A Harvard Business School study on Indian life insurance market suggests that hiding information may be an important part of life insurance agents' sales strategy, which is actively encouraged by insurers
A Harvard Business School study found a range of wildly incorrect statements made by agents on term plans, such as: “You want term: Are you planning to killing yourself?”, “Term insurance is not for women”, “Term insurance is for government employees only.” One agent even proposed a policy that he described as term insurance, which was, in fact, a whole life plan.
The study titled “Understanding the Advice of Commissions-Motivated Agents: Evidence from the Indian Life Insurance Market” by Santosh Anagol, Shawn Cole and Shayak Sarkar, portrays life insurance companies and their agents working in tandem to keep the consumer away from the right insurance product – term plan – by such deliberately misleading statements. The researchers sent trained auditors into the field posing as customers seeking insurance and then analyzed the advice they received. The auditors’ meetings with agents revolved around life insurance, specifically two types of policies: term and whole life.
In another experiment, the study found that requiring disclosure of commissions on one particular product led to that product being recommended less. This result is interesting since it suggests that hiding information may be an important part of life insurance agents' sales strategy and that the disclosure requirements can change the optimal strategy of agents. In this case, the disclosure requirement on one product pushes agents to recommend more opaque products. The results suggest that the disclosure requirements for financial products need to be consistent across the menu of substitutable products.
According to the study, “Life insurance companies may not have an incentive to educate consumers about how term life plus savings is better than whole life insurance as it may cause consumers to save with banks as compared to saving with life insurance firms. This loss in savings business for life insurers may outweigh the benefits of higher term life insurance sales.”
The study says, “If there is a true demand for investment-linked products, it is surprising that an insurance company has not won a substantial amount of business by offering a better whole life insurance product (i.e. by paying compounded bonuses, charging lower premiums, or both). One explanation for this scenario may be the presence of stiff competition for targeting the same market, irrespective of the quality of the product. In this case, the products that have the highest sales incentives will sell and any particular insurance firm will have an incentive to pay the highest commissions on the highest profit products.”
The findings of the study are consistent with anecdotal evidence from discussions with their auditing team: agents typically start the life insurance conversation by estimating how much the individual can afford to put into life insurance per month, rather than determining how much risk coverage the customer needs.
The study concludes that whole life insurance is economically inferior to a combination of investing in savings accounts and purchasing term insurance. Despite the large economic losses associated with investing in whole insurance, the study finds that life insurance agents overwhelmingly encourage the purchase of whole life insurance.
Approximately 20% of household savings in India have invested in whole life insurance plans according to IRDA. Agents’ behaviour is extremely important in this market, as approximately 90% of insurance purchasers buy through agents.
MCX and FT have financial obligation claim the brokers and threaten to move court if Forward Markets Commission does not guarantee payment
Following the payment crisis in the National Spot Exchange Ltd (NSEL), brokers of the exchange have united and demanded the government should take over the spot exchange. They insist that the commodity exchange has the financial obligation on payments. They have also threatened that they will move court if FMC (Forward Market Commission) cannot give guarantee on repayment. Nirmal Jain (chairman, India Infoline) said that not one rupee has been received in the last 12 days. NSEL can pay only Rs500 crore out of Rs5,500 crore, which means a big hit for brokers, investors and farmers of Rs5,000 crore.
Commodity Participants Association of India along with Association of National Exchanges Members of India and BSE Brokers Forum said some clients have expressed concern on quantity and quality of commodities lying in warehouses controlled by National Spot Exchange. The organisations have formed a joint forum. It is NSEL’s responsibility to verify stocks.
The Investors’ Grievances Forum (IGF, headed by Kirit Somaiya) has filed a complaint with the economic offences wing of the Mumbai Police against embattled National Spot Exchange Ltd. Somaiya asked the police to register a first information report (FIR) that accuses NSEL of cheating, fraud, forgery with the victims being 17,000 small farmers/investors.
Brokers have even demanded that the government should take over Financial Technologies (FT) as well until the NSEL mess is cleaned up, as the promoters are the same.
The Nifty may rise higher as long as it manages to keep itself above 5,635
The weak industrial production data for June 2013 made the indices to open lower. At the beginning of the session both Sensex and Nifty indices hit their lows for the day but soon managed to gain strength and moved higher. It continued to rise throughout the day. At the end of the session, both the benchmarks hit a five day high (including today).
Sensex opened at 18,895 and after hitting a low of 18,865, progressed upward to touch a intra-day high of 19,248 and closed in the positive at 19,230 (up 283 points or 1.49%). Nifty-50 opened at 5,600 and reached 5,705 after hitting a low of 5,579 and closed in the positive at 5,699 (up 87 points or 1.55%). Both the benchmarks made the highest percentage closing gain since 11 Jul 2013. The National Stock Exchange (NSE) recorded a volume of 65.37 crore shares, higher than yesterday.
All the major indices on the NSE except for India VIX (fell 9.49%) closed in the positive. Nifty Dividend was the top gainer, up 5.80%.
Among the other indices, Realty (rose 5.04%); Finance (rose 2.87%); Bank Nifty (rose 2.82%); Service (rose 2.49%) and Media (rose 2.31%) were the top five gainers. The lone loser was Metal (fell 0.12%).
Of the 50 stocks on the Nifty, 42 ended in the green. The major gainers were DLF (up 9.34%); Ranbaxy (up 8.86%); Axis Bank (up 7.77%); Jaiprakash Associates (up 5.25%) and IDFC (up 4.48%). The main losers were Hindalco (down 3.24%); Coal India (down 2.15%); Ambuja Cements (down 1.99%); Cairn (down 1.08%) and ONGC (down 0.95%).
Industrial production registered a contraction of 2.2% in June 2013, data released by the government on Monday showed. Mining production registered a decline of 4.1% and manufacturing production fell 2.2%. Electricity generation remained stagnant in June 2013. As per use-based classification, production of basic goods declined 1.9% in June 2013. Capital goods production fell 6.6%. Production of intermediate goods rose 1.1%. Consumer goods production declined 2.3%. Production of consumer durables declined 10.5%. Production of consumer non-durables rose 5%.
On a cumulative basis, industrial production registered a contraction of 1.1% during April-June 2013.
Inflation based on the consumer price index (CPI) eased in July 2013, data released by the government showed. The combined consumer price index (CPI) for urban and rural India eased to 9.64% in July 2013, from 9.87% in June 2013. The data showed that inflation under the category ‘food and beverages' stood at 11.24% in July 2013.
Reserve Bank of India (RBI) governor D Subbarao said that "perhaps" there was a need to reduce the reserves. Banks have to set aside via the cash reserve or the statutory liquidity ratios (SLR).
Curbs are planned on imports of gold, silver and some non-essential items, while rules governing overseas commercial borrowings and certain deposit programs for non-residents will be eased, finance minister P Chidambaram said yesterday.
The duties on gold and platinum imports were increased to 10% from 8%, while the levy on silver was boosted to 10% from 6%, the Ministry of Finance said in a notification tabled in parliament today. Taxes on shipments of gold and silver ores and dore bars have also been increased, it said, without specifying the rates.
US indices closed flat on Monday. The US ran a budget deficit in July, although government revenues increased from a year earlier due to tax hikes and a strengthening economy, a report from the Treasury showed on Monday. The US government spent $98 billion more than it took in last month, with the deficit driven by spending on healthcare programs, pensions for the elderly and the military.
All the Asian indices closed in the positive. Nikkei 225 was the top gainer, up 2.57%. Japan prime minister Shinzo Abe is considering a corporate tax cut as a way to offset the impact of a planned two-stage increase in the sales tax.
European indices were trading in the green and the US Futures were also trading in the positive. The German ZEW investor sentiment index showed economic conditions improved in August from July. Market awaits latest report on German business confidence and US retail sales later in the day.
Bosch, a supplier of automotive components to original equipment manufacturers (OEMs), is set to launch ABS (anti-lock braking system) for two-wheelers and three-wheelers early next year through OEMs in Indian market. According to the company, the new product is under the test stage and will be commercially launched early next year. ABS for two-wheelers and three-wheelers will be manufactured at Bosch’s unit in Chakan in Maharashtra and supplied to OEMs. The stock rose 1.60% to close at Rs8645 on the NSE.