Page 10 - Life Insurance Today January-June 2020

relatively high in a manufacturing organisation. If all and susceptibility of the subject matter insured that decides
organisations irrespective of its nature, develop the outcome.
measurements based on the input factors or common
factors, meaningful inter-sectoral comparison gets We need to establish the linkage of outcome with the peril
facilitated. Current practices may also have to be modified and / or with the nature of subject matter insured. This
to some extent to facilitate such comparison. should improve not only the quality of reporting but also
the quality of rating. It will also significantly upgrade the
For example : while manufacturing organisations, transparency of the industry. The opposition / resistance to
separately present the marketing and sales expenses as part this suggestion can only be due to the difficulty involved in
of their reporting, the same is not the practice in insurance achieving such segmentation. It is challenges of this kind,
industry. Wages paid to the workers in manufacturing which afford opportunities and prove to be the turning
industry are separated from the compensation given to points in the course of creative history. Apart from its value
other employees. But in some sectors including financial in facilitating true and objective assessment of performance,
sector such practice does not exist. its role in comparative analysis by synchronised reporting
needs to be realised. It carries in it the most potent seeds
Thus hampering the process of comparison. May be of product simplification too.
comparable and the corresponding cost of blue collar
equivalent employees of such organisations have to be Acceptable Standards / Bench Marks
segregated. If a comparison has to be facilitated suitable
'Single digit', 'double digit', 'negative' are some of the
modifications have to be adopted. There could be several growth adjectives frequently observed in the reports of
such areas, which only an open mind can identify, where business correspondents of media organisations informing
synchronisation amongst reporting of different sectors is the readers on business growth of insurers. Similarly claims
required and possible.
ratio, expense ratio, profitability, and solvency are other
parameters on which such reports often speak eloquently.
Use and Misuse of Aggregation Very often they are compared with those very performance
No doubt insurance is a business of aggregation. This unique parameters in the previous / previous corresponding period.
business attribute of the insurance sector does not liberate
the sector from the concept of segmental reporting. Comparison with the similar performance parameters of the
Concept of segmental reporting is a financial tool developed peer organisations is another dimension on which they try
by accountants to assess the segmental performance and to report. Concerned Regulator too, at periodic intervals
it is an anti-dote for deficiencies of aggregation. Segmental report such performance parameters. Managements of the
report is part of the annual reporting for the insurers too. organisations do the same reporting, with a difference that
It endows insurers' reports with high level of transparency.
The reporting practice in this regard so far, has been on
product based segments. A better and scientific
segmentation has to be peril based.

It can also be based on the subject matter of insurance -
person, property (-passive at rest, active at rest, passive in
transit, active in transit), liability and income. Often
statistics is compared to a bikini. It conceals the vital.
Similarly current product based segmentation though
provides detailed breakups, it does not bringout the vital
intelligence to guide right decision making. This is a radical
suggestion, but is based on logical and rational thinking. It
is not the insurance product which decides the outcome. It
is the frequency and severity of the peril and / or the nature

Failure is the condiment that gives success its flavor.

10 January - June 2020 Life Insurance Today