Sunday, February 28, 2010

Ajit Jain: The Indian in Warren’s Investment Buffet


OMAHA (Outlook): Warren Buffett certainly knows a thing or two about making the right investments. In 1986, when Indiaborn Ajit Jain gave up his job as a consultant at McKinsey for new challenges at Berkshire Hathaway, Buffett was quick to recognise the worth of his new colleague. In his letter to shareholders at the investment holding company last month, Buffett wrote: “Very quickly, I realised that we had acquired an extraordinary talent. So I did the logical thing: I wrote to his parents in New Delhi and asked if they had another one like him at home. Of course, I knew the answer before writing. There isn’t anyone like Ajit.”

Berkshire Hathaway’s third major insurance operation is Jain’s reinsurance division headquartered in Stamford, Connecticut, and staffed by 31 employees. “This may be one of the most remarkable businesses in the world, hard to characterise, but easy to admire,” Buffett said. “From year to year, Ajit’s business is never the same. It features very large transactions, incredible speed of execution and a willingness to quote on policies that leave others scratching their heads. When there is a huge and unusual risk to be insured, Ajit is almost certain to be called.”

Such lavish praise from the man Forbes magazine branded the richest in the world in 2008 has once again set tongues wagging: Does the 79-year-old ‘Oracle of Omaha’ intend to appoint Jain as his successor?

To some, Buffett appeared to signal as much when he went on to add “a final post-script on BHAC (Berkshire Hathaway Assurance Co)”. “Who, you may wonder, runs this operation? While I help set policy, all of the heavy lifting is done by Ajit and his crew. Sure, they were already generating $24 billion of float along with hundreds of millions of underwriting profit annually. But how busy can that keep a 31-person group? Charlie (Charles Munger, vice chairman, Berkshire Hathaway Corporation) and I decided it was high time for them to start doing a full day’s work,” he wrote.

Speculation that Jain will fill Buffett’s shoes has been gaining steam for a few years now. In 2006, the International Herald Tribune carried a story with the headline: ‘Ajit Jain has Buffett’s ear—and may have his job when he’s gone’. Indeed, Jain is among a handful of candidates seen most likely to succeed Buffett. Other potentials often cited are Richard Santulli, who runs NetJets, an operator of private jets; David Sokol, chief executive of Berkshire’s MidAmerican Energy Holdings; and Tony Nicely, chief executive of the company’s GEICO car insurance unit.

Jain’s assistant Beverly Ward told Outlook that he was travelling and unavailable for an interview. But given his past responses to similar media requests, the selfeffacing Jain would have likely declined to comment had he been available. “Mr Jain doesn’t usually do interviews,” Ward explained. In 2006, while declining to comment on similar succession speculation, he had told the IHT in an e-mail message that showcased his self-deprecating humour: “It is undoubtedly the case that any disappointment I have caused you by declining the interview is far less than the disappointment I would have caused you by granting it.”

Author Robert P. Miles has a stack of books on Buffett to his credit. In one of these—The Warren Buffett CEO: Secrets from the Berkshire Hathaway Managers— Miles describes Jain as the “accidental manager”. Born in India in 1951, Jain earned his engineering degree at IIT, Kharagpur. “Even though I enjoyed being an engineer and looked forward to engineering as a profession, I very quickly realised that engineers— certainly in India, but also here in the United States—end up being shortchanged. I was working six days a week and making a quarter of what people in sales and marketing were getting paid. So I figured that if I couldn’t beat them, I’d join them,” Jain told Miles.

At the urging of one of his supervisors in India, Jain went on to study at the Harvard Business School. After getting his MBA in 1978, he joined McKinsey and Co as a management consultant. Fed up with his job, Jain quit in 1981 and returned to India. Following an arranged marriage, it was Jain’s wife, Tinku, who pushed him to return to America, where his former employer McKinsey promptly snapped him up.

In 1986, at the urging of his former boss, Michael Goldberg, Jain joined Berkshire Hathaway. The rest, as they say, is history. Jain is second only to Buffett in his revenue-generating abilities at the company. In the spring of 2001, Buffett wrote in his annual ‘Chairman’s Letter to Shareholders’: “It is impossible to overstate how valuable Ajit is to Berkshire. Don’t worry about my health; worry about his.” Miles notes that Jain is known for “closing the largest sale in reinsurance history, but no deal is too small for him. He will still get in his car to capture a $1 million insurance agreement”.

He describes Jain’s small office as cluttered full of papers and documents at the time of their meeting. “Ajit is very frugal— maybe even more so than Buffett. At the time of our interview, he hadn’t replaced his secretary in three months, and was retrieving his own e-mail and booking his own travel reservations.” In an interview with Outlook, Miles described Jain as a regular guy. “Ajit is a kind man, someone who you would enjoy having a cup of coffee or tea with,” he said. “He is obviously a brilliant man, having graduated from IIT, but not all intelligent men are friendly like Mr Jain.”

Industry insiders describe the relationship between Buffett and Jain as extremely close. Miles says the two talk on the telephone every day, usually in the afternoon. “They talk about the insurance risks being considered and the appropriate premiums to charge. Many of the deals Mr Jain does are one-off or one of a kind insurance policies that only Berkshire Hathaway has an appetite for. Deals like insuring the Salt Lake City Winter Olympics, or Pepsi $1 Billion Dollar Chimpanzee Challenge or (baseball star) Alex Rodriguez’s $250-million disability insurance contract,” he says.

“Do first-class business in a first-class way. Work hard. Be smart. Manage little,” is how Miles describes the common ground between the two. Jain is not easily distracted by chatter about succession plans at Berkshire Hathaway. But Buffett’s frequent praise for Jain only helps fuel the speculation. When asked outright at a press conference whether he intended to appoint Jain as his successor, Buffett quipped: “I still do talk to him every day.... That’s how I get smarter.”

- By Ashish Kumar Sen

How Insurance Agents Cheat Customers?


Consider a situation you pay 500 rupees for a pen which has the name “PARKER” on it. You go home and take out the pen to write. It comes as a shock to you when you see that this pen has a refill of Cello Gripper inside. You start fuming and rush to the shop and yell at the shopkeeper. The shopkeeper says that he never guaranteed you about that pen and you never asked for a guarantee, and shows the board which reads “goods once sold cannot be returned or exchanged”.

You may say that this situation is an exaggerated one but this is somewhat very similar to what happens in the insurance industry when claims of policy holders are rejected.
All the organizations in the world have a rule book which decides the actions that all the employees have to perform and which differentiates DO’s and Don’ts and insurance companies are not an exception to this. Each and every country has a regulating body to monitor and regulate the insurance companies. In India the regulating body is IRDA (Insurance Regulatory & Development Authority). As it happens in almost all businesses even this industry has got some disputes and many times in the news paper we see policy holder suing his insurance provider. Now there may be many reasons for such a thing happening and one of the factor which is widely accepted and debated is the role of the insurance agents. There have been many reports where the insurance agent has not provided the complete information or unwanted information or mis-informed the prospective customer in order to close the sales. As a result of this policy holder is at the receiving end when his claims are rejected by the insurance companies.

Some of the reasons why the insurance agents lie to prospective customers are;
  • Insurance agents are only bothered about commission that they will be getting once they get the deal done.
  • They do not have the full knowledge of the product that they are selling hence they end up giving false information to the customer.
  • They are afraid of the awkward questions that the customer can shoot at them while they are explaining about the product to customer.
  • They are under the pressure of their boss and are trying to reach the sales targets.
Although we have given some of the possibilities these cannot be generalized. It cannot be concluded that all theinsurance agents are alike. There are some who have taken their work seriously and have come up in this field, but we cannot disagree with the fact that the attrition rate is pretty high in this particular field which leads to companies recruiting people very often and which results into this situation.
There are various situations during which the prospective customer is foxed by the insurance agent. In this article we will be discussing some of them and try to find out the ways by which we can overcome such situations.

Good morning sir, I’m calling from X company. Recently we have launched policy named…….
We all receive such calls day in and day out. The only answer that the receiver should say is “I’m not interested”. Have no doubts the lady speaking on the other side will have a very sweet voice but our concern is we are the ones who will be investing our hard earned money. A basic rule put down by IRDA is that to sell a policy you should have passed the exam conducted by the same body. Now the person who is speaking over the phone with the client may or may not have this certification and most of the times it’s seen that they don’t have any certification. They will just try to persuade you to accept to the offer and collect all the details of your credit card number. If you give all the details you will blame yourself whole life for doing that. The person calling us may not have any certification and hence experience and will not have the full knowledge of the policy that she is selling to customer. In the process they end up over promising or adding some of the features or do not give you the full details.
Sir you will be getting back 5% of the premium amount in the first year….
This will be also one of the greatest lies and the most often heard by customers. Not only this along with this agents will add up sentences like “you are the selected one” or “our company is giving this offer only for this month” or “limited period offer”. Agents will say anything and everything to lure the customer which in reality will be far from the truth. This will be utter lie more than 90% of times. We know that insurance agents get commission for business that they have got for the company. Commission is decided on percentage basis. For example an agent sells a policy of 3,00,000 rupees and if the commission is 2% then he will be getting commission of 6000 rupees. Now if the premium that customer pays for the first year is 10,000 rupees and agent has told the customer that 10% of premium is refunded, and then the amount will be 1000 rupees. Agent won’t mind paying one thousand when they can get 5000 rupees because of that one policy.
Sir you just need to sign here I will manage all the other documents…..
This is one of the dialogues which insurance agent says. He will take your sign and then move. But have you seen the offer document, illustration sheet, prospectus etc. if no then there is always a possibility that you may have missed something which would obstruct you from claiming the insurance money later. Never ever just sign on any piece of paper that the agent gives you. Go through all the documents that he is showing you make sure that you have read all the clauses that are printed and then only go ahead and sign.

Sir you pay the first premium now. I will get all the documents tomorrow and get your signature….
If the insurance agent tells you this then you may have a loud laugh at it. Do not agree to all that he says. What if tomorrow he comes to you with documents in which it has been printed that your insurance cover is for 4 lakhs whereas on the previous day agent had said that it would provide cover of 6 lakhs. You may feel that these things will never happen, but there have been many instances where such cases have occurred and the policy holders have taken a legal action and have got justice. This would take a lot of your valuable time and energy. That’s the reason it is always better to prevent than to cure.
Sir this policy covers even you treatment charges…..
There are health insurance policies and they cover your treatment charges. Insurance agents sell these to customers and this is the only dialogue that they tell them. If the customer knows about insurances then he will surely ask agent about all the diseases that this particular policy covers. If in case you get any disease not covered under this policy then you will have to shell out your own money for the treatment. Hence it becomes very important for a customer to know of all the diseases that policy covers. What is the use of taking a medical insurance policy which does not cover diseases such as diabetes, arthritis, brain tumor etc and your family has had a history of diabetes. It is very important because there are various policies such as Mediclaim, GIC’s medical insurances policies which does not cover a host of diseases ranging from asthma to hypertension. Customer should go through the fine print very carefully.
Now-a-days idea of just opting for insurance cover is getting outdated. Due to want of earning more and more money and advancement of financial system there has come an investment which will take care of both your investment and insurance cover, its ULIPS (Unit Linked Insurance Plan). Let’s look at some of the things that agents say while selling ULIPS.
Sir this plan will give guaranteed returns….
This sentence is used to attract the customers because agents know that customer will definitely fall for this sentence. One thing the customer needs to understand that there are more than ten investment avenues that will give you guaranteed returns, the reason why you have opted to invest here is you want more returns and insurance cover. Customer must enquire about the premiums paid to existing customers. If it’s not suiting your investment objectives then opt for another plan or approach for another service provider.
Sir this plan has given 36% returns over last four years.
At the outside the percentage looks damn good and attractive for a customer to opt for this plan. But they have to be careful and not fall for the percentage figure, because what he is saying is the total returns given over the four years. Using a concept called as CAGR (Compounded Annual Growth Rate) you can easily say that agent is fooling you.
(1+i)4 = 1.36
1+i = 1.0799
i = .0799 or 7.99%
Once you dissect the figures you get to know that all he is saying that plan is giving you returns of 7.99% per year. Most of the investment avenues assure you more than this one.

Sir you can stop paying premium after three years….
The truth is that the period that agent is referring here is lock in period and an investor can stop paying the premium even before three years. ULIPS are considered to be long term investments and agent is telling customer that he may stop paying premium after three years which is against the investment objectives.
Some preventive steps that customers can take are
  • Make your agent explain the fine print to you. Fine print contains all the terms and conditions and if the agent can explain you all that and if you are satisfied then go ahead with the plan. Customers have the right to learn all the properties or characteristics of the products that they have been offered.
  • Best thing is to buy the policy from an experienced agent.
  • Note down all the documents that have to be produced by the customer in order to claim the policy money.
  • Remember if you don’t get justice here or feel that you have been cheated by the company or agent then you can go to the redressal committee.

Thursday, February 25, 2010

Tuesday, February 16, 2010

Tuesday, February 09, 2010


Bus Day @ namma Bengaluru

February 4th, 2010 was observed as the first Bus Day here in Bengaluru. And is scheduled/planned to happen every month on the 4th.
What is this Bus Day?
It is a daylong event promoting ‘Public Transport’ in the city of Bengaluru on February 4th, 2010. It is an event calling all the citizens of Bengaluru to use the ‘Public Transport’ on Feb 4th for all their daily commute in the city.
What is so special about bus day?
Bus day is suggested by few enthusiast citizens (members of Praja as well). The idea behind Bus day is to observe the changes which can be brought in the city in following respect · Environment · Traffic Situation · Health of individuals · Perception
Success Story: (experts from DH)

Pollution levels dropped on Bus Day
There is clearly a need for more ‘Bus Days’ in the City as the first such venture by the BMTC on Thursday saw a marked slump in the level of pollutants in the atmosphere.

An analysis of ambient air quality levels before, during and after the ‘Bus Day’ was conducted. The KSPCB mobile laboratory was stationed for eight hours on February 2, February 4 (Bus Day) and February 5. The monitoring was carried out from 10 am to 6 pm on all the days.

Additional Info: Poster (Click) | Bus Day Route map (Click)