Wednesday, 8 June 2016

How Stakeholders take advantage of Insurance Companies

Insurance industry in Pakistan is still growing and has got only few major players in the market. In this phase of growth, the chances of negative intentions of stakeholders is a major issue. I am going to point out some common red flags in this write-up to which insurance professionals would easily relate.

It is not difficult to comprehend how billions of money is laundered each year through insurance industry worldwide. After many regulations by state authorities, the incidents still occur very often. More awareness is required to peruse anti-money laundering laws and periodic training must be given to underwriters to combat this financing terrorism.

Insurance companies are considered as a haven during taxation days. Number of applications received during this particular phase increase significantly, especially with high volume of premium. Although, it is a very good strategy to encourage potential customers to get insured but the problem is that an official tax rebate letter is issued to the client on behalf of insurance company at the time of application. The insurance case may linger on for a couple of months and then cancelled by the client. Even if the policy is issued, it can be cancelled by the client within free look period (and full premium is refunded). This kind of deal ends up being most profitable for client alone. It must not be that easy for anyone to cheat tax.

Some people see insurance company as an investment place. This point is very favorable from economic perspective but most of the time, clients surrender policies against cash values as soon as they get good returns. Insurance companies may introduce noticeable and attractive additional-to-existing incentives (not only limited to monetary) for a policy after every few years or so. In this way, sales gimmicks could also be reduced. The longer the insurance contract, the more profitable it would be.

Underwriters would agree that, underwriting do's and don'ts are subject to Sum at Risk. The same case is further submitted for higher Sum at Risk only after a few months of policy issuance. At this point, ignoring essential proposal requirements may result in risking the company to loss.

Transparency in SOPs and opting the best is the need of time to eliminate risk of scams. In my paperless proposal to Jubilee Life (Pakistan) for insurance application, underwriting and policy documents, it was mandatory to submit/upload video evidence of client agreement which is mentioned in Bancassurance Regulations by SECP as well.

There are many ways to overcome this issue in our insurance sector. All we need is implementation and good intentions. If everyone strives for profits keeping their eyes close to the loopholes, no one could be entitled as leaders.