We have seen one life insurance company being listed and at least 3 more waiting to be listed. It is being touted that SBI LIFE will have a market capitalization of Rs. 60,000 crores. Not bad at all. Considering that they are selling the classic endowment product, this valuation is not far fetched. Capitalism is an imperfect system. But its inherent competitiveness weeds out those who cannot provide long-term value to shareholders – this is what I was told by Ayn Rand. I stupidly perhaps assumed that to create shareholder value you need to create customer value. How wrong!

I do think that if Sucheta Dalal were to start a campaign “ban endowment policies” she will get 100,000 signatures in Mumbai alone. The way the Endowment product is created is so cruel on the end customer that it is surprising that it survives. Even the MSM has done articles on how the endowment product is a wealth destroyer. Complete annihilator of returns – except in the hands of a very few fund managers.

Who are the real beneficiaries of the life insurance boom?

Ironically, it was not the shareholders of the life companies for the first 10-12 years, but the TOP employees who ran it on behalf of the shareholders. The commissions that the employees of the bank (in most cases, the bank is the promoter), the agents, the airlines transporting them, the hotels in which they stay(ed), the outside trainers, …..have been the real beneficiaries!

Who paid for all this? Obviously the customers. I have not seen any other industry where the market cap was built on the client’s skeletons. I could write a book on life insurance mis-selling. However, some of the clients seem to be loving the fact that the bank manager comes home and cons them! If you do not see what I mean look at the foreing junkets that bfsi has been doing. Reward programs happen in Europe, Africa, Asia, and of course in the USA! Just call a sales employee of any bank or insurance company – the chances are he is in Europe.

It is much easier to join them 🙂 than crib about them.

Now when it comes to ‘mis-selling’ who gets blamed?

the 12th pass agent, the bank Relationship Manager and his supervisor.

Who created the product? the honorable actuaries.

Who approved the product? the honorable regulator.

Who set the sales targets? the honorable JV partner who is closing down in Europe

Who set the sales strategies? the sales head and the MD.

Who got the commission? well the managing director of the bank was ALSO on the pay roll.

Who got the foreign trips? Very many of them

Who got the blame? the 12th pass agent.

Good narrative? Well SBI life is on a roll. Icici Prudential is listed already. Hdfc, Bajaj, Reliance, ..waitining in the wings..