Executive Summary - Filling a complaint against insurance company is now much easier than before. For the benefit of consumer IRDA started a separate department as Insurance Ombudsman in 1998. This was set up to provide faster and cheaper solution of all the grievances of policy holder against insurance companies. Dispute amounting to Rs. 20 Lakhs are handled by Ombudsman. This article explains how Insurance Ombudsman works and what is the process to file a complaint with Ombudsman.    
 
Naresh bought his dream car last Diwali. He was saving money to get this car from last many years. Everything was going good until one day his car got damaged. Very next day he submitted his car to the showroom for repairing. He was sure that the insurance company will bear the expenses as his policy covered everything and he has paid extra to avail such policy. Soon he was informed by the showroom that insurance company has approved the claim but only 60%. He will have to bear the rest 40% of the total repairing cost. He was surprised to know because during his insurance purchase he was informed that policy will cover all the expenses and each and every part of car is insured. He then approached the insurance company where he was informed that he will only get 60% of claim and they cannot cover the whole claim amount. He felt cheated and decided to approach court. He was informed by his lawyer friend that such cases are first handled by Insurance Ombudsman. If case is still not solved then complainant can approach court.
 
So what is Insurance Ombudsman? What types of cases are handled and what is the process to file case with Insurance Ombudsman?        
 
Insurance Ombudsman is a government department which was set up by IRDA in 1998. The main purpose of setting up this department was to provide smooth and fast solution of all the grievances of policy holders be it of life or general insurance. It was generally seen that complainant used to approach consumer forum against the insurance company which use to take lot of time. Hence this department was created exclusively for insurance complaints. The ombudsman can deal with cases valued up to Rs. 20 lakh. Cases valuing more than Rs. 20 lakh are not handled by ombudsman. The policyholder has to directly approach a consumer court. The ombudsman only plays a role when the policy holder has not gone to a court or a consumer forum. The Ombudsman also do not charge anything against the complaint lodged.
 
Types of cases handled by Insurance ombudsman:

• When there is a dispute in the amount of premium payable or those which are already paid.
• When there is a dispute in the amount of claim settled. Mostly happens in the case of health insurance.
• When there is a delay in settlement of claims i.e. the claims have not been settled beyond the time period specified in the regulation or in the contract.
• The insurance document is not as per the terms decided after the payment of premium.
• There is non-issuance of insurance policy even after paying the premium for life insurance or general insurance.
• One might feel that the policy wasn’t explained properly once it was sold – case of mis-selling.
• Grievances related to the insurance agents or intermediaries.

Please note: Grievances related to non-individual insurance are not handled by Ombudsman
 
Steps of filing a complaint to ombudsman (Applicable for both general and life insurance)

• When a claim is denied from the insurance company the policyholder writes a letter to the grievance redressal department of that particular company.
• Within one month , if the policyholder doesn’t receive any response from the insurance company; or does not get a satisfactory reply; then within one year of receiving the final communication from the insurer, the policy holder can file a complaint to the insurance ombudsman of the respective Jurisdiction. If it is more than one year, then the complaints are not taken into account.
• While filing a complaint, the policy holder has to write a letter a mentioning the policy number, the details of the complaint and the date along with which necessary policy documents like claim form, claim document, details of the claim received, the reply from the insurer, etc. have to be attached.
• The ombudsman then responds within a span of 15 days and listens to both the parties i.e. the policy holder and the insurance company.
• An executive from ombudsman office is appointed to solve the dispute of the 2 parties.

 
How does Insurance Ombudsman work?

• When a complaint is lodged with Ombudsman, first he may make a recommendation after listening to both the parties.
• The copy of recommendation is then sent to both the parties
• The recommendation should be made within one month of receipt of complaint.
•  If complainant is satisfied with the recommendation then he has to submit the acceptance within 15 days of receipt of recommendation.
• On the receipt of such acceptance from the complainant, Ombudsman then sends the copy of recommendation with acceptance letter to insurance company.
• Insurance company then within 15 days of receipt of the acceptance letter will have to comply with the recommendation.  

 
What if above process does not solve the case?

• If the complaint is not settled in above manner then Ombudsman can pass an award (in monetary terms) which he thinks is correct and reasonable considering the case. 
• This award is passed within 3 months of receipt of complaint and copy is sent to both the parties.
• If the complainant is comfortable with the amount of award then he has to send the letter of acceptance to the insurance company.
• The insurance company then within 15 days will pass the award to the complainant and inform the Ombudsman.
• The insurance companies cannot deny the payment of award to the complainant.
• If the policyholder is not satisfied with the ombudsman award, then one can approach consumer court.

 
 
Conclusion: -

Insurance Ombudsman is the cheapest and fastest way to get complaint resolved against insurance companies. Although Insurance Ombudsman was set up as a department 20 years back, still many people don’t know about it. Before approaching to higher court or forum one should register a complaint with ombudsman and if not satisfied by the solution then one can approach to consumer forum. One should remember that it is not necessary for complainant to accept the decision of an ombudsman but at the same time it is compulsory for an insurance company to accept the decision and compensate the complainant. So next time if you feel you are cheated or insurance company has done something wrong with you file a complaint with Insurance Ombudsman. 
 

​Executive Summary: SBI Life Poorna Suraksha is a term policy that covers 36 critical illnesses. It offers rebalancing of the amount of the policy and premium waiver in case of detection of critical illness. There are other similar policies. You should compare them before buying this plan.

SBI Life Poorna Suraksha Term Insurance Plan is a term plan offered by SBI Life. It is a term insurance plan that includes cover for 36 critical illnesses. Let us look at the details of this plan - 
Key Features

• Entry Age – 18 years to 65 years
• Age at Maturity – 28 years to 75 years.
• Sum Assured – Rs. 20,00,000 to Rs. 2,50,00,000
• LifeStage Rebalancing – This feature allows for the increase of cover for critical illness and decrease of cover for life as the person insured gets older. When you take the policy, 80% of the amount is for life cover and 20% is for Critical Illness. In the first 10 years, the critical insurance cover increases by 15%, in the next 5 years, the  critical insurance cover increases by 10% and for the next 5 years, it will go up by 7.5% and then 6% for the next five years and then 5%. The cover for term life will be adjusted accordingly so that the sum assured is constant. The reasoning here, is that as a person grows older, the probability of falling ill is higher and as the dependent children grow up, they become less dependent. Here is a tabular representation of this feature -

Benefits

• There is a rebate of 10% on policies with sum assured amount in the range – Rs. 50,00,00 to Rs. 1,00,00,000 and of 15% with sum assured amount in the range – Rs. 1,00,00,000 to Rs. 2,50,00,000. 
• 36 critical illnesses are covered under this policy. Some of them are cancer, first heart attack, organ transplant, stroke, brain tumour, blindness, deafness, loss of speech, Alzheimer's disease, Third Degree burns etc.
• Premium paid can be accounted for in tax deduction while filing tax returns.
• Discount is available for current employees, retired employees, VRS holders, spouses of employees and children of employees of SBI Life. 
• In case of death, the sum assured for life would be paid as death benefit.
• All future premiums are waived in case of detection of critical illness from the list of illnesses covered by the policy.

Exclusions

• These conditions are not covered by SBI Life Poorna Suraksha -

1. Pre-existing disease for which life assured had symptoms of  or was diagnosed with or was treated for in the last 2 years of the commencement/reinstatement of the policy
2.  Illness due to a congenital defect or disease which has manifested or was diagnosed before the Insured attains age 18
3. War, hostilities, criminal intent, drug abuse and nuclear accidents
4. Pregnancy and related complications
5. Underwater expeditions of flying activity other than being a passenger on a licensed aircraft.

• Loan against policy is not allowed
• There are no maturity benefits as it is a term plan.

Premium Payment Examples
Here are some examples showing the premium payable for the SBI Poorna Suraksha plan -

Our Comments
It is comprehensive as it covers life and critical illness. But there are many such plans already available in the market. Competitor plans such as HDFC Click2Protect 3D Plus and ICICI Life iProtect Smart have more options like income option, income replacement option, increase of sum assured etc. Compare this plan with the other plans, assess your requirements and then decide whether to go ahead with this plan.

Executive Summary: As humans, we have the instinct to take some action all the time. It feels satisfying. But taking action is not always in the best interests of your investment portfolio. Sometimes it is better to wait till the complex situation passes by,  understand the scenario, weigh the pros and cons of various decisions including the one of inaction and then act upon the most optimum decision.

When we wait for someone in a restaurant, we check our phone. When we see that we have to wait in traffic, we tend to use a different route. We cannot wait patiently even though it might be the best course of action rather than expend effort, time and money. As humans, we feel that we should constantly be doing some task or act upon something. We cannot bear to sit and stare as events unfold around us. This is called Action Bias.
In a paper, 'Action Bias Among Elite Soccer Goalkeepers: The Case of Penalty Kicks' published by a team of Israeli scientists,  they concluded that even though the best course of action for a goalkeeper during a penalty kick is to stay in the middle, most of them dive either to the right or left. This is mainly because the goalkeepers want to be seen as doing something. Most people would criticise a goalkeeper who stood in the middle and allowed the goal.  Similarly in case of personal finance, we want to take some action considering all the news, views and events around us. We feel that we should take some investment decision to improve our portfolio or reduce risk in it even though the best course of action might be to stay put. This behaviour can affect our portfolio in a negative manner -

• Taking action on our investments does not necessarily improve our returns or reduce risk. In volatile markets, people tend to buy or sell in haste or panic and regret the decision later on. 
• Buying or selling investments based on tips or rumours might make you feel like you are acting immediately on information but it may not be in your best interests.
• People constantly trade in the market thinking that they can take advantage of the market. This often leads to losses.

How is Inaction Better Than Action
Saving – When you are saving money, you are actually doing nothing. You are not using the money but letting it lie in your bank account. Regular savings add up to a sizeable kitty further aided by compounding.
Long Term Investments – If you invest in the right products, the benefits of long-term investing outweigh the benefits of short-term investing.
We are NOT saying that inaction is the best course of action always. But one should act only after gathering information, understanding the data, analysing it and selecting the best course of action.

The mutual fund industry is growing at a fast pace and be it HNI or normal investor this product is now common and widely acceptable. However, investor still finds it difficult to select a scheme. This is because there are thousands of schemes and there is lot of duplication under the same fund house. For an instance, currently under single fund house, there are 3-4 schemes floating in the market with the same investment objective but with unique names. This makes an investor confused about choosing the right one for investment.
Also, there was no set of definition for the fund houses to design a portfolio. Many times it was observed where portfolio of a large cap fund was holding mid and small cap shares in majority. This was possible because there were no set of guidelines for fund houses. 
​
Thus on October 6, 2017 SEBI (Security and Exchange Board of India) issued a notification about mutual fund scheme categorisation and rationalisation. The motive behind bringing the change is to let investor easily understand and evaluate the schemes by himself in terms of Category and Rationale.
SEBI has classified mutual fund schemes mainly into 5 categories (as shown in below chart). Each category then can have specified scheme with specified structure. (Explained after chart)

​In order to ensure uniformity in respect of the investment into Equity Schemes, SEBI has also defined Large Cap, Mid cap and Small Cap Stocks.

1. Large Cap - The 1st -100th Company in terms of full market capitalisation.
2. Mid Cap – The 101st – 250th company in terms of full market capitalisation.
3. Small Cap – 251st company onwards in terms of full market capitalisation.

 
Structure of schemes under Debt Funds – Under this funds are categorised based on the maturity of the underlying securities.

Other Important Points –

1. Fund Houses are allowed to have only 1 scheme per category which means now only 1 Large Cap or 1 Small Cap scheme will be managed by every fund house.
2. Fund houses can offer either Contra Fund or Value Fund.

 
Are these norms good for Investors?

SEBI introduced these norms for the benefit of investors. Let’s see how –

1. There will be less confusion for an investor as the no. of scheme per category is restricted. For example now in the industry we’ll only see 30-35 Large Cap funds. (1 per fund house) This will simplify the selection of funds.
2. Now the fund objective will not get change easily, hence one can continue investing in the fund for long term without worrying about portfolio.
3. Selection of Debt fund is now much easier than before. Now one can easily see the characteristics of the scheme and decide if the scheme matches the duration with his investment objective or not.
4. Mis-selling of the scheme will reduce as now it is much easier for an investor to identify the product due to its labeling.

However, due to the changes in the characteristics and structure of the schemes investors even might face problem in short term. Let’s see how:-

What if fund house decides to merge the scheme and as a result its investment objective changes? Also what if fund house decides to discontinue the scheme? For example one of the leading fund house has decided to merge one of its mid cap fund with another fund and now it will be categorised as Thematic Fund. Can an investor continue with thematic fund which has more risk than a mid-cap fund? In both the conditions investor will get chance to either redeem or switch the fund however, here capital gain will come into the picture which will certainly lower the overall return.
Moreover, to adjust with the new rules/definition of Large/mid/small cap, fund manager might churn the portfolio. This move will change the investment strategy of the fund which can be unsuitable to the investor hence portfolio re-balancing will be required by an investor.

Conclusion:-

In the last few months mutual fund industry has seen many changes. The new regulation on mutual fund is a good move by SEBI. It will definitely create confusion in the industry for few days but will benefit the investors in the long run. As a planner and Investment Adviser we’ll advice investors not to take decisions in hurry. Let the dust settle down. Sit with your planner understand the regulations and impact of the changes on your portfolio. If required revisit your goal and re-balance your portfolio.
​
So what are your views with regards to the regulations? Do you think this will benefit you in the long run? Let us know if you need any help.           

Executive Summary: Behavioural biases affect people's capability to make the right investment decisions. In this post we talk about  Loss Aversion, Herd Mentality, Sunk Fallacy and Self Attribution. In the previous post, we talked about - Confirmation Bias, Familiarity Bias, Hindsight Bias and Endowment Effect. 

Emotions during financial planning can lead to behavioural biases that can prove detrimental to investment success. In the second post on behavioural biases, we look at a few more biases and how they affect investment decisions -
Loss Aversion
We tend to feel the pain of loss much more than the joy of gain. We are more willing to prevent losses than make equivalent gains. A loss of Rs. 1000 makes us doubly saddened as compared to joy of gaining Rs. 1000. This is one reason why penalties for mistakes work better than rewards for good behaviour.
How can it affect your Portfolio

• Not selling loss making investments in the hope that they might be profitable someday.
• Staying away from good investment products when prices are falling thus losing an opportunity to buy at low costs.
• Investing most of the savings in safe investment products that provide less than optimal returns. This leads to an imperfect investment portfolio. 

How can you overcome it

• Take a long-term view on your investments.
• Be logical and make decisions based on facts.

Herd Mentality
Individuals doing the same thing as others in the group so that they conform to the norm. It makes one feel safe. For example, if all your colleagues own the latest iPhone, you buy it too. If many people subscribing to an IPO, others tend to do it too making it oversubscribed. But if the IPO does not offer value, even if it lists at a good price, its value drops. 
How can it affect your Portfolio

• You might be late in joining the herd leading to higher buying costs.
• When the value is dropping, you sell in panic. You might be selling off good quality assets the value of which will bounce back.

How can you overcome it

• Invest as per the asset allocation model that suits your financial profile.
• Check with your financial advisor about the investment product you want to invest in.

Sunk Cost Fallacy 
Sunk cost is the price already incurred and cannot be recovered. For example, you invest in a stock. The price goes down and you buy some more trying to average the cost. The price goes down further and you hear bad news about it. But instead of selling, you buy even more trying to reduce the cost. You buy a car and after some years, it gives lots of problems. But you still spend money trying to repair it thinking it is an expensive asset.
You do not realise that you are spending a lot of time, money and effort in salvaging the money spent earlier. 
How can it affect your Portfolio

• Your portfolio has loss making investments.

How can you overcome it

• Find out other alternatives to invest in.
• Identify and cut your losses. 

Self Attribution
The tendency of a person to credit himself for successful outcomes and blame circumstances etc. for bad outcomes. For example, in a car accident, both parties blame the other. When a person makes a big profit in the stock market, he is quick to take credit for his investment acumen but blames the market, the political scenario and everyone else when he makes a loss.
How can it affect your Portfolio

• You may tend to not pay heed to the advice of the financial advisor but follow your decisions which may backfire.
• You do not acknowledge that you may not be making the best investment decisions. This leads to a skewed investment portfolio. 
• You do not try to improve your financial quotient.

How can you overcome it -

• Evaluate the decisions you have made honestly and acknowledge how much of it can be attributed to you.
• Acknowledge your failures and use them to learn and adapt.

Do you think you have experienced any of these biases? How did you overcome them?

There is a lot involved in our investments -  efforts, money, research, analysis and decision making and we like to be right always. It is therefore difficult to prevent emotions coming into play. Emotions can lead to behavioural biases that can prove detrimental to investment success. They can jeopardise our finances if not controlled. Let us look at some behavioural biases that affect investment decisions -
Confirmation Bias - 
A tendency to look for information that supports your belief or conclusion. For example, if you support a political party, you will choose to look for information that supports that party or upholds its beliefs and actions . Similarly, in case of confirmation bias in the investment world, if you get a message from your 'investment expert' friend that 'XYZ' mutual fund scheme will perform very well as it invests in the mid-cap industries, you will look for news and information about mid-caps doing well or positive performance of XYZ MF scheme. If you have decided that a particular stock is going to do well, you tend to search for confirmation on your belief from more than one source. Once your decision is validated by multiple sources, you do not want to process information that says otherwise. You may also find it easier to find and understand data that conforms to the existing belief.
How can it affect your Portfolio – 
Wrong choice of investment products leading to imbalance in investment portfolio. 
Information that opposes the belief is seen in negative light which means it is not acted upon rationally.
How can you overcome it -
Be open minded to facts and analyse them properly before reaching to a conclusion.
As a prudent investor, you should seek contrarian opinions and evaluate all pieces of information logically.

Familiarity Bias - 
Once we are used to certain shops or brands, we stick to them. Even though there might be better or newer products. This is familiarity bias. It is a common bias in investing too. Some people buy stocks of their own company or sector they work for just because they are part of it. When there is too much information or news about the performance of some investment product, we believe that it is a good product without really understanding it properly.
How can it affect your Portfolio -

• High concentration on a specific investment product.
• Less than optimum returns if the product backfires.

How can you overcome it - 

• Check with your financial advisor about the features and potential of the investment product to get an unbiased view.
• Check your portfolio. If there is too much concentration  on one product or type of product, offload some of it and diversify your asset allocation.

Hindsight Bias 
The tendency of a person to overestimate the accuracy of their ability to predict an outcome. A person believes that he or she predicted the outcome once the event occurs even though they may not have predicted it based on facts. It might have been a guess. Hindsight bias also occurs when they had two or three outcomes in their mind but once one of the outcomes occur, they start believing that they predicted it. For example, in an IPL cricket match there can be three outcomes. You might be rooting for your team to win and when they win, you declare you knew it would happen which may not be entirely correct. You were just wishing that they win.

How can it affect your Portfolio?

• Overconfidence in ability to make investment related decisions leading to mistakes
• Overestimation of ability to predict financial events leading to risky actions on the financial front

How can you overcome it-

• Assess all investment options rationally. Check for contrarian facts and numbers.
• Identify and acknowledge mistakes made in the past because of hindsight bias and learn.

Endowment Effect
The tendency of a person to value what he owns more than its real value. Economist Richard Thaler demonstrated this by giving the example of a man who bought a bottle of wine for $5 from a wine merchant. The same wine merchant offered him $100 for the same bottle a few years down the line. He refused to sell. When people sell what they own, they feel that they are losing something which is theirs. 
Some people do not sell shares/mutual funds that they have inherited even though they may not fit in their investment portfolio as they get a sense of belonging.  A person might buy  an investment product at Rs. 300 expecting to sell it at Rs. 500 within a certain timeframe. If the product reaches the price of Rs. 480 but stays there for some time threatening to go upward or downward, the person may not sell it even though the price is pretty close to his target. The endowment effect kicks in and he feels that he will lose Rs. 20.
How can it affect your Portfolio -

• Mis-timed selling that can affect portfolio returns. 
• Being stuck with assets that do not give optimum returns.

How can you overcome it -

• Acknowledge that you get the right value when you sell it at the right time. The  investment proceeds can be utilized optimally.
• Keep emotions separate from investment decisions.

Have you faced any of these dilemmas? Have you overcome these biases?
In the next post, we look at some more behavioural biases – Loss Aversion, Herd Mentality, Sunk Fallacy and Self Attribution. 

What is SWP? I see a lot of information on Bandhan SWP. Is it a new product ?
SWP stands for Systematic Withdrawal Plan. It is a facility that allows a mutual fund investor to withdraw from the scheme invested in at regular intervals. You can either decide on a fixed amount or withdraw to the extent your capital has appreciated in the timeframe. SWP is allowed  in all open ended mutual fund schemes.
SBI has repackaged the Systematic Withdrawal Plan (SWP) as a solution called Bandhan SWP. Bandhan SWP allows the investors in iSBI MF schemes to credit the withdrawal amount to the account  of any family member like mother, father, spouse, sibling or child. It is not a new product but an added feature.

What are the requirements for to facilitate Bandhan SWP in my SBI MF investment?

• The beneficiary should be KYC compliant or submit relevant documentation regarding proof of identity and address.
• Proof of relationship between investor and beneficiary should be submitted
• Cancelled cheque of the Bank account or a copy of the Bank Statement/Passbook of the beneficiary 
• The investors opting for the facility need a written consent from the beneficiary for the pay-out to his/her account. In case of any objection, the investor will have to produce the written consent from the beneficiary within 30 days, failing which the facility shall be discontinued with immediate effect.

What are the key features?

• The minimum payout is Rs. 5000.
• The payout can be made only monthly.
• If you redeem all units of a scheme in which you have availed of Bandhan SWP, the facility will be discontinued. Bandhan SWP cannot be transferred automatically to another scheme.

What are the advantages of this facility?

• Bandhan SWP has the same advantages as a normal SWP plan. It allows for regular cash flow and is also tax efficient. Small withdrawals in the initial years might escape the tax net as it will be from the initial investment amount.
• This feature allows you to transfer a pre-determined amount from the MF investment to your loved ones at regular intervals. This ensures a regular income stream for them directly in their bank accounts.
• The amount given to loved ones will be treated as a gift.
• The usual capital gains tax depending on whether its long-term or shot-term and the type of scheme is  applicable on the amount earned by the scheme
• It is a better option than MF dividends as dividends are taxable in the hands of the MF house and it means there is less for distribution.
• It offers convenience as you can directly credit the money to the person who needs it. It saves time and effort. At the same time, dependency is reduced as they get the cash directly.

Are there any disadvantages?
Investments in MF schemes are subject to risk. If the scheme does not perform well, the returns will be less or you will incur a loss. This means the amount to be given out may not be available.

Should I avail of the Bandhan SWP facility?
If you have investments in open ended SBI MF schemes and you want to give financial security to your parents, you can opt for Bandhan SWP.
If you need to support your sibling or spouse or children financially, you can opt for Bandhan SWP.
But it is important to invest in the right schemes so that your capital investment remains safe and you earn optimum returns.