Life insurance companies and their return maximisation

When is one in need of money more? Dead or alive? If one needs money when dead, then surely it should be called death insurance as is the fire insurance offered by general insurance companies. But it is not called death insurance, rather it is life insurance. It offers benefits that support the policy holder's dependants also.
Still customers compare this with the benefits offered by other financial institutions. They compare the return gained from a policy to a return gained from any fixed deposit or investment in a bank's product. They think the benefits from an insurance policy very insignificant. Finally they surrender, when they come to know about the full benefits of an insurance policy. If we think customers should understand the fact in its totality despite mot explaining the whole risk issues properly to them, then it is like treating the uneducated people like educated ones and that is a very wrong approach.
Here a question may arise as to why insurance companies offer minimum return. Actuaries design a product based on the minimum rate of return earned in last 10 years. For example, if one sees a financial institution is giving 10 per cent return while an insurance policy fetches only 4.5 per cent on an average per year, then there is a big gap. It could be eliminated mainly in two ways:
1. By increasing income from investment of life funds: In Bangladesh most of the life insurance companies are having no fund management team for investments in most cases. So it is obvious that they will not get a diversified portfolio and they will earn below-the-average return. Most of the life insurance companies invest in fixed deposit, real estate, stock market and corporate bonds in some cases. But when there is no well-diversified portfolio designed by investment specialists and when investment is made without proper research and analysis, in future one may find that the fixed deposit income is going down due to lower interest rates and the real estate value may fall due to a possible recession in the real estate market. Finally one will see the rate of return from investments is far lower. So the company lags far behind in offering the customers value as well as good dividend to the shareholders.
2. Value added services: Another way of creating value is letting the clients realise death risks more efficiently and introducing some value-added services, when one cannot actually provide them good return. Offers like complimentary health check-up or discount on diagnostic centres' bills can be made to the policy holders who pay regular premiums.
There is also a myopic focus on product development and marketing. There is a lack of focus, when a life insurance or micro insurance product is developed. At this stage the focus should be on the discount rate, the marketing strategy and so. When companies do analysis on customers and conduct surveys these days to stay in competition, life insurance companies lack any classified analysis. So it is s time to focus on aspects of customers like the new customer base, old customers and their comparative figures.
In Bangladesh we lack performance management systems. We also should try to delve deep into internal business issues such as how much time we are taking to settle a claim, the percentage of  clients served within that time, the percentage of unsuccessful negotiation and the percentage of customers who pay premium in time, their comparative figures etc.
If an organisation believes in innovation, then it is obvious that it will see progress and it will function smoothly amid customer satisfaction. It is now time to focus on effective training, how much gain made from a new business as it proves the effectiveness of training and development, investment in information technology (IT) and efficient transaction systems that can lower the transaction cost and help get access to all necessary information from a data base.
Last but not least, we have shareholders who are usually getting approximately 10 per cent of the life fund surplus. It should be increased, because when you have more interest, you remain more focussed on a better corporate management. It is also necessary to have a stronger capital base at this moment, because most of the companies are facing a lot of claims to be settled and liquidity issues which may create a disruption in the planned investment of life funds. Life insurance companies should be given a scope to raise more funds, because at the end of the day they have to settle the claims and availability of funds can decrease on the risk of default. If one thinks one will do good business, then one can initiate negotiations with the authorities on good issues. Why should one always wait for others? Let's pinpoint and analyze the problems, find out ways to improvement and establish control.
The writer is Senior Vice President of Sharbojonin Bima, Fareast Islami Life Insurance Company Limited.                   asifaziz2k2@hotmail.com