In his article “Why there’s no Apple in retail finance” (December 5), Debashis Basu appears too pessimistic in judging financial products. Although it is common knowledge that financial services, particularly banking, are a margin play, insurance is not. When Sony or Apple sell their products, they know both their cost and their expected or actual revenue. Insurance companies can only estimate revenues, while costs remain unknown. Nevertheless, insurance companies try to do reasonable estimation of their costs based on actuarial valuation. In banking the liabilities are known and are less prone to wild swings, whereas insurance is a risky play. Both assets and liabilities are susceptible to different kinds of risks. When a person who has paid Rs 11,000 as medical insurance raises a bill ten or even 50 times the premium, the insurance company is contractually bound to honour its commitment. The reason an insurer tries to play safe by charging extra at the time of accepting premium is to obviate the risk of inflated liability later. The remedy with the customer lies with his choice of insurance company. She can always change her insurer if it tries to shortchange her. The problem is that we tend to take insurance advice from a banker, banking advice from a mutual fund guy and mutual fund advice from an agent or a stockbroker. I think the sophistication to differentiate between the right kind of advisors comes with rising income levels. The ultimate sophistication lies in keeping the whole thing simple. One should buy insurance to manage risk and not for managing investments.
Vikram Kumar Arora, New Delhi
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