The Indian ‘reverse’ select Mortality table
what is a select mortality table?
The textbooks say that the mortality should be a select mortality with 2 to 5 years of selection period normally. This means, the mortality experience is better for 2 to 5 years after issuance of a life insurance policy and start getting worse from then. This is due to the underwriting done at the time of issuing a policy.
The Indian reverse select mortality table
However, in Indian market, it is the opposite with most of the life insurers. The experience is bad in the first few years and start getting better thereafter. This is strange and this is what i call ‘the Indian reverse select mortality table’. Although these numbers are not published, you can get a sense of this if you go to Form L-42 of Public Disclosures of Life Insurers where the mortality assumption for valuation was given. Some insurers disclosed the assumption for year 1 and for subsequent years separately which is a reflection of this experience.
Why is Indian select mortality table is reverse?
This is due to the active anti selection happening at the point of sale. Both distributor and prospective policyholder are aware of this in most of the cases. Since it is easy to sell a policy to this segment, distributor is finding easy to do this. And it is beneficial for the prospective policyholder. And in most of the cases, due to very high attrition of sales force, the distributor is not in the system when it is found out and some kind of punishment is thought about.
What are the reasons?
This poses two questions to us. Why distributor is desperate to sell this segment? and why the attrition of sales force is very high? (4 to 10% per month?). Let me try and answer these two questions based on my experience. The distributor is desperate to sell because he/she is under tremendous pressure to meet high sales targets. And the attrition is high because the salesperson is unable to meet the sales targets most of the times. So, the root cause for this strange experience boils down to unrealistic sales targets in pursuit of topline.
However, sales targets are always a bit aggressive, especially in life insurance. So, what is wrong with that? The issue is, they are more aggressive than what they should be. And, the sales force is not equipped with the matching training and handholding to achieve these aggressive sales targets. Hence, they are resorting to easy methods of selling to not so healthy lives to meet targets. Few people are doing this with fraudulent intention also. They are making easy money and getting out of the system when they sense any possibility of punishment.
What can be done to handle this issue?
- Quality recruitment and training of the sales force
- Aggressive sales targets to be given only progressively, i.e. very low and reasonable targets in the first year of recruitment and gradually making them aggressive over the period
- but the most important one is Active underwriting. i.e.
- Do some analytics to identify these trends
- based on the analytics, identify suspicious cases and do further scrutiny before issuance. This includes talking to customers, meeting them if required, talking to sales managers and branch managers, asking for more medical tests depending on the sum assured and seriousness of suspicion etc.