The aversion towards insurance is solely because of cost consideration which stems from a lack of awareness. This in turn results in low penetration of insurance in India, a country with a vast population. Lack of awareness, coupled with mis-selling on the part of the agent makes insurance an unattractive product. Mis-selling was so rampant when private insurers opened their gates that the regulator decided to do something about it. As a consequence, IRDA resorted to the need-based selling approach which matches insurance products to the customer's needs paving the way for Financial Need Analysis technique.
What is Financial Need Analysis?
Financial need analysis aims to identify an individual's financial goals taking into account the past, present and future goals and then matching suitable products to meet those goals. This secures a sound financial future.
Who does the analysis?
After IRDA mandated such an analysis, every insurer trains its agents, making them aware of the process and equipping them with the necessary tools. The agents then approach the customers and, with the help of these tools, assess the financial goals of the individual and ways to meet those goals.
How is it done?
The analysis is a technical process. It takes into account the milestones in the individual's life where a considerable fund will be required (like child education, marriage, asset building, retirement, etc.). The income and expense structure of the individual is also considered to ascertain necessary provisions required to build the needed fund. The savings are then discounted according to the time value of money and arrived at a realistic sum. The agent usually collects all the information (income, expenses, financial goals, etc.) and then the data is fed into software that does all the calculations.
Does it make sense?
The huge amount of information required, especially the personal ones like your income, does make the analysis seem cumbersome. Moreover, the agents are not always so professional in their approach and generally like to push their products down customer's throat. In such a scenario, does the analysis really make sense? Of course it does. Here's how-
1) It matches the right product to the actual need. Every individual is at a unique stage in his life and has different goals and dreams. Some may want to accumulate wealth for acquiring a house while others may simply do so to afford an extended Europe trip. Both have the need for different portfolios and a single product may not universally apply.
2) A good need analysis is a win-win situation for both the agent and the customer as it results in good relationship building which is essential for insurance as it is a long term contract. A positive relation also builds goodwill of the agent and the company he represents increasing in word of mouth publicity. Eventually it increases the revenue of the agent as well as the insurer.
3) It also helps in increasing insurance penetration as the investors are assured that their money will be put to use for the right product which will secure their future. This increases the confidence of the general masses making them less resistant to insurance.
Nothing else needs saying. The benefits of need analysis have been understood by IRDA and felt by insurers. As such, more and more of the companies have started giving extensive training to their agents to conduct an effective need analysis. So, go ahead, and indulge. Ask your agent for a need analysis form the next time you decide to buy insurance.
Written By: Deepak Yohannan
The author is the CEO of MyInsuranceClub.com, an online insurance price & features comparison portal
For more articles by Deepak Yohannan, please visit MyInsuranceClub.com
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