Group Life Insurance: Free falling premium rates – sales desperation or professional judgement?

There is a stiff competition for winning Employer-Employee group life insurance business in the life insurance market. The premium rates keep coming down and down. Some believe that these premium rates are not viable in the long run and hence should be controlled. And some others believe that it should be left to the market forces to negotiate and decide the price rather than putting some artificial barriers. ‘This is true with any industry that the market decides the price. Why insurance should be different?’ is the argument.

While it is true with any industry, there is a difference with insurance. In many industries, you know the manufacturing cost of the commodity and the profit margin. So, if you take a cut, you know whether you are taking a cut to the manufacturing cost or to profit margin. Whatever you are doing, you are doing with complete understanding of the pricing mechanism. Life Insurance pricing is about estimating the cost of mortality of future. This is not known with certainty at the time of pricing. Some professional judgement is involved. Hence it is not fair to leave the price to be negotiated between the sales person of insurer and the senior official of corporate customer. This is because, either of them is not expected to have expertise in estimating future mortality.

Whatever is the price, if life insurer issues one quotation and sticks to it, it will still look reasonable. There were many instances in the past where multiple quotations were issued in a span of few days to lower premium rates. How do you justify the same technically? Unless there was some new data/information impacting the quotation? And what message are we conveying as an industry to our corporate customers? Don’t they think that these insurers are desperate for business and hence there is always scope for negotiation? Don’t we look unprofessional, as an industry?

I think life insurers should have one final pricing approach and stick to it for one customer. In case they feel that the approach is not working, they can probably change the same for the next customer. But for one customer, it should be just one quotation. Only then, the industry will look professional, in the eyes of corporate customers.

I know there will be many agreements and disagreements with these views. You can leave your views below. Disagreements are more than welcome. The objective is not to win the discussion, but to trigger a debate which might help the industry.