21st Century is an era of innovation and entrepreneurship
with many start-ups bubbling in and out. Creativity and urge to be different, is at
its peak and keeping the organizations at toes with just one motto to stay afloat
in this competitive arena. Expect competition from anywhere and from anyone. The
best thing is that it is bringing just more smiles to customer with more value for
money products.
As a hobby, I am hooked to anything wherever I see an opportunity to improve upon for providing better value and innovative
products/services to customers. This time I saw some light coming from a window
again, which I thought why not we together peep into, hence this blog.
Recently, I was planning to buy a Term Insurance Plan for myself.
While browsing through various plans, I came across new payment options as
Single Pay and Limited Pay, in addition to Regular Pay.
Prospects generally opt for Limited Pay or Single Pay
options to reduce risk of inability of nonpayment in later years. Solution
provided by Insurance Companies is good but I think it is too heavily charged
and paves way to a New Business Opportunity. How?
If a 25 Year old guy
opts for a Term insurance for 1 Cr up to 75 years of age, premium amount on
yearly basis is Rs. 9086 ( Source Policy Bazaar). However, for the same
coverage premium amount in Single Pay mode is Rs. 272282. Means he somehow
arranges Rs. 2.72 lacs and can cover himself for almost rest of his life for a
whopping cover of Rs. 1 Cr. Should he go for this plan?
Absolutely Not Recommended! Why?
If he keeps the same amount of money in FD or invests in
mutual funds, he can expect a return of around 7-8% PA. Annual Interest earned
@7% PA is Rs. 18989. It means he can not only pay his yearly insurance premium
from the interest earned but also can keep 50% of the interest earned. Top of
it, his principal is intact whatever he has invested at first place.
Many Insurance or Finance enthusiasts may already know this
fact but my objective here is how we can turn this situation, into a new Business Model.
So, I really don’t want to comment on the business model
adopted by Insurance companies as they are the subject matter experts, but here
lies an opportunity for a budding entrepreneur to offer a plan to this
youngster to pay Rs. 1.2 lacs upfront ie less than 50% what Insurance company has
asked for and get insured for 1 Cr till 75 years with return of investment amount.
Sounds cool!
How? It is simple! Amount collected, entrepreneur can invest
in market and can expect return at the rate of 10-12% on a conservative side in
the long run. Policy premium to be paid on behalf of the insured until lifetime
on a yearly basis. Potential for earnings are in form of Commission from
Insurance Company and returns on corpus invested.
Let us make it even better, as many youngsters can’t even
afford Rs. 1.2 Lacs also. So, let’s convert this amount in a personal loan. New
offering will be as follows, Pay Rs. 2670 per month for 5 years and get a term
cover insurance for 1 Cr till 75 years.
We can earn even more. Apart from earnings in Insurance,
there is a possibility to earn on the personal loan. Apply for a Capex funding
for this business model, which we can get @ 8-10% PA. Now, lend the same amount
as PL towards purchase of Policy @12%. Here again we earn 2% PA additionally.
Here the risk is limited to the annual premium paid as an investor.
What more! If we can
group 1000 prospects willing to buy policy, we can negotiate with Insurer for a
negotiated rate like Rs. 8k/year from Rs. 9k/year, benefitting the customer. We
can also demand Insurer to treat us as a Key Account for better services and
claim experience.
Now once we have a pool of such customers (policyholders),
we can pitch other financial products. One caution, ensure trust of customer is
ensured whatever may come.
If IRDA permits existence of such Business Model, then we
can expect a major premium optimization in Insurance sector only to benefit customers.
As a customer, lets keep thinking and innovating every day
for a brighter and healthier ecosystem.
