December 16, 2014

Insurance & Risk Management – Financial Advisors need to get it Right

Rahul Agarwal

By Rahul Agarwal, Founder Direcctor, Ideal Insurance & 121Policy.Com

Insurance! The very term rings bell in the client’s ears and for all the wrong reasons. But have you ever wondered why? Insurance is the most important risk management solution. Then why is it driving away clients? It is because of the way the agents and distributors have treated it over the years. It is because of the continued mis-selling. And it is because of all the wrong decisions that the client takes based on incorrect advice. The onus is therefore now, on us, the market-makers, to correct the wrong. It will take some time, but we can definitely do it.

We know that Insurance is not an Investment, not even a far relative. The best one can call it is – a friend. They go hand in hand. In our financial world, where investment helps us grow the money that we have made, Insurance helps cover the risks. Risks are the chances that money will not grow as planned. Risks are omnipresent – at home, at office, on the road – of life, of business, of household, of travelling… and the list goes on. Don’t we all know that a building is only as strong as its foundation? Similarly if we do not cover our risks and hope to grow, one fine day we may see that our risks have taken us down the ladder to the last step and beyond, lower than we started with.

A prominent disconnect I see with our clients is the misunderstanding about Insurance and the resulting image they have in mind. Paying the Insurer over the years is asking them to take over the risk whenever it happens in lieu of a small sum of money called “premium” paid by the insured.  The premium is no investment, but a payment for coverage of risk. Once our risks are covered, we can think of ways to grow our wealth, being rest assured that the hindrances will be taken care of. Insurance is essentially not to give you returns on your money, though there are some mixed products in the market.

Another disconnect is that one may land up being covered for flood in an earthquake zone. This is where we, as advisors, should help them in identifying the right solution according to the client’s need and reading the small prints for them. We should advise them of the additions and deletions of clauses as per their situation. We should assure them of the right solution for their risk and let them concentrate on their core job. We should regularly study their policies and advise them of the changes, enhancements or cancellations, as and when needed, according to their circumstances.

Financial planning is an exhaustive topic, covering all aspects of Finance. Insurance is an integral part of this planning considering the number and scope of risks increasing day-on-day. We can never grade them. It is the clients’ situation which defines which policy is best suited to them.

Financial Planners are popularly known as financial doctors for their act of treating the financial portfolios of clients. Doctors care for the health, Planners for the wealth. You can’t mess with either. As Planners we should study the client’s financial portfolio as a whole. Based on that we should see what risks are imminent and needs immediate coverage, part or in whole. Risks cannot be considered standalone. It is a part of one’s financial standing. Similarly, Insurance is not to be studied separately, but in context of the client’s overall financial position.

The concept of Insurance dates back to early human society but it’s only in the early decades of the seventeenth century that the sector got organised and in 1818 that India had its first native Insurance Co. The sector hasn’t looked back since then. Today we have ~50 Insurance Companies in the country, the no. increasing with the increasing scope. More diversified is their product portfolio. Apart from the erstwhile Fire, Marine, Motor and Life Insurances that have been as old as the first Insurance Co., we have seen the sudden spurt of Health, Liability and Household Insurance in the last decade. We also see that add-ons are being added every day to the existing policies, the recent ones being Top-up in medical and Zero Depreciation in Motor, to better cater to the changing risks of the client.

Insurance is a dynamic solution and should be periodically revised. With the change in people’s lifestyle and their demographics, the risk changes and so does the solutions. Insurance Companies have been very proactive in keeping up with these changes and it is our job to keep ourselves updated similarly. The entire service industry relies on trust and it is this trust that makes the relationship with our client stronger over the years. A higher-commission product may take you higher quicker but a right solution will take you farther in the long run. The choice rests with you.

By Rahul Agarwal, Founder Direcctor, Ideal Insurance & 121Policy.Com

 

Authored By,

Rahul Agarwal

Rahul Agarwal

Founder Director
Ideal Insurance & 121Policy.Com

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