Page 21 - Life Insurance Today May 2016
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of how expectations are formed. First, truly rational the Portfolio of Corporate Agent has eaten away the
expectations would take into account the fact that premium portfolio of individual agents / advisors
information about the future is costly. The "optimal significantly.
forecast" may be the best not because it is accurate but
because it is too expensive to attain even close to accuracy. Insurance Brokers - Dominating the entire Metro & City-
based Insurance Market with their increased remuneration
Further, the models of Muth and Lucas (and the strongest & also allowed for higher commission with the pretext of
version of the efficient markets hypothesis) assume that cost of establishment, business procurement commission,
at any specific time, a market or the economy has etc. The standard remuneration of brokers is 17.5% on all
equilibrium (which was determined ahead of time), so that types of business.
people form their expectations around this unique
equilibrium. In fact, expectations would determine the The Financial position and market reputation is growing
nature of the equilibrium attained, reversing the line of gradually as the Brokers have entered the market with
causation posited by rational expectations theorists. strong financial footing and everyone knows that -
A further problem relates to the application of the rational 1. Minimum Capital for Direct Broker - As per IRDA
expectations hypothesis to aggregate behaviour. It is well Regulation, minimum capital of Rs.50 lacs is required
known that assumptions about individual behavior do not for Direct Broker.
carry over to aggregate behavior (Sonnenschein-Mantel-
Debreu Theorem). The same holds true for rationality 2. Minimum Capital for Reinsurance Broker - As per IRDA
assumptions. Even if all individuals have rational Regulation, minimum capital of Rs.200 lacs is required
expectations, the representative household describing for Reinsurance Broker.
these behaviors may exhibit behavior that does not satisfy
rationality assumptions (Janssen 1993). 3. Minimum Capital for Composite Broker - As per IRDA
Regulation, minimum capital of Rs.250 lacs is required
Hence the rational expectations hypothesis, as applied to for Composite Broker.
the representative household, is unrelated to the presence
or absence of rational expectations on the micro level and Another area where the individual Agents or the Advisors
lacks, in this sense, a microeconomic foundation. may grow is the Health Sector. Health insurance is an
emerging portfolio having surpassed traditional classes of
Lastly the issues which go absolutely against the non life insurance which till recent times were the growing
agents / advisors: segments. Despite the impressive growth, the penetration
of health insurance has remained as low as 3 % covering
All the agents / advisors know that now the truth is we only 68 million persons, though the insurable population
have the following human Marketing Channel in Indian in India is estimated at 450 million (at least as reveled from
Insurance Market that is comprising of :- various researches & forecasts).
Insurance Agent - A critical element of the insurance Out of the total health expenditure, the share of
sector reforms is the development of resources having the government spending is only 20% forcing individuals to
right skills and expertise in each segment of the industry meet most of their healthcare expenses out of their
so as to provide quality intermediation to market earnings and savings. So Market Potentiality of Health
participants. Insurance Prospect is although very high for the Brokers
or the Banks as the Partner, but the scope of the individual
On-line training for agents - The Authority, IRDA issued agent in this specific area is absolutely bleak.
guidelines for on-line training institutes on 24th May, 2005.
So inflow of right quality agents in the market is ensured. The low public investment in health and absence of any
form of national social insurance makes people vulnerable
Corporate Agent - Firms, Companies, Banks, Rural Regional and insecure in the time of illness. It is in such
Banks, Co-operative banks, Local Authorities, NGOs and circumstances that health insurance can play a major role
The substitute for knowledge is money.
Life Insurance Today May 2016 21
