Happy to be PETER

Finally I got to contributing to my blog again. My earlier company had stopped me from publishing in my personal blog and expected me to contribute to the official blog. For some reason this bought about the most dreadful thing to writers -- A writers Block. I just could not get to write any more ... any where. A change of job resulted in change of mindset and I am back in action here.

Today I write about online insurance. Recently I bought a term insurance online. One of the reasons, I went online was the very low premium. Initially I was sceptical about the low premium and thought maybe the claim process will not be good. But somehow I convinced myself to get a policy online.

The past few days I did some research on the online v/s offline policies being sold. Some insurers have similar policies being sold online as well as offline (via agents). But there is a huge difference in the premiums being charged. I thought it might be the savings on the agent commission and selling expenses. But then, that is high only in the first year, whereas the premium is a constant low throughout the policy term.

A lot of research and reading various articles by insurance experts and the following came about:

1. People buying online are educated guys.
2. Educated guys are more knowledgeable about health issues.
3. Guys buying online are likely to be in white collar jobs.
4. White collar job workers have lower mortality rates than the blue collar job workers.

So the expected claim ratio from online policies are much lesser and as such the insurers can charge much lower premiums.

Which means, when I bought the policies offline (via agents), I was clubbed with the general population and ended up paying a higher premium to offset the losses from the segments with higher mortality experience. This reminds me of my earlier article Robin Hood Pricing wherein I had highlight how good customers end up subsidizing the bad customers. Today, the insurer treats the online policy buyers as a separate market and does not club it with the rest of the population. The cost of serving the online policy customer is less and as such the premiums are lower.

Now as I hold my policy documents I feel happy to be Peter and happy that the insurer did not rob this Peter to pay some Paul.