. Various types As per the survey conducted by of ULIPs are available to meet the life ASSOCHAM and India First Life and investment patterns goals. Insurance during July-August 2018 to of individuals aged study savings and investment patterns Wealth Creation ULIPs between 18-35, Life of individuals aged between 18-35, Insurance is the most If we are looking to buy a plan that Life Insurance is the most preferred helps us build the wealth along with the investment for almost 70% of millennials preferred investment insurance benefit, investing with a wealth followed by mutual funds 69% and fixed for almost 70% of creation plan is the best bet. This kind of deposits 64%. The survey also stated millennials followed by that the respondents were aware about unit linked plan helps fulfil our long-term mutual funds 69% and financial goals with the life cover. the type of insurance products and their preference was Term Assurance Plan. fixed deposits 64%. The Child ULIPs As per the India Protection Quotient survey also stated that survey conducted by Max Life Insurance This type of unit linked plan aims to cater along with Kantar IMRB, 36% millennials the respondents were the financial needs for our child’s future, consider Term Insurance as their first aware about the type and it helps to manage expenses such choice when comes to Insurance. of insurance products as a child’s education, higher education, and marriage. By investing in this plan, According to CAMS, mutual funds are and their preference our child can easily realize his dreams, also becoming the preferred choice of was Term Assurance investment for millennials. The report even when we are not there. Plan. As per the India added that there is sharp increase of Health ULIPs new investors in the past two financial Protection Quotient years in mutual fund industry due to survey conducted by This type of unit linked plan takes care the increased confidence of investors of our health-related expenses. In this Max Life Insurance along in mutual funds as a route to wealth plan, our premium amount is invested in creation. According to CAMS, out of 36 with Kantar IMRB, 36% a fund and thus provides the fund value lakh new investors during financial year millennials consider Term and insure our health as well. It provides 2019-20 in the mutual fund industry, the dual benefits of health protection Insurance as their first a whopping 16 lakh or 47% investors plus savings. choice when comes to were millennials. As per the report, the preferred mode of investment is Insurance. Retirement ULIPs SIP (Systematic Investment Plan) by Everyone wants to save a huge corpus majority of millennials around 10 lakhs If ULIP is a good product, then why for their post-retirement period. Here is and the preferred type of fund being it is not able to attract masses? The the market linked investment plan for Equity fund (15 lakhs). When compared reason was mis-selling of ULIPs retirement that helps us build a sum to bigger cities, millennials in smaller before 2010. Mis-selling means a of money that we can withdraw as a cities also prefer Mutual Funds over deliberate, irresponsible or negligent lump sum and the remaining amount other investments. sale of products or services through

October - December 2020 51 ULIPS OR MUTUAL FUNDS THE JOURNAL OF INSURANCE INSTITUTE OF INDIA misrepresentation of a contract or proposition for the customers. The 1. Introduction of new innovative and unsuitability of the product or service ULIPs are now smart, investor-friendly, customised products to suit the as per customers’ needs. Mis-selling more transparent, cost and the tax- investment needs of the millennials. means a deliberate, irresponsible or efficient. With new guidelines such 2. Wide publicity through various negligent sale of products or services as increasing disclosures, minimum channels. Since millennials are tech- through misrepresentation of a lock-in period increased to 5 years and savvy, the products can be marketed contract or unsuitability of the product commissions capped, the new age through social medias. or service as per customers’ needs. ULIPs have become a better financial But, once the private sector entered product. Though Mutual funds are 3. Insurers must ensure that they make this market, they started abusing the introduced long back, ULIPs give a it easy for the Policyholder/Prospect product. Instead of building wealth, tough competition to them nowadays. to access the information relevant investors started losing wealth and the Even returns received from ULIP in the to their investment decisions which life cover. Mis-selling had arisen for 3 past 10 years is almost near to returns enables them to make comparisons reasons. First, most sales personnel received from Mutual Funds. The with the other providers. were neither trained nor equipped to comparison of business figures of both handle complex product like ULIP shows the same trend. The charges of 4. Increasing online selling of ULIP due to which they were unable to ULIPs were brought down and spread products. understand and advise their customers out evenly over the tenure of the policy 5. Adequate training of field force and on ULIP products. Secondly, banks and the disclosures were more detailed sales personnel in promoting ULIP were allowed to sell products of many for the benefit of investors. To attract products. insurance companies under open customers, insurers decided to remove architecture model and the pressure policy administration and premium Being one of the strongest products, on competition and achievement of allocation charges completely. And providing a triple advantage of sales targets led to mis-selling. Third, the investors get the mortality charge investments, life insurance cover and tax there was lack or no proper investor back once the plan matures, indicating benefits, ULIPs are surely becoming one education by insurance companies. ULIP as a unique investment option of the most preferred investment tools with a free life cover. ULIP also provide by Millennials. TJ As per reports from Mint and Goldman customers with the flexibility to choose Sachs, about Rs. 1.13 trillion invested their asset allocation between equity Bibliography money dissolved in this scam. ULIP and debt, depending on their risk is a useful and good product lost its 1. Paisabazaar.com appetite. In fact, the customer has the reputation to negative publicity and option to choose their investment in 2. Economic Times mis-selling during the initial period. 100 % equity or debt. Further, many Conclusion insurance companies do not even levy 3. ASSOCHAM charges for switching between the Now, the journey of Unit Linked 4. CAMS funds. After 5 years the policyholder can Insurance Policies (ULIPs) in the choose to withdraw their investments 5. Morning Star investment market is a steady partially or fully. one. It has come a long way from 6. https://www.outlookindia.com/ its reputation of being a mis-sold With careful planning over the years, the outlookmoney/magazine/story/how- product to being as transparent as wealth created from ULIPs can be used ulips-became-the-raging-bull-66 the other financial products in the for the child’s higher education or other 7. MoneyControl.com market. From the time they were requirements like retirement planning. introduced in the early 2000s to For ULIP products to be the choice of 8. www.livemint.com where they have reached today, these millennials, the insurers should take the products have become a value-packed following measures. 9. Financial Express

52 October - December 2020 THE JOURNAL OF INSURANCE INSTITUTE OF INDIA INSURANCE PENETRATION

Merit Winner Technical Paper Essay Competition (General) The Paradox of Rising Premiums and Low Insurance Penetration

Abstract even innovation in the insurance sector The insurance industry in a vastly in India. This paper seeks to unravel populous, demographically varied and the dichotomy that the insurance culturally diverse country like India sector faces in this country today- A resembles a maze. While the growth population so large and underserved of a large number of private players in that it has scope for multiple insurance the insurance as well as reinsurance players to spread their arms wide sectors has allowed the industry to without competition, and yet an abysmal bring forth extremely sophisticated insurance penetration which counts and nuanced insurance products for amongst the lowest in the world. We the populace at large, a large number focus on how insurance premiums, of factors including general apathy driven by certain actuarial practices and towards the insurance needs of people risk management techniques pushes up Arun Kumar and businesses, and high premiums, the cost for purchasing the right kind House Number 352, sector -4, which in the eyes of the insured convey of insurance. The paper further tries Panchkula, Haryana – 134112. no immediate benefits, has impeded to bring to light the fact that despite statutory mandates in a country like [email protected] the spread, growth, penetration and

October - December 2020 53 INSURANCE PENETRATION THE JOURNAL OF INSURANCE INSTITUTE OF INDIA

India, which require that certain activities economic prowess, why does the Indians remain woefully unprotected from get necessary insurances, the penetration growth of insurance sector stay life’s caprices. In the event of the death of in those markets still shows alarming stagnant and sterile? an earning member, an average Indian has gaps due to a number of factors including only around 8% of what may be required • Despite the Government’s will general apathy, lack of awareness and to protect his or her family from financial towards bolstering the insurance high insurance premiums despite the high shock. Citing the observations of a report industry to make considerable strides, depreciation rates that are announced by by India Spend, a data-driven public what falters it? the Ministry of Commerce every financial interest journalism initiative, “This is year. For this purpose, we specifically • Despite the increased financial much lower than the insurance coverage look at Motor Insurance as a subsector capabilities of the citizen, and ever adequacy of 44% in Japan, 84% in in India, where insurance for motor persistent vagaries of the world, what Taiwan, and 67% in Australia,” the report, vehicles has been mandated under the deters him from forging a financial released on Jan. 15, assessed3. Motor Vehicles Act, 1988. The mandate alliance with insurance instruments to As of March 2016, the rising participation has been in place for a long time in India, safeguard against them? of private players led to an increase in but multiple statistical analysis show Insurance is an instrument for protection their share in the life insurance industry, that there are large gaps in the insurance from financial loss, it’s a means of with the market share reaching 29.6% in coverage for this sector, in some cases indemnification for the loss occurred. It FY16 from 2% in FY034. going to as much as 1/3rd of the total is a form of risk management, primarily Considering the contemporary analytics number of vehicles in the segment. The used to hedge against the risk of a of the market, the insurance product paper further tries to see the causes contingent or uncertain loss1. behind such gaps, and analyses the which has made apparent its prominent actions taken to plug such gaps on a war Understanding the Factual penetration of the market is the Motor footing. The paper further explores the Position Vehicle Third Party insurance. The reason pricing phenomena behind insurance behind the high market penetration The Insurance Regulatory and products in India, and how penetration of Motor Third Party Insurance is, Development Authority of India (IRDAI) can be increased without a significant the government’s will and mandates in its Handbook on Indian Insurance dent in the operating margins for steadfastly backing it. The market has Statistics, 2016-17 provided that India insurance companies, which have been been bullish for the past few months, had about 328 million life insurance working on razor thin margins for a long relying earnestly on the general insurance policies in 2017, Assuming each policy time, and in many cases, incurring losses industry’s growth prospects. It is corresponds to a unique citizen, this to increase their respective market share. imperative to note that the sudden positive accounts for only 25% of the population anticipation towards the upsurge in the Pursuing Insurance: Arcane Secret having life insurance cover, leaving the growth of insurance sector has been behind a Blooming Economy large population of 75% or 988 million based, precariously, on the increase in Indians without an insurance cover2. Introduction Third-party motor insurance penetration IRDAI data reveals that insurance in the populace. The ‘ promising, yet India is a country which is steadily industry’s penetration increased unpromising ‘ profligation of Motor gaining ground in the field of economic marginally to 3.70% in FY 2018-19 from Third-Party insurance poses is a paradox development. Abound with the prospect 3.69% FY 2017-18,. So far, the industry for the insurance industry. All factors of becoming a haven for financially has recorded highest penetration of augur well for the increased penetration prudent minds, promising the capital of 5.2% in FY 2009-10. In terms of density, of Motor Insurance, yet, its performance businessmen, safety from the caprice of insurance industry witnessed an increase stays lukewarm. Despite a regulatory market; and safeguarding the hard earned in density from $73 to $74 in FY 2017- compulsion, to procure a Motor earnings of the average agriculturists 18. Compared to advanced economies, Insurance, the transgression of which will from the whims of nature. It is replete India performs unimpressively in terms be met with punitive action; many vehicles with potential to burgeon and bloom. of density. The global average of density still remain uninsured. Vehicle owners Pertinent questions crop in the mind after is $682 in contrast to $74 in India; the often do not renew their policies beyond taking into account, factors like: highest density in the world is in Hong the first year/policy which is attached to • Despite such fertile grounds of Kong with $8,863. the purchase of the vehicle. According to

54 October - December 2020 THE JOURNAL OF INSURANCE INSTITUTE OF INDIA INSURANCE PENETRATION industry players, insurance compliance Insurers in Tier-II and below centers insurers to target such segments, but with commercial vehicle operators is now does not require prior approval they still have a considerable chunk left relatively higher than vehicles owned of IRDA (subject to compliance to yield. The headroom for growth has by people residing in the interiors; the on solvency and expenses) as always been there but lack of awareness lowest compliance being observed in the per IRDA Places of business among customers and low viability two-wheelers segment. Regulations-2013.Most categories of of distribution infrastructure did not Business Correspondents approved transmute the potential into the fruitful The faith in increase of Motor Insurance by RBI are now eligible to become fruition of the opportunity9. penetration has been intensified, owing Micro Insurance Agents5 to two factors. First, the Supreme Court The insurance industry has witnessed a has made it mandatory for vehicle • IRDA has made KYC of Banks rise and fall in its penetration levels since buyers to purchase three- and five-year applicable to insurance policies for 2000. In accordance with its annual TP policies on purchase of new cars POI (proof of identity) and POA report, IRDAI states, during the first and two-wheelers, respectively. This will (proof of address) purpose provided decade of insurance sector liberalization, reduce the risk of slippages in second a copy of such Bank documents are the sector reported a consistent increase to fifth year; insurers have the option made available6 in insurance penetration from 2.71 of attaching single or multi-year own percent in 2001 to 5.20 percent in 2009 • IRDA has issued IRDA (Licensing damage (OD) policies along with such after which there was a steady decline of Banks as Insurance Brokers) TP policies. Secondly, the new Motor until 2014 (3.30%). Regulations 2013 to enable and Vehicle Act, 2019 (which increased equip banks to work as brokers for This gives a window for the private traffic penalties on uninsured vehicles) is multiple insurance companies with market to grow and shine. The driving penetration in motor TP as well. RBI approval7 launching of the schemes and its actual Motor insurance had the largest (38.8%) fructification are two separate scenarios. share of general insurance market, with • IRDA has issued the Linked and The intent loses its worth when the plan gross premiums of INR607.2 billion Non-Linked Product Regulations does not bear a sufficient yield. As an (US$9.3 billion) in 2017. An increase in which aim at improving benefits industry, there is requirement to keep a automobile sales and a 2018 regulation offered: on death, on surrender, discerning and perceptive sight of the mandating sale of three and five year and on maturity. It, also, caps the market to capitalize on an opening or third-party insurance policies on new charges levied under linked products an opportunity. The Government, taking vehicles, both contributed to its growth. and aims at improving persistency the precedents into consideration, shall A recently passed law that penalizes 8 levels always be unwilling to take political driving without an insurance policy is risks and that is the window on which also expected to contribute. A Ray of Hope for Growth the industry should prosper. The Indian At present, the government has been The various insurance schemes launched insurance industry had a CAGR of 10 trying to bolster the efforts to increase by the Government of India, crafted with 10.49% over the past 11 years . the penetration, and grow insurance a positive, noble, and socialistic objective Identifying the Limitations coverage by introducing schemes for the in mind, have not yet reached its finish Attached to Less Penetration protection from risk, principally for the line because of various indigenous socially and economically susceptible impediments like corruption, lack of There are numerous limitations that are sections of the Indian society. Though, awareness, bureaucratic hassles, and attached to the insurance sector in the the same are inadequate considering red-tapism. Insurers have traditionally present market conditions, and with the global parameters in coping with found it difficult to target low-income the present mind-set of the Indians, at the present deficit. But, in practice, it’s a customer segments or semi-urban, rural large. Identifying limitations helps in heartening step towards progress. customer segments viably. Regulatory narrowing down, and homing in, on Initiatives by Government to requirements, as well as, government the issues that have undermined the schemes, such as PMJBY (Pradhan penetration levels in India. It’s prudent to Ensure Insurance Mantri Jeevan Jyoti Bima Yojana) or, work simultaneously in identifying and • Measures to increase Insurance PMFBY (Pradhan Mantri Fasal Bima rectifying the same. Identifying helps in Penetration: Opening offices by Yojana), have surely incentivized better planning.

October - December 2020 55 INSURANCE PENETRATION THE JOURNAL OF INSURANCE INSTITUTE OF INDIA

Firstly, the rural sections of the Indian manufacturing of the vehicle, engine the insurance itself is taxing and it acts society remain largely aloof about the capacity, price and the zone in which the as a bar for the other customers who benefits associated with insurance vehicle is bought and less on the age, take inspiration from such incidents. instruments, consequencing the occupation and credit score of the driver insurance sector to leave untapped areas and usage of the vehicle.11 Suggestions That Might Bring of promising potential. Approximately, Good News Fourthly, breach of trust at the hands 700 million Indians reside in rural of the insurance agents engenders Though the situation is risky and areas, and around two-thirds of the deterrence for the peers from procuring governed by economic factors, there workforce is engaged in agricultural insurance instruments. can still be efforts that can be made so and agro-based industries, evidencing that in the times to come there can be Fifthly, the lack of pure protection the rural nature of India’s economy. intensive insurance penetration in India. Despite marginal proportions being products. Maximum products are not aware of such policies, the perfidious purely protective, but are endowment 1. Digitization of the documentation correlation of their finances with the products that offer protection and and other formalities: Basically the whims of seasons engenders an income investment features to a buyer in the problem lies in the inconvenience insecurity which further engenders an market. that one has to bear while getting an insurance done. If the forms and apprehension from procuring insurance Sixthly, the products are sold on false the other formalities are digitized services. pretexts and on the basis of unethical the same can lead to more effective market maneuvers, which yields a bad Secondly, awareness is scant, regarding selling of the insurance products reputation for the industry. Lack of the products and insurance sector, in and the same is cost effective for competency building measures of the entirety. Only a small proportion of the the Insurer as well. Inspiration agents is also a factor that impacts the total, from the rural as well as urban of the same can be taken from market negatively. India, have adequate and accurate various telecom service providers knowledge regarding insurance and its Seventhly, the avarice for generating for example Bharti Airtel; the agents importance. Overall, there are insufficient copious profits has resulted in peaking of this telecom giant will come to levels of awareness in India about the rates of premium, overlooking the the doorstep with only a mobile or insurance products. Consequently, even financial limitations of considerable a tablet and shall carryout all your when people opt for insurance policies, proportions of demography, and, hence, documentation and formalities they trade proficient coverage for paltry resulting in superficial penetration, since without one having to actually do premiums, ironically, defeating the very not all can afford such hefty premiums. anything in that regard. Uses and purpose of the insurance instrument. Insurers sway from the objective of development of applications for Furthermore, when we discuss about underwriting businesses to generating mobiles should also be encouraged the economic divergence of channels massive profits, often overlooking the so that it can act as a plus point for available to perpetrate awareness about paradox at play. What’s more, they do the product. the importance of insurance products, so at the cost of distorting the pricing 2. New products: Evolving needs we strike another major impediment: for individuals. Many general insurance and growing niches will impel obliviousness of people about the policies like health, personal accident, innovations in development of financial security assured by insurance etc. are sold both as group and as the product, and subsequent instruments. individual policies12. enhancements in nuances of Thirdly, there is limited data for pricing. Eighthly, barring the Motor insurance the product. E.g. cyber risk, fine The insurance product which bears the sector no other insurance has been arts, extended warranty products most brunt of this limitation is motor mandated by the Government13. will become more prominent14. TP insurance. For instance, according Though there exist various notifications The products need to cater to the to a report published in 2012 by the and relaxations in certain fields like contemporary demands of the public road transport authority, the driver’s agriculture etc. and the product should be mutable fault accounts for a whopping 77.5% enough to allow widening of its of the total road accidents. Yet the Ninthly, the legal battle that one has to ambit, so as to take varied categories pricing is based more on the year of go through after a claimant claims for of items in its scope.

56 October - December 2020 THE JOURNAL OF INSURANCE INSTITUTE OF INDIA INSURANCE PENETRATION

3. Customized offers: A strait-jacket upon certain aspects of marketing. a humanitarian consideration as formula constrains the potential Promotional tactics such as use of well, it is pertinent that the products of the product to target a myriad banners, canopies etc, have faded should be protective in nature. of customers. There have to be into obsolescence. They do not Schemes and features are fine but options which facilitate catering lure the members of the younger the main focus should be on purely to the needs of an assortment of demography, which hold promising protective products. potential customers — rich or potential as prospective customers. 8. The dynamics of the market are such poor, old or young, businessman Youth can be targeted by interactive that high premiums are the biggest or service-man, etc. The rates of maneuvers executed in schools reasons for the lack of penetration premiums have to be flexible enough and colleges, like, conducting in Indian Market. The premiums to allow customization, so as to, seminars where the speakers are should be decent enough but not meet the needs of a diverse pool of young eminent personalities, so as in any way a burden on someone’s customers, consequently, expediting to strengthen the connect between salary or financial Capacity as this the increase in thorough penetration. addressor and addresses; and discourages one product holder to Blanket offers and products holding quizzes having exciting get the policy renewed and due to catalyze stagnation. They retard the prizes for the winners. Such high pricing the new buyer and a development of the sector by limiting measures will increase the impact potential one is unable to afford the the outreach to a select few. of the exposure on their minds. same. In various countries in Europe When it comes to capitalizing on this 4. Rural areas should be turned into or for that matter any country which promising part of the demography, hotspots or areas of maximum has more penetration rate than India then monotony is to be strictly potential: Every insurer must the difference maker is the rate of veered away from, whereas, maintain an index of areas, detailing and pricing of the premiums. If the interactiveness must be deeply the potential these area hold. The premiums remain pocket friendly embraced. Also, intensification workforce of offices situated in these the people would get attracted and in collaborations with big brands localities must have considerable get into the circle of getting and will result in greater social media proportions of people belonging to buying an insurance. The profit on exposure. Hence a need for allowing the locality so that they can lend each policy/product sold might be an increased number of eyes viewing the benefits of their socio-cultural less but the volumes shall increase the product. familiarity to increase the market and this game is of volumes the penetration of the product. Anecdotal 6. The agents and the insurance more you sell the more profit one wisdom directs that dwellers of rural officials must be conditioned makes. For example- if an insurance localities prefer familiar faces to to adhere to ethical practices: were an apple and the rate of one entrust their faith, than unfamiliar Transgressions must be strictly apple is Rs.100, in the market only faces. Furthermore, the insurance dealt with, so as to, set a precedent a few people can afford to take the offices can take assistance of the that will deter other agents from same and let’s say 10 people buy the Panchayat, or other local governing indulging in unethical practices. The product, the money earnt is Rs.1000 bodies, to conduct awareness- agent must be apprised about the but at the same time if the money generating sessions. Goodwill ramifications of their indulging in one was to spend was Rs.50 there amongst people can be perpetuated unethical practices, making them will be around 30 people willing to by distribution of merchandise such cognizant about the ill-repute the take the product the money earnt on as: pens, notepads, cups etc. The company gathers due to their ill- this shall be Rs.1500. So keeping schemes in the rural area should be deeds. it pocket friendly and in the reach area specific wherein the people can of common man is pertinent. Also, 7. Pure Protection products should find the need of taking such risk of the small business and start-ups be encouraged as there is a dearth putting in their hard-earnt money. should also be covered in this as no of the same and implementation one knows what the start up or new 5. Awareness in Urban areas can be of the same can be an innovative business can turn into. Also, if 100 increased manifold by improving idea in attracting clientele. Also, on people buy insurance not everyone

October - December 2020 57 INSURANCE PENETRATION THE JOURNAL OF INSURANCE INSTITUTE OF INDIA

claims the same and if such is the Conclusion contemporary trends. Modern marketing situation then why can the relaxation Fun is like life insurance; the older you initiatives must be ushered in, whereas, in premiums not be granted. get, the more it costs. obsolete and dated techniques which do no longer possess the same efficacy and 9. There should be joint operations -Kin Hubbard allurement, which they earlier had, need in the insurance sector in rural to be rendered redundant. TJ areas where the Government is the Not all hard times require difficult decisions. Sometimes all you need only Insurance provider. So, the References is to get back to the basics. India, as Government can think of and shall a market coupled with its promising 1 give out mandates and relaxations Insurance Penetration and Insurance demographic advantages, has the which shall further lead to more Density in India – An Analysis, B. potential for the insurance sector to clientele and at least an opportunity Vimala& Dr. K. Alamelu, IJRAR- burgeon and bloom. It awaits to be to expand the insurance sector. International Journal of Research and tapped into, and capitalized, with the Furthermore, there should be Analytical Reviews, VOLUME 5,ISSUE help of right marketing maneuvers 4, 2018. discussions and meetings with the and effective policy crafting. The Government officials sensitizing 2https://www.indiaspend.com/988-mn- present stagnation can be treated with them about the importance of indians-do-not-have-life-insurance- small, yet efficacious measures being insurance, so that they can also those-who-do-are-insured-for-7-8-of- deliberately strategized and assiduously think about it as a public service whats-needed-to-cover-financial-shock/ implemented. The consequence will and not a money making drive. last referred on 24.04.2020. be a promising upsurge in the levels There should be representations of penetration. Adoption of a humane 3https://qz.com/india/1525202/life- to the Government to provide for outlook while deciding on business insurance-coverage-in-india-is-abysmal- compulsory insurances like fire plans, keeping in mind a larger set says-indiaspend/ insurances etc. that can save the economically ill-privileged residing in 4IBEF, Swiss Re and IRDAI data money of the common man in case rural areas, who are in utmost need of an incident/ accident. 5(IRDA/Life/Cir/MIN/065/04/2013 dated of the financial security promised by 3rd April 2013) 10. The lust and hunger for earning insurance instruments; it will help reap 6 profits should not be so much, that greater benefits in the long run vis-a-vis The Changing Face of Indian Insurance, the insurer goes to the nitty-gritties increased penetration. Also, it might FICCI, PiaTischhauser, Miguel Abecasis, of the issue in order to release the soften the perceptions of the customer; Miguel Ortiz, DavideCorradi, and Jens insurance claim. One must always the semblance of trust and faith might Kengelbach (BCG). understand that at the end of the motivate greater reliance by people 7Ibid. on insurance sector. There needs to day it’s the humanitarian work that 8Ibid. has to succeed. If a person who has be specific and area wise study of the 9Ibid. recently lost someone or the person rural sectors to locate and mark the has recently gone into a fierce legal potential targets. Customized products 10AIBEF, IRDAI data. and innovations are the need of the battle with the insurer this reflects 11Syed Falaknaaz.(2013):Trends hour and their pertinence cannot be badly on the latter. The intent here is and challenges in motor insurance. understated. It is imperative to make not to fight if there exists a mala- Financial Chronicle.India. http://www. advances in these aspects of marketing fide but the small technicalities that mydigitalfc.com/insurance/trends-and- in the insurance sector. The objective come into play should be avoided so challengesmotor-insurance-937 that the people can trust the insurer should not be merely to grow, rather, to 12https://www.icicilombard.com/ and further talk about the same to ensure that every single Indian who has the means to afford insurance must have insurance-information/online-insurance- others and as a result it leads to been motivated enough to have procured info/article/4-reasons-why-indians-buy- promotion of the product. Legal the safety of one. There should be no such-little-general-insurance battles especially undertaken by the stone left unturned while increasing 13 insurer for delaying the cases must ibid the insurance penetration level in India. be discouraged. 14Supranote 5. The need of the hour is to assess the

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60 October - December 2020 THE JOURNAL OF INSURANCE INSTITUTE OF INDIA HEALTH INSURANCE

Merit Winner Technical Paper Essay Competition (Health) Solutions for Health and Wellness Insurance

Abstract infrastructure for Primary Health. Since the Bhore Committee Report (1948), India faces a double burden of disease. it has been established that wellness Firstly, due to communicable or and primary health is the foundation infectious diseases and secondly, due to ensuring decentralized, free of cost to Non communicable and man-made and universal health for all that can be health conditions. The country is State administered. However, the public transitioning from “The age of receding infrastructure has been insufficient, thus pandemics” to “The age of degenerative opening a gateway for private players in and man-made disorders”. In terms of wellness and primary health insurance. Soniya N. Rupani Burden of Disease measured in DALYs, approx.50% of the share is attributed to A primary health and wellness seeker B/54 Ashtavinayak Building, NCDs. A high share of stroke, injuries, with a paying capacity is inclined D.L. Marg, Chinchpokli E, hypertension, diabetes, cancer and towards private care considering factors Mumbai 400012. respiratory disorders has been due like better quality of care, freedom to [email protected] to insufficient and suboptimal public meet specialists, lesser waiting time and

October - December 2020 61 HEALTH INSURANCE THE JOURNAL OF INSURANCE INSTITUTE OF INDIA accessibility. The country witnesses a Solutions for Health and by the community, which they are stark 68% of OOP expenditure which is Wellness Insurance meant to serve; towards doctor consultations, specialist - The health organization should consultations, pharmacy bills and lab – A study of the Indian scenario, provide for the widest possible basis tests. This opens a vast opportunity wellness and primary health insurance in of cooperation between the health for insurance in wellness and primary national and international context personnel and the people; health segment. Health Insurance 1 History of Health Planning in has been recommended by the WHO India - In view of the complexity of to ensure basic health needs for all. modern medical practice, from However, when health insurance in India India documented its first National the standpoint of diagnosis and is explored, fragmented insurance from Health Policy in 1982-83, about 35 treatment, consultant, laboratory communities, governments and private years after it achieved independence. and institutional facilities of a varied insurers leaves the primary health Health decisions in terms of strategy, character, which together constitute financing unattended. identification of public health concerns, “group” practice, should be made allocation for resource mobilization available; International models for wellness and expert public health planning were and primary health provisioning from conducted through Five Year Plans of - Special provision will be required for Thailand, China, Indonesia, South Africa, the Central Government of India prior to certain sections of the population, South Korea and Dubai were compared. this policy. Despite Health being a State e.g. mothers, children, the mentally Capitated payment models, gate keeping, subject as per the Indian Constitution, deficient etc. aggregation of wellness services, there was a central control over the - No individual should fail to secure financing mechanism for out-patient 1 health planning for all the States. adequate medical care, curative and care, cross subsidization of premiums, preventive, because of inability to progressive taxed based premium 1.1 Bhore Committee Report pay for it and strategy, decentralized and home based The most comprehensive and detailed care, use of enablers like technology and Health Plan for India was prepared on - The creation and maintenance of as monitoring framework were observed to the eve of Independence in 1946. This healthy an environment as possible be key drivers of wellness solution. was called the ‘The Health Survey and in the homes of the people as well as Developmental Committee Report’, also in all places where they congregate Wellness and Primary health products known as the Bhore Committee Report. for work, amusement recreation, are within Indian market were analyzed. The report detailed a plan for National essential (Bhore, 1946: II.17). Practo technologies, India Health Health Service which would provide a Organization, Apollo Munich, Portea universal health coverage to the entire Thus a focus on a comprehensive Medical, Narayana Health and ICICI population free of charges through a wellness in health by ensuring availability Lombard were assessed. Capacities for state managed salaried health system. of primary health units was underscored aggregation, data tracking, outreach via since the first Health Report for the The Bhore Committee endorsed the home care, cashless primary health, nation. In the long term plan of the following in formulating its plan for a gatekeeping and comprehensive health report, recommendation for development National Health Service: financing were seen in the Indian market. of a primary unit for each area to cater - The services should make adequate to comprehensive health needs of the Basis the learnings from international provision for the medical care of people including Nutrition for People, and national models, key factors of the individual in the curative and Health Education, Mother and Child successful wellness and primary health preventive fields and for the active Health, Health of Industrial Workers, insurance solutions were recommended. promotion of positive health Health Services for School Children, etc. Recommendations were further was provided in the second volume of bifurcated into private sector & public - These services should be placed as the report. An integrated approach to sector and short term approach & long close to the people as possible, in improve the health needs of the people term approach. order to ensure their maximum use

62 October - December 2020 THE JOURNAL OF INSURANCE INSTITUTE OF INDIA HEALTH INSURANCE through a Socio-economic perspective Planning Program. It declared a camp draft was created and a final version of was suggested by focusing on nutrition, based approach to family planning a NHP shared in 2002. clothing, housing and adequate failure and further propagated the use 1.2.8 National Health Policy, 2002 environment. of IUCD, suggested monetary incentives to the acceptors of Family planning In the short term plan on the report a The national Health Policy 2002 drew options and incentives for private vertical approach of Health Programs to attention again on giving primacy medical professional for helping achieve cater to the immediate health concerns for prevention and first line curation sterilization targets. of the people was suggested. This initiative, emphasizing streamlining of Traditional Indian Medicines and included programs for management of 1.2.4 Jungalwalla Committee Report, method of rational drug use. The policy Tuberculosis, Malaria, Cholera, Plague, 1967 and Cancer mental Health Disorders, further outlined plans for management Hook Worm Disease, Leprosy, Filariasis This committee was also known as the of epidemics concerning the country at etc. was suggested.2 Committee on Integration of Health the moment, namely Polio and Yawa, services, it focus on the larger question Leprosy, Kala-azar, Filariasis, HIV/AIDS, 1.2 Other Progressive Health Planning of looking at the Health services as one Tuberculosis, Malaria and other vector Reports and Policies approach. Directives to improve working borne diseases Since then, the chronological conditions, unified cadre and equal pay order of national reports and key for health services was suggested. 1.2.9 National Health Policy, 2017 recommendations are underscored 1.2.5 Kartar Singh Committee Report, The NHP 2002 served as a guiding below - 1973 document. The NHP 2017 however 1.2.1 Mudaliar Committee Report, expounded on the changing health This committee looked at the 1962 scenario in India, including the burden multipurpose workers in Health services of non - communicable diseases in The role of this committee was to and their utilization in the Family India. It emphasized on development of assess the implementation on the Planning Program. The committee Health and wellness centers across the Bhore Committee Recommendations suggested that a PHC only cater to a country to strengthen the primary health and provide a way forward. It directed population of 50,000 and further that structure. This involves reducing the out attention on the shortage of Health each PHC further have up to 16 Sub of pocket expenditure and catastrophic Personnel and their training in the centers to disperse health program and expenditure, enhancing fiscal capacity Primary Health Centers (PHC). It also preventive care. suggested inadequate infrastructure of and widening health financing deficit. the PHCs. PHCs to cater to a population 1.2.6 Shrivastav Committee Report, (Mohan, 2017). The Ayushman Bharat of greater than 40,000 population and 1975 programme launched in 2018 included strengthening the quality of health the health insurance component of care through these primary units was This committee was set up provide Pradhan Mantri Jan Arogya Yojana suggested3 expert advice on Medical education (PM-JAY) and Support Manpower. It outlines 1.2.2 Chadah Committee Report, 1963 All the health reports and policies have the hierarchy of Medical officers in the identified an integrated health approach The role of this committee was to health systems and suggested Referral where wellness through primary, monitor the progress of the National Matrix for cases to secondary and preventive and promotive health was Malaria Eradication Program (NMEP). tertiary centers. to be strengthened by education, focus Attention to Family Planning and data on vulnerable groups, affordability, collection was drawn 1.2.7 Bajaj Committee Report, 1986 accessibility and availability. However, 1.2.3 Mukherjee Committee Report, This committee was concentrated on the a focus target based approach of 1965 and 1966 Health Manpower Planning, Production vertical health programs took over The role of this committee was to and Management. This was the last the comprehensive approach.. supervise the progress of the Family report before a national Health Policy Notwithstanding the fact that such

October - December 2020 63 HEALTH INSURANCE THE JOURNAL OF INSURANCE INSTITUTE OF INDIA vertical programs helped alleviate is constituted to Communicable Diseases In this paper, we will focus on Non- the burden of disease and illness of while the remaining 49.7 % share in Communicable Diseases, since they epidemics, a long term approach on burden of Disease is constitute to Non- are preventable and fall in the realm of primary health needed immediate Communicable Diseases. Please refer to preventive, primary health and wellness. attention. As the policies evolved Table 2.1. With almost 50% of the burden considering the public health situational Tuberculosis, HIV/AIDS, Diarrheal of diseases falling in the non- analysis, the need for wellness and Disease, Malaria, Leprosy, Childhood communicable disease bracket, it is primary health care, focus on lifestyle disease, Otitis Media, Maternal and clearly visible that primary health and communicable diseases and perinatal conditions and others has been neglected in the country and affordability of the citizens became more constitute communicable diseases. the same needs strengthening. To and more stark. Cancers, Diabetes, Mental Illness, further understand the types of Non 2 Current Health Status in India Blindness, CVDs, Chronic Obstructive Communicable Diseases, a further Pulmonary Disease (COPD), Injuries and bifurcation in terms of Morbidity India is going through a period of others constitute to non-communicable and Mortality of the NCDs was transition - both epidemiological and diseases.4 assessed. demographic. Infectious diseases prevail as a health concern, despite of Health Table: 2.1 Health Conditions and Disability Adjusted Life Year (DALYs) Lost in India Programs which are vertical in nature. Disease/health Condition DALYs Lost Share in the A common concern demonstrated by (x 1000) total burden of all the expert reports in Section 1 was Disease (%) lack of attention towards preventive and Communicable Diseases, Maternal and Perinatal conditions primary health. Additionally, a trend in Tuberculosis 7,577 2.8 increase in lifestyle disorders has also HIV/AIDS 5,611 2.1 been on rise across the country due to factors such as modernization and Diarrheal Diseases 22,005 8.2 urbanization. (Baridalyne, 2004). The Malaria and Other Vector Borne Conditions 4,200 1.6 country thus faces a double burden of Leprosy 208 0.1 disease; the first from the receding, but Childhood Diseases 14,463 5.4 still persistent epidemics, infectious and Otitis Media 475 0.1 communicable diseases, the second Maternal and Perinatal Conditions 31,207 11.6 from rising human influences diseases Other 49,517 18.4 or non-communicable diseases. Non Communicable Diseases 2.1 Burden of Communicable and Non Cancers 8,992 3.4 Communicable Diseases Diabetes 1,981 0.7 Mental Illness 22,944 8.5 Disability Adjusted Life Years (DALY) Blindness 3699 1.4 is a measure of overall disease burden. Cardiovascular Diseases 26,932 10 It is expressed as the number of years lost on account of ill-health, disability COPD and Asthma 4,061 1.5 of early death. We will be looking at the Oral Diseases 1,247 0.5 burden of disease in India to understand Others 18,801 7.0 the major health condition inflicting the Injuries 45,032 16.7 masses. All Listed Conditions 200,634 74.6 Others 68,319 25.4 As per National Commission of Macroeconomics and Health, a total of COPD: Chronic Obstructive Pulmonary Disorder about 50.3 % share in burden of disease Source: Peters et al 2001

64 October - December 2020 THE JOURNAL OF INSURANCE INSTITUTE OF INDIA HEALTH INSURANCE

2.2 Morbidity and Mortality Patterns of Table 2.2 Estimated Morbidity and Mortality Due to NCDs in India Non Communicable Diseases NCD Morbidity Mortality (Year) Over the past two decades a significant Total No. Source of Data Total No. Source of Data increase in life expectancy has been of Cases of Cases registered in India from 60.44 years Cancer 593,803 Cancer 292,557 National HH Survey and to 68.3 years. Despite of an increase (1998) Registry Death Certification in life expectancy India still lags behind by 15 years from an ideal life IHD (1998) 25 From Ad Hoc 119,936 National HH Survey expectancy in Japan. This increase Million Surveys in life expectancy has been result of Stroke 1 Million From Ad Hoc 102,620 Rural HH Survey and partially successful vertical interventions (1998) Surveys Death Certification to address communicable diseases Diabetes 28 From Ad Hoc 21,000 Based on Hospital Data and epidemics. However, as scenario (1998) Million Surveys of the nation is changing due to urbanization, industrialization and Chronic 65 From Ad Hoc 577,837 Rural HH Survey and globalization, a different set of health Respiratory Million Surveys Death Certification conditions are emerging as a trend – Disorders Non Communicable Diseases. (NCDs). (1998) (Baridalyn, 2004). As referred earlier the Injuries 6.9 From Ad Hoc 749,983 Rural HH Survey and country faces a double burden of disease (1998) Million Surveys Death Certification both from Communicable and Non- Source: NCD in South-East Asia Region – A profile. WHO. New Delhi 2002 Communicable Diseases. not all the strokes are recognized for population of 60-65 years of age is at NCDs are responsible for a total of 32% which treatment is sought.5 Based on the higher risk of contracting NCD, however of death in the country5 (approximately data available, about 2.5 million cases the morbidity is seen to be increasing in three million deaths each year). Of the of Ischemic Heart Disease (IHD) are urban and men and women.4 total, Cardiovascular Diseases (CVD) add estimated in the country each year. up to 13%, injuries constitute to o 8.7% The burden of Non-Commutable disease and chronic respiratory diseases amount The International Diabetes Federation being approx. 50%, adding a further to 6.7 %. Cancers constituted to 3.4% has estimated about 32.7 million likelihood of critical illnesses that might and Diabetes constituted 0.2%. diabetics in the country. More recent be irreversible it is highly imperative studies of WHO estimates it at 28.7 to address these conditions at an early The prevalence of hypertension is million5. stage. This takes us back to section a substantial 10-15% amongst the 1 where emphasis on prevention and urban adult population and approx. Non-communicable diseases mentioned primary health services; nutrition, 6 3-8% in rural locations. Rheumatic in Table 2.2 lead to co-morbidities and environmental hygiene, healthy working Heart Disease (RHD) is observed to be complication that reduce the immune conditions have been highlighted. prevalent as 5-7/1000 in the age group response and fighting capacity of the Further free of charge services state run of 5-15 years. There are is a reference body. For example, injuries of the brain health services have been recommended of about 1.9 million RHD cases in India, can lead to vegetative state like Coma or by the Bhore Committee. Infrastructure leading to a hospitalization rate of 20- a State of Loss of Independent Existence. and Resources Available for Primary 7 30% across all CVD cases in India. It A heart stroke can cause permanent Health. has been estimated that about 1 million paralysis. Diabetes can aggravate eye cases of stroke are reported every year conditions like Glaucoma and Cataract. 2.2.1 Primary Health Infrastructures in the country, of which about 100,000 Further infections to respiratory diseases Health in India is a State subject. The cases lead to death. However this become more likely in case of a pre- Central Government supported Health number can be underestimated since existing condition of Diabetes. Aging Spending with approx. 28.4% and the

October - December 2020 65 HEALTH INSURANCE THE JOURNAL OF INSURANCE INSTITUTE OF INDIA remaining 71.6% came from the States The country had a bed capacity of 0.67 are more attractive. Frequent attrition for the year of 2013-14.8 Not all states in per 10000 population for the year of is seen.. Another factor that affects the country can contribute equally for the 2002 as compared to the WHO guideline the staffing is the contractual and people. Thus the distribution of health of 3.5 and a global average of 2.6 for the permanent hiring structure. The salary facilities can be seen more organized in year. More than 80% of public health for a contractual staff is much less as some states than in others. Further in facility in rural areas does not meet the compared to a permanent staff. each state the spending on the curative IPHS standard.9 Ayurveda, Yoga, Unani, Siddha and treatment is much higher as compared 2.2.2 Medically Trained Doctors, Homeopathy AYUSH doctors, which are to primary care. For Example for the Nurses and Allied Health Professional considered to be the traditional doctors year of 2013-14, the amount spend on of the country are being trained to be primary care by the government was The country had 1.7 allopathic doctor brought in the forefront to practice only 25% of the total spending. Thus a for 1000 population in the year 2000 as Allopathy to meet the rising demand of challenge in development of Sub centers/ compared to the WHO recommendation the general physicians in the country. Primary Care Center and Community of 2.5 doctors. The scarcity of allopathic Centers can be noted. doctors stems out of two major factors. Health Financing Mechanism both, for Firstly cost of medical education is As per Table 2.3, the number of primary the Health and Allied Health Staff and high. Seats in government medical care infrastructure has increased over for the general population play a very colleges are limited, thus aspiring the years of 1951 to 2000 from 725 to important in ensuring accessibility and medical students turn to private medical 163,181.There were 23,391 PHCs and affordability in a Health System. It is colleges. Search of better paying work 145,894 sub-centers in the country as clear from section 2.3.2 that financing opportunities leads to a second problem on 2005 (Sriram et al 2018). However, to public health and allied health officials - preference to specialization over the number of PHCs and Sub-centers needs to be improved to ensure the generalization. Also, general physicians required in the country as per the Indian health needs, especially if primary health and specialists stop practicing and move Public Health Standards (IPHS). needs are to be met. towards health management, consulting, Moreover, the functionality of these and similar jobs. This creates a dearth of 2.2.3 Urban Rural Divide centers is reduced due to unavailability general physicians. of the Medical officers, Class IV In the rural areas there have been two employees, staff nurses, drivers, health Medical staff including nurses, doctors major factors leading to a divide for educators and clerks. Unavailability of and allied health professionals are paid health services. The first is inadequate drugs, laboratory reagents, Inpatient on a salaried basis by the government government facilities for primary health facility and labor rooms at the and a parallel practice private has been and the second is the private practice of government facilities has also been banned. The payments in the private ‘quacks’ posing as doctors. hospitals and health organizations critiqued in the public funded structure. The NSSO rural statistics convey that about 80% of facilities in rural areas fail Table 2.3 Health Infrastructure Indicators Through the years 1951 – 2000 to meet the IPHS standards. No water Year 1951 1981 2000 or electricity supply, no facilities to Sub Center/Primary Health Center/ 725 57,363 163,181* commute by road, inadequate medical Community Health Center and allied staffing, absence of labor rooms and beds, and availability of Dispensaries and Hospitals (All) 9,209 23,555 43,322** specialist quarters have are few points Doctors (Allopathic) 61,800 268,700 503,900+ for the failure.

Nursing Personnel 18,054 143,887 737,000# The private practice of doctor clinics * 1999 Rural Health Survey, ** 95-96 Central Bureau of Health Investigation, does not have a robust monitoring + 1998-99 Medical Council of India, # Indian Nursing Council framework and thus medicines catered Source: National Health Policy 2002 to the rural population has caused more

66 October - December 2020 THE JOURNAL OF INSURANCE INSTITUTE OF INDIA HEALTH INSURANCE harm to the patients than providing relief Concerns about a central framework 2.3 Health Financing Mechanisms in some cases. Allopathy is practiced for regulation of private health by private providers without a valid industry remian. High prices for drugs, According to the World Health authorization. diagnostics or consultations have not Organization, the total expenditure on been regulated by the government health as a proportion of the total GDP The urban areas on the other hand to ensure affordability. A quality was 3.93% for the year of 2015. Of this have better facilities – both public management audit or medical ethics 3.93%, the government expenditure and private, and both preventive and audit is not conducted by the Center on health 23.40%, the out of pocket curative. However, more than 75% of the or the State on all the private health expenditure was 67.78% and the population of the country still resides in 11 providing entities. private expenditure was 8.81% for the rural areas in the country. year 2015. 2.2.5 Pathways for Wellness and 2.2.4 Role of Private Sector in Health Primary health Seeker in India This implies that out of the total With a low public GDP spending in Currently the journey of a wellness spending in health in India, the costs Health, initiatives for Public-Private and primary health seeker in India borne by the patients out of their Partnership and involvement of Private can be understood as per Figure 2.5. pockets accounts to about 68% of the Health Players were implemented. Due to the various factors mentioned total spending. In the year of 2011 However the regulation on the private in section 2.3.1, 2.3.2 and 2.3.3, the about 29.99% of Indian population health sector in health still remains a wellness and primary health seeking experienced catastrophic and challenge for the country. Private Sector behavior is tilted towards private facility impoverishment expenditures due to 12 has created approx. 70%new beds from for the population which has Out of the health conditions faced. Average 2002 to 2010 in curative health. As per Pocket Paying Capacity or is insured for cost borne per capita was between 9 NSSO morbidity and Healthcare survey primary and preventive care. 35-45 US $. 2004, 72% of the total out-patient Figure 2.5 Options for Wellness and primary health Seeker in India consultations very conducted by the private sector. Public facility The primary source of healthcare for almost 70% of the urban population - Minimal Cost for medicines, consultations and diagnostics is the private infrastructure. This - Insufficient and inaccessible PHCs/SCs/CHCs constitutes mainly Out Patient Services Basis Availability, of Existing Hospitals, Clinics & Accessibility and - Can have high waiting period Affordability Polyclinics (GPs, Specialists): 6.5 – 7 - Can lead to lower quality of services Lakh Clinics. Diagnostics Centres & - Gate keeping mechanism before meeting Path Labs: 70,000+ centres including Patient specialist those operating within hospitals and Seeking Pharmacies. Primary care Private Facility The private pharmaceutical market grew by 15% per annum and private - Higher costs for consultations, diagnostics medicines diagnostic service providers grew from by 20% during 2004-0910. The Private - Better quality of services compared to Public system Insurance market has also increased in the past years however, the focus - Lesser waiting time as compared to Public system has remained on In-Patient insurances. Only recently products in wellness and - No Gatekeeping to meet the specialist primary health insurance can be seen in - Costs can be borne by insurer if insured the market.

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2.4 Bifurcation of Total GDP Spending in current health insurance industry in India salaries for the officials are made as Health in India can be bifurcated into the following four per the levels of the officials. Monthly broad groups. premiums range from INR 250 to INR Bifurcation of 3.93% GDP Spending 1000 as per salary grades. 3.1 Government run Health Insurance scheme Primary care treatment is not covered on cashless basis, especially when 3.1.1 Employer State Insurance provided from a private hospital, it is Scheme (ESI) also capped as per government rates. ESI is the only form of social and The treatment for CGHS for has been14 health insurance available in India criticized for delay in reimbursement at the moment. The scheme was when seeking treatment through private developed to cater to the employees hospitals, unavailability of empanelled and the dependents for sickness, specialty health centers in a rural areas, Private Expenditure maternity, disability, rehabilitation unavailability of doctors in empanelled and death due to employment injury. 15 Government Expenditure government hospitals. The service are provided through a Out of Pocket Expenditure network of government hospitals, Ngo/ 3.1.3 Universal Health Insurance Source: National Sample Survey, trust hospitals and empanelled private Scheme 68th Round, Household Consumer entities. An employee is expected to pay Universal Health coverage scheme Expenditure, 2011 the ESI contribution through his wages was declared in the year 2003 where In comparison with other countries like for at least 156 days to be able to cover premium of INR 165 per person per Japan, Germany, China, United Kingdom his sickness for 2 years for 34 specified year, INR 248 per family of five members and Unites States, India has the highest long terms diseases. A 1.75% of the per year and INR 330 per family of Out of Pocket Expenditure and the least employee’s wages are deducted as a seven members could allow a coverage government expenditure on health as premium for the insurance given the of INR 30000 on a floater basis for the a percent of GDP. The average GDP wages are not more than INR 21,000 per family on an annual basis. This scheme percent expenditure on health in the month. was intended to cover the people below world is 10.3%, of which the average poverty line. The medium of delivery of Given the above challenges, we know government expenditure is about 67%.13 the services was through government that remaining population seeking better and semi government hospitals. It can be seen that about 67% of out quality of Health care, more accessible of pocket expenditure (OOP) for India health care and with income more than Challenges faced in this scheme were as is attributed to doctor consultations, INR 21000 requires other form of health follows: specialist consultations, pharmacy bills insurance to cover their health risks. - The rates under the insurance and lab tests. Indirect OOP like loss of 3.1.2 Central Government Health scheme are loss incurring to even wages, transportation costs and nutrition Insurance Scheme (CGHS) government hospitals and thus the specific health costs are not included in hospitals do not invest in propagating this calculation. This is a scheme run by the central government of India. The scheme is the same. 3 Health Insurance – A Solution directed towards the central government to Reduced Health Spending in - Paper work and documents like employees and their families like the India Aadhar Card, PAN Card and ration members of the parliament, Supreme card are difficult for the poor families Health Insurance has been thought of as Court judges, Police Officers, Central to procure thus forgoing the eligibility a possible solution to overcome health Railway employees, Governors, for the scheme challenges emerging from inadequate Accredited journalists and members of government funded health infrastructure, general public in some specified areas. - Identification and empanelment of resources and training in India. The Deductions are made from the monthly all the families below poverty line

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was not successful thus leading to cover 971 medical/surgical procedures Such insurance schemes an adverse selection of only those and 121 follow-up procedures through a are organized by Non who need to avail the health services network of government, private and trust immediately within an adverse hospitals. Profit Organizations and selection of poor families lead to 3.1.6 Ayushman Bharat Insurance trust organization for losses for insurance companies Scheme vulnerable populations. 3.1.4 Rastriya Swasthya Bima Yojana Sustainability and (RSBY) In the Ayushman Bharat scheme, which focusses on strengthening primary care scalability of the This scheme was launched in 2008 by through development of Comprehensive Ministry of Labor and Employment, scheme suffers since primary Health Center (CPHC) and Government of India. Wellness Centers. the participants are low An aggregation of Hospital Network to income group and all An insurance scheme was launched in deliver the health insurance was done 2018. The scheme was renamed as PM provide a flat premium, by the Central Government. The target Jan Arogya Yojana (PMJAY). It provides not a progressive population was the Below Poverty Line a cover of up to INR 500000/- for a (BPL). RSBY created a network of premium based on income family for secondary and tertiary care. around 60,000 Hospitals and enabled The scheme is to subsume, the existing slabs. Communities also the doctors for treatment by providing RSBY scheme and the coverage for the struggle for grants and them smart card readers, finger print same. Special criteria to identify the scanners, cameras, etc. to improve support from government vulnerable families who need financial coordination. A technology advisor was support in rural and urban areas have bodies to ensure taken onboard for the activity. been identify to ensure coverage to sustainability. Even though technology was leveraged urban poor. in this insurance scheme, the payments (ACCORD), Voluntary Health Services 3.2 Insurance offered by NGOs or for the hospitals were expected to be (VHS) etc. Community based organizations online and delay in payment lead to 3.3 Employer Based Insurance hospitals leaving the network. The Such insurance schemes are organized Schemes enrollment of the beneficiaries was by Non Profit Organizations and trust through biometric enrollment and organization for vulnerable populations. Employer sponsored health insurance provision of Aadhar Card and ration Sustainability and scalability of the is provided in both public and private card. scheme suffers since the participants are sector for hospitalization and inpatient low income group and all provide a flat care. Pre-existing conditions are covered 3.1.5 Mahatma Jyotiba Phule Jan premium, not a progressive premium basis the large number so employees Arogya Yojana (MJPJAY) based on income slabs. Communities who need to be insured. The Railways, Formally known as Rajiv Gandhi also struggle for grants and support Defense and Security forces, Plantation Jeevandayee Arogya Yojana (RGJAY), from government bodies to ensure sector and Mining sector run their own MJPJAY scheme catered to the health sustainability. health services for employees and their needs of BPL and Above Poverty Line families. There is no standardization in (APL) Population. The concept of Some popular Community Based the coverage of Health insurance. Some Arogya Mitra is unique to this scheme. Health Insurance Schemes are Self organizations also deduct a lump sum A facilitator of the scheme is available Employed Women’s Associate (SEWA), amount from the employee in order to at the hospitals to ensure awareness Tribhuvandas Foundation (TF), The fund the insurance. Once the employee to the relevant individuals. An annual Mullur Milk Co-operative, Sewagram, leaves the organization, he also has to coverage of INR 1,50,000/- is provided Action for Community Organization, forgo the health insurance provided to for the family on a cashless basis to Rehabilitation and Development him. Less than 7% of employees have

October - December 2020 69 HEALTH INSURANCE THE JOURNAL OF INSURANCE INSTITUTE OF INDIA a voluntary/private insurance bought experts as the most effective health individual might utilize all the services or separate once the employer provides financing mechanism, the delivery of the none of the services. health insurance for the time he/she is same has been fragmented and a large Three major takeaways from this employed. remains uncovered for wellness and model are the use of a Gate Keeping primary health insurance. Mechanism for utilization of services 3.4 Voluntary or for Private – for – through the CUPs and second is the Profit health Schemes 4 International Preventive and Wellness Health Models Capitation Model for Payment of Voluntary Health insurance is bought by Providers. Both these factors have general population on a voluntary basis. In this section we will analyze the health helped to ensure a health system that Since such insurance is provided by models in countries of Thailand, China, provides choice to the customers and private organizations, it is almost always Indonesia, Brazil and South Africa since at the same time maintains a decent a profit making business. Various they are easier to compare with the cost mechanism for the providers. Third Health products are available in the Indian Market of developing economy is monitoring and maintaining sales market by private insurance companies and to adopt to pragmatic approach. and prices of essential drugs to ensure ranging from basic emergency cover affordability. to comprehensive health cover 4.1 Thailand 4.2 China including in-patient procedures. Due Thailand has a population of approx. to high premiums private insurance 68 million. The country indicates GDP China is a developing country with a ensures a rather healthier population spending of 4.6 % in Health (Preventive population of 1.4 Billion people. The with premium paying capacity in the and Curative). The country covers the country indicates a spending of approx. insurance pool. At the same time, entire population via three national 5.6% of its GDP in Health. The basic the pre-policy checks and exclusion insurances. Social Health Insurance Medical Insurance Scheme which was criteria ensure that individuals with (SHI) for the privately employed implemented in 1998 and completed prior health conditions, are not covered individuals. Civil Servant Medical benefit its implementation in 2003 had 2 major immediately. From a population Scheme (CSMBS) for public sector components. The First was social perspective, the creamy layer is able to employees and UCS for the rest of the pooling for in-patient services and be afford such insurances and the ones population. individual medical savings accounts for in real need of such insurance remain out-patient services. The medical savings out of the scope of cover. By 2004, 95.5% of the population account is fed by 2% of employee was insured with 75.2% of population wage and 8% of employer payroll. For It is clear that the government 16 insured under UCS. Thailand has an average employee this is sufficient insurances lack factors like quality also increased the sale of essential to cover three consultations per year of care, waiting time, insufficient drugs, for example drugs for Diabetes per contributor18. Post the threshold technological involvement, insufficient management. in the saving account is exhausted the cover and due to the targeted approach individuals are expected to bear OOP at the BPL/APL and vulnerable families Individuals can enroll in this scheme expenditure on health. In 2008 more always lead to adverse selection. In at a Local Contracting Unit for Primary than 80% of the Chinese population government insurance primary and Care (CUP). The individuals can select was covered under health insurance. preventive care is not insured, in spite a private or public primary care facility The doctors are paid on a capitation of the largest share of OOP expenditure under the registered CUP. A budget is model and on the performance based from wellness and primary health provided by the government to each CUP system from patients in terms of patient expenses. The Private insurance to enable a capitated system of funding. satisfaction and prescription rate. companies develop products that, avoid Under the capitated system, a fixed adverse selection. Customization of amount for each enrolled individual is The three pronged approach by products as per health needs is done provided to the Provider.17 The amount the country, first strengthening the to maximize profit. Even though Health remains constant irrespective of the wellness and primary health system Insurance has been advised by health services used by the individual. The by improving the quality of 3-tier

70 October - December 2020 THE JOURNAL OF INSURANCE INSTITUTE OF INDIA HEALTH INSURANCE service delivery systems in rural and developed a Unified Health System, are also tracked using a Pharmacy urban areas. Second the Basic Health which adopts coding standards for the Benefit Management System. Both Programme mandatory for the working medical data and maintains electronic these two platforms help in tracking and class. Third, pooled system for Medical health records. Family Health Program monitoring of Health Needs. Saving Account for the employees for and Family Health Team model which In India the pharmacies are not Out-Patient care ensured more than replaces the PHC model into a team of 6 connected centrally to a system for 80% insurance coverage in the country member team for patient care has been such tracking. At the same time the and actual use of health facilities pivotal in improving the health. This neither government nor private clinics has increased markedly post the team includes one doctor, one nurse and have a central cashless OPD cash implementation of the scheme. (Richard four to six community Health agents. system. These can be inputs that can et al, 2010) The gatekeeping model and government be replicated as per the capacity of the 4.3 Indonesia initiative that can be seen in Brazil are country. key takeaways for India. Indonesia has a population of about 4.6.2 South Korea 249.9 million. A 3.1% GDP spending 4.5 South Africa The government of South Korea has is seen for preventive and curative Similar to the Brazilian approach, complete control over the health market care in the country. The government South Africa adopted National health in the country. It solely regulates the of Indonesia launched universal health Insurance Policy in 2014. It focused wellness and primary health provision coverage for basic health case in 2014. on re-engineering the wellness and and encourages investment from private Salaried employees pay a premium primary health structure and worked on providers. to the government of up to 5%, of decentralization of health services. Ward- which 1% is the contribution from the The country has been able to consolidate wise outreach teams were developed employee and 4% from the employer. all the paying systems together to using a defined primary care package. The informal sector employees and self- create a payment pool thus managing a Health promotion at household levels employed pay a monthly flat premium competitive incentivized private health with screening and referral capacities. which is mandatory. provisioning in the country. This has The data from the outreach campaigns enabled them to ensure affordability The Indonesian health provision is a was coded and OPD consultations were to masses. A central administrative through a mix of public, non-profit also recorded electronically. and private health providers. These are platform which records all the patient regulated by the government. A proactive Community approach with data for further development has also decentralized insurance funded wellness been created through this mechanism. A strong wellness and primary health and primary health model is can be seem Indian government play a pivotal role network with primary care huts in in South Africa. villages to community healthcare centers in terms of central administration, has decentralized the health requirement 4.6 Other Interesting Models patient record and morbidity tracking and ensured basic health needs are met. and regulating the health market like the 4.6.1 Dubai South Korean government. 4.4 Brazil The Dubai Health Authority (DHA) has 5 Preventive & Wellness Health With 205 million population and a developed a network of insurers through Models in Indian Markets GDP expenditure in health for 9.7% his health services are delivered. Health for primary and preventive health. The Cards have been replaced by Cashless As indicated in section 2 it has been health structure in Brazil is completely Health Insurance Cards. These cards observed that only 11.5% households government funded. This ensures every track each and every health related in rural areas and 4% households in citizen can access health facilities from service payment including General urban areas seek primary treatment from health checks to heart transplant free Physician visits, specialist visits, surgical PHCs and SCs in a government set up.19 of cost. The system is funded primarily procedures, tests, investigations and It can also be seen from the section through taxes. The government has emergencies. Bill payment for medicines 2.4 that 67% out of pocket expenditure

October - December 2020 71 HEALTH INSURANCE THE JOURNAL OF INSURANCE INSTITUTE OF INDIA is attributed to doctor consultations, In an Indian context a national E Mamta is an initiative specialist consultations, diagnostics comprehensive database on health of the State Government and medicines. Thus the remaining 89.5 status of the population is unavailable. % rural population and 96 % urban With platform like E-Mamta, it becomes of Gujrat which is used population is seeking preventive care at possible to track high risk groups on to track the health status their own expense without any financial a large scale. This aids in developing of pregnant mothers and support. products to cater to their health needs. Platforms like E-Mamta demonstrate newborns. It was released The current state of fragmented public a capacity to aggregate, maintain and funded insurance and exclusion based in the year of 2010. This track health conditions of the target private insurance schemes which cater platform is an adaptation population. majorly only to hospitalization, little of the Reproductive focus on preventive care can be seen. 5.2 Practo Technologies Thus leaving the market wide open for Mother and Child Aggregation of Medical Professionals to products in long term preventive care for Health and Adolescents Form a Strong Network the population. (RMNCH+A) program of Practo technologies has developed a Private insurance companies and health the Government of India network of more than a 1000 doctors, aggregators have started entering thus developing a platform through and looks at name based this blue ocean and a few Outpatient which appointments for general products have already been developed. tracking of pregnant physicians and specialists can be Details for a few of them are mentioned women for Antenatal, booked. It has leveraged technology below. to include tele-consultation and virtual Postnatal services. 5.1 E-Mamta App calls with the doctor. The platform now Immunization of newborns also enables the user to order medicines Tracking Data of High Risk Groups and adolescent services online and book for regular preventive E Mamta is an initiative of the State health checks at home. The strength of for the target population. Government of Gujrat which is this platform is driven from aggregation rate in exchange for an annual fee. These used to track the health status of of a network of medical professionals. Hard Cards or Discount cards cover pregnant mothers and newborns. As the number of doctors practicing all the treatment including cosmetic It was released in the year of 2010. privately in India has been on a rise since treatment and provide a stipulated This platform is an adaptation of the the past two decades. Such doctors look discount for having the same done Reproductive Mother and Child Health at income from platforms like Practo through a network of doctors. The and Adolescents (RMNCH+A) program which can help then have more patients organization has stressed on virtual of the Government of India and looks in their clinic. This type of aggregated and telephonic consultations and has at name based tracking of pregnant network proves that just like a network recorded 78% reduction in physical women for Antenatal, Postnatal of hospitals for inpatient services, a examination and consultation. Thus services. Immunization of newborns network for out-patient clinic is also making the concept of virtual medical and adolescent services for the target possible and can work successfully. rooms a potential reality. population. The platform has received 5.3 Indian Health Organization national recognition for better tracking 5.4 Apollo Munich Preventive Care of the status of pregnant women and Annual Membership Plans, Virtual and Plan children due to features like SMS alerts Tele-Consultations Comprehensive Out-Patient Plans to Health worker and incentive tracking This organization has developed the for them. The data is collected through concept of Health Cards or Discount In addition to consultations with the the National Health Survey and fed into Coupons which provides the patients all physicians, specialists, medicines the platform. the Out Patient Services on a discounted and diagnostics, there are more

72 October - December 2020 THE JOURNAL OF INSURANCE INSTITUTE OF INDIA HEALTH INSURANCE comprehensive inclusions. The product helps reduce the surplus demand of The demand for offered by this organization adds the cardiologists in cases where the patients cardiologist and components of dental treatment, for voluntarily wish to visit the specialist which there has not been any insurance directly. cardiac specialist in in the country. Dental treatments are India has been on the 5.7 ICICI Lombard General Insurance capped and specified treatments are rise. Narayana Health included. Spectacle and Out-Patient Preventive Health Insurance and Team thus worked on vision treatment up to a certain specified Cashless Delivery treatments is included. The cost for developing a mechanism lenses is also included in the product. The organization has developed its own through which Electro Components like a tele-consultation and network of clinics and has partnered Cardiograms (ECG) could annual health checks are also included. with aggregators who already have be transmitted to a central This plan attempts to include more out- an established network. It includes patient cost to avert the financial risk for component of emergency care and team of cardiologists preventive care. ambulance services, Annual health in their main hospital check, general physician and specialist in Bangalore in case a 5.5 Portea Medical consultations, cover for diagnostics and General Physician could Catering to Accessibility by Providing medicines that is capped up to a certain Home Health Care level depending on the premium. The not refer conclusively push is towards rendering a cashless from the graphs. Thus a This startup has worked towards an delivery from a mobile app to ensure model for gatekeeping for aggregation of Physicians, Nurses and the buyer sticks to the network thus allied health personnel so as to ensure reducing the costs for the insurer, Specialist Consultation a long term health care at home model. however reimbursement models are also created. This helps reduce The services are available in about 24 available. As cited in section 3.1, public the surplus demand of urban cities and packages for high risk funded insurance schemes have been cardiologists in cases groups like Maternal Health, Geriatric critiqued for delay in reimbursement Care and routine health checks have thus impacting the paying capacity where the patients been the most utilized services of the of the patient. A movement toward a voluntarily wish to visit the organization. This model ensures that completely cashless model is a solution specialist directly. a barrier to accessibility is overcome to regain the confidence in such by delivering health at home and at the scenarios. Funding mechanism for wellness in convenience of the patients. health and overall health in the country 6 Conclusion and remain weak and 90-95% population 5.6 Narayana Health Recommendations pays OOP for primary health. This can Gate Keeping Model for Consultation be attributed to doctor and specialist Need for a comprehensive wellness consultations, pharmacy bills, diagnostic The demand for cardiologist and cardiac and primary health system with a tests, and medicine procurement. Due specialist in India has been on the rise. strong financing mechanism has to poor health infrastructure in the Narayana Health Team thus worked been recommended for India since country, inclination towards treatment on developing a mechanism through 1948. India’s demographic shift seeking from private players can be which Electro Cardiograms (ECG) could depicting double burden of Disease; seen, especially by the families, which be transmitted to a central team of transitioning from Communicable to can afford the OOP expenditure without cardiologists in their main hospital in Non-Communicable diseases demands facing a catastrophic or impoverishment Bangalore in case a General Physician a robust wellness and primary health impact. could not refer conclusively from the facility. As the population of the country graphs. Thus a model for gatekeeping ages, the need for wellness and primary WHO recommends Universal Health for Specialist Consultation created. This health is estimated to increase. Coverage to ensure basic health needs

October - December 2020 73 HEALTH INSURANCE THE JOURNAL OF INSURANCE INSTITUTE OF INDIA to all. Health insurance has been Lombard and E-Mamta helps record Communication Change (BCC) is deemed as a solution to meet the real time data. This can used for further recommended. health costs and to reduce the burden analysis. Everyone subscribing the Comprehensive health model of OOP for the masses. While looking primary care services is mandated use developed by Apollo Munich includes at the Health insurance system in the of a mobile installation, which can track components of dental and eye care in country, fragmentation of groups can be all health concerns, tele-consultations, the membership plan. Portea Medical observed. Leading to Adverse Selection doctor visits and chats with specialist has a home health care model developed by the Public insurance solutions and like counsellors and nutritionists, etc. to support especially the elderly. Indian Creamy Layer selection by the Private With data recording, data security, Insurance scheme of MJPJAY includes Insurance providers. Health insurance confidentiality and management also travel reimbursement while seeking in India covered only 5% of Indian requires support. Ethical hacking, health services. China, South Africa and Population in 2004. From within 5% encryption of data, backup mechanism Brazil have developed health outreach insured population, insurance for like cloud storage, anti-malware components in their public health wellness and primary health is provided protection, progressive privilege login systems to reach the community on only by private players. This leaves a rights to the administrators, managing a regular basis. This is a combination large gap as well as a great opportunity remote location access to the database, of a proactive health approach and for the insurance market to explore. etc. are some watch outs while connecting the last mile approach. Even There is a huge market for wellness and managing such large scale confidential though efforts towards reducing the gap primary health Insurance for Insurers. data-points. An informed consent for between wellness health solution needs We draw learnings from international collection and storage of data must be can be seen through these solutions, an and national models for delivering taken from the patient while recording it. integrated solution is yet to emerge. wellness and primary health from section Aggregation of Primary Care and Comprehensive Approach towards 4 and 5. Countries that have similar Wellness Services Wellness in Health economies to ours have been analyzed. There is no central aggregator to Current innovation wellness and primary Wellness is not only about out-patient bring all private health providers on a health solutions have been analyzed and care. It also involves healthy lifestyle common platform. Aggregation within summarized. management. For example behavioral wellness and primary health industry Central Platform for Patient Data choices of sleeping, food preference, and aggregation across wellness and Management hydration preference, etc. can impact primary health industry helps in cost obesity and stroke management. reduction, reducing servicing time and Lack of a centralized data recording Awareness about diseases like HIV/AIDS, innovation as per the requirement to platform from private and public clinics, Coronavirus, etc. can help in preventing maintain standardization. There is a need hospitals, pharmacies and diagnostics social taboos and the disease itself. from pharmaceuticals, diagnostic labs has been a barrier towards cost Sanitation and Personal Hygiene help in and aggregators to work in an insurance effective and predictive health insurance managing problems like Urinary Tract model. products. A retrospective model is being Infection and spread of other diseases used in India at the moment for research that occur due to sewer and open Aggregation of hospitals through the in the sector. deification. Information about exercising RSBY Scheme, aggregation of private and following a routine medicine regime Dubai’s Health Cards through which doctors, specialists, super specialists, can help in chronic disease management primary health and wellness is accessed, pharmacy and diagnostics through like Diabetes. Nutrition, mental health and platform through all medical Apollo Munich, ICICI Lombard, Indian and wellbeing, physical activity, etc. all purchases can be collated provided a Health Organization, Apollo Munich of it falls under the purview of Preventive robust data set. Such live, mass data and aggregation of medical personnel Health. To bring about behavioral sets can be used for predictive trends by Portea Medical are examples of a changes and to support Preventive and modelling. Use of a mobile app as a successful aggregation approaches. Health Infrastructure, focus on Behavior platform for data collection done by ICICI Health insurance in Thailand is an

74 October - December 2020 THE JOURNAL OF INSURANCE INSTITUTE OF INDIA HEALTH INSURANCE aggregation model where one entity inpatient health expenses. A mandated Cashless delivery of aggregates public, private and NGO insurance for all, with progressive wellness and primary health center and a customer can use premiums, cost subsidization and risk any health center within the pool. This mitigation and inclusion of all health health services, virtual also shows that aggregation of wellness criteria is a recommendation for this. platforms for awareness and primary health components is Progressive premiums ensure everyone sessions, use of artificial possible and scalable. It is a win-win pays as per their paying capacity. This intelligence for health situation for the provider, since it brings leads to mitigating the risk of high- in profitability and for the beneficiary risk and low-risk groups into one pool ailment prediction since it brings in swift transition from through cross subsidization. It will be models, tele-medicine, one provider to another. difficult to seek a higher premiums instant medical data from the high paying capacity group in Leveraging Technology transformation into digital such a scheme thus it should be made Cashless delivery of wellness and mandatory. Further, the recommendation data forms are a few primary health services, virtual platforms will be valid only if enrollments to the examples of technology for awareness sessions, use of artificial scheme happen in scale. Progressive leveraging in wellness and intelligence for health ailment prediction premium can also be mixed with Pay- models, tele-medicine, instant medical Per-Risk models that are used to assess primary health sector that data transformation into digital data the risk of each individual, social and can be seen. forms are a few examples of technology economic background of each individual amount per person who has enrolled in leveraging in wellness and primary for the deciding the premium for the insurance policy. It deletes the scope health sector that can be seen. insurance. of disparities in payment and ensures Cashless insurance for wellness by ICICI Government of Thailand has implement a better performance of the professional Lombard, use of mobile apps by Practo progressive premium model where three to add more uninsured candidates to the technologies, E-Mamta application by schemes covering three different paying pool. government of Gujrat are examples of capacities are pooled into one single Capitation can be seen in Thailand, how technology can bring value to the system for paying health expenses. China, and Indonesia as a solution wellness and primary health market in China’s Medical Savings Account for satisfaction, retention and India. Use of health cards in Dubai, is deducts a fix amount from the salaries of standardization of payment to the also a strategy of leveraging technology all the employees progressively, pools all medical professionals. which can be used for insurance in the premium to ensure each employee is Gatekeeping wellness and primary health delivery. give the same basic allotment of services Gatekeeping ensure patient cannot meet Customer Friendly Insurance Premiums under the premium paid. a specialist consultant before meeting a Management of Medical Personnel Premiums for private health insurance general physician. It ensures one cannot are high and have extensive exclusion At the moment public medical buy medicines without a prescription, criteria. This can be owing to the cost professionals are paid on a salaried or cannot get a particular diagnostic of innovation, technology usage and model, either permanent or contractual test without investigation advice. Such maintenance cost. On the other hand, as discussed in section 2.3.2. While a system reduces the burden on health premiums are affordable when offered private health professionals are paid facilities. India currently has more through public health insurance. This as per pay-per-service directly from specialists than general physicians, thus leads to a further problem of adverse patients. Thus two approaches can be a supply induced demand for consulting selection in public health insurance and seem for payment. A standardized model these specialists can be observed. creamy layer selection in private health for payment is thus required for this in This has also lead to lesser general insurance. However, wellness is not public and private primary insurance. physicians in government facilities, as covered through government insurance. This can be achieved by capitation they leave to receive specialization or The focus is on hospitalization and model. Capitation means a capped flat super specialization.

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Gatekeeping model to meet a specialist as possible to the Bhore committee Welfare, Government of India can be observed in Narayana Health and recommendations and ensuring a 5. N. Baridalyne et al (2004), Current in Brazilian health system. In a wellness decentralized wellness and primary Status of Communicable and Non and primary health insurance model, health system, which distributed Communicable Diseases in India, this will help in cutting down costs for across rural areas are the short term The Journal of the Association of specialist consultation unless absolutely recommendations. Government should Physicians of India. required. support private insurance companies 6. D. Peters et al, (2001), Raising the with the available public health data Private Sector in Primary Health and sights: Better health systems for for better research and product Wellness Insurance India’s poor. Washington, DC: The development, so that new products World Bank Private sector insurance companies can be created and experimented by can explore and experiment in the in the private sector. Successful products 7. NCD in South-East Asia region the industry of wellness and primary developed by this approach can later be A profile (2002). World Health health in India, since the country has integrated with government schemes. Organization. New Delhi no wellness insurance through the PPP initiatives will be pivotal in 8. National Health Programmes on Non government. This means the individuals catering to the entire population, thus Communicable Diseases. (2003). with OOP capacity will definitely engagement between the public and National Institute of Health and subscribe for it private sector wellness private sector must increase. Provision Family Welfare New Delhi insurance. of strong regulatory oversight for the 9. National Health Policy 2002 and Specialized need based insurance private provides and insurer is another 2017, Ministry and Health and Family packages for chronic care, for elderly recommendation. Both are short term Welfare, Government of India and geriatric care, for maternity care, recommendations. 10. Health Financing Profile (2017), for children care, for family planning A universal health insurance scheme India, World Health Organization, and contraception, for mental health, for wellness and primary health with regional office for South East Asia rehabilitation from drugs are few of the 100% coverage, a progressive tax based recommendations. These packages can system, which has a capitation approach 11. National Sample Survey cover specific OOP primary care costs for paying medical professionals and (2011), 60th, 68th and 71st like diapers for babies during diarrhea, is affordable for all is the long term Round, Household Consumer IUD installation cost, home care for recommendation for the government. TJ Expenditure, Ministry of Statistics elderly, additional costs at rehabilitation and Programme implementation, centers, etc. can be covered. This will References Government of India reduce the OOP expenditure and at the 1. Duggal, R. (2002). ‘Health Planning 12. A Guiding Framework for OPD and same time ensure profitability to private In India’ in Alwin P. (Ed.), The Indian Preventive Health Insurance in India, insurance organizations. Economy Since 1991: Economic Supply and Demand Side Analysis Once the market has been tested for Reforms and Performance (2015), 8th FICCI Health Insurance these options, in the long run the private 2. Bhore J. (1946). Report of the Health Conference insurance sector should also work Survey and Development Committee, 13. Thailand’s Universal Health Coverage towards Public-Private-Partnership and Vol I, II and III Government of India Scheme (2012), Viroj T., Economic eventually with the government. This will Delhi and Political Weekly ensure an insurance scheme in wellness 3. Mudaliar Committee (1961): Health 14. Richard H. et al (2010), Improving and primary health that has huge Survey and Planning Committee, China’s Health Care System, number of subscriptions. Ministry of Health and Family Research gate Key Indicators of Public Sector in Primary Health and Welfare, Government of India Social consumption in India on Wellness Insurance 4. Burden of Disease in India Health, National Sample Survey, 71st Strengthening the current wellness and (2005), National Commission Round, 2014, Ministry of statistics primary health structure to improve on Macroeconomics and Health, and programme implementation, quality of health. Coming as close Ministry of Health and Family Government of India

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Merit Winner Technical Paper Essay Competition (Micro) Role of Technology in Making of Micro-Insurance More Effective

Abstract income earner of the family or loss of property are critical risks faced by every “Innovation is the only way to household, but for a minimal income win.”- Steve Jobs (co-founder, Apple family, marginal exposure to these risks Computer) is enough to push them into deeper These few words sum in itself the future poverty and threaten their very existence. need, scope and prospect of every social As per the International Labor or economic venture and the same Organization, over 80 percent of the is applicable in the context of Micro Indian economy is in the informal sector, insurance, the topic being discussed and while only 6.5 percent constitutes the explored in this article. formal sector. In such a socio-economic Neha Singh Micro insurance is a specialized segment context, risk assessment and pooling Jyoti Homes, Viman Nagar, of the insurance sector which majorly and financial inclusion of the population Vishakhapatnam - 530009. caters to the vulnerable section of become all the more necessary. Micro [email protected] society. Death or illness of the primary insurance products that are customized

October - December 2020 77 MICRO-INSURANCE THE JOURNAL OF INSURANCE INSTITUTE OF INDIA for the weaker sections of the society Since then, continuous efforts and health contingencies. The distribution offer protection from various risks at low changes have been made in policy network also works differently from cost. frameworks and regulations to make the the traditional distribution networks sector more customer-centric. as partnerships with Self-Help Groups Being a low cost-high volume product, (SHG), Non-Government Organizations the success of this segment is dependent At present, the Indian insurance (NGOs), Business Correspondents, etc. on its increased penetration, which market consists of 24 life insurance acting as major channels for customer means reaching out to more number companies (23 private and one public) acquisition. of the target population. However the and 34 general insurance companies current penetration levels are abysmally (including private, public, specialized and 2.2 Evolution of Microinsurance Sector low. And herein technology can play standalone health insurers). And yet, we When the insurance sector was a huge role in expanding the reach of have insurance penetration1 of 3.7% -: liberalized, the regulator wanted to microinsurance and realizing its potential 2.74% in the life insurance segment and ensure that rural areas are not neglected in true sense. 0.97% in the non-life segment. In 2001, and insurance companies remain Technological Innovations are key the insurance penetration in India was inclusive in their objective and operation. differentiators that give a competitive reported at 2.71%. In 2009, it increased With this objective, IRDAI introduced to 5.2% but thereafter a declining trend edge to the companies as well as serve mandatory guidelines for rural and was visibly followed by a marginal as a catalyst to explore new areas and social sector obligation in 2002. It stated increase in the last 3-4 years. ideas. clearly the definition accepted by the The objective of this paper is to study 2. Micro Insurance in India: regulator for the rural and social sector the trends of micro-insurance in Snapshot and the percentage of policies to be sold India and the role of technology in and lives to be covered by the insurance 2.1 What is Micro Insurance and how it increasing the effectiveness and reach of companies in rural and social sectors. is different? microinsurance in India. With companies already lining up low 1. Insurance Sector in India Insurance is a contract between a cost products to fulfill the mandate customer or entity and insurance of rural and social sector guidelines, Though insurance has a long history company in which the insurance the government of India constituted a in our country, its prominence and company promises to pay an assured group in 2003 to study the possibility need have been in focus since the last amount in case of any contingency (as of customized schemes for the poor few decades. In 1993, the Malhotra mentioned in the policy), in exchange considering different aspects like reach committee was appointed by the for a regular amount of money paid and pricing. Eventually, the regulator government under the chairmanship (premium). The insurance sector is came up with IRDA (Micro-Insurance) of RN Malhotra, former Governor of broadly divided into three types - Life, Regulations 2005 which offered RBI, to make recommendations for General and Health. The general specific guidelines on product design, reforms in the Indian insurance sector. insurance is much diversified with underwriting, distribution, etc. for life The recommendations resulted in the products like crop insurance, motor and non-life players. introduction of the Insurance Regulatory insurance, property insurance, fire and Development Authority (IRDA) insurance, etc. The IRDA micro-insurance Regulations, legislation in 1999 and the establishment 2005 defines micro insurance as a of the Insurance Regulatory and Micro Insurance is a specialized type of life or general insurance policy with a Development Authority in 2000. The insurance product targeting people at maximum sum assured of Rs 50,000. committee also recommended an the bottom of the pyramid. Due to the In 2015, IRDA issued new regulations inclusion of private players and foreign nature of the target population, they are which included some modifications of players in the sector, which led to an designed as low premium, low sum- the existing regulation 2005. In this increase in product offerings and overall assured insurance products offering regulation, some more intermediaries reach of the sector. risk protection in life, general and and life micro insurance norms were

1Insurance penetration is measured as ratio of premium to GDP

78 October - December 2020 THE JOURNAL OF INSURANCE INSTITUTE OF INDIA MICRO-INSURANCE added. The Insurance Regulatory and Of these 44 products, 24 are Individual unemployed or under-employed in Development Authority of India (Micro products and the remaining 20 are seasons where their crop-related Insurance) Regulations 2015, defines Group products. activities are minimal. Also, due to a weak supply chain and lack of micro-insurance as life insurance policy 2.3 Why Microinsurance is necessary reforms in this sector, returns on with a maximum sum assured of Rs 2 in Indian Socio-economic context? lakh or less. The coverage amount starts their investment are insufficient and A majority of Indian population is as small as Rs 5,000 to Rs 10,000 for a risky. Similar situation is faced by dependent on agriculture and other small period. people engaged in other activities unorganized sectors for their livelihood. like cattle rearing etc. If the scale of 2 The chart below shows the growth in With agriculture and other unorganized operation is very small, a small crisis the micro insurance sector in the last sectors still using the nascent stages like spread of a disease can lead to few years. As shown, the number of lives of technology, scale and supply chain loss of the investment made 3 covered under micro insurance has management, the population dependent l Financial burden on single member been increasing over the last 5 years, the on it are left with insufficient and - Large families which are financially change being more prominent in the last irregular supply of income which results dependent on single family member 2-3 years. in a poor standard of living. are highly vulnerable to any type of risk l Poor access to services - Poor financial condition is a major obstacle in getting standard education and health services. Lack of awareness is a major hindrance in getting right help at the right time

l Dependency on informal credit systems - Lack of assets or collateral, poor documentation like proper identification proof etc. initially forced the poor to depend on informal sources like moneylenders The total premium (individual + group) In such circumstances, with poor for their credit needs. Though the from micro insurance sector in FY nutrition, education and access to practice has declined with financial 2018-19 was reported at Rs. 3238 crore, services, vulnerability to risk is very inclusion initiatives, yet it exists in showing an increase of 125% from the high. This makes the need for insurance, many deeper pockets of the country, last fiscal year. The number of micro mainly customized products like micro giving rise to a vicious debt trap for insurance agents as on 31.03.2019 was insurance all the more necessary to the poor 72857, showing 38% growth from last protect their financial well-being in the In such socio-economic conditions year. The private sector reported 52931 face of any unforeseen adversity like implementing risk mitigation strategies micro insurance agents while the Life disease or natural calamities like flood is a prime requisite to ensure welfare Insurance Corporation reported 19926 etc. and progress of the poor. However a agents. Approximately Rs. 1000 crore huge demand supply gap exists for the was paid as death claim settlement Challenges faced by vulnerable section insurance sector in India. (individual + group) in FY 2018-19. of society 2.4 Demand Supply Gap in the sector As of 31st March 2019, 44 micro l Irregular income - People insurance products of 16 life insurers engaged in agriculture suffer from The market for microinsurance in India were available in the market for sale. seasonal unemployment. They are is mainly supply driven. With insurance

2 Source - IRDAI Annual Reports 3 For calculation, number of lives under individual and group category are combined

October - December 2020 79 MICRO-INSURANCE THE JOURNAL OF INSURANCE INSTITUTE OF INDIA regulator IRDAI at helm, insurers section of our society. Mostly they fail to density to another Asian counterpart are obligated to comply with certain understand the importance of insurance China, owing to the similarity in percentages of new business catering or how it works. Also in India, people are population density and size, we are to economically backward population. accustomed to freebies offered by the significantly behind (As of 2018, The step is aimed to make persistent and government. They are quite reluctant to insurance density of China is about five focused effort to insure the ones who pay for the services like insurance whose times that of India). The table below need it the most. Also, Central and state benefits are long term in nature. gives a glimpse of insurance density in governments have time and again taken India in comparison to other prominent The insurance density in India is well steps and launched schemes to increase countries of the world. It’s imperative to below the other developing countries, the variety and fluidity in supply. stress here that if we want to become an even in Asia. The world’s average However the same cannot be said about affluent nation economically, we need to insurance density is approximately ten the demand side. The target population focus on keeping the risk vulnerability of times more than insurance density in of micro insurance are the vulnerable the population low. India. Even if we compare our insurance INTERNATIONAL COMPARISON OF INSURANCE DENSITY*

(In us $) Countries 2017** 2018** Total Ute Non-Ute Total Life Non-Ute Australia 3247 1304 1942 3160 1203 1957 Brazil 398 224 174 345 196 159 France 3446 2222 1224 3667 2370 1296 Gernany 2687 1169 1519 2908 1161 1747 Russia 152 39 113 164 50 114 South Africa 842 674 167 840 669 170 Switzerland 6811 3522 3289 6934 3555 3379 United Kingdom 3810 2873 938 4503 3532 971 United States 4216 1674 2542 4481 1810 2672 Asian Countries Hong Koog 8313 6756 1557 8863 8204 659 India# 73 55 18 74 55 19 Japan# 3312 2411 901 3466 2629 837 Malaysia# 486 339 147 518 361 157 Pakistan 13 9 4 14 10 4 PR China 384 225 159 406 221 185 Singapore 4749 3835 915 4958 3944 1014 South Korea# 3522 1999 1523 3465 1898 1567 Sri Lanka 47 22 25 49 23 26 Taiwan 4997 4195 803 5161 4320 841 Thailand 348 237 112 385 262 123 World 650 353 297 682 370 312

Source: Swiss Re, Sigma Volumes3/2018 and 3/2019 *Insurance denslty is measured as ratio of premium (in US Dollar) to total populalion. **Data pertains to the calender year 2017 and 2018. #Data related to financial year 2017-18 & 2018-19.

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3. Major Challenges of Micro products don’t add any value Due to low ticket size Insurance Sector in India addition and in case the products are not solving their specific constraints, of the product, the total Indian insurance market has many the prospective customers are micro insurance business players who have established products hesitant to come on board. constitutes a very small and processes to increase new business. Yet the microinsurance sector is still l Distribution challenges - The target portion of the total population is mainly concentrated in lagging in pace and is not one of the business of insurance major contributors in total business. rural areas. However the distribution Following are some of the challenges process of these products is difficult, companies. As per Life which has led to low penetration of costly and more time consuming Insurance Corporation’s microinsurance among its target in these areas. Though various Annual Report 2018- population. partnership models are in place, yet their monitoring and ensuring their 19, the contribution of 3.1 Demand Side Challenges optimal productivity is a challenge. microinsurance vertical in l Lack of liquidity - Irregular, low l Less impact on bottom line - Due income often leaves the poor with LIC’s new business was to low ticket size of the product, insufficient money to spend even on the total micro insurance business 2.89% in terms of number essential items like food. In such a constitutes a very small portion scenario they are hesitant to spend of policies, which is almost of the total business of insurance on insurance companies. As per Life Insurance at par with last year. l Lack of knowledge among the Corporation’s Annual Report target population - The rural and 2018-19, the contribution of than half billion at the end of 2019. The economically underprivileged people microinsurance vertical in LIC’s new Digital India programme launched in are the main target population for business was 2.89% in terms of 2015, is providing and constructing the microinsurance. However, due to number of policies, which is almost basic framework on which the digital socio-economic constraint this at par with last year. penetration in India is being driven. segment is often caught in the cycle The value proposition of spending The programme provides broadband of unawareness. They fail to realize the resources on this sector is low connectivity in rural areas via optical- the importance of insurance as the as the impact on the topline and fiber cable to gram panchayats, public advantage of this product is not bottom line of the business is very internet access at common service immediate and tangible less as compared to the investment centers, railway stations, post offices l Geographical constraints - Though being made. This mostly restricts etc. and emphasizes universal mobile rural connectivity has improved a the initiatives made by Insurance connectivity. Many digital platforms for lot in the last decade, yet no doubt a providers. improved service efficiency have been considerable size of our population launched under this flagship scheme. Insurance companies and other are physically less connected. They Coupled with decline in prices of mobile stakeholders are trying to overcome don’t have access to information and devices and internet charges, the usage these challenges with the help of services as compared to urban areas and presence of users have increased technology. Technological advances are among low-income households and rural 3.2 Supply Side Challenges changing customer behavior and thus areas also. the business strategies. l Less flexibility offered in product design - Due to the unstructured 4. Digital Penetration in India 5. Drivers of Technological nature of the job engaged in, the Integration economic challenges faced by India is one of the largest growing the target group are also plenty digital markets, with a surge in internet Technological integration in different and varied in nature. The blanket subscribers, estimated to be more aspects of our target population

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The government initiative initiative to link Jan Dhan accounts continuity and sustainability with Aadhar and mobile has in such situations. The recent to link Jan Dhan accounts brought a larger section of society global pandemic has caused all with Aadhar and mobile under financial mainstream. The the major services to shift on has brought a larger continuation of this initiative means online platforms. Talking about authenticated customer data with insurance, the companies who have section of society under proper contact information which invested in their online customer financial mainstream. makes delivery of information and acquisition platforms in the last few The continuation of services reliable. Just a decade years are hoping to take less fall back a major time and effort was in comparison to their traditional this initiative means consumed to ensure that customer counterparts authenticated customer or claimant information is correct or data with proper contact not. These challenges can be easily 6. Role of Technology in mitigated if more number of people Addressing Challenges of Micro information which makes will imbibe JAM Insurance delivery of information and l Increasing financial inclusion - Financial services like banking and services reliable. Just a With various government incentives insurance are also in the process of decade back a major time being linked to bank accounts, increasing their reach and efficiency by and effort was consumed economically underprivileged people adopting technology in the process and are encouraged to open their bank services. to ensure that customer accounts. This not only expedites the 6.1 Impact of Technological or claimant information delivery of services but also brings Intervention in Insurance is correct or not. These transparency in the process Usage of new technology and continuous challenges can be easily l Government umbrella schemes - innovation in insurance has increased With umbrella schemes like Fasal mitigated if more number the effectiveness of the sector due to Bima Yojana, Jeevan Jyoti Bima changes noted below: of people will imbibe JAM Yojana, Aam Admi Bima Yojana

etc. promoted by the Government, l Reduced operational time has increased over the years due to - New people are becoming more aware several factors. The key drivers of this business and policy servicing about insurance and its benefits technological boom are discussed here. requests are being addressed l Reducing Digital divide - in less time span due to new l Penetration of mobile phones and Demonetization in 2016 was a applications which allow easy upload easy accessibility of low cost data watershed event in Indian digital of documents and photos, request - This has ensured that information history which gave digitalization a services etc from customer end and flow is not only rapid but also big push in every nook and corner of easy access and verification from reliable. With easy availability of low the country. Coupled with initiative provider’s end. cost devices and service providing under Digital India, digital footprints l Increased transparency - Real applications based on mobiles, of users have significantly increased time tracking of the process with penetration has become easier. It is from rural India also also easy to train the customers how all the stakeholders being in loop l Unforeseen business disruptions to use the application. It reduces the at different stages, has brought - Natural calamities like flood etc. operational time and increases the transparency to the whole process. and more recently pandemics like stakeholder participation Covid-19 are threats that disrupt l Easy monitoring - Use of technology l JAM (short for Jan Dhan-Aadhaar- the whole business chain. Adoption has reduced the manual errors Mobile) Trinity - The government of technology ensures business significantly and made monitoring

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of the process smooth resulting in assessment process, which has a discussion -microinsurance an increased accountability from all direct implication on the pricing of attractive proposition for the poor stakeholders. products. With the use of technology and also incentivize the insurer we can gather large information to venture into this segment by l Fraud detection - Many companies in desired format and store it for realizing the true market potential have invested in risk detection models as long as it is needed at less and opportunity it holds. and forecasting applications which incremental cost. not only identifies the risk level of a Use of technology by Insurance prospective client but also divides l Better Efficiency of delivery companies has resulted in increased the existing business in different channels - Technology has made transparency, efficiency, and reach risk categories which makes it easy possible the evolution of online sales and customer satisfaction. With to monitor the policies and take significantly in the last few years. future prospects under discussion like corrective steps at the right time. Even for the traditional delivery Blockchain Technology, the insurance channels like agency model, it has sector is continuously exploring new l Faster reach to customers - More led to increased efficiency and better ground. numbers of existing and potential customer satisfaction. customers can be reached in The same benefits are extended to Microinsurance also. The chart below less span of time by combining l Decreased operational costs - traditional platforms like television Implementation of technology explores different ways in which and radio with comparatively newer in processes means decrease in customer touchpoints of the target ones like social media platforms, traditional operational costs like population are being enriched by digital ads etc. postage, printing, storage etc. Cost technology. of acquisition, distribution, operation 6.2 Technology Intervention across the l Data Storage - With data storage plays a significant role in pricing customer touchpoints not restricted to physical files, of an insurance product. If the information accessibility is easy as acquisition and operational costs can Right from lead generation of well as comparatively safer. Also, be reduced, the cost of insurance prospective customers to their profiling with usage of technology, data comes down as a result. Lower and on-boarding to the servicing and collection has also become less pricing with an enriched customer claim stage, insurers are exploring new tedious and more reliable. Purity of experience makes insurance, more ideas and partnerships to make the data is the prime requisite of the risk specifically the segment under process more efficient.

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6.3 Current Initiatives reach. The table below is a compilation With the new entrants already coming of such initiatives to showcase the with smart solutions and innovative Insurance companies are coming different ways in which technology is strategies, established and big players up with innovative ideas to enrich making insurance, more specifically are also making fundamental changes customer experience. Many companies micro insurance more effective. in their business structure. An example are recognizing the value-addition, mentioned here in case is ICICI technological implementation can However, the initial cost Involved in Lombard General Insurance which provide and thus are investing in Adoption and implementation has acted reportedly invested around Rs 43 crore upgrading their infrastructure and as a hindrance for rapid adoption and in technology a couple years back, processes. The process started gaining implementation of technology across focusing on AI, machine learning and prominence about a decade back with the sector. No doubt, once implemented data analytics etc. to increase operational prominent companies like Iffco Tokio effectively, usage of technology can efficiency. General Insurance using radio frequency increase operational efficiency at low identification device (RFID) tags into cost. Yet, for this to happen, first the 6.4 Covid -19: Insurance in uncertain insured animals to reduce fraud in the company needs to invest its resources times claim process. in its set-up, implementation and The current global pandemic is changing More recently, many companies are training across the delivery partners. the way business used to be done. launching initiatives to provide better This involves not only cost but a change Even after we overcome this global customer experience and access deeper in the mindset of the management too. health crisis, a massive change in

Examples of some ways in which technology is being used in insurance sector to increase the efficiency and reach: v Gram cover, an Indian startup in the microinsurance sector is using technology for effective distribution in rural India. They provide facilities like direct documents upload and processing, real time updates, mobile enrolments and comprehensive dashboard. v Max-Bupa Health Insurance is reportedly using Flow Magic automated solutions for processing inbound documents. It has reduced manual dependency and thus has resulted in simplified operations. v Bajaj Allianz Life Insurance has a mobile app to hire agents which helps in training, exams and licensing. With the help of this solution, it has cut down processing time by half which helped in bringing about 15,700 consultants on-board digitally in the past year. It has also rolled out a virtual branch for customers, known as ‘Mosambee’, which is modelled on the concept of providing ‘branch-in-a-box’. It enables their insurance consultants to provide customers with all services at their doorstep. v ICICI Lombard has developed an IoT-based (Internet of Things) instant health check facility for corporate customers, and is using telematics (tracking and monitoring an asset like car etc. by using GPS) to identify and segment vehicle users based on driving behavior. v Digit Insurance (also known as Go Digit), an online general insurance company is India’s first digital insurer. It offers small value non-life insurance products. It is using blockchain-based systems at the backend and a smartphone enabled self- inspection process for customers to speed up claims processing. v Acko general insurance, another digital insurer offers low ticked sized products across multiple categories that like travel, gadgets, last-mile cabs and bikes, food delivery and online lending in partnership with various platforms. v HDFC Life Insurance has recently introduced a new digital assistant ‘Elsa’, based on Amazon’s Alexa. It can handle about 200 different enquiries and provide policy insights. v Insurtech Riskcovry provides an API platform (Application program interface) to partners to integrate and automate their insurance distribution. Recently it has partnered with NPCI (National Payment Corporation of India) to provide Covid-19 health insurance to RuPay card and UPI users in India. Source : Newspaper reports, company websites

84 October - December 2020 THE JOURNAL OF INSURANCE INSTITUTE OF INDIA MICRO-INSURANCE customer behavior is predicted with video-chat provision for claim settlement, supported with efficient and well-trained emphasis on less physical contact and a first in the country to assess motor human touchpoints. So, it is high time doorstep delivery of services. It has vehicle claims. Such timely interventions to consolidate our efforts and resources become imperative now to support which simplify the processes go a long and provide the sector the much-needed the traditional distribution channels way in building trust among customers. momentum. TJ based on relationship building, with In case of micro insurance, the cost to References new innovative solutions which provide the company can significantly reduce the necessary services while keeping with adoption of technology like self- 1. www.irdai.gov.in customer participation intact like virtual service platforms for on-boarding and 2. https://licindia.in/ conferencing, service on-call etc. servicing. They can also leverage it to 3. https://microinsurancenetwork.org/ ensure the bottom line impact of the Also, this crisis has clearly exposed the sites/default/files/Technology%20 same is positive in the long run. risk vulnerability of poor people. With Report_Web-3.pdf lakhs of people jobless and business Also insurance companies need to train 4. https://www.undp.org/content/ processes disrupted, the need to and incentivize their staff and prospective dam/aplaws/publication/en/ safeguard against financial risks is very and existing customers to use the publications/capacity-development/ eminent and needs to be addressed on services, so that value addition of the microinsurance-demand-and- priority basis. Insurance intermediaries investment made in the technological market-prospects-for-india/ need to come up with new strategies to integration can be optimal. Microinsurance.pdf overcome this challenge. 8. Conclusion 5. https://www.disruptordaily.com/ 7. Recommendations blockchain-market-map-insurance/ India has a huge potential in With the government acting as a catalyst microinsurance. But, despite the 6. https://www.outlookindia.com/ and technology at forefront, micro potential, the increase in penetration is outlookmoney/insurance/micro- insurance has the potential to provide risk well below the expectation and need. For insurance-reaching-out-to-the- coverage to the needy. However, more the micro insurance sector to realize its weaker-section-3950 exploration and research in policy and full potential, focus should be on factors 7. https://www.mantralabsglobal.com/ product design needs to be discussed which drive the purchasing decision of a blog/microinsurance-rural-india- to come up with target-specific low cost customer at the bottom of the pyramid insurance-companies/ products. such as low pricing, flexible product 8. http://www.birdlucknow.in/wp- design, simple delivery channel, easy to The regulator needs to consider several content/uploads/2015/10/Reoprt-on- understand process etc. suggestions offered by experts or the Microinsurance-in-India-_Final.pdf practices in other parts of the world. With advancement in technology and 9. https://www. Some of the ideas to be looked into are easy availability of low cost devices, insurancethoughtleadership.com/5- usage-based insurance i.e. payment this is an excellent period to accelerate innovations-in-microinsurance/ based on how much we are using the the penetration rate. This requires product or event based insurance which dedicated intent and means. Insurance 10. https://economictimes.indiatimes. means, products designed to cover a intermediaries and policymakers should com/industry/banking/finance/ specific incident. However, more research make concentrated effort to increase insure/indias-insurance-industry- is needed into these kinds of custom- the penetration which will involve not is-improving-efficiency-through- stitched products and the regulatory and only change in delivery system but also the-use-of-new-age-technology/ feasibility aspect of the same. product designs. articleshow/70902516. cms?from=mdr The insurers need to accelerate adoption To improve the efficiency of the delivery and implementation of technology in their system, technology alone is not 11. https://www.techcircle. solutions to maintain their competitive sufficient to overhaul the situation of in/2019/04/25/amazon-revises- edge. During the 2018 Kerala Floods, microinsurance in India. It can work and seller-commissions-increases- Reliance General Insurance came up with generate desired results only when it is logistics-costs

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Merit Winner Technical Paper Essay Competition (Pension) Is Pension, Effective and Adequate Solution to the Challenges of Ageing?

Abstract adequate pension systems by analyzing the global trends. It looks at the vital The advancement in medical facilities post-retirement needs of the individuals and new technological innovations for by considering their relevance in today’s keeping oneself healthy is leading to world. It uncovers the role of insurance an improved life expectancy amongst companies to make the pension industry individuals. Though this is a positive a robust and sustainable one. The paper technological advancement on one also looks at the World Bank’s approach side, it also has its post effects on the towards inclusive, sustainable pension other which needs to be looked upon penetration. seriously. Retirement income will continue to be a focus area for financial Keywords Pranav Warhady experts. Pension systems vary across C-22, National Insurance Academy different economies based on the Longevity, Pension, Defined Campus, demographic profile of the subscribers. Contribution, Defined Benefit, Adequacy, 25 Balewadi, Baner Road, This paper is an attempt to highlight the Sustainability, Effectiveness, Insurance, N.I.A. P.O. Pune - 411045. intricacies of effective, sustainable, and Annuities.

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Introduction amassed. With the nuclear family system wish to pursue! Consider a scenario, in place, in most of the countries, where an individual starts working at The second innings in a cricket match longevity risk coupled with the new the age of 20 and continues to work is tactically different from the first, as family structure poses a serious threat till he retires at 60. Effectively he has players are more tired, and wickets have of old-age poverty. With improved health worked for 40 years. If he lives for 25 deteriorated. Similarly when we think of care systems and preventive check-ups years more (ie. till he turns 85 years of retirement, one thing that haunts us is now available on the tip of the click age), he should have sufficient savings that we would no longer be receiving a in tandem with fitness wearables, the in place that will support him as well as regular stream of income as we continue to receive it today. current young population is definitely his spouse for at least the next 25 years. in a better position to live longer than Only a robust, less volatile, financially Planning for one’s retirement is easier the current senior citizens. The global viable and economically sustainable said than done. The reason this is so is average life expectancy at birth is 711 system can address this issue. because everyone wants to spend on which was only 34 a few generations Workforce their immediate needs and refrain from ago. the thought of saving for the future. Pension schemes in most economies Perhaps this may be the reason for Perhaps, living long can pose a serious have mostly evolved on the grounds introducing mandatory contributions challenge if financial plans are not of employee-employer relations. A from the employee/employer towards aligned with future needs. Considering large and growing number of workers the accumulation of pension corpus. the figures (2018) publish by the World- globally are self-employed or work With the advent of several financial tools Bank, a vast majority of the countries and calculators and awareness amongst have a life expectancy of over 68 years. in small businesses and so lack easy the people, we have now started to emphasize on post-retirement savings. Life Expectancy Globally What we fail to adequately gauge is the amount of corpus that we will need to sustain the current lifestyle post- retirement.

Increasing life expectancy across several economies have forced the governments and insurance companies to design solutions to address the concern of longevity risk. As per the directives of the government, each organization diverts some amount towards a fund established by a trust to cater to the post-retirement needs. Accordingly employees, too, voluntarily contribute towards the fund. Through this paper, Source:https://data.worldbank.org/indicator/sp.dyn.le00.in?view=map I would go a bit deep to address the financial needs of the elderly population. The rising life expectancy severely access to employer-sponsored long- impacts the budget of a household after term savings plans. The employer Longevity Risk retirement. This is attributed majorly to contributes a specific portion of the Longevity risk refers to the risk of living the amount spent on buying household salary of the employee to build a too long which may have a danger items, medical costs including retirement corpus for the employee. to outlive the assets built over the hospitalization and of course since older Similarly, the employee contributes his productive years which an individual has people have unfulfilled dreams that they share as mandated by the government.

1Roser M. “Life Expectancy,” available at https://ourworldindata.org/life-expectancy

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He may also voluntarily contribute more on outdated public and private pension only in the form of investment into amounts if he wishes. Although this systems that are unsustainable. In other pension funds or life insurance plans ritual has been in place for several years words, they are inadequate to meet the of insurance companies but can be now, it has seen its presence mainly in financial promises being made. On the into assets such as a house, shops, the formal or orgainzed sectors. This is other hand, a rapidly rising middle class or can be fixed income securities done to comply with the statutory needs is finding virtually no system in place to guaranteed by the government. of the respective governments. But a help them save for old age. The beauty of a guaranteed stream of major part of the workforce belongs income is that it allows the individual to the informal or unorganized sector. Gender Imbalance to plan well in advance based on his Bringing this sector into the purview Women face a more substantial long needs. of the pension system is itself a major term savings gap than men. With lower task. This is largely attributed due to Building a guaranteed component average pay and longer periods out of the reluctance of the unorganized sector in any product comes at a cost the workforce, women have retirement to plan well in advance for retirement that can have financial implications balances that are typically 30%–40% needs. In other words, the coverage is on the provider of the product or lower3 than those of men. Compounding highly skewed towards the organized service. The element of guarantee the problem, women live longer than workforce. also erodes the chances of earning men on average and so require their more, had the person invested in an There is an increased urgency to savings to last longer. asset, which has a component of risk improve this coverage towards the coupled with high returns. unorganized sectors as well. In India, a Post Retirement Needs country with the world’s second-largest 2) Access to Capital: Another If we narrow down further to establish population, the informal sector accounts important piece of post-retirement the financial needs of the individuals, two for more than 90% of jobs2. The needs is access to capital invested. major priority areas after retirement are: solution here is that more people should Consider if a person invests Rs. 50 be encouraged to incorporate equal 1) Regular Stream of Income: lakhs in fixed income security that participation of the organized as well as Because the person will no longer be provides a regular stream of pension the unorganized sector. Providing old receiving a regular salary as he was of Rs. 30,000 per month with no age financial support should be means- receiving before, it poses an inherent access to initial invested capital of tested and specifically be targeted to problem of planning the household 50 lakhs. This poses a serious threat cater to the needs of all the strata of budget. To guarantee this regular to the needs of the person in case society. In some countries, a larger and stream of income, sufficient funds of immediate requirements. This longer-lived retiree population relies should be kept aside. This is not mechanism does not completely solve the question of sustainable India Population Trend financial position post-retirement. Many pension funds are operating on the same principle.

But, as a layman, are we solving the needs of the individuals after retirement? To some extent, yes, but not holistically. Life Insurance Companies

Life insurance companies have been providing a regular stream of income Source: UN population estimates by way of annuities to the annuitant

2 Waghmare A. “6 Indicators of India’s Looming Demographic Disaster,” 3 Mercer: ‘Bold ideas for Mending the Long term Savings Gap’

88 October - December 2020 THE JOURNAL OF INSURANCE INSTITUTE OF INDIA PENSION wherein different varieties are offered to frontiers, first, a person suddenly tracking devices which help the suit the diverse needs of the customers. decides that I am retiring in a couple individual to maintain a level of In India, the annuity market has been of weeks and I need to buy an annuity. fitness as per his current health quite sluggish as far as private life The second is that a person is saving conditions. If the assumptions of insurance companies are concerned. towards retirement for a while and mortality improvement are not The reason for this sluggish approach now a substantial amount of corpus accurately considered, it may lead lies in undertaking the responsibility is ready. This substantial amount of to a higher liability on the part of the of providing a ‘guaranteed’ income corpus may be in the form of a deferred pension provider. stream to the annuitant throughout his pension that matures or it could be (ii) Lower Investment returns from lifetime. The risk lies in investing the superannuation which matures when equities and bonds: The inherent corpus appropriately in a combination a person reaches superannuation age nature of the pension system is to of different securities as well as equity. or in case of the Indian population, it invest the corpus in long-duration The downside is that if the level of could be an NPS accumulation which bonds and equities. This exposes the returns is not generated by the insurance is due to be annuitized. These parts corpus for volatility in equity returns company through its investment of savings towards retirement have to and also to a larger extent for a fall patter, the company may bear of risk of necessarily be annuitized at some point in the bond yields. This, in turn, puts losing out from its pocket to honor the in time, irrespective of what the yields an upside pressure on the pension commitment. and annuity rates that are being offered provider. This may also eventually by different life insurance companies Moreover many life insurance lead to an asset-liability mismatch. are. So the demand for this section of companies, today are focusing on retirement savings, ie. by creating a In a defined benefit fund, the longevity one of the important parameters to retirement corpus that has a mandatory risk, as well as reward, resides with the measure sustainable growth-Value of element of annuitization will not be employer or the retirement fund. New Business (VoNB). VoNB is nothing affected by any fluctuation in interest and but the Present Value (PV) of future Defined Contribution (DC) Scheme annuity rates. profits. Several annuity products have An employer, through, a retirement a high VoNB only if the annuity being Defined Benefit & Defined fund, promises to make contributions offered is a ‘deferred’ annuity. This Contribution Schemes on behalf of the employee to the possesses an acute challenge before the retirement fund. The employee, too, sales force of an insurance company Defined Benefit (DB) Scheme makes voluntary contributions towards to sell the annuity product to the right In a defined benefit fund, an employer, this fund. In other words, a defined customer. People are reluctant to lock through a retirement fund, assures the contribution fund can be viewed as a ‘pot the bulk amount of capital for several employee, a formula based benefits in of money’ that grows until retirement. years to receive a guaranteed stream retirement. A defined benefit pension of income few years later. On the other In a defined contribution fund, the scheme is a risky solution to the hand insurance companies are not able longevity risk as well as reward, reside provider as it bears the Longevity and to offer a lucrative return if the customer with the concerned employee. Many Investment risks. chooses an ‘immediate’ annuity option countries are now moving towards because the inherent nature of providing The need for robust pension solutions a defined contribution scheme as it an annuity is based on the investment is exacerbated by 2 critical trends that reduces the financial burden on the horizon. The shorter the time horizon, have led to an increase in the liabilities of government or the employer to fund the less returns the fund can generate. Defined Benefit Schemes. future pension liabilities. Also volatility increases in the short run. (i) Increase in Life Expectancy: We will now move on towards assessing Demand These are certainly due to the various factors that play a critical role improvements in human mortality in determining whether pension is an Considering the demand for annuity mainly due to improved access effective, sustainable and adequate products, it mainly comes from two to medical care as well as fitness solution for managing longevity risk.

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Effectiveness carefully overlooking the investment increasing AUM. Other operational of the individual. The major reason tasks such as onboarding members Effectiveness of the pension can be why several economies are moving and subscribers, collecting & evaluated on various parameters: to a defined contribution scheme allocating contributions, and at the 1) Income: The amount that the from a defined benefit scheme is same time maintaining records, etc. pensioner receives should be in line that it becomes increasingly difficult lead to significant costs as far as the with what he requires to maintain the for the pension provider to continue entire pension system is concerned. same lifestyle as before. Another soft paying the pension benefit, should But this dominant way of measuring point to note is that the lifestyle of the person live more than expected. sustainability as a percentage of a person does not remain the same Of course, this is balanced by the AUM is a disadvantage for many and post-retirement. His interests may early deaths as well, but it is not only reduces the efficiency of high asset change. Perhaps he may like to live the question of mortality, but also pool systems. a simple lifestyle than before. This investment returns that the fund can depends on an individual basis. But generate. With a consistent fall in Adequacy the reality is that not many people the bond prices, it is difficult for the The adequacy of benefits is perhaps live a lavish lifestyle after retirement. pension providers to keep up their the most vital part of any pension This aspect makes a significant promises. system. After all, the primary objective impact on the amount to be received 2) Flexibility & Agility: The other of any pension system is to provide in the form of a pension. reason for a successful pension an adequate retirement income. The 2) Inflation:Inflation is a ‘silent killer’ system is the flexibility that it offers. adequacy of the benefits is in turn of the accumulated corpus. The The subscribers can contribute affected by the features and design of retirement income received in real voluntarily to the scheme along with the pension systems. terms may bring less value than what is mandated. The interesting anticipated. Inflation may seriously part is withdrawals. The reluctance 1) Voluntary Contributions: Voluntary affect the planning process of the in saving through a pension vehicle contributions made by a subscriber individual. The reason for this is that is due to the limited option that it should offer some sort of advantage no one can accurately predict the offers for withdrawing the corpus. over other investment avenues. For futuristic inflation rate. Although it is justified to generate example, the investment amount towards the retirement fund should 3) Coverage: The mass coverage a decent amount of returns in the be tax exempted as well as the for people to adopt the pension future. But it is not always the interest earned on the accumulated scheme is a function of proper returns that matter, the flexibility that corpus should be tax exempted. awareness that needs to be made is offered by the pension scheme is Thus differential treatment based on by the government by creating a also of much relevance. tax rules provides an added incentive sustainable environment for pension 3) Economies of Scale: Pension to save towards the retirement fund. players to operate. If not, the deliveries and retirement systems government can create a trust which in many economies are very It is recognized that the tax treatment is responsible for administering fragmented with substantial long of pensions varies across the the pension corpus. The success term liabilities overshadowing long world. There are two components of 401K has been largely due to the term costs. Research suggests that to consider tax deductions on the mass adaptability of the scheme. economies of scale can be achieved amount contributed and differential tax treatment on the interest earned Sustainability in operations and investment management. Moreover, pension and on the accumulated corpus. Sustainability of a Pension scheme can retirement solutions cost and fees 2) Income stream: Some governments be evaluated on parameters like: are computed as a percentage of mandate the amount that can be 1) Solvency: The trust administering Assets Under Management (AUM). commuted and annuitized. It can the corpus is responsible for This, on the other hand, grows with happen that due to the prevalent

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regulations the amount to be Designing Effective Solutions to The pension systems received as an income stream is Help Ensure Adequate Savings across the world less, despite the corpus of money is larger. Many systems around the With the traditional systems already in that are amongst the world provide lump-sum retirement place, it is now necessary to provide highest ranked as per benefits that are not necessarily greater support to individuals in the Melbourne Mercer making sound savings and investment converted into an income stream. Global Pension Index In other words, the system just acts decisions to close the long term savings as a savings vehicle to accumulate gap. However there are numerous score high on adequacy, funds in the ‘Pot of Money’. other priorities that the individual sustainability and integrity needs to address, the primacy of the – which includes those 3) Net Investment Return: One of the immediate over the long-term, voluntary critical parts in any pension system contributions to long-term savings of Denmark, Netherlands is the amount of return that the fund simply may not be enough. and Australia. They can generate. Some economies The pension systems across the world are designed in such a have allowed substantial investment that are amongst the highest ranked way to make savings into equities, but some regulators as per the Melbourne Mercer Global across the world have adopted a contributions compulsory, Pension Index score high on adequacy, conservative approach, restricting both on the part of the sustainability and integrity – which the investment into equities includes those of Denmark, Netherlands individuals and the considering the market volatility and and Australia. They are designed in such employer. Moreover, subscriber’s interests. The effective a way to make savings contributions return is also deeply affected by the individuals do not know compulsory, both on the part of the charges on the accumulated corpus. how long they will live individuals and the employer. Moreover, This, in turn, reduces the net returns individuals do not know how long and maybe imprudent if high costs are incurred. However, they will live and maybe imprudent in in managing the savings it is possible to design a system managing the savings after retirement, that has minimal involvement of after retirement, systems systems can be designed in such a way intermediaries as well as fewer can be designed in to prohibit individuals in withdrawing allocation costs using economies of all the pension funds in a lump sum. such a way to prohibit scale. Instead, they are required to take the individuals in withdrawing 4) Net Replacement Rate: Net pension as lifetime annual income that is all the pension funds in a replacement rate is a commonly sufficient to meet their expenses through lump sum. Instead, they old age. used measure to determine the are required to take the adequacy of the benefits provided by Investment Functions a retirement income system. They pension as lifetime annual represent the level of retirement Delivering adequate returns on the income that is sufficient income divided by a measure of pension portfolio is a function of to meet their expenses pre-retirement earnings. In essence, comprehensive asset allocation. The through old age. they measure the level of retirement current market environment has income provided to replace the forced the systems and providers to beliefs, risk management, investment previous level of employment reevaluate their investment strategy, decisions, strategic asset allocation, earnings. The replacement rates operating models and asset allocation. investment models as well as their should be higher for lower-income In today’s world, many pension systems governance. This possesses a great earners than average or above- are wrestling with very fundamental challenge for the pension fund managers average income earners. questions regarding their investment in the growing DC world.

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Pension vs Other Investment Options

The other important question that arises, is whether pension the sole financial instrument for post-retirement needs? The answer to this question can vary amongst different individuals. But a minute study entails that currently, pension is the way forward to satisfy the needs after retirement. The other Source: https://www.mercer.com.au/our-thinking/mercer-lifetimeplus/ investment options consist of stocks, how-it-works.html mutual funds, government securities, housing, etc which may generate more differ due to demand and supply issues 1) Investment Earnings: A returns than what is provided by a and negotiations. The trend in India is conservative investment strategy pension fund manager. But the volatility that landlords purchase a property, let delivering reliable returns for life. is also significant. You never know it out to a tenant and pay the interest on when the stock market would crash 2) Capital Returns: 2.5% of capital the loan using these rental payments. causing loss to masses. Similarly, returned in cash every year starting This process on a larger scale can lead in housing, to survive on a rental from 12th year, paid for 20 years. to high investment gains. But it may also income, there can be significant costs lead to renovation costs, management 3) Living bonus: Payments from the associated with it. And then there is a costs, tax on the rental income received living bonus pool that increase with problem of indivisibility. capital gains tax as well as maintenance time. Contribution to pension systems enjoys costs. Lifetime Plus uses a very simple tax deductions on the overall income. approach to provide income for the Risk is also limited within a pension by Moreover, the returns generated are entire life of the customer. In this the fact that you are only investing the also tax-free in many economies. arrangement, every customer is a part money you have (unlike housing where Withdrawal from the pension corpus is of a large pool that generates income a person may take out a loan), so you also taxed at different rates. All these for as long as they live and remain cannot lose more than you invest. With points make pension more attractive to invested. When any investor leaves regards to pensions vs housing, the the subscribers as compared to other or dies, they will leave at least some key question is how much risk does the investment avenues. amount in the ‘Living Bonus Pool’. The individual willing to take? rest of the money is returned to them Housing Product Innovations or their legal heirs. The money in the Living Bonus Pool is distributed to the It is interesting to note that the choice Mercer Australia has launched an award- remaining investors. of where to invest in the long run winning retirement investment option depends on the concept of opportunity that is unique and different from other World Bank’s Approach cost. A property purchase requires forms of retirement options offered Towards Inclusive Pension a substantial initial expenditure. in other countries. It has launched a Penetration Pensions, on the other hand, allow product ‘Lifetime Plus’, which provides the individual to save for retirements income for life. However, unlike an In its influential report ‘Averting the through monthly payments which many annuity, the income from Lifetime Old Age Global Crisis’, the World Bank people can do so. Considering the high Plus increases as customers get older, in 1994 recommended a multi-pillar housing prices in India, it is difficult delivering returns when other assets may system for the provision of old age for a person to buy a property without be running out. This product provides income security which comprises of taking a loan. Timescales to sell could income from three different sources: multiple pillars.

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breadth, depth and efficiency of financial markets, particularly with respect to Pillar 0 long-term instruments. A basic public pension Way Forward that provides a minimal level of protection For a pension system to be effective, leading pension providers need to rebalance the way they exploit numerous opportunities by analyzing the solutions Pillar 1 Pillar 2 on a global basis. An integrated, effective and sustainable approach, as well as A public mandatory and A private mandatory a reliable operating model, will help contributory system and fully funded maximize long term retirement benefits linked to earnings system and contribute to global industrialization of the pension industry. This would be an equally winning situation for the private sector, governments, Pillar 3 Pillar 4 regulators and most importantly for the Financial and non- subscribers. TJ A voluntary and financial support fully funded outside formal pension References system arrangements 1) https://data.worldbank.org/indicator/ sp.dyn.le00.in World Bank’s experience suggests that constraints on, feasible reform options. there are no universal solutions to the Initial conditions include inherited 2) https://www.cfainstitute.org/-/media/ complex array of pension issues nor systems, the reform needs of such documents/book/rf-lit-review/2015/ is there a simple reform model that systems, and the enabling environment rflr-v10-n2-1-pdf.ashx can be applied in all settings. The Bank which may or may not be conducive has, however, developed principles of to potential elements of a reform 3) https://www.hannover-re. com/371848/longevity-risk-2018.pdf analysis and a conceptual framework design and process. The inherited to guide its work in this area. This system includes existing mandatory 4) https://info.mercer.com/rs/521- framework incorporates assessment and voluntary pension systems, the DEV-513/images/MMGPI%20 of initial conditions and capacities acquired rights of workers and retirees, 2019%20Full%20Report.pdf concerning a multi-pillar model of the related social security schemes, existing potential modalities for pension systems family and community support of 5) https://www.ey.com/Publication/ that establish a broad but defined range retirees, and old age vulnerability and vwLUAssets/EY_Improving_the_ of potential reform designs. These poverty prevalence. Reform needs are global_retirement_system/$FILE/ possible designs are then evaluated determined by applying the adequacy, ey-building-a-better-retirement.pdf against a set of primary and secondary affordability, sustainability, equity, 6) https://www.mercer.com.au/our- evaluation criteria in an attempt to predictability and robustness criteria thinking/mercer-lifetimeplus/how-it- reach an outcome that is contoured to discussed below to existing schemes. works.html country-specific conditions, needs and Finally, the enabling environment objectives. includes the demographic profile; the 7) https://www.pfrda.org.in/ The conceptual framework starts with macroeconomic environment; the writereaddata/links/crisil_ an assessment of the initial conditions capacity of administrative, regulatory resize80b3e2da-346e-489b-bb2e- that establish the motivation for, and and supervisory institutions; and the 2df91d84a225.pdf

October - December 2020 93 SIFIs THE JOURNAL OF INSURANCE INSTITUTE OF INDIA Systemically Important Financial Institutions (SIFIs)

Some of the large and interconnected financial institutions that are categorised as ‘Too Big To Fail’ create an expectation of Government support at the time of distress so as to avoid a major shock to the economy. Rather than necessitating Government intervention to ensure financial stability, it is felt essential to have in place regulatory policies that aim at reducing the probability of failure of large and interconnected financial institutions, also called as Systemically Important Financial Institutions.

Individuals, institutions or groups of markets that gather or pool money and Deepak Godbole institutions, known as economic agents make available either for consumption or Secretary General, play an active part in economic activities. investment. Thus, the financial system Insurance Institute of India In the process, they establish economic plays an important role in the economic (Author is General Manager at GIC Re relationships and interdependencies development and is of great importance on deputation to Insurance Institute of with each other. The financial system for the stability and sustainability of India) consists of instruments, institutions and the economy. Banks and insurance

94 October - December 2020 THE JOURNAL OF INSURANCE INSTITUTE OF INDIA SIFIs companies play a crucial role in financial for assessing the systemic importance The effects of the 2007 intermediation and safety of assets. of SIFIs was also developed. A series global financial crisis Apart from protecting assets, insurance of reform measures had been unveiled companies are also long term investors for banks, via Basel III to improve the and the sovereign debt and they keep premiums invested for resiliency of banks and banking systems. crisis of 2010 brought as paying claims, if and when made by the These include increase in the quality a consequence the need insureds. and quantity of regulatory capital of to increase the stability the banks, improving risk coverage, Supervision is intended to ensure the introduction of a leverage ratio to serve of the financial sector stability, resilience and efficiency of the as a backstop to the risk-based capital and the institutions. It financial system. Regulations are made regime, capital conservation buffer and and enforced to prevent systemic risk of was learned during the liquidity risk management. the possibility of sudden and unexpected global financial crisis events that are capable of affecting the As, there is a greater chance of damage that problems faced by financial system as a whole. Regulations to the financial system and economy large and interconnected also help in instilling confidence in the due to failure of a large institution, size financial system. is an important measure of systemic financial institutions importance and, therefore, size indicator could hamper the orderly The effects of the 2007 global financial is assigned more weight than the crisis and the sovereign debt crisis of functioning of the financial other indicators. Interconnectedness 2010 brought as a consequence the system as a whole, which, is also an important aspect as larger need to increase the stability of the the number of linkages with other in turn, could negatively financial sector and the institutions. It institutions, the greater is the potential impact the national was learned during the global financial for the systemic risk getting magnified. crisis that problems faced by large and economy. Some of the Apart from size and interconnectedness, interconnected financial institutions large and interconnected financial institution infrastructure and could hamper the orderly functioning complexity, including cross-border financial institutions that of the financial system as a whole, activity are other factors behind are categorised as ‘Too Big which, in turn, could negatively impact deciding on the status of institutions the national economy. Some of the To Fail’ (TBTF) create an as ‘Too Big To Fail’. SIFIs could be large and interconnected financial expectation of Government subjected to additional quantum of institutions that are categorised as capital requirements compared to other support to them at the ‘Too Big To Fail’ (TBTF) create an entities. It is also important to monitor time of distress so as to expectation of Government support to SIFIs on Return on Risk Weighted them at the time of distress so as to avoid a major shock to the Assets (RORWA) for taking care of the avoid a major shock to the economy. earnings volatility. The link between economy. Rather than necessitating Government earnings volatility and capital is central intervention to ensure financial stability, to ensuring stability. The assessment it is felt essential to have in place Supervisors (IAIS) participates in methodology for assessing the systemic regulatory policies that aim at reducing a global initiative, to identify global importance of institutions is supposed to the probability of failure of large and systemically important financial be reviewed on a regular basis by sector interconnected financial institutions, institutions and guides insurance regulator. also called as Systemically Important sector. While Basel Committee is Financial Institutions (SIFIs). In October While Bank for International Settlements raising the resilience of the banking 2001, the Financial Stability Board (BIS) is mandated to take care of the sector by strengthening the regulatory (FSB) recommended the need to have global regulatory framework for more capital framework, IAIS does a similar in place a framework to reduce risks resilient banks and banking systems, the activity for insurance sector by way of attributable to SIFIs. A methodology International Association of Insurance suggesting Risk Based Capital norms.

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portfolio is basic prerequisite. While the fundamentals of the insurance business model apply to both the reinsurance and the primary insurance sectors, certain activities have emerged that are more relevant in, or are practised exclusively by, reinsurers. The financial strength rating, provided by rating agencies, is a contributing factor to the selection of reinsurance exposures.

The extreme stress test that include financial market distress, severe natural catastrophes, and the failure of one large reinsurance company showcase that reinsurance groups and conglomerates are engaged in non-insurance activities In the insurance sector, the main income and are generally held to match as well are likely to be originators of policy reform in response to the global liabilities. Insurance business model systemic crises. The intrinsically global financial crisis was introduction of follows disciplined implementation of nature of the reinsurance business in capital adequacy requirements for Global a liability-driven investment approach; general, and the evolving nature of Systemically Important Insurers (G-SIIs) creation of reserves as against declaring alternative risk transfer products with by IAIS. It is critical that insurers’ risk and distributing profits and flexibility their affinity to the financial markets exposures are backed by a high quality available in claims payments through in particular, make it necessary for capital base. Failure to capture major on strict and disciplined investment and regulators to monitor the reinsurance and off-balance sheet risks, as well as liquidity management. Insurance sector along with primary insurers. derivative related exposures could also supervisors have already put in place be destabilising factor for insurers. A monitoring and enforcement of minimum For the year 2020-21, in the Indian framework to promote the conservation capital and provisioning requirements financial system, in banking sector, of capital and the build-up of adequate for insurers and methodologies for SBI, HDFC Bank and ICICI Bank have buffers above the minimum that can be monitoring. Though the historical been declared as domestic Systemically drawn down in periods of stress is the evidence of insurance failures is limited Important Banks (D-SIBs) meaning prescription for stability. compared to banking, insurers are not failure of any of them would have a immune to failure. Major causes of cascading effect on Indian financial The insurance business model being insurance impairment could be said system. Life Insurance Corporation different from banking, the impact of to be quality of management, level of (LIC), General Insurance Corporation insurance failures on other financial governance, under provisioning and (GIC Re), and the New India Assurance institutions and the economy would also inadequate pricing. Also, rapid growth Company Limited (NACL) have been be different. For insurers the technical coupled with deficient risk management identified as Domestic Systemically provisions constitute the largest portion could lead to failure. Important Insurers (D-SIIs). So, as of liabilities. Actuaries are expected to per Indian regulators, the continued provide accurate estimates of provisions Reinsurers contribute to the global functioning of these D-SIBs and and ensuring the quality and safety diversification of risks and to an efficient D-SIIs is critical for the uninterrupted of invested assets in support of these allocation of capital and improved risk availability of financial services in the provisions. It is also important to management on the side of primary domestic financial system, for which pursue an appropriate duration matching insurers. Reinsurers need to understand regulators could enforce a higher level of of assets to liabilities. Insurers’ the risks of the cedants and availability of supervision and periodic reporting. TJ investments are funded by premium information about cedents’ underwriting

96 October - December 2020 THE JOURNAL OF INSURANCE INSTITUTE OF INDIA TITLE INSURANCE Indian Real Estate Title Disputes- an Outcome of Asymmetrical Information Based Market: Real Estate Title Insurance- A Finance Panacea

Abstract stimulation to market irregularities to this respect and has added further The geographical territory of India has stimulation. Absence of sound and been experiencing both the changes scientific pricing mechanism of real in the demography and its ecological estate and absence of strict surveillance balances. The explosion of population on the environmental pollutions and followed by environmental pollutions are presence of asymmetric information- matter of concern to all stake holders. based market leads to a chaotic In 3,287,263 Sq. KM of land surface of situation with lot of market irregularities India, 137 crores of population of India involving a high volume of finance. Inc are putting a constant pressure with These irregularities have a negative the population density of 455 persons effect on the nation’s Gross Domestic Dr. Kalyan Mukherjee per single square KM of land surface. Product (GDP). As of now, as many as Retired Associate Professor, Consequently, to this, different issues ten nations have implemented “Real Rabindranath Tagore University, have even been crops up on air, water, Estate Title Insurance” and India is still Assam – 782435. environment, on ecology. Absence of continuing the status in an “exclusion [email protected] an appropriate regulations has added category”. Though under section 16

October - December 2020 97 TITLE INSURANCE THE JOURNAL OF INSURANCE INSTITUTE OF INDIA of The Real Estate (Regulation and part of India, which is again divided into to the constitution of “Real Estate Development) Act, 2016, there is a Banaras, Maithili, Mayukha (Mumbai) Title Insurance Organization” and provision of “Obligation of promoter and Dravida (Southern) sub-school. thereby to arrest market irregularities regarding insurance of real estate Moreover, good number of land in dealing with real estates which is an project” but so far nothing significant title deeds are based on commercial Asymmetrical form. has been done to execute the same. But purposes too. Hence, based on family, Significance of the Study even if it is executed as per the Act, its social or commercial events of land parameters on ‘title issues’ will be very title transfer, regulations vary from one The real estate sector comprises limited only. On implementation of the event to another. Influence of multiple with sections namely housing, retail, proposed concept with a dedicated “real parameters in different land deals, no hospitality and commercial. Real Estate estate title insurance”, it would amount uniformity in the land regulation could Size in India: to ease of doing real estate trading in be maintained. Different land regulations India and thereby to drive the nation’s have addressed “Estate” which in legal 1. In 2019, its market was US$1.72 economy in such a horizon which would phraseology meaning an interest in real billion, and it is projected that ultimately lead to an ease of achieving property i.e. an aggregate of rights over by 2040 it would be US $9.30 US dollar 5 trillion on GDP by 2024. land vested in the individual owning the billion. Real Estate sector in India To build up a general conscientious on property. Land cannot be the subject of is expected to attain the size of this issue, an effort has been made to absolute ownership of any individual, the $1trillion by 2030 and would explore an academic exercise in Indian state is the ultimate owner of land. State contribute 13% of the country. context and thereby to establish its laws are not enough to address disputes 2. In connection with the FDI inflows, possible application in India Inc. Hence, on various estate issues (Real Estate construction is the fourth largest this observatory research works, based Title Disputes). sector in India. on secondary data, is the outcome of the Moreover, Indian real estate transactions same. 3. Government initiatives: are being affected due to the absence Key words of a sound and scientific pricing Both the state and central governments Asymmetric Information Based Market, mechanism. Under the present have adopted several initiatives to Title Insurance, Market Irregularities. circumstance, seller has more or encourage the development. Some of superior information over the other and those are: Introduction as a result owing to the ignorance of the other party, the seller can take the A. The Union Cabinet has approved PAN INDIA has been experiencing advantage of the information gap. In the setting up of an alternative Real Estate Title Dispute at different turn, prolong persistence of this gap Investment Fund (AIF) of US$3.58 magnitude, ever since its independence would lead to a chaotic situation in the billion to revive around 1,600 stalled from the British Rulers. Ever since the market. housing projects across the top Indian constitution came into being, cities. the subject “Land” was put in the state In order to bridge the gap, the parties list, resulting states liberty on framing especially with regard to the product B. Blackstone crosses US$12 billion land laws, in their customized way. As a information, appropriate formation of investment, a milestone in India. consequence, to that, as per the Hindu market specific regulation, to address C. Under Pradhan Mantri Aawas Yojana Succession Act,1956 states belong to financial irregularities in dealing (Urban), 1.2 crore houses have been the Dayabhaga Coparcenary system with the real estate deals, an attempt sanctioned, creating 1.20 crores and Mitakshara Coparcenary systems has been made to make a general jobs. of land title succession. As per the law awareness amongst the citizens of of the land, Dayabhaga prevails in the India on the issues in question such D. Government has created Affordable states of West Bengal, Assam. Tripura that a general conscientious can be Housing Fund (AHF) in the National and in most part of Orissa. Similarly, built up in formulating a demand for Housing Bank with an initial corpus Mitakshara is followed in the rest of the such appropriate legislation leading of US$1.43 billion.

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E. SEBI has given its approval for the Title Insurance in Pennsylvania, USA other party’s ignorance. Information the Real Estate Investment Trust to regulatory provisions as mentioned asymmetric is in contract to perfect (RETI) platform which would help in the Real Estate (Regulation and information which is a key assumption in allowing all kinds of investors to Development) Act 2016. in neo-classical economics. Prolong invest in the Real Estate Market. It constitution of this asymmetric (iv) Limitation of the study: would create an opportunity worth information leads to market uncertainty. US$ 19.65 billion in the Indian This study is based on the secondary To bring such a situation under control, Market over the year. data only. So, the inferences drawn, Indian Real Estate Market need to be based on this study, may not reveal a regulated in a befitting way such that it It is discernible from the aforesaid true picture of the nation of a whole but does not flourish any more. The standard statistical facts that the Real Estate invariably it can exercise a projection of economic norms for ascertaining a sector in India is going to establish as an “economic model” in Indian scenario. market as a symmetrical information an economic hotspot zone with high To infer more accuracy on the proposed market, the following seven basic points potentiality of bearing a significant model, a nation-based survey is needed. are to be fulfilled: stake holding of India’s Gross Domestic Investment (FDI) inflow too. (v) Future scope of research: (i) Prevalence of more than one buyer and seller Objectives of the Study The study on the issue in question, has got immense potentiality as its (ii) Rational behavior of consumer The study will have the following development will directly reflect on objectives: (iii) Consumer’s sovereignty nation’s GDP and state’s treasury (iv) Sellers seeks to maximum profit (i) To study the nature of the Real scenario. No nation can develop, Estate Market of India. undermining regulatory framework of (v) Perfect knowledge about the real estate market. product in question (ii) To identify parameters, based on which market irregularities can be Analysis of Secondary Data and (vi) Perfect mobility of resources addressed through an economic Its Findings (vii) Absence of restrictions on the entry model. of new sellers. Towards the objective number one, (iii) To examine the viability of the model that is to study the nature of the Real Since, out of seven features of in virtual application on four metros Estate Market of India. It has been Symmetrical Information Based of India. observed form the facts mentioned in Market, the fifth feature i.e. the perfect Research Methodology: the achieved, that India has a very rich knowledge about the product in question and strong heritage of multi-faceted is absent and hence the Indian Real (i) Nature of the study: real estate corruptions, most of them Estate Market is not a symmetrical but are linked with “Title Dispute”. If we asymmetrical information-based market. Observatory study has been made on investigate the history of so called secondary sources of data available in “Fund Flow Irregularities” relating to the Towards the objective number two, that the public domain. real estate, one can easily understand is to identify parameters, based on which (ii) Sources of data: the quantum of fund involved in market irregularities can be addressed such irregularities. These types of through an economic model. About the This study is primarily based on irregularities which are followed by real estate dealing in India, it has been secondary sources of data available from no specific or appropriate regulatory observed that the market is fully behaved the different public domains. provisions to address these issues like an entity without having regulations which relate to an artificial market with of its own. As a result, proper (iii) Periodicity: asymmetric information. The resultant surveillance to all real estate dealings in From the the birth of an Act in year 1876, fact could be a harmful situation, or the market has become very difficult and which has allowed the incorporation of one party can take the advantage of the even to sustain itself.

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To combat with such uncertainties, concept of “Title Insurance” was take the advantage over the other party’s an attempt has been made to pinpoint discounted way back in 1874, in the ignorance and the regulation is silent the specific parameters, based on US. In connection with one legal over the issue. which the whole gamut of “Real Estate issue- Watson Vs. Muirhead which Now the question arises about the Market Irregularities” can be addressed. was heard by the Pennsylvania regulations relating to the real estate Accordingly, the following two Supreme Court wherein the plaintiff in India. Sound regulations never give parameters have been identified: Watson had lost his investment in such scope to happen in the real estate a real estate transaction as a result (i) Real Estate Title Insurance and market. So, it is the high time to address of a prior lien on the property. The the relevant regulatory aspects and to (ii) Asymmetric Information based Defendant Muirhead had discovered identify the gaps or flaws, if any, in the markets. the lean prior to the sale and it was system. To address this issue, it would clear after the lawyer had (erroneously) The combination of the two important be desirable to identify those principal determined that the lean was not valid. parameters could give a positive result regulations responsible to act as a The court ruled that the Defendant on the century over title disputes on the watchdog or regulator. An attempt has was not liable for mistakes based real estate related issues. Let us discuss been made to highlight those regulations on the professional opinion. That both the parameters one by one as as follows: setback compelled the Pennsylvania follows: legislature to give a second thought 1. Indian Contract Act. 1872 (i) Real Estate Title Insurance: to strengthen the regulation relating to real estate and accordingly they 2. Transfer of Property Act. 1882 It stands for the indemnity insurance passed an Act kin 1874 allowing for 3. Registration Act. 1908 against the financial loss from defects the incorporation of “Title Insurance in title or real estate (property) and Companies”. Accordingly, Joshu 4. Special Relief Act. 1963 from the invalidity or enforceability Marris of Philadelphia, for the first of mortgage loans. It’s a contractual time, incorporated a Title Insurance 5. Urban Land (Ceiling & Regulation) arrangement entered to indemnify Company on 28th March 1876. Act. 1976 the losses or damages resulting from American Land Title Association 6. Indian Evidence Act. 1872 defects or problem relating to the (ALTA) is a national non-profit trade ownership title of real estate property. association representing the interest of 7. Indian Stamp Act. 1899 4500 Title Insurance Companies in the But, in practice it is discernable from the US. For the first time the title insurance 8. Income Tax Act. 1961 ground reality that no specific regulation company came into being in the US guarantees or assures the protection of 9. Respective State Laws Governing by the name of “First Title Insurance the “Title of the Real Estate” of the true Real Estates Company”. owner. Therefore, it’s a fact that even a 10. Rent Control Act. registered sale deed does not assure the (ii) Asymmetric Information based “Title” of the owner, it simply acts as an markets: 11. Real Estate (Regulation and evidence of the transaction with respect Development) Act, 2016 (RERA) of the “transfer of owner” from person to The information asymmetry contrasts another and in the event of any dispute, with perfect information which is a key Even the Indian Accounting Standard the matter can be resolved with the help assumption in neoclassical economics. 7, 9 and 18 deals with the techniques of judiciary. Asymmetric market is a situation in of accounting treatment in connection which one party is in a transaction, has with the revenue generation on Real The Real Estate Title Insurance is more or superior information over the Estates, but nowhere it is mentioned predominantly found in the US, Canada, other and there is absence of market that the valuation of a real estate where Australia, UK, Mexico, New Zealand, regulation to that respect. But under the title in question is irregular owing Japan, China, Korea and thought the such a situation, the resultant fact to asymmetric market information. European countries. Basically, this could be harmful as one party, can Ultimately, on disclosure of the facts or

100 October - December 2020 THE JOURNAL OF INSURANCE INSTITUTE OF INDIA TITLE INSURANCE information on the real estate the chaotic market with asymmetric information and different points of equilibriums resulting situation will arise. were awarded the Noble Prize in the year which the demand curve shifts from the 2001. “Perceived Demand Curve” to “Actual It is discernible from the aforesaid legal Demand Curve”. This scenario can be provisions that no specific regulation Towards the objective number diagrammatically explained under two (even the section 16 of RERA is not three, that is to examine the viability scenarios: enough for that) guarantees or assures of the project of the model in virtual the protection of “Title of the Real application on four metros of India. In Firstly, the point of equilibrium under a Estate” of the true owner. Therefore, it is order to establish its possible viability symmetric information-based market (in a fact that even a registered deed does or otherwise, in Indian socio-economic general circumstances): not assures the “Title” of the owner, scenario, it would be worthwhile to Here under the general circumstances it simply acts as an evidence of the through some light on the following: where there is no limitation in the supply transaction with respect of the transfer (i) The pricing mechanism at different curve, the point of intersection of both of owner from one person to another point of equilibrium at symmetrical the demand (D1) and supply (S1) curve and in the event of any dispute and the information-based market. is the point of equilibrium. matter can be resolved with the help of judiciary. So, considering the ground (ii) The pricing mechanism at different Secondly, the point of equilibrium under reality of our own nation, especially point of equilibrium at asymmetrical asymmetric information-based market regarding real estate title disputes, it information-based market. showing the gap between the perceived has been observed that most of the demand curve and actual demand curve On being considered the Indian Real corruptions are basically on title related (in case of real estate): issues. If we investigate the history of so Estate market as an Asymmetric called “Fund Flow irregularities” relating Information based market, the resultant Here owing to the limitation of supply of to real estate, one can easily understand fact is that the market force influences real estates, the curve is parallel to the that the degree/quantum of fund involved on the pricing mechanism through the OY axis. The perceived demand curve in each irregularity and followed by its sequences (maintaining a negative and pecuniary heritage) since long.

Basically these types of irregularities which are followed by no specific or appropriate regulatory provision to address these issues which relates to an artificial market with asymmetric information whereas others do not, this situation leads to a financial chaos and in the context of Economics terminology, it is termed as “market with asymmetric information”. Prolonged continuation of this asymmetric information leads to market uncertainty. Hence, this needs to be checked with the appropriate regulatory provisions. Reference may be made in this context that the three economists namely George Akerlof, Michael Spence and Joseph Stiglitz who analyzed the US secondhand car market as an Asymmetric Information based Diagram No: 1 (Source: Self drawn)

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To establish the probable viability of this model in Indian circumstances, we need to incorporate the principle of “Maximum Advantages”. Since this concept is relates to both the social cost and social advantages so, to justify its applicability in Indian scenario, we need to incorporate the principles of ‘Maximum social Advantages’. It was introduced by the British Economist- Professor Hugh Dalton. It is the most fundamental principle lying at the root of the public finance which secure the maximum social advantage from its fiscal operation.

This principle is based on the following assumptions:

1. All taxes result in sacrifice and all public expenditures lead to benefits.

2. Public revenue consists of only taxes and no other sources of income to Diagram No: 2 (Source: Self drawn) the government usually shows lower equilibrium point Chennai, Mumbai and New Delhi which 3. The government has no surplus or under (D1) demand curve. The actual covers only 0.16% of the available land deficit budget but only a balanced demand curve (D2) usually shows at surface of India that is 521.64 crore budget. the higher side of the of the equilibrium square meter. If (say) @Re 0.50 per point. Hence the point of equilibrium sq. Meter only is charged for the initial 4. Public expenditure is subject will be higher than the perceived point registration cost, then it would fetch to diminishing marginal social of equilibrium. The gap between the two about Rs 255 Crores. Whereas, as per benefits and taxes are subject to points of equilibriums (Z2 and Z1) is the the IRDAI Act 1999 and subsequent increasing marginal social sacrifices. effect of asymmetric information-based amendments, it requires that to On the contrary, if we consider market that is market irregularities. It introduce a non-life insurance company those nations which have already results in price escalations and hike in in India, a minimum paid up capital is Rs introduced these-concept, as demand on real estates with indifferent 100 Crores only. The revenue collection mentioned earlier, Australia and EU supply position and ultimately several (through the cost of registration only) countries shows surplus budget and irregularities in the real estate take place. from the four metro cities is much more rest are having defecting budget. As than the required IRDAI norm. This the regulation of Real Estate Title In order to examine the application hypothetical assessment is based on Insurance is already in practice in of this model in virtual application on only 0.16% of the available land surface those nations, since decades, so four metros of India, an attempt has of India and it does not include premium the assumption number 3 is not been made to examine the same in the for the Title Insurance. Then on being a rational one. Hence, India being following way: application of this concept, through a ‘Sovereign Socialist Secular It has been observed in one study that the nation, one can easily imagine its Democratic Republic Country’, it if this concept is applied on only in four potentiality for the huge amount of justifies implementing the concept in metro cities in India namely: Kolkata, revenue generation for the same. question.

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In a hypothetical situation in Indian Here, at the point ‘P’ social sacrifice 2. Declaring it as an asymmetric economy, it also appears that on is equal to social benefit and h the market, it will inspire the authority to application of the Principle of Maximum maximum social advantage is achieved frame appropriate regulations. Social Advantage, it becomes socially and beyond this point, the social 3. Recognition/introduction Real advantageous and justifying the financial sacrifice will be higher, and the social Estate Title Insurance as one of the operations. The duty of charges that benefit will be lower. At point ‘P1’ remedial regulatory provisions will would be payable by the Real Estate the marginal social benefit is ‘P1Q1’ lead to multi-dimensional effects Title holders i.e. the “Social Sacrifice” which is greater than the marginal in the nation. Some of the positive would be lower than the “Marginal social benefit ‘S1Q1’. As the benefit is (prospective) outcomes are as Utility” or the “Social Benefits” & hence higher than the sacrifice so it induced/ follows: the Maximum Social advantage is encouraged more and more amount of undoubtable an achievable one in Indian taxes and public expenditure. Again, if (i) Introduction of this concept in the scenario. This can be explained by the we look at point ‘P2’, here the sacrifice regulatory framework will give following diagram: ‘S2Q2’ is more than the benefit ‘P2Q2’.

Diagram No: 3 (Source: Self drawn) Diagram No:4 (Source: Self drawn)

Here, MSS represents the Marginal Hence, beyond the point ‘P’, further birth to a third dimension (Life Social Sacrifice showing the upward increase in the level of taxation and and General Insurances being the sloping curve that is the social sacrifice public expenditure may bring down the 1st and 2nd dimensions) in the per unit of taxation goes on increasing social advantage. insurance industry. with every additional units of money On application of this concept in (ii) Introduction a third dimension in raised and MSB represents Marginal Indian scenario, the following probable the insurance industry will generate Social Benefits showing the downward advantages could be identified: a huge potentiality of employment sloping curve that is the social benefit in the country. per unit diminishes as the public 1. The recognition of “Real Estate expenditure increases. P being the point Market” as an Asymmetric Market (iii) Mandatory insurance coverage of equilibrium between the two that is will lead to revenue recognition of of all real estate, especially at the the maximum social advantages point. untapped and unaccounted amount time of trading, will lead to a huge Triangle ABP is the Marginal Social generated from various land and amount of revenue generation in the Advantage. property deals. Government Exchequer.

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(iv) Non-insured real estates would be It is discernable from the aforesaid and the stake holders should seriously barred by the authority to register discussions that all the three objectives develop an indigenous ‘Real Estate Title their “sale deed”. have been addressed and tried to Insurance’ in India with a distinguishing empirically establish, based on the identity in the Indian Insurance Industry. (v) Buyers of real estate will be totally secondary data, the real status of Real free from tension/disturbances as In fine, the implementation of Real Estate Market in India and its established regards the title of the property is Estate Title Insurance scheme in India, parameter. Further, the viability of concerned. in letter and spirit would uphold the the suggested model has also been interest of both the home buyers and (vi) Introduction of this concept will established based on virtual application the Government as a whole, the nation’s curb substantially the undervalue on four metros of India. The possible economy will attain a historical high registration of real estates. positivity of the intended model has altitude and ultimately all stakeholders also been pointed out. However, the would be in a gain-gain situation.TJ (vii) Introduction of “Real Estate acceptability or otherwise of the said Insurance” will put a break (to a model in Indian scenario can only be References considerable extent) in generation ascertain with the passing of reasonable of black money out of the real estate time. The policy makers’ due attention, 1. Scitovsky Tibor (winter, 1990) “The deals. in this domain is desirable, keeping in Benefit of Asymmetric Market”, mind the general wellbeing of the citizen J-store Journal of Economic (viii) Since the whole nation is under in general. Perspectives, Vol 4, No.1. Published exclusion category, introduction of by American Association. Pp 135- this concept would make all states Conclusion 148. and union territories at par on “Title 2. Mukherjee K. (2016) “Indian Real Insurance”. India being the largest democratic country in the world, and it has been Estate: An Asymmetrical Information (ix) Since the insurance company (s) observed that there is undermining Market; Real Estate Title Insurance-A will act as the third-party service of importance of Real Estate Title Finance Panacea”. provider, so in the event of any Insurance (RETI) in true sense of the 3. The Journal of Insurance Institute of dispute, every matter will be taken term. It also reveals that in RETI having India. Vol III, Issue No III Jan-March, care by the concerning insurance been implemented in India, it would Pp 21-26. company(s). have a highly positive impact on the Indian economy and at the same time 4. Website: https://www.google.com/ (x) On introduction of this concept in the proposed scheme would invoke a search?q= maximum+social India, it will be the ninth nation in balance in the social justice too. In a + advantage&oq= the World to have such scheme in welfare economy like us, the application maximum+social&aqs=chrome the real estate market. of ‘Maximum Social Advantages’ for 5. http://en.m.wikipedia.org/wik (xi) Introduction of this scheme will ascertaining the viability of any proposed 6. Mukherjee K (2019), In an restore overall peace and harmony scheme is a significance indeed. As Asymmetrical Market- ‘Indian Real in the real estate deal and every more than ten nations of the world have Estate Title Insurance Scheme- A stake holder, sellers, buyers, already been applied this insurance Remedy Towards the Multi- service providers and government scheme and keeping in mind the socio- Dimensional Land Irregularities”. will be in a gain-gain situation, economic significance of this scheme, Issues in Banking and Finance, it would be easier on the part of they are highly satisfied with the Edition February 2019. Rohini the Government to boost up the outcome. Taking the positive outcomes Nandan Publication. economy to the extent of USD 5 from those ten nations, think tankers trillion GDP by 2024 and thereby and policy makers should ponder over 7. Real Estate (Regulation and ‘Good Governance in Real Estate this thought provoking and high level Development) Act, 2016. Edition 1st market’ will prevail. potentiality of this multidimensional, Edition March 2016. Easter Book socio-economic development scheme Company publication.

104 October - December 2020 THE JOURNAL OF INSURANCE INSTITUTE OF INDIA III SURVEY Impact of Covid-19 on Health and Life Insurance (Released on 8th September, 2020) and Ensuing Deliberations at III Virtual Round Table on Covid-19: Learnings for the Insurance Ecosystem

The Covid-19 pandemic has revealed that in multiple countries. III recognizes discussion “III Virtual Round Table on the insurance world is not yet prepared the importance of cooperation with all Covid-19: Learnings for the Insurance to manage pandemic situations. The stakeholders of the Insurance Industry Ecosystem” was organized on the virtual most important aspect is that the virus at local and global levels. In the process, mode on 8th September 2020, involving cannot be defeated in isolation unless in addition to conducting certificatory distinguished dignitaries and thought it is defeated everywhere. It has also courses and examinations in multiple leaders from Insurance Companies and given us one great learning that we can countries and classroom training Insurance Regulators of neighboring only face this type of situations through programs, III continuously provides countries including Bangladesh, interdependence and global cooperation platforms for exchange of ideas at local, Nepal, Bhutan, Sri Lanka, Maldives, at economic, political and social levels. national and international levels through Myanmar and Afghanistan. The idea diverse channels like essay competitions, of this round table discussion was to Insurance Institute of India (III) has research reports, the III Journal and share the experiences and responses been a pioneering academic institution other publications as well as thematic of the insurance ecosystem of different spreading Insurance education and seminars, workshops and round table countries to the Covid-19 pandemic. awareness since 1955 in India and also discussions. One such round table

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Mr. N D Kokare, Secretary, Insurance situation by adapting to changes Institute of India (III), commenced immediately as required by the situation the discussion by giving a formal including redesigning its courses, introduction to the activities of Insurance resorting to online mode of training, Institute of India (III) and its training arm, leveraging technology and undertaking College of Insurance (COI). This includes surveys to understand the impact of roles like conducting training programs Covid-19. in different streams of Insurance, Mr. Muktesh Chaturvedi, Director, conducting professional examinations College of Insurance (COI), released the leading to Licentiateship, Associateship - Survey Report on “Impact of Covid-19 and Fellowship certifications, developing on Health and Life Insurance” on this study material, conducting researches occasion. The survey was conducted and and surveys on Insurance related prepared by III Research Department. subjects. He pointed out III’s mandatory The survey attempted to ascertain role in supporting the Insurance how the Covid-19 pandemic situation Regulator as a training cum examining had influenced the sentiments of the body for Insurance Marketing Firms, insurance market and to what extent Health Third Party Administrators, Web- the insurance industry could respond to Aggregators Corporate and individual the requirements of people effectively. Insurance Agents. III trains Insurance and relevance of the Webinar. He drew The survey focused on Life and Health Brokers as well. In collaboration with the their attention towards the new realities University of Mumbai, III conducts Post that the pandemic situation had posed for the insurance industry and the new challenges that were slowly unfolding before insurers worldwide. The industry became aware of the low insurance penetration and the new needs of the market. The pandemic had forced the world to accept the new normal and adapt to the same. Examples include working from home, strengthening online customer servicing, realizing the futility of high cost components like real estate and travel in running Insurance for obvious reasons and tried the insurance business. Mr. Godbole to explore whether new opportunities Graduate Diploma in Health Insurance suggested prioritization of actions presented themselves. While explaining (PGDHI) and in Insurance Marketing on Business Continuity Planning, the importance of the survey done, he (PGDIM), and also offers Ph. D. Course in Customer and Employee Safety and pointed out about the negative effects of Business Management. He explained how Wellbeing, Crisis Management Task the Covid-19 pandemic on human life and III was both responsible and responsive in Force, Stakeholder Communication, IT on the economy - by way of disruption playing its role for the Insurance Industry Infrastructure Stability, Standardization in supply chain, fall of interest rates, as it moved through different phases of Remote Working Practices and Cyber reduction in insurance sales and renewals during its journey of 65 years. Security. He pointed out that world’s and disproportionate increase in health Mr. Deepak Godbole, Secretary response to Covid-19 pandemic was claims. He pointed out that neither the General, Insurance Institute of India reactive as it was not ready for the same. affected countries nor the insurers were (III) welcomed the distinguished He informed that Insurance Institute of actually prepared for facing the Pandemic participants and explained the context India has responded well to Covid-19 or its economic fallout.

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Mrs. Madhuri Sharma, Faculty, College type of treatment desired while going for of Insurance (COI), III presented an Health insurance and their experiences overview of the findings of the Survey on while availing of the treatments. “Impact of Covid-19 on Health and Life Covid-19 Experiences from Insurance”. Different Countries

Prof. Archana Vaze, Assistant Professor, College of Insurance (COI), III initiated the ensuing discussions and Round Table proceedings and moderated the discussions on the Impact of Covid-19. The lockdown was first Covid-19 in multiple countries. She started on March 26 and extended requested the distinguished participants till August. He opined that Covid-19 to share experiences from their countries had opened the eyes of insurance in the light of Covid-19 Pandemic companies in Bangladesh. The pandemic and discuss the insurance industry’s She shared the methodology adopted for had highlighted the importance of responses. She urged them to talk about doing the survey as also the key findings, Health Insurance, Retirement Benefits, matters of topical interest like providing conclusions and recommendations for development of IT infrastructures, and regulatory assistance, introduction the Insurance Industry. She added that designing the new products. Bangladesh of new products, addressing legal the survey of 493 respondents across Insurance Companies have witnessed concerns, application of Insure Tech and age groups, gender and occupation was huge number of corporate queries for working from home experiences. carried out by the Research Department Insurance. Mr Ahmed stated that Life of III to understand insurance awareness Covid-19 Experiences from Insurance Companies of Bangladesh had and certain issues and concerns Bangladesh already extended their Health insurance with reference to the Life and Health coverages. The Covid-19 Pandemic had Insurance Industry. The survey had Mr. Syed Moin Ahmed, MD, Green opened new opportunities for Insurers. made an attempt to understand the Delta Insurance, Bangladesh shared They were also designing new Cyber and preferences of the public regarding the the experiences of Bangladesh during Pandemic covers.

Country-wise COVID 19 Statistics

Country Cases Death Cured (Number) Cured (%) Active

India 4204613 71642 3250429 77.31 882542

Bangladesh 327359 4516 224573 68.60 98270

Nepal 47236 300 30677 64.94 16259

Bhutan 233 0 151 64.81 82

Maldives 8667 29 6052 69.83 2586

Sri Lanka 3123 12 2926 93.69 185

Afghanistan 38494 1415 30557 79.38 6522

As on 7th September, 2020 Source: https://www.coronatracker.com/country

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Covid-19 Experiences from hospitality industry, including tourism, Sri Lanka aviation, transport, agriculture and the insurance industry were very badly Mr. Chandana L. Aluthgama, CEO, affected. He stated that the Insurance Sri Lanka Insurance Corporation Ltd., regulator had been playing its role to Sri Lanka appraised the participants protect customers and that Insurers about the Covid-19 situation of the were not allowed to reject claims due to country. He mentioned that Covid-19 the pandemic situation. The regulator cases were so far low in Sri Lanka, had devised a Covid-19 policy to cover thanks to the various measures taken Government employees. Mr. Sharma informed about the formation of an during this period. SLII officials visited insurance pool to provide cover for Branch Offices of Insurance companies Covid-19 claims. The employees of the to conduct Agents’ examinations insurance industry had also adapted maintaining social distancing norms. In to the new normal by working from Mr. Kiridena’s assessment, the Country home and selling policies on the digital was on its way back to the normal ways platform. He pointed out that the of working. Covid-19 pandemic had made people by the Government, such as creating more aware about insurance. awareness and declaring some Covid-19 Experiences from services as essential services. The Sri Nepal Covid-19 Experiences from Lankan Government had extended free Myanmar Mr. Bhoj Raj Sharma, Chief Executive Covid-19 cover for all officials fighting Mr. Aung San, Chief Executive Officer, Insurance Institute of Nepal the Covid-19 pandemic in diverse ways. Officer, National Insurance Institute of and ex-Advisor, Beema Samiti He informed that the Government had Myanmar, informed that Covid-19 (Insurance Regulatory Authority of declared various financial concessions Nepal) described the situation of Nepal and credit facilities to help citizens face in the face of the Covid-19 pandemic. the Covid-19 pandemic situation. He The country had been through periodic further informed that the insurance lockdowns. Covid-19 cases were going industry had adapted to the new normal up, with a recovery rate of 65%. Mr set by the government by embracing Sharma informed that the economy technology and working from home, to and the GDP growth had been badly serve the country. affected, the supply chain had been Mr. Udeni Kiridena, CEO, Sri Lanka thrown out of gear due to lockdown positive cases were still very low in Insurance Institute (SLII) explained conditions and migrant workers had Myanmar. The Government and the that the insurance industry of the stopped sending remittances. The people were working together. The country had adapted to the changes Government had been taking various very fast. The Insurance Regulator, people-centric measures. Mr. Aung the Insurers, the Sri Lanka Insurance San further informed that the impact Association and the SLII had realized of Covid-19 on the overall economy the importance of collaborating was not too harsh though there were and working with better closeness some effects on Insurance marketing during these difficult times. SLII and on the transportation industry. The was successful in conducting online recently opened up Insurance sector of courses and online examinations Myanmar had witnessed the Non-Life

108 October - December 2020 THE JOURNAL OF INSURANCE INSTITUTE OF INDIA III SURVEY insurers slowly trying to acquire some numbers of claims due to the Covid-19 payments deferred and measures taken share of the market, while Life Insurers pandemic. The Insurance Regulator to bring back citizens stranded in other were still in the nascent stage. He was providing all necessary support countries. The Covid-19 pandemic opined that as the Covid-19 pandemic to the Insurance Industry during this had affected Bhutan’s economy badly. had increased the insurance awareness period of struggle. Mr. Fiyaz was In the month of August, the GDP was of the people, adapting to technology hopeful that thing would be better once -6.7% because there was zero revenue had become the need of the hour. He the lockdown was over and the border from Tourism and as all the businesses felt that the emerging scenario would was opened. were closed due to the lockdown. help in the growth of the insurance With the international border gates Mr. Mohamed Liwaz Latheef, Maldives industry and hoped that there would getting closed, the import of goods was Monetary Authority, added that the be more recruitments in the Insurance affected and the construction industry Financial Results had been affected sector. was affected. However, revenue from badly with a reduction of 25% in the hydropower sector was not affected. Covid-19 Experiences from premium of the second quarter. He too She informed that Bhutan has only two Maldives confirmed that the Regulator has been insurance companies the business of continuously working with insurance Mr. Uz. Hassan Fiyaz, Executive which were also affected negatively as companies and monitoring the Director, Maldives Monetary Authority project works and import of vehicles situation. In his opinion the new normal spoke about the economy of Maldives. etc. were halted. The use of technology was likely to continue. He said that the Maldives was very had also increased but there was a Covid-19 Experiences from concern about cyber security. Bhutan Mr. Pradip Sarkar, Principal, Ms. Yeshey Lhamo, Development College of Insurance (COI), Kolkata Officer/ Assistant Manager, Financial concluded the Virtual Round Table Institutions Training Institute (FITI), by summarizing the takeaways. He Bhutan sent her views as a written note as the communication networks were not optimal.

She conveyed that on the first detection of a Covid-19 positive case, His Majesty small country and the insurance the King initiated a host of measures industry was also very small, with a for the benefit of the citizens of Bhutan. premium of around 60-million-dollars. Restrictions on gatherings were There were only 5 insurance companies imposed, schools were closed, ‘work including one composite insurance from home’ implemented, payments company. Maldives has a tourism made through electronic modes, loan appreciated the speakers for sharing based economy and the Covid-19 the varied experiences and situations pandemic had affected the tourism of Covid-19 in their countries and industry badly. More than health of the impact of the pandemic on the people, the pandemic had affected the economy and the insurance industry. economy of Maldives. The Government He summed up the learnings from had imposed lockdown and business this angle. He proposed the vote of was not happening. Covid-19 had thanks to the participants and all others affected Insurance business in the who made the Virtual Round Table country though there were very few successful.

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THE JOURNAL OF INSURANCE INSTITUTE OF INDIA CALL FOR PAPERS

We invite articles/papers for the issues of ‘The October – December 2021 Journal’ of Insurance Institute of India for the Award Winning Articles of Essay Writing year 2021. Competition 2021. April – June 2021 We request you to send your articles/papers to [email protected] on or before the due Any topic on insurance or allied areas. dates. Last Date of submission of papers/articles will be 28th February, 2021. Insurance Institute of India Knowledge Management Center July – September 2021 Plot No. C-46, G Block, Theme for July-September 2021 issue of ‘The Bandra-Kurla Complex, Journal’ is ‘Insurance and ESG [Environmental, Bandra (East), Social and Governance Risks]. Mumbai - 400051. Last Date of submission of papers/articles will www.insuranceinstituteofindia.com be 31st May, 2021

110 October - December 2020

OCTOBER-DECEMBER 2017 111 THE JOURNAL OF INSURANCE INSTITUTE OF INDIA

Guidelines for contributors of the Journal

Note to the contributors: telephone and fax number of the • Reference to a Book: Author. corresponding author must be (Year). Title of book. Location: “The Journal” quarterly publication of clearly indicated. Publisher. Insurance Institute of India, Mumbai. It is published in the month of Jan/ Example: Rogers, C. R. (1961). 4. Abstract: A concise abstract of April/July/Oct every year. “The Journal” On becoming a person. Boston: maximum 150 words is required. covers wide range of issues related to Houghton Mifflin. The abstract should adequately insurance and allied areas. The Journal highlight the key aspects or state • Reference to a Journal welcomes original contributions from the objectives, methodology and publication: Author(s). (Year). both academicians and practitioners the results/major conclusions of Title of the article/paper. Journal in the form of articles. Authors whose analysis. The abstract should include name, volume (issue), page papers are published will be given only text. number(s). honorarium and five copies of the Journal. Example: Smith, L. V. (2000). 5. Keywords: Immediately after Referencing articles in APA Guidelines to the Contributors: the abstract, provide around 3-6 format. APA Format Weekly, keywords or phrases. 34(1), 4-10. 1. Manuscript submitted to the Editor • Reference to a Web Source: must be typed in MS-Word. The 6. Tables and Figures: Diagrams, Author. (Date published if Length of the article should not Tables and Charts cited in the available; n.d.--no date—if not). exceed 5000 words. text must be serially numbered and source of the same should Title of article. Title of website. Retrieved date. From URL. 2. General rules for formatting text: be mentioned clearly wherever necessary. All such tables and Example: Landsberger, J. (n.d.). i. Page size : A4 (8.27” X 11.69”) figures should be titled accurately Citing Websites. In Study Guides ii. Font: Times New Roman - and all titles should be placed on and Strategies. Retrieved May Normal, black the top after the number. Example: 13, 2005, from http://www. Table 1: Growth Rate of Insurance iii. Line spacing: Double studygs.net/citation.htm. Premium in India (1997-2010). iv. Font size: Title - 14, Sub-titles - 8. Usage of abbreviations in the text 12, Body- 11 Normal, Diagrams/ 7. References: all the referred material should be avoided as far as possible Tables/Charts - 11 or 10. (including those from authors own and if used should be appropriately publication) in the text must be expanded. appropriately cited. All references 3. The first page of the Manuscript 9. The papers and articles submitted must be listed in alphabetical order should contain the following must be original work and it and sorted chronologically and information: (i) Title of the paper; should not have been published or must be placed at the end of the (ii) The name(s) and institutional submitted for publication elsewhere. manuscript. The authors are advised affiliation(s) of the Author(s); (iii) The author(s) are required to submit to follow American Psychological email address for correspondence. a declaration to this extent in the Association (APA) style in Other details for correspondence format specified in Appendix 1, while referencing. such as full postal address, submitting their articles.

October - December 2020 111 THE JOURNAL OF INSURANCE INSTITUTE OF INDIA

10. All the submissions would be first evaluated by the editor and then by issue), 28th February (April issue), 13. In case the author has submitted the editorial Committee. Editorial 31st May (July issue) and 31st only the hard copy, an electronic committee may require the author August (October issue). version of the manuscript would to revise the manuscript as per be required once the paper is 12. Please send your manuscripts to the guidelines and policy of the accepted for publication. Journal. The final draft is subject The Editor, to editorial changes to suit the The Journal of Insurance Institute 14. All enquiries related to the journals requirements. Editorial of India, submissions should be addressed Committee also reserves its right Insurance Institute of India only to the Editor. to refer the article for review/ delete Plot no. C-46, G-Block, objectionable content/ edit without Near Videsh Bhavan, 15. Copyright of the published articles changing the main idea/make Bandra-Kurla Complex, and papers would rest with “The language corrections/ not to publish/ Bandra (East), Mumbai-400051 Journal of Insurance Institute of publish with caveats as per its India” and any further reproduction discretion. The Author would be duly Or would require prior and written communicated with such decisions. permission of the Editor. Electronically Mail to with subject line as 11. Contribution(s) should reach the “Contribution for “The Journal” designated email address at III on January/April/July/October (Mention or before 30th November (January Year) issue.

112 October - December 2020 THE JOURNAL OF INSURANCE INSTITUTE OF INDIA

Appendix I

Declaration by the Authors

I/We (Full Name of the Author(s))......

…………………...…….....…....……, hereby declare that I/We are the author(s) of the paper titled

“……...... ………………...………………………………………………………………………..”

(Title of the paper), which is our original work and not the intellectual property of any one else. I/we

further declare that this paper has been submitted only to the Journal of the Insurance Institute of India

and that it has not been previously published nor submitted for publication elsewhere. I/we have duly

acknowledged and referenced all the sources used for this paper. I/we further authorize the editors to

make necessary changes in this paper to make it suitable for publication.

I/we undertake to accept full responsibility for any misstatement regarding ownership of this article.

……………………… ………………………..

(Signature Author I) (Signature author II)

Name: Name:

Date:

Place:

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PROGRAM CALENDAR

In view of the movement restrictions imposed by authorities due to the Covid-19 pendamic, the campus based programs have been put on hold. The College of Insurance has instead started virtual classroom training programs. The readers may check our website for details of the programs.

114 October - December 2020 THE JOURNAL OF INSURANCE INSTITUTE OF INDIA NOTES

October - December 2020 115 NOTES THE JOURNAL OF INSURANCE INSTITUTE OF INDIA

116 October - December 2020 y ar Libr

INSURANCE INSTITUTE OF INDIA ending L nline e-learning O

The emblem of III speaks about “Achievement through application of knowledge”. III as a pioneer educational institute in Insurance Domain is always endeavor to use the latest technology in order to impart, promote systematic insurance education and training as well as spread insurance awareness in our country. e-Learning stands for electronic learning system which allows candidates to learn a particular subject directly from the internet enabled computer on web based platform.

This mode of learning been developed & started by III to enable the candidates to take the advantage of such facility and to get success in the professional examination conducted by III at various centres all over the country. The GROUP CORPORATE modules of e-Learning provides much beyond the course material in terms of web-links, selflearning questions, mock tests, blogs to communicate within the circle of tutors and candidates etc. MEMBERSHIP How to apply? 1. Visit website www.insuranceinstituteofindia.com Insurance Institute of India has introduced a new segment in Online Lending Library named Group Corporate Membership (GCM) especially for corporates. In GCM, various branches/depts. of a Company can enjoy library 2. Go to menu “Study Material” --> “Apply for eLearning”. facility. Corporates can enjoy a rich collection of books on Insurance, Risk, Reinsurance, Liability insurance, 3. Fill the details, select subjects and pay required fees. Finance, Tax, Law, Management & many more.

GCM MEMBERSHIP GCM SERVICES How to use? PARTICULARS PLAN 1 PLAN 2 PLAN 3 After successful completion of online transaction for e-Learning, Candidate will receive the login credentials on More than 8000 books to choose from email address provided at the time of registration to access the e-learning module. The email contains the URL NO. OF BRANCHES/DEPT. 5 10 15 along with user id and password to access the e-Learning program. The e-Learning program is web based, REFUNDABLE SECURITY 100000 200000 300000 DEPOSIT internet connection is required to access the e-Learning module online. Delivery within 48 hours from order ANNUAL FEE 75000 125000 175000 GST 18% GST ON 18% GST ON 18% GST ON Multiple logins for each Company ANNUAL FEE ANNUAL FEE ANNUAL FEE NO. OF LOGIN 5 10 15 Back issues of last 6 months of National/International Journals on Insurance/Finance/Management will be issued NO. OF BOOKS PER LOGIN 5 5 5 ISSUE PERIOD 1 MONTH 1 MONTH 1 MONTH Maximum 20 books in total will be issued to Cos. RENEW PERIOD 1 MONTH 1 MONTH 1 MONTH against GCM

CONTACT DETAILS Library, Knowledge Management Center, Insurance Institute of India, Plot No. C-46, G Block, Bandra-Kurla Complex, Bandra (E), Mumbai – 400 051. Phone: 022-26544290 For queries please mail at [email protected] Email: [email protected] l Website: www.insuranceinstituteo com G-Block, Plot No.C-46, Opp. American Consulate, Bandra Kurla Complex, Mumbai - 400 051.