Publisher: Langmead &
Baker Ltd. Managing Editor: .
By Justine Kabwe
Man is the only one that negotiates and uses this as an alternative to brute force. It is important to note that every negotiating situation is in essence new and unfamiliar.
The issue is to know how to apply the skills in order to achieve a sell.
What does is it mean to negotiate? The English Oxford dictionary definition is to confer with a view to finding terms of agreement.
Negotiation is a communicative process that attempts to solve a difference of opinion between two parties with the view of finding agreement. How does negotiation contrast with selling?
Selling is a process of identifying the person or people to whom you want to sell an idea, then getting through to them by increasing their awareness and interest in the idea and getting them to act on the idea.
Negotiating is as a process of getting the best terms once the other side starts to act on their interest.
THE HARD TASK CONSUMER
For many consumers, having to plan and arrange finances can be a daunting task - especially given that there are so many different products and providers to choose from.
To help, there are various different sources of advice and several different types of adviser who can guide and assist the consumer.
Insurance brokers and other intermediaries can help choose general insurance (such as home, car, travel and sickness insurance). They can assist consumers who are considering making long-term investments such as:
? personal pensions, life insurance, health insurance, collective investments and other investments based on stocks and shares, bonds and endowment policies.
? Mortgage advisers assist consumers in selecting suitable home loans.
LIFE ASSURANCE PRODUCTS
Life assurance or insurance is a simple concept you buy a policy that pays to your beneficiary or beneficiaries when you die. The Readers Digest great dictionary of English language defines a concept as an idea to help sell or publicise a commodity
PURPOSES OF LIFE ASSURANCE PRODUCTS
Depending on the financial situation, life assurance can be used for a variety of purposes, e.g:
? Death benefits - ensures that those who are most important to you will be taken care of in the event of your death
? Disability protection - ensures that your premium will be paid and your insurance will remain in force if you are disabled and unable to work
? Retirement planning - funds accumulate to provide for the future retirement needs
? Cash Accumulation - save money for the future emergencies or opportunities
BROAD CATEGORY OF LIFE ASSURANCE PRODUCTS
Whole life products offer permanent coverage where the cost is literally stretched out over what the insurance company expects your life period to be. The assurance in this case is payable on the death of life assured whenever it happens.
Endowment products are when the sum assured or benefit is payable only at the end of the selected period provided the life assured survives the end of the period (term).
In Zambia the common products on the market are:
? Anticipated endowments that provide interim lump sum payments every five years beside the main benefits that are payable on completion of the term or earlier death. Each money lump sum is up to 15 percent of the sum assured with maturity payment being less any interim lump sum paid to date. The terms could be 15, 20, 25 years.
? Child deferred endowments that pay a sum assured on the survival of the child to the age 21 or earlier death after the age of 14. Where the parent dies before completion of the term payments the premiums are waived until benefits become payable.
? School fees endowments are available either concurrently or individually for primary, secondary and tertiary education.
Term assurance products offer death risk cover for a limited term and are good for only a certain period of time. These are pure protections plans occasionally used by businesses as keyman insurance. The prospects are high although the Interest in the policies is declining significantly in the industry.
Unit-linked fund products or insurance contracts are those where savings benefit is linked directly to the value of units in the mutual fund or insurance companys own internal fund. The investment risk is borne by the policyholder.
INDIVIDUAL LIFE ASSURANCE MARKET
With the split of long-term business and general insurance business there will be much activity in terms of the selling, administration, claims settlement etc.
The Zambian life assurance market has experienced good growth both in terms of insurers return and competition profile.
Public confidence in life assurance products is affected by high levels of inflation and the fact that historically policies were not index-linked lead to benefits payable in many cases essentially worthless. Indexed covers are now more readily available, with some products closely aligned with the consumer price index.
Unit linked with profits investment policies help provide a hedge against inflation and are becoming popular as the industry tries to increase the confidence of the general public.
There are few statistics available in the industry.
Minimum monthly premiums for individual life products start from around K10,000 but there are variations between products and insurers. Premiums are dependent on factors such as age, health, riders required and hazardous activities.
Mortality tables used include the South African 56/62, Indian and Kenyan. These are supplied by Swiss Re and QED Actuaries and Cconsultants of South Africa (source: AXCO 2005)
Under conventional with-profits endowments and whole life policies reversionary bonuses are declared each year normally on a compound basis; the rate currently is understood to average five percent of the sum assured. Terminal bonuses have been available but some companies have suspended them.
LAPSES AND SURRENDERS
The rate of lapses and surrenders is quite high, particularly over the period of privatisation of the parastatals, resulting in an increase in redundancies. There is no official figure available to indicate the surrender or lapse rate but market sources indicate in the region of 20 percent per annum.
Commission levels are not regulated by legislation in Zambia; however, insurance companies submit a schedule of proposed commissions to the Pensions and Insurance Authority (PIA) for approval. There was an attempt in the past by insurers to have a market agreement on group life assurance but this was forbidden by the Zambia Competition Commission after IBAZ referred the matter.
An indication of commission terms available in the Zambia market is as follows:
? whole life 50 percent in the first year, 30 percent in the second year and 5 percent thereafter.
? Endowment/whole life package 24 percent to 115 percent of the first year premium dependent on the age of the life assured.
? Annuity plans 12 percent to 105 percent of the first year premium dependent on the premium payment term.
? Funeral expenses 10 percent.
? Term policies from 8 percent to 44 percent graduated over three years and dependent on the duration of cover.
? Unit linked business 15.5 percent and 22 percent on the life element. (Source: AXCO 2005).
Life expectancy has reduced dramatically since the mid-1980s, the biggest factor in this drop is deaths from AIDS.
CHALLENGES AFFECTING LIFE INSURANCE PRODUCTS
Marketing makes an impact and challenges traditional rules. Leaders focus on building and executing disruptive programmes that leverage thought leadership to accomplish marketing objectives such as:
? Force your organisation onto national reporters radar;
? Raise awareness of key issues and drive marketplace education;
? Demonstrate real organisational market thought, leadership, commitment, and intimacy;
? Drive qualified sales leads.
The changing role of marketing is towards satisfying customer expectations:
Life insurance is still mystical in the eyes of non-life insurance practitioners; it has no demand. The following are some of the challenges:
- Competition in terms of product differentiation;
- Vast potential, i.e customised products;
- Changing demographic characteristics;
- Economic conditions, i.e investments versus insurance;
- Customer awareness/consumerism.
To respond to the challenges the industry must develop and provide enhanced scope of coverage:
- unbundling the products, i.e not offering the traditional way but customising by including riders;
- for economic purposes offering more responsive unit-linked products to provide investment choice. The benefit with Unit linked products is that there are less risky to the insurance company in that the investment risk is transferred to the unit holder (investor);
- Flexibility in benefits offered on policies, e.g modification of sum assured,
- Offering accelerated benefit payments, modification of product structure, extension of insurance after maturity date option.
Our challenge through all phases of product design, sale, and servicing will be to provide for strong investor protection while accommodating innovation that, if all works well, will be good for investors and good for the industry.
Variable insurance products compete not just with each other, but with the broad array of financial instruments available in the market:
? fixed insurance;
? mutual funds;
? bank certificates of deposit;
? Stocks and bonds.
A central theme during the recent past is that all participants in the investment management business must step forward and seek to communicate better with clients and customers. Some insurers have taken that step and have worked to simplify their prospectuses, and we applaud those efforts.
But many prospectuses for variable contracts remain overly technical, generally murky and difficult to follow. Better, clearer prospectuses can pay dividends to insurance companies in the form of more effective client marketing, particularly as the industry moves to a wider variety of distribution channels.
Disclosure is key to both the company and the investing public. The aim is to help the investor to know how attractive the returns are as well as the degree of risk inherent in the investment. It also assists the company to understand how well it is competing in its operating environment.
Investment advisors are also intermediaries that are licensed under the Securities Act, and can be either a corporate/juristic person or human person. These must be fit and proper under the act, ie. competent, honest and solvent. In other words, they must have:
o financial resources;
o financial integrity;
o the necessary academic and professional skills;
o good reputation and character;
Companies that are listed at the stock exchange have a higher standing than those that are just (quoted companies).
? assessment of investment opportunities available in the market;
? setting of investment objectives;
? developing an investment policy;
? construction of portfolios;
? monitoring of growth in those portfolios;
? security of the funds and risk/return consideration is paramount;
? critical forecast of the investment yield that is the overall return from the capital and income;
? Spread/diversification profile;
? Investment period or Asset liability profile;
? Other factors relate to index linking, i.e the real return on the investment, performance of the fund and benchmarking, and the practical constraints inherent in the administration of the fund.
OFFERING OF INVESTMENT ADVICE
Investment advice is offered on the premise of careful consideration of various variables such as macro-economic indicators, individual circumstance, and trend analysis, e.g. looking at the financial statements.
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