Category Archives: General Insurance

Bundling & Unbundling or bungling?

Why does a company try to hard-sell a product?

It’s simple logic that the company is trying to maximize it’s (in turn it’s agent’s) profits by selling a product which brings in high profit.  In a business environment, this logic is never going to change.  And if we extend this logic further, the product which brings in the higher profit need not necessarily be a good product for the buyer.  In the same way, just because a product is highly profitable, it need not necessarily be a bad product for the buyer.  The entire reasoning of good or bad is quite relative.

For example, all things being same, a combination of term insurance and any other asset classes (a process of unbundling the need of insurance and investment) would be a good fit for a young healthy person. Cost of insurance is low and he will have the flexibility to choose that asset(s) which suits his needs most.

Now look at another situation wherein term insurance is not available to a particular person for whatever reason but he still needs insurance.  In this scenario, he has to look at that option which provides him insurance cover and he may have limited option of choosing the asset class for investments and may have to bundle part of his investment with insurance.

Now, how does a financial planner handle such a situation?

It’s quite simple.  He analyses a client’s unique needs and recommends suitable strategy/products.  That is because he has the option to choose the way he is remunerated ie., either fee for advise or commission or a combination of both.  In any case, the product selection is at the end and not at the beginning of financial planning process.

A product vendor is handicapped in this situation either because of inadequate knowledge base (about his own products and the ability to analyse the needs of his/her clients) or because of the way he is remunerated or a combination of both.

World over criticism against life insurance is that it’s often mis-sold to gullible people.  First page of Google search for the word “mis-sell” generates 4 entries (out of 10) about mis-selling life insurance!  That’s 40%!! (and rest of entries are about someone having  the word “missell” in his/her name!!)

While on this topic, do you ever wonder why only life insurance companies sell products with investments and not general insurance companies?  It’s easy to brush this situation aside by arguing that general insurance products are up for annual renewal.  In which case why single premium life insurance (investment) products are available in the market? And why some companies pride themselves in selling such policies in very high number?