Quarterly Premium Target After Thirty Days
A semi-urban LIC branch has a quarterly first-year premium target of ₹96,00,000 and 12 advisors working 25 days a month. In the first 30 days the branch writes 96 policies: 40 endowment policies with an average first-year premium of ₹50,000 and 25% commission; 36 money-back policies at ₹30,000 average premium and 20% commission; and 20 term policies at ₹12,000 average premium and 10% commission. The branch manager reports the numbers at a review meeting and says the branch is 'comfortably ahead'. The divisional office, however, measures performance only against the quarterly target and has 45 working days left. Advisors are already working at capacity in terms of customer meetings, so any increase must come from higher conversion, higher average premium, or a changed product mix. The branch cannot add advisors before the quarter ends.
1. Calculate the premium collected, the gap to target, the required daily run-rate for the remaining 45 days, and the policies per advisor per day needed at the current average premium per policy. Is the manager's 'comfortably ahead' claim supported?
Read the worked answer
Premium collected = (40 × ₹50,000) + (36 × ₹30,000) + (20 × ₹12,000) = ₹20,00,000 + ₹10,80,000 + ₹2,40,000 = ₹33,20,000.
Gap = ₹96,00,000 − ₹33,20,000 = ₹62,80,000.
Required daily run-rate over 45 days = ₹62,80,000 ÷ 45 = ₹1,39,555.56 per day.
Average premium per policy = ₹33,20,000 ÷ 96 = ₹34,583.33.
Required policies per day at that average = ₹1,39,555.56 ÷ ₹34,583.33 = 4.04 policies/day, or 4.04 ÷ 12 = 0.34 policies per advisor per day.
Current run-rate = ₹33,20,000 ÷ 30 = ₹1,10,666.67/day, i.e. 3.2 policies/day. If nothing changes, the branch ends at ₹33,20,000 + (₹1,10,666.67 × 45) ≈ ₹83,00,000, which is about ₹13 lakh short. The 'comfortably ahead' claim is not supported.
2. The branch estimates that cross-selling can raise average premium per policy by 10% without changing the daily policy count. Will that close the gap? If not, what daily policy count is needed?
Read the worked answer
New average premium = ₹34,583.33 × 1.10 = ₹38,041.67. At the current 3.2 policies/day, the branch writes 3.2 × 45 = 144 more policies, generating 144 × ₹38,041.67 = ₹54,78,000. Total = ₹33,20,000 + ₹54,78,000 = ₹87,98,000, still ₹8,02,000 short.
Required volume = ₹62,80,000 ÷ ₹38,041.67 = 165.1 policies over 45 days, i.e. 165.1 ÷ 45 = 3.67 policies/day. That is about 21 extra policies over the 144 already projected, or 0.31 policies per advisor per day instead of 0.27.
The cross-sell lift helps but does not by itself close the gap; the branch needs both the 10% premium lift and a modest increase in policy count. That is a useful managerial distinction: a price or premium-mix lever and a volume lever are not interchangeable.
3. To close the ₹62.8 lakh gap, the branch considers writing only endowment policies for the rest of the quarter. How many policies are needed, what commission would that generate, and what suitability risk should the branch flag?
Read the worked answer
Gap-closing endowment policies = ₹62,80,000 ÷ ₹50,000 = 125.6, so 126 policies. Premium = 126 × ₹50,000 = ₹63,00,000; commission at 25% = ₹15,75,000.
If the branch used only term policies, it would need ₹62,80,000 ÷ ₹12,000 = 523.3, i.e. 524 policies, with commission of 524 × ₹12,000 × 10% = ₹6,28,800.
The endowment route is arithmetically efficient, but it carries suitability risk: a ₹50,000 first-year premium is large for irregular-income customers, and pushing it to hit a branch target can cause mis-selling, early lapses and adviser-level complaints. The branch should not treat 'fewest policies' as the only test; it must match premium to income, document a needs analysis, and keep a protection component for customers who cannot afford endowment.