Economy
Morgan Stanley continues to prefer Chinese, Russian markets to Indian and Brazilian
China and Russia are among large emerging countries that look cheap on valuation, good ROE, and uncrowded fund flow says Morgan Stanley 
 
Morgan Stanley Research said it prefers China and Russia among large emerging markets (EM) on the back of their cheap valuation, good return on equity (RoE), and uncrowded fund flow. Also, fundamentally, its recent report shows that China and Russia are among the countries with the least exposure to the risk of an EM ‘sudden stop’ scenario. Their lower usage of external financing and relatively strong sovereign balance sheets would protect them better than other EM countries.
 
In the report, Brazil, Mexico and South Africa are shown as the most exposed countries to the ‘sudden stop’ risk in the same analysis.  Recently, Morgan Stanley is also concerned about India, which is currently facing the combined fundamental challenges from its slowing growth, stubborn inflation and lack of structural reform.
 
The report further ranks the countries and the markets as follows:
 
Morgan Stanley report forecasts a negative picture of Indian economy and consequently the equity markets. “In the current environment, achieving the Indian government’s budget target of fiscal deficit at 4.8% of GDP seems difficult. To pursue fiscal consolidation, the government will need to reduce expenditure spending meaningfully,” it said. 
“The government will be forced to cut its expenditure growth in a pro-cyclical manner, which will lead to further deterioration in the growth outlook,” the report said.
 
 

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Low domestic demand but retail inflation high in India says Nomura
Domestic demand remains extremely weak with continued contraction in capital goods and consumer durables output growth, but still retail inflation is high, points out Nomura 
 
There is a bad growth-inflation mix in the Indian economy in the current period, points out Nomura Financial Advisory. Industrial production (IP) contracted by 2.2% year-on-year (y-o-y) in June, below expectations, following a 2.8% contraction in May, led by declines in consumer non-durables and capital goods output growth. However, CPI inflation moderated to only 9.6% y-o-y in July from 9.9% in June. Food inflation moderated slightly due to lower cereal and pulses prices, while core CPI inflation inched higher due to a rise in service price inflation. 
 
This means that while domestic demand remains extremely weak with continued contraction in capital goods and consumer durables output growth, it is not being reflected in lower inflation. 
 
Nomura expects weak growth and high CPI inflation to persist for a little longer, before CPI starts to moderate to below 9%. Nomura’s FY14 GDP forecast is 5.0% y-o-y, the same as FY13, and average CPI inflation 9% y-o-y (10.2% in FY13).
 
CPI inflation moderated to 9.6% y-o-y in July from 9.9% in June. Food inflation moderated to 11.1% y-o-y in July from 11.8% in June due to a moderation in cereal and pulses prices. Core CPI inflation, however, inched upwards to 8.1% y-o-y in July, in line with expectations, led by greater momentum in the price of services such as recreation and amusement, and transport and communication (effect of fuel price hikes). Nomura forecasts in its report, “Looking ahead, there are no signs of a growth revival and we expect domestic demand to remain weak. CPI inflation should remain above 9% in 2013, but we expect a gradual moderation in 2014 as weak demand partly offsets high food inflation caused by supply-side constraints.”
 
The Nomura report concludes by saying that it remains negative on India’s economic outlook this fiscal year as it expects balance of payment pressures to continue, tighter financial conditions, weak growth and political/ fiscal risks ahead of elections.
 

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Life insurers and agents hide the truth: Harvard study

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.

 

Also Read: LIC agents likely to recommend less suitable product: Harvard Study

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COMMENTS

Gopalakrishnan T V

4 years ago

Insurance in India has lost its credibility with the invasion of private insurance Companies started by multi national companies in collaboration with some Indian entities. Some how trap the people whether they are educated , gullible,ignorant or innocent by making them to take some policies is the philosophy pursued by the Insurance business. Most of the agents are obliged because of their own pathetic family and financial conditions and once trapped and parted with the money these agents are never to be seen again or not available for any follow up. By chance if one is lucky to contact the Insurance Office, the chances are that one may get BP or heart attack depending on the amount one has parted with. Either the policy is not explained fully or has been explained with all attractions which are seldom there. Since many a middle cl;ass people have fortunately the affordability to lose the money Insurance Companies and agents are only exploiting this sentiment which is though a sign of prosperity indirectly it encourages fraud and cheating in the society. Many have not the patience to report their follies and how they have been taken for a nice ride. What is the role OF IRDA and how they protect the investing public is a mystery even among the most literate and educated people is a fact which perhaps Money Life can explore and come to the rescue of the innocent investing public.

Venkat Aiyer

4 years ago

Like other comments on the article, we certainly do not need a Harvard study to know these facts. Even the regulator (IRDA) must be aware of these so called findings. HOW MANY TERM POLICIES vis-a-vis OTHER WHOLELIFE OR ENDOWMENT OR ULIPS BEEN SOLD BY BANKS. ANY STATISTICS AVAILABLE? The main culprits for mis-selling are Sales Managers of insurers, and the banks ( who are now allowed to become brokers whereby they can sell insurance companies of more number of insurers)who are known to push products with more commissions. Also, it is a well known fact that banks are offered double or three times more commission then an agent for the same products of some insurers.

Himansu S M

4 years ago

This was my opinion since 2003 when I became a Life Insurance agent myself. During the process I couldn't succeed because soon I discovered that if you tell the truth you are likely to loose customers. But the trick is how to tell lies with a style that will attract the customer. Some people like me get caught while telling a slight untruth or half truth, because our facial expression & gestures will tell otherwise.
There is a great saying - if you tell the truth you have to prove it so that others will believe. But if you tell a lie with confidents nobody will demand any explanation or proof. Also if you go thro' the terms & conditions of a policy, it is likely that you will never buy a policy.
Today, it applies to almost every other trade - tell the truth & loose customers; tell lies with tactics, win customers. So all combination of lies, untruths, halftruths, statistics, hypes, persuation, influence, incentives are judiciously mixed by the so called successful LI Advisors to win customers.
There is a fundamental flaw in the concept of Insurance as an Investment. Insurance is NEVER an investment it a partial support for any unforeseen eventuality.
Banks have more infrastuctureal arrangements to build confidence in customers, so more customers go to them & get duped. Informed & knowledgeable people know that Bankers don't necessarily know better or more than individual Advisors. But they definitely have better tools & infrastucture to influence the investors.
Thus it can be generalised that in any business whoever tricks the customers nicely without their being aware of it, wins them.
Lastly let me say that, for this subject we never need a "Havard" study. Because what they found now I did in way back in 2003. Thanks!

REPLY

nagesh kini

In Reply to Himansu S M 4 years ago

Himansu - you're bang on.
Most agents simply don't know the basics of both life and health policies and consequently cannot come to the rescue of the insured in the event of lodging claims either on maturity or illness.
Insurance is no great investment in terms of returns. It merely offers a fig leaf for protection a form of self satisfaction till you have to lodge a claim when all hell breaks out and the agent is unreachable when most needed!

raj

In Reply to Himansu S M 4 years ago

You made an honest confession. Thanks for your feedback.

Himansu S M

4 years ago

This was my opinion since 2003 when I became a Life Insurance agent myself. During the process I couldn't succeed because soon I discovered that if you tell the truth you are likely to loose customers. But the trick is how to tell lies with a style that will attract the customer. Some people like me get caught while telling a slight untruth or half truth, because our facial expression & gestures will tell otherwise.
There is a great saying - if you tell the truth you have to prove it so that others will believe. But if you tell a lie with confidents nobody will demand any explanation or proof. Also if you go thro' the terms & conditions of a policy you will never buy a policy.
Today, it applies to almost every other trade - tell the truth & loose customers; tell lies with tactics, win customers. So all combination of lies, untruths, halftruths, statistics, hypes, persuation, influence, incentives are judiciously mixed by the so called successful LI Advisors to win customers.
There is a fundamental flaw in the concept of Insurance as an Investment. Insurance is NEVER an investment it a partial support for any unforeseen eventuality.
Banks have more infrastuctureal arrangements to build confidence in customers, so more customers go to them & duped. Informed & knowledgeable people know that Bankers don't necessarily know better or more than individuals. But they definitely have better tools & infrastucture to influence investors.
Thus it can be generalised that in any business whoever tricks the customers nicely without their being aware of it, wins them.
Lastly let me say that, for this subject we never need a "Havard" study. Because what they found now I did in 2003. Thanks

Sanjay M Shah

4 years ago

FIRST OF ALL WHO HAS TOLD H UNI. TO CARRY OUT SURVEY ON INDIAN LIFE INSU. COS & PRODUCT.FIRST THEY SHOULD STUDY THEIR COUNTRIES INSU. COS & BANKS BECAUSE AS PER REPORTS IN FOREIGN COUNTRIES EACH MOTH ONE INSU. CO. & BANK BECOMES BANKRUPT, THEY SHOULD DO RESEARCH ON THAT. POLICY HOLDER IS NOW SMART & MORE EDUCATED,HE CAN GATHER INFO THOUGH WEB SITE ALSO. MIS SELLING IS MAIN PROBLEM, BANKS ARE TO BE BANNED TO SELL INSU. & OTHER PRODUCTS BECAUSE THERE IS MIS SELLING IS MORE. THEY ARE DOING WHITE CALLER BLACK MAILING BUSINESS.

REPLY

DNRAO

In Reply to Sanjay M Shah 4 years ago

I fully agree with Sri Sanjay M Shah, Harvard University survey is not needed to us. The survey is needed in their country because cities like Detroit became bankrupt. USA & UK economy has doomed because of External and Internal Debt. Harvard University may give survey reports to these governments for improving in financial strength.

DNRAO

In Reply to DNRAO 4 years ago

For survival these USA & UK Companies has choosen our country as a market. We donot need them. Their education, culture and economy may bring them to loose themselves and they are at the mercy of our country.

shashi kant

4 years ago

Though I agree that Insurance policies are missold to prospects, but only Agents are misspelling seems ambitious statement or probably researchers have not called insurance companies Prosing as prospect customer.
Insurance company also Incentivise there priority sales force to sell more profitable plans. Misselling is apparent in all spears of Indian insurance market which is a mater of great concern. I feels with agent problem is less serious because Individual agent normally advise policy in his or her natural market though they also advise in open market.

nagesh kini

4 years ago

Today there are more part time agents with wives fronting for husbands. Most simply don't know the nitty-gritties of life or general insurance. They only push high commission products are never around to assist in lodging and recovering the claim amounts whether or maturity or illnesses. They conveniently hide more than they disclose. The Harvard study on reaffirms this.

nagesh kini

4 years ago

Today there are more part time agents with wives fronting for husbands. Most simply don't know the nitty-gritties of life or general insurance. They only push high commission products are never around to assist in lodging and recovering the claim amounts whether or maturity or illnesses. They conveniently hide more than they disclose. The Harvard study on reaffirms this.

Tejas shah

4 years ago

Strongly condemn this article. You cannot generalize that term Life ins + bank savings are a better bet.

Nor can you say that Life Insurers and Agents hide the truth, Your words have to be "MOST LIFE INSURERS & MOST AGENTS" ... Its time the author understands that he/she cannot generalize the whole category.

Should everyone in India Buy a term plan and invest the balance in FD/MF/Equity ?

YOU are sure this will outperform all investments ?

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