Life insurance should be “bought” and not “sold”: Insurance Ombudsman
05 Oct 2015 - {{hitsCtrl.values.hits}}
Sri Lankan society is yet to learn about the benefits of life insurance, says Insurance Ombudsman, Dr Wickrema Weerasooria. “It should be ‘bought’ and not ‘sold’, as it happens now”, he insists.
Due to lack of awareness, the penetration level of insurance is very low, he points out. According to him, most employed people are not fully aware of the importance and value of life insurance.
Commenting on the attitude of Sri Lankans in matters like insurance, he says that Sri Lankans need “wake-up” calls. This is because most employed people are not fully aware of the importance and value of life insurance.
He believes that the importance of life insurance should be known to all employed citizens and should be freely accessible and taken.
Commending on September being declared Life Insurance Awareness Month, he opined that awareness on a subject like insurance should be a continuing process without being restricted to a limited period. He stressed on the need to teach Insurance as a subject from GCE O level onwards and in universities.
Discussing the present status of insurance in Sri Lanka, Dr. Weerasooria provided answers to a series of questions.
What are your views on September being declared the Life Insurance Awareness Month?
It is a very important decision for the industry and the general public. However, I wish to emphasize that awareness about a subject like life insurance cannot be done in a month. It must be a continuing process.
I will tell you why shortly. But before that I must congratulate the insurance industry, the Insurance Association of Sri Lanka (IASL) for taking this initiative. As the Presidential Advisor on Banking, Finance and Insurance, I must also congratulate the Insurance Board of Sri Lanka for supporting this awareness campaign of the insurance industry.
If the importance of life insurance is known to all our employed citizens and if life insurance is freely accessible and taken, then even the regulator like the Insurance Board of Sri Lanka (IBSL) will have an easier role to play. If the life insurance market is full of activity then it is a win-win situation for all, the insurers, the policy holders and the regulator.
Also, what is intended is to create awareness about the subject. Although the target is life insurance, the target is not different types of life insurance policies offered by one company against another.
It is the general awareness of life insurance that is the object of this awareness campaign not the quality or effectiveness of one life policy against another. Because of this all the insurance companies, in fact, the entire industry, can join together. This togetherness of the industry which otherwise is very competitive is another significant and ‘feel good’ factor that comes out of these awareness campaigns. The “marketing people” in each company forget their individual differences and get together promoting a common product.
Do Sri Lankans know enough about life insurance? Why is the penetration of life insurance level so low?
Admittedly, like in many other Asian countries, the penetration level of life insurance in Sri Lanka is very low. Lower than in India. Few employed people in Sri Lanka take life insurance and most employed people are not fully aware of the importance and value of life insurance.
Sri Lankan society is yet to learn about the benefits of life insurance. Really speaking, most life policies are policies payable on death. However, one cannot market a policy by talking of death. If policies are called a “Death policy” people will be embarrassed and the insurance company will find it difficult to market it.
If one reads a text on the origins of life insurance, this problem about what to call or label life policies did arise. As Lord Buddha said one thing that is certain in life is death. Now yet this event is covered by insurers by the term life policy, and this type of marketing has been successful. The insurer does not say that death is insured and they will cover to prevent a death. What they say is that they will pay something if and when death occurs.
Another significant feature is that life insurance is an exception to the normal types of general insurance. As an illustration, motor and fire insurance (which is general insurance) is called indemnity insurance. The insured is compensated for his loss and not really the value of the item/object insured. For example if your motor car which is insured for Rs. 10 million is completely damaged (a total loss) the insurance company will pay you the market value of the car at the time of the accident and not the amount for which you insured the car, which can be a little more. Insurance is not like winning a lottery. You are only indemnified for the loss and you cannot profit by the loss.
But in life insurance the principle of indemnity does not arise. This is because one cannot value or put a market value on one’s life! Hence, the insurer has to pay the amount insured. Life insurance is also called contingency insurance. Death is certain but as to when it will happen is uncertain (contingent on an event).
Also many people who take life policies do not go to the insurer’s office or branch and discuss the details of the life cover. You must clearly find out the type of illness, ailment or medical treatment you are to be covered and what you are not covered. For example, most insurance companies give cover even for many “critical illnesses” but not all “critical illnesses”. You must find out what critical illness you are not covered. Some people do not even obtain a copy of their life policy and some do not even read it until there is a claim. So there must be a greater understanding and awareness of these matters also.
What can be done to make more Sri Lankans go for life insurance?
The well-known saying is ‘you can take a horse to water but you cannot make it drink’. Obviously, you cannot make life insurance compulsory. Then the state will have to pay the premium as well. There is also the issue of filling up the proposal form with answers to one’s health. So life insurance will remain a voluntary option as in all countries.
The state can, however, provide accidental death cover. A good example is Australia. There if a person is injured or dies as a result of an accident, motor, rail or tram, etc., a State Compensation Tribunal is there to help. We don’t have that system in Sri Lanka.
As an aside, awareness of motor insurance became obvious because of compulsory third (3rd) party motor policies. Without at least a “3rd Party Cover” you cannot put a vehicle on the road. The Police will charge you if you do so and the courts will punish you. As a result almost everyone knows about the need for motor insurance. Also because most new vehicles are leased or financed, we have comprehensive or full motor cover. The finance or leasing company is the “Absolute owner”. So they take full cover to protect their asset. But, the insured (the hirer or user) has to pay the premium. There is no option.
But unlike motor insurance there is no such compulsion in life insurance. It is a well-known saying that life policies are sold and not bought. It is very rarely that people go to insurance companies asking for life cover. What happens is that insurance agents market and sell life policies.
Insurance agents, whether they are called advisors or wealth planners, do an excellent job. We have over 35,000 such agents now and nearly ninety percent of all life polices are “sold” by them. Some of these agents are quite well off. They do not talk about their success. They are silent doers! Every year the insurance industry has a seminar to felicitate and honour them. By way of comparison, in banking there are no such agents to encourage or persuade people to borrow. One has to go directly to the bank.
One main exception I can think of is when you take a large loan from a bank or other financial institution. Then that bank (the creditor) will naturally insist that you (the debtor) take a life policy for the amount of the loan. This is because if the customer (debtor) dies while the loan is unpaid, the creditor (bank) can claim the unpaid amount from the insurer of the life policy. The life premium is, of course, paid by the debtor. The bank adds it to the loan amount.
What more can be done in this area of creating the need for life insurance?
I have now been the Insurance Ombudsman for over ten years from 2005. I can well remember the tsunami that hit our island in December 2004. Although it devastated only the coastal areas, the tsunami was a “wake up” call for the need for insurance. Many persons who were affected had no insurance.
Fortunately, the insurance industry and the re-insurers took a humanitarian view and settled many claims on an “ex-gratia” basis. Nearly 30,000 people died and there was also vast property damage. But many have forgotten about the tsunami and about the need for insurance. I regret that in matters like insurance, Sri Lankans need “wake-up” calls.
When your vehicle meets with an accident, the first question that one asks is are you insured, especially if you have injured a pedestrian. But this same question is not asked if you physically injure yourself or fall ill. Nor is the question asked of your wife and family members if you suddenly fall ill and die. It is embarrassing to ask whether you have life cover if the breadwinner in the house suddenly dies. Our people do not think of the importance of insurance. What we must emphasize in these awareness campaigns is that life insurance is not a luxury. It is a necessity.
Business people must think of their wife and children and their future and must seek out insurance. This is the value of these awareness programmes. But doing an awareness campaign one month of the year will not do. There must be a conscious effort and campaigns by the insurance industry and the state regulator (IBSL) towards this end. There must be continuous and constant Media coverage.
We must have articles on the subject in all media and radio and T.V. coverage. Saying that this type of advertising is expensive is not the answer. The life insurance “cake” is too small. Of the 29 insurance companies about 15 engage in life insurance.
The “cake” must be made bigger. Otherwise, there won’t be enough cake to cut and go round. Motor insurance can look after itself because of compulsory cover. Life insurance is the challenge. Challenges are opportunities to overcome.
The insurance industry must start with the schools. Even at Ordinary Level main aspects of insurance can be introduced into the “Commerce” syllabus. Also we can target the Advanced Level courses and the students. More universities should be encouraged to teach insurance as a subject and even start courses on insurance. The Insurance Institute also has a big role to play in creating awareness about insurance and life insurance.
As a practical person I concede that many working Sri Lankans do not have the income or the savings to pay for life insurance policy premiums. They have other commitments such as cost of living and the education of their children. But insurance companies must “market” life insurance to business people, especially in the rural areas, who have never thought of life cover for themselves and their families.
A recent survey of how household incomes are spent was shown to me. It showed that a concern for insurance and the payment of insurance premium had very low priority. The number one priority was the money reserved or kept to pay for the re-load on one’s mobile or for the re-load on the mobiles of family members. We have twenty million mobiles today and most of them are on the re-load system.
What are the main issues in settling/paying life polices?
Life and hospital/medical cover is now tied up. The majority of claims are paid. The ones unpaid or rejected and those that come before me for inquiry as the Ombudsman are mainly due to not disclosing the truth about one’s health condition in the proposal form.
Insurance is unlike any other commercial contract. Insurance is based on “Utmost good faith”. There is a special Latin term for this, but let’s ignore the Latin! Many people don’t give the true/correct answer to the questions or they say we only signed and it was the Agent who filled up the form.
But sadly that type of answer will not do. If you sign a document you are responsible for what is stated even if the agent filled it up. So if you had diabetes and said “no” in the proposal form and later the insurance company gets to know from your hospital bed-head ticket, then they are entitled to say “you lied”. Hence, we are not paying. So if you are seeking life cover, please disclose the truth in the proposal form.
To conclude this interview, I must emphasize that insurance is public money. Many policy holders are under the impression that the funds of an insurance company consist of monies of the shareholders of that company. This is not correct. The bulk of the capital comes from public deposits.
To explain, if one hundred people take out motor insurance policies only about ten percent of those hundred people will meet with accidents and make claims every year. The policy money of the balance plus the affected ten percent are invested by insurance companies and it is that money plus the interest on it that forms the bulk of an insurance company’s capital. This is just an illustration. Any study of the annual report of an insurance company will clearly show that insurance money is public money. So to make a false or untrue claim is a fraud on the public.
In taking a life policy, is there a need you go through an agent or broker?
You need not go through an agent or broker to obtain a life policy but as the Insurance Ombudsman I certainly advise people to use Brokers and Agents not only for life cover but for all their insurance needs.
This is because the brokers or agents fees or commissions are paid by the insurance company and is not a cost to the policy holder. Also, you get the assistance and advice of the broker or agent.
Also the Insurance Industry Act regulates brokers and agents and the Insurance Board supervises them. However, this subject is too large to discuss in an interview on an awareness programme and must be dealt with separately and more specifically.
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