Page 8 - Life Insurance Today January-June 2020

Take another instance where a trainee participant from a Measurements in Nominal vs Real
neighbouring country, when asked about the Motor TP
claims ratio of his country, replied, that the ratio is around Terms.
30 to 35%. Being used to ratios ranging from 150% to 250% The day, human beings gifted themselves with money as a
observed in my country, I was confused and left struggling means of exchange and bid good-bye to the barter system,
to comprehend the comparative status, like a computer unknowingly they introduced themselves to a novel concept
keeps hanging. of nominal value. Over the years this concept percolated
and spread across all dimensions of human life, so that even
These examples, which constitute only the tip of the iceberg, so called invaluable life today gets assigned with some
suggest that the best and safe thing for an average person nominal value. Thus, it has become a norm to measure and
is to avoid any attempt to understand insurers and assess all economic activities / events in nominal values. It
insurance. Something similar to throwing the baby out with is so ubiquitous and common, so much so that, when some
the bath water. No surprise, society's attitude towards one refers to the most popular indicator of economic
insurance sector is ice cold. Precisely it is this dilemma, activity, the GDP of a country, the reference is for nominal
which provoked me to think of improvements in GDP unless otherwise mentioned / qualified. Measuring and
comparative method of study, so that a beginning can be assessing them in real terms is an exception and occupies a
made towards presenting the facts in the understandable secondary place. This is true of many economic activities,
realm of average reader. including insurance.

Comparison normally takes three forms. First, comparing Ease and convenience are the hall marks of this practice.
the same subject / phenomenon over a period of time, Developing and maintaining measurements in real terms is
second, comparing same subject or phenomenon amongst difficult and inconvenient. It is this tendency of avoiding the
the peers, and the third, comparing the subject or inconvenience and the difficulty, is behind the failure to
phenomena with other subjects / phenomena. Context realise the organisational slide into problems to which past
could be the additional dimension of comparison. The logic generations have been the witnesses. Yes, nominal
and rationale behind these comparisons, is not only to comparisons are also meaningful and useful. But at times
review and assess past performance, plan future progress they may not convey true and complete story. Also, the
and prepare for improving efficiency but also to gain smart and clever ones, in the absence of measurements in
knowledge and understanding of all dimension of the real terms, can use the same for misleading the reader.
economic activity and its role in our life. Now let us examine Hence comparisons in real value terms along with the
possible scope for up-gradations, in each one of the four nominal value comparisons, are necessary to know the true,
areas mentioned above. correct and complete facts as well as status. Slowly we have
to evolve and adopt such parameters.

The basic insurance value (Gross Domestic Premium) is a
product of number of policies issued / number of persons
insured / sum insured (persons/property/income) /
indemnity offered and the rates of premium charged.
Except for some internal analysis in performance reviews,
the interplay of these factors in the final value rarely gets
presented to the general readers. Falling rates of premiums
may fail to disclose the service expansion in terms of
increased coverage and vice-versa. Similarly rising rates of
premium may conceal the contraction or lack of growth in
the service and vice-versa.

Therefore sum-insured, number of persons covered,
number of policies issued and derivative parameters based

Those who believe in telekinetics, raise my hand.

8 January - June 2020 Life Insurance Today