China Life Harvard Case Solution & Analysis

And how much compensation would be offered to an agent who sells it?

A 20% commission should be offered to all the commission agents, which is 20% of the premium of the first year. These agents have to compensate to the utmost level so as to insure that these policies sell in the market. To sell a policy in a group, the agent needs to identify the most influential person of the group; if he is able to convince him to buy the policy, then the rest of the group will follow him leading to group sales and an influential person is only convinced through a person, who is known to him. Further, it is more likely that the sales agents would be one of them as they conduct this job on a part time basis; whereas, they have their own regular jobs that means they know greater number of people than the employees of the company.

QUESTION-2

Consider Wei and Fang, twin brothers, each 30 years old, each seeking RMB 300,000 in life insurance coverage. Wei purchases 3 term policies, each with RMB 100,000 of life coverage (cost RMB 380x3 = RMB 1,140 per year for twenty years); Fang purchases a whole policy with RMB 300,000 of life cover (cost RMB 7,820 per year for 20 years). Suppose they both survive to age 61: who should feel they got the better deal?

Fang would more happier, since he has entered into a life time policy and has coverage up till the age of 80 under which he would also receive OLD AGE ANNUITY, DEATH COVERAGE and FULL-TERM PAYMENT, whereas Wei has saved on premium paid but his policy will expire at the age of 60, which means he has no further coverage and he will not receive any returns.

QUESTION-2

WEI

   
   
3-TERM POLICIES    
COVERAGE

300,000

 
PREMIUM PAYMENT

22800

 
RETURNS NO RETURNS, SURVIVED TILL AGE 60 POLICY EXPIRES  

FANG

   
   
WHOLE LIFE POLICY    
COVERAGE

300,000

 
PREMIUM PAYMENT

156400

 
RETURNS   ASSUMPTION
OLD AGE ANNUITY 15000 PER YEAR TILL YEAR 79 ASSUMING 5000RMB PER 100,000 POLICY
DEATH COVERAGE 600000 IF PERSON DIES AT AGE 79 ASSUMING 200,000RMB PER 100,000 POLICY
FULL-TERM PAYMENT 600000 IF PERSON COMPLETES AGE 80 ASSUMING 200,000RMB PER 100,000 POLICY

QUESTION-3

Should China Life enter this market?

China Life should definitely enter in this market. It is the market leader in the insurance field holding 69% of the market share; whereas, the rural and poor market is still an untapped market where a majority of people have no idea about what insurance is. If China Life loses out on this market then there is a good chance that it may lose its market leader position. This market has been within the sights of China Life and previously they had even tried penetrating it but they failed this time. In addition, CRIC is assisting companies to move it this segment; hence, China Life will not get a better opportunity to enter in this market and hold its leader position.

If so, what should its business model look like?

The business model should focus on efficiency, which is the maximum benefit to the user for the premium paid and focus on cost reduction. This segment will not be willing to pay a higher premium and have little knowledge about investment and insurance; hence, the business should focus on developing awareness and educate people about covering their future and securing their family.

How should they organize distribution?

The company should set-up franchises in the localities in the poor and rural regions making it convenient for the people to approach the company and enabling the company to reach the people. These franchises should be in direct contact with the head office and should work with the agents working on a commission for the company.

What sort of sales incentives should China Life give to its agents/network?

China Life should continue with the business model, which it has been using regarding its agent network that is providing percentage of premium on the receivable of the first premium on the policy sold. This would enable the agents to work part time and work on their current jobs; these agents are one of the people in the rural segment with the knowledge of insurance and saving; hence, they hold the power to influence the individuals. Moreover, the company should focus on motivating them as these are the assets that can help them to gain the market share they desire.......................................

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