Institute of Actuaries of India

Subject CB3: Business awareness Online Course

Pre-course assignment of 7 exercises

There are seven exercises within this workbook which you must complete. You must also complete the
declaration on Page 1 of this assignment and then upload the workbook at IAI website under your
member login.

You need to submit the completed assignment by 21st May, 2022 by 3.00 pm under your IAI Member
login.

Any assignment which is not submitted will not be eligible for the exam and you will have to apply to take
the exam again. You may commence your work on these exercises at any time before the start of, or
during, the 10 day business game period.

Contents

Exercise 1............................................................................................................................................................................................... 2
Exercise 2............................................................................................................................................................................................... 4
Exercise 3............................................................................................................................................................................................... 6
Exercise 4............................................................................................................................................................................................ 28
Exercise 5............................................................................................................................................................................................ 35
Exercise 6............................................................................................................................................................................................ 42
Exercise 7............................................................................................................................................................................................ 43
 IAI CB3 – June 2022

GUIDELINES FOR STUDENTS

Please read the instructions below and sign the declaration before submitting the completed
workbook.

1. This workbook is intended to provide preparatory material for the CB3 Online course
2. You are expected to complete all sections of this workbook prior to appearing the online examination
3. Please ensure that the completed workbook is uploaded on IAI website under your member
login by 21st May, 2022 by 3.00pm.
4. Ensure that you complete this workbook in all earnest – your answers will be reviewed to
ensure that a reasonable standard has been achieved. This is a pre-requisite for appearing the
online examination.
5. You will be given feedback on the quality of your work prior to the exam.
6. You are prompted to adhere to the Actuarial Code of Conduct while attempting this workbook
and thereafter. It is critical that all work that you submit is your own. Plagiarism of any
kind will be treated seriously and considered a breach of examination regulations
7. You must sign the declaration below stating that this is your own work.

DECLARATION
I declare that all material I have presented in this workbook is my own work and that I
understand any deliberate acts of plagiarism are deemed to be in breach of examination regulations.

Name…Swapnil Holsamudrakar
Date……18/05/2022…………………….………………

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Exercise 1
Financial Services Companies
Having studied the tutorials on the I-coach website, and identified some relevant news items in your own
country’s newspapers or magazines.
A) How do financial services companies create value for customers – that is, what underlying
needs are they satisfying? Think about:

The need for security:

 The biggest need today for any customer is the need for security. Giving financial services
such as home loans, educational loans, life insurances, health insurances, factory insurance,
fire insurance etc. is one of the major services which create value for customer and satisfy
them as well. The customers who are entrepreneurs, young achievers can take risk because
of the competitive nature of financial services. Better services are offered when there is more
competition, which again creates value.

The need to fulfil desires:

 To fulfil the desires of the customer, customer service is a great aspect of financial services
companies. Giving easy access to credit, information availability, 24*7 services which can
help customers in emergencies, mobile banking applications, online services, etc. These are
few services which create value to customers.

The need to meet responsibilities:

 The financial services have responsibility towards their customers, to ensure they get a
feedback so they can improve. The customers feel their views are being acknowledged and
that they can rely on the financial services to fulfil their own responsibilities which they have
towards their families, businesses, etc.

Other:
 D-Mat account is one of the few but prominent services which the banks offer, which makes
the purchasing and selling of stocks and shares easier. Also, hiring a fund manager makes
work even more easy, the fund managers want to earn good commission i.e. profits hence,
they manage portfolios well and invest in the right stream which will give highest returns.

B) Why does anyone place their funds in the hands of financial services companies?
 The customers believe in the capability of the services of the financial companies. If one
wants to get high returns on investments, great amount of analysis and knowledge is
required which comes after a certain degree of training, that is why there is a special service
called as Fund managers which gives you the specialized services required.
 These services compel the customers to give their funds in the hands of financial services
companies since they themselves don’t have the time to analyze various companies, look into
different ways to invest. These activities are time consuming which make them pass these
activities to the financial companies.

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C) What sources of advantages can financial services companies use to create value for
customers?
 Superior assets such as more branches of financial services set up in remote locations i.e.
easy accessibility which will be of great advantage, since there are customer clusters in
remote regions where once educated upon the advantages of the financial services can
increase the customer base. Also, there should be reduction in NPAs which certainly do
not attract customers to take up the services of these financial companies.
 Strategic relationships can be used as source of advantage since the branding matters,
which gives additional services when acquisition is done. Partnerships, strategic alliance
can bring significant competitive advantage which adds to source of advantage which can
create value for customers.
 Human capital is also a source of advantage since the employees are the first point of the
contact with customers, the employees leave an impact on the customers. The customers
take further services from the financial companies if the employee gives adequate and
efficient services to the customers.
D) How do financial services companies capture value from the customer for providing
services? i.e. in which ways can they generate profits?
 Financial service companies can generate profits by brokerage services i.e. the buying
and selling of financial securities. These services have progressed over the years, and can
be used through an online portal or an online trading platform.
 There are services such as wealth management, tax planning, etc. which are given to
special people with a certain amount of net worth which adds to the profits since
portfolio management needs specialized skills.
 Services such as foreign exchange, money transfer are given which add value to the
company and for the customer as well.
 There is also the hedge fund management service which is provided.
 Other services such as loans, credit debit cards, automatic teller machine, advisory
services, venture capital, etc. which add value for the customer and the same time
generate profits.
E) What factors have been changing the levels of profits companies can gain from specific
types of products or segments of the market?
 Profits are being squeezed by new entries into the markets, new innovations which
change the market conditions. The competition level increases which redistributes
profits with the already existing companies and the new company which has entered the
market.
 Profits also reduce due to lack of innovation of products, the system becomes
monotonous which makes the consumer lack interest in buying the product or service.
 There might not be enough distributional channels to reach even the remotest areas of
the country since majority of the population in India lives in the remote parts of the
country.
 Sales reduce due to the lack of effectiveness of selling the product. The system lacks a
controlled and well-coordinated sells management which is essential for boosting profits
in the economy.
 Identifying problems and issues in the service system and taking measures to curb the
problems should be of primary concern since it is important, without which sales or
profits can be boosted.
 Problem solving comes from planning which is one of the most essential part of running

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an organization, only through planning, organizing, coordinating and controlling the

process in the system can the trend line be changed from lows to highs.

F) What external factors are now having an impact on customer needs and how do
companies serve these needs? What will change in the future?
Major factors having an impact on customer needs are social, economic, financial, political, and
environmental.
 Economic factors such as shocks in the economy, devaluation of the currency, wars, etc.
have a trickle-down effect on each company at some point in time. These factors need to
be taken into consideration at the time of planning as to what needs to be done in
emergencies or as and when the shock occurs take precautions to cover up for the losses,
try planning different scenarios and strategies, and selecting the best possible one.
 No one man has had any control on the environment i.e., the weather which cannot be
changed according to the company’s needs. Floods, earthquakes, storms, tsunamis,
volcanic eruptions are some of the few things beyond control of the mankind. These
factors are considered, and contingency plans are formulated. Companies which know
that they are working in an area which is prone to a certain type of calamity they make
contingent plans for the same.
 Political being one of the major factors which affect each and every company in some
way. Rules and regulations, policies made, laws made or the amendments in the laws, the
taxation system, etc. all affect the company. All the company does is be abreast with the
situation and keep themselves adaptable to any change so that work does not stop.
Changing trends and choices of the people impact the companies. The companies
research and analyze the market, be updated about the trends and requirements. They
innovate and change according to the trends to sustain in the market
 In the future, at the pace the economy is going, population will keep on increasing but at a
slower rate and the environment will further deteriorate which will further bring in more
stringent rules and regulations to protect the environment, which in turn restrict the
companies to a certain extent. Technology is advancing at a very fast pace and while
keeping up with it, the environment is being destroyed which will have adverse effects in
the future.

G) How do financial needs change in relation to an individual’s life stages in adult life?

‘Building family’ stage:

 In this stage, generally individuals work full time so that they can earn as much as they
can and as soon as they can. People tend to change jobs, start a family and work for the
needs of their new families.
 Number of things need to be planned for. Finance is required for a house, car, education
of children, timely vacations, etc. During these years generally, people work hard and
enjoy a growing trend of income, it might not be the case for all the scenarios.
 Insurances need to be removed for the family, for a better future.

Middle age:

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 In this stage of life, in majority cases children have grown older, their higher education
finance is required, wedding funds required and other needs to fulfilled as well.
 Health insurances for the wife, for the individual, for the children, for the grandparents,
everyone has to be looked into.
 Retirement plans need to be fixed, increase savings for the retirement years. Draw a will
at this stage, since diseases keep increasing every day and precautions need to be taken

Retirement:
 In this stage, people stop working full time, they travel, do things which do not require
too much exertion since the age has reached where the health starts deteriorating slowly.
 The retirement plans which were made need to be activated i.e. the savings which are
kept are made into fixed income which is received monthly for the rest of the life.
 Medical charges may be higher. Make changes to the will so that there is proper estate
management and that every person in the family gets the right things at the right time

H) Are these life stages as predictably linked to typical age ranges as they once were?
 These life stages were predictable in the past but not now.
 These stages have become haywire because the changing factors in an economy.
 Today, individuals die at a very early age due to heart attacks, drug overdose, car accidents,
suicides, etc. which were not as prevalent in the past.
 People work for a few years and even retire at age 30 because they have earned so much that
they can live a lifetime without working.
 There is always a problem of employability, these financial needs can only be met if a person
is employable. If the person does not have a job these financial plans will not follow life
stages.
 In a growing country like India, where population is so high that lakhs of people apply for
1000 jobs. This causes involuntary unemployment which makes the person not follow the
normal financial planning in the life stages.
 Some individuals keep working for years together, even till 70-75 years of age because they
might have to support the family, children must have died but they still need to support their
grandchildren.
 In circumstances like these today, which are very prevalent today, life stage planning does
not work like it used to work.

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Exercise 2

Financial Services Industry

Having studied the Financial Services Industry slides and notes (Item 5 on the Preparatory Study page),
describe in the financial services industry proforma in 900 to 1100 words corresponding matters applicable
to your own country.

The financial services industry in India is very diversified, with 64% of the assets lying with the commercial banks.
Banking sector, non-banking sector, insurance industry, pensions, etc are few of the components of the financial
service industries India. There has been a constant growth in the financial service industries over the past few
decades. Regulatory authorities have been appointed such as the Reserve Bank of India, Securities and Exchange
Board of India (SEBI), Insurance Regulatory and Development Authority (IRDA) to keep a check on the different
branches of the financial industry. The Reserve Bank of India has developed the financial service industry by
playing a dynamic role in the growth.
The financial services industry in India is customer oriented to a large extent since they create and innovate
products according to the requirements of the customer. Since, people’s needs are dynamic in nature i.e. keep
changing according to the change in the social status, standard of living, the society, etc., the industry also becomes
dynamic and meets the needs and wants of the customer while at the same time maximizing profit and welfare. The
financial sector can absorb a lot of employees in the economy. The banking sector in the FY17 has had the
maximum creation of jobs i.e. about 21% of the total employment which becomes a huge number for India.
Currently, India has a Current Solvency Principle Regime which will be shifted to Risk Based Solvency Regime by
March 2021. The Current Solvency Principle regime does not help in assessing whether the capital held is adequate
enough for the risks involved in the insurance company. The Risk based Solvency Regime will help the companies
with proper risk management to use their capital in a more appropriate manner and would also make it easy to
raise funds using the tier-II bonds. The regulations have been changing rapidly since independence so as to boost
the growth of the financial sector. The market has become wider for investments and new companies to enter but
there are certain criteria which needs to be fulfilled for it to become a registered company such as a minimum
capital which an insurance company has to have at all points of time. There is an increased level of competition in
the financial sector which makes it more efficient and productive towards its customers. Competition boost
innovations which act as a stimulus to growth of any company.
Presently, the financial service industry is growing approximately at a rate of 8.5% per year. RBI and SEBI
have played a major role by opening up the markets for new entries. New policies and Regulations have eased of
doing business in the economy. The ease of doing business index shows that India has progressed from 133 rank to
100 rank in 2017-18. Easy access of finance to Micro, Small and medium Enterprises i.e. the MSMEs by the RBI has
boosted the growth, also a Credit Guarantee Fund Scheme has been launched to support the same. The Government
Scheme MUDRA also acts like a backbone to the above scheme. Payment Banks have been included so as to make
fund transfer easily accessible. From October 2018, SEBI has allowed exchange in the equity and commodity
markets simultaneously.
India faces a lot of issues and problems regarding its financial service industry. The most pressing issue is
the increasing amount of Non-Performing Assets i.e., NPAs in the banking sector. Credit is a major source of
financing for any company but the NPA increase reduce the profits of the bank and erode the capacity of the banks
to provide credit. India has about 7 lakh crores as NPA which reduces the incentive to give credit to any company.
The growth will be hard to maintain if the NPA is not checked. To curb this problem re-capitalization can be done of
the public sector banks and at the same time make these more accountable. Another issue which is faced is the low
development of the secondary market. The Statutory Liquidity Ratio (SLR) is very high in India, approximately 20%
which implies that banks have hardly any funds to invest in the secondary market other than the government
securities. The opportunity cost is reduced since investing in the secondary market would have given them higher
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returns rather than investing in the government securities. The SLR should be reduced so that the investing power
of the banks would increase and so would their returns, which in turn would increase their lending capacity.
Another problem faced is the lack of information or incomplete information which makes the customer vulnerable.
The customer does not have enough knowledge about the different schemes and investment plans which makes the
money sit idle in the banks or as hard cash lying at home. There should more education and financial inclusion of all
the members of the society so as to stimulate the economy.
India has a high growth potential and to maintain the upward growth the government has to act and
increase the reforms and reduce the regulations which will enhance the industry. The government should create a
program or an authority which can deal with the failing public banks and take measures to develop the public
sector banks keeping in mind the welfare but also the profit.

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Exercise 3

Strategic thinking
Having studied the tutorials on the I-coach website, complete the strategic thinking exercise indicated in the
table below according to the month of your birthday.

The month of your Your exercise

birthday

January Exercise A: page 7 of this workbook

February Exercise A: page 7 of this workbook

March Exercise A: page 7 of this workbook

April Exercise A: page 7 of this workbook

May Exercise B: page 17 of this workbook

June Exercise B: page 17 of this workbook

July Exercise B: page 17 of this workbook

August Exercise B: page 17 of this workbook

September Exercise C: page 25 of this workbook

October Exercise C: page 25 of this workbook

November Exercise C: page 25 of this workbook

December Exercise C: page 25 of this workbook

I have completed exercise: B - GRID B

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Exercise 3: Using strategic concepts

Exercise A – Briefing note

The business issue: developing premium rates in a capped environment.

The Scenario

You are a senior product manager in VAULT, a financial services company established in 1980. VAULT offers a
very wide range of mass-market Savings and Protection products. Through most of its history, it has enjoyed
steady growth and profitability.

This has been because of:

 A brand reputation built over decades. High awareness of its brand has allowed it to command a
significant premium over identical or similar competitive products.
 Healthy profit margins arising from the different types of charges on its products and the recurring
nature of some of those charges.
 The fact that some long term products are difficult for consumers to switch out of, once purchased.

However, in recent years, VAULT’s situation has gradually become less comfortable due to factors affecting the
industry as a whole. Costs of selling and administration have risen significantly, even more than the average rise
for the industry. Internal discussions on this identified the reasons as being:

 The breadth of its product portfolio, rising costs of staff training, and technology costs for record
keeping.
 The various way charges are levied, to make them more acceptable to end customers.
 Investment in building distribution through superior Brokers, offering them a variety of commission
structures and above-average commissions.
 Increasing costs of complying with legislation.

This was not a concern when financial markets were growing especially the equity markets. As earnings from
charges relate to the value of assets under VAULT’s management, rising costs were covered without improving
efficiency or market share. However, the last few years brought far different conditions: a long market downturn
affecting the value of assets; less new business due to low consumer confidence in the markets and providers;
and increasing scrutiny of the retail finance market by the government.

Government interest is driven by its need for people to be financially independent, hence reducing their reliance
on the State. Unfortunately, a review the government initiated on the level of competition in the retail finance
sector did not indicate consumers are rushing to increase their purchases of financial products. The Review
found the consumer to be in a weak position vs. providers, and that it was this very weakness that determined
how the industry was structured and operated.

The review concluded:

 Competitive forces in the industry do not work effectively to deliver cost efficiency or value for money to
consumers.
 Savings levels are insufficient, especially among the less well off, in part because of the high cost of
serving this segment.

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The Review stressed that in truly competitive markets, companies are forced to offer value for money whereas in
retail finance, relationships between the price and quality of products are inherently difficult - or impossible - to
assess. This is largely because frequently product and advice costs are bundled together in ways not transparent
to the consumer.

As financial sector players had little incentive to change this ‘status quo’, the government set in train various
steps aimed at rebalancing the level of power between consumers and financial providers and to meet two top
line objectives:

1. To increase competitive intensity in the industry, creating greater pressures for price and quality
improvements.
2. To make savings more accessible.

The steps towards this included:

 Quasi regulation in form of simpler products – the introduction of capped charge ‘standardized’
products with criteria for their product terms set down by government.
 Consumer education – including tables published by the Insurance Regulator to help the media and
consumers to compare charges made by providers for competing products.
 Initiatives to govern industry conduct – especially in how the sales process is handled and information is
provided to customers.

Overall, these influences have created an environment where, in the words of one senior VAULT executive, it is
‘change or be changed’. This is already occurring to some extent. The introduction of ‘standardized’ capped-
charge products resulted in some providers lowering charges on similar products.

As the industry had little to gain by wholeheartedly promoting these standardized products, there is a growing
feeling that the government must take further steps to push its own vested interest in seeing these, or equally
good value products, made more widely available. In fact, your Chairman has received clear signals that a
company of VAULT’s standing will be expected to be showing a good example…

Ranjeet Kumar, the director responsible for life assurance, has called you to join a discussion on the implications
for the business in light of these developments.

As the government thrust is to encourage more transparency on the price and quality of products and services,
Ranjeet has drafted out his thoughts on potential price/quality positions in the market.

Ranjeet’s honest appraisal is that currently many of VAULT’s products would fall into a ‘premium price, average
quality’ position. The danger is these will be exposed as not offering good value as comparative information
becomes more widely available. Research has shown that consumers are paying the VAULT ‘brand premium’
due to familiarity rather than any deep attachment.

Ranjeet also says some VAULT products sit in the ‘medium price, average benefits’ position. The challenge for
these - and for VAULT overall if it tried to move further into this position - would be in justifying charges higher
than those for ‘Standardized products’. The government will ensure the Standardized products offer at least
average benefits at a low price, making them better value than any similar products which are priced higher. In
any case, given the government’s objectives, it is likely the pressure will be on VAULT to offer Standardized
products itself.

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Ranjeet’s draft of potential market positions, based on ‘price/quality’ relationships.

Price
HIGH LOW
HIGH
Premium price
Medium price Low price
High benefits
High benefits High benefits
VAULT future?

Low price

Benefits
Premium price Medium price
Average benefits
Average benefits Average benefits
‘Standardized’
VAULT products VAULT products
products

Premium price Medium price Low price

Poor benefits Poor benefits Poor benefits

LOW

If the market polarises into the segments Ranjeet has examined of:

1. Premium price, high benefits products and services

2. Streamlined, low price ‘standardized’ products

this will have big implications for VAULT.

For the future, Ranjeet is asking the team to consider the two different competitive positions he has identified –
for the ‘premium price/high benefits’ and the ‘low price/average benefits’ position for Standardized products.
(See above)

What you need to do

You must consider some of the issues Luke wishes to explore. Then you must complete Grid A, Grid B or Grid C
depending on your day of birth as follows:

Your day of birth The grid you must complete

1st to 10th Grid A
11th to 20th Grid B
21st to 31st Grid C

Grid A: Look at the aspects of competitive positioning in the left column of Grid A(i). Consider how the issues in
the scenario may have implications for customers, product/service, geographic area, channels to market and
level of vertical integration. Enter your thoughts about the implications in the right hand column of Grid A(i)

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Set out in Grid A(ii) what you consider to be the existing sources of competitive advantage in respect of the items
in the left hand column.

Grid B or Grid C: Use the right hand column of Grid B(i) or Grid C(i) to enter ideas on what VAULT would need
to do in order to build the proposed competitive position described.

Think about what potential sources of advantage would be needed to compete in these positions. What existing
sources of advantage does VAULT have now, and could it use them to compete in the new position(s) described?
Enter your ideas in the right hand column of Grid B(ii) or Grid C(ii).

It is usually difficult to compete in both high price and low price positions at the same time, as they can require
very different sources of advantage. So you need to consider if there are some capabilities or advantages
relevant to both ‘premium’ and ‘Standardized’ segments – perhaps if they are used in different ways to create
customer value for each position?

VAULT Company Background

Established in 1980 and headquartered in the Mumbai. VAULT operates in Urban, Semi Urban and Rural areas.

Originally selling only through its extensive direct sales force, in the past fifteen years it changed its distribution
methods to also offer its products through ‘bancassurers’ and Brokers.This was partly due to the rapid increase
in product variants it created, often to take advantage of the varied tax treatments levied on different products.
These then required higher skills in those selling them. In the past ten years, the number of staff in its direct
sales force has reduced, and it has made considerable efforts to extend the breadth and depth of its relationships
with Broker firms and Bancassurers. It has pursued this distribution aggressively, paying some of the highest
commissions in the business.

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Grid A (i)

Reviewing VAULT’s existing competitive positioning and issues affecting it

Existing Competitive Positioning How issues outlined in case may affect positioning decisions

Customers
Broad base of ‘mid market’ customers.

Product/Service
Very broad product portfolio

Geography
Currently operates in Urban, Semi Urban
and Rural areas

Channels to Market
Access to end customers is through:
 Brokers networks.
 Retail outlets (Bancassurers in city
centres).
 Direct to the customer (direct
marketing).

Level of Vertical Integration

Where is the company active in the
industry Value Chain? Which functions
are ‘in house’ and which are ‘out
sourced’?

Grid A (ii)

Existing sources of competitive advantage

Superior
Assets

Distinctive
Capabilities

Strategic
Relationships

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Grid B (i)

Competing in a ‘premium’ position

Competitive
How would you compete in this position?
Decision:
Creating various transparency tools for the customers will progress the position of the
company. In some way create a deep attachment with the customers, understanding
Customers their preferences, their choices to target the right people. Customer research can be done
through which data patterns can be removed and valuation of customer needs and wants
can be identified.
Innovations need to be done in the products provided. Premium paying capability should
be kept in mind while doing so. New product should be created looking at the market
Product/ Service research. The services should be improved in the sense that more efficient services will
strengthen the customer relations. Products made should incur lower costs so that even
if the premiums charged are low there is no loss for the company.
Geography plays an important role in the development of the company. Since the
company is developed in semi-urban, rural and urban areas it has good reach to its
Geography customers. Reaching even the remote regions of the economy gives the company a
competitive edge since the company acquires a larger customer base, which makes the
company come up with better products for different segments of the society.
There are different channels to market in the modern era, digital marketing, social media
marketing, advertisement, etc. which need to be made in a more customer-friendly
Channels to Market
manner so that the products are made transparent. But, it should be kept in mind that the
marketing cost is not to high since the company cannot incur any more losses.
Consumer relationship should be maintained taking in account their feedback as well.
Level of Vertical
Research and innovation is a must to continue vertical integration.
Integration

Grid B (ii)

Building competitive advantages for a ‘premium’ position

How could existing advantages help the company compete in a ‘premium’ position? (Or be used to build new
advantages relevant to this position?)

The company has superior assets which will give a competitive edge in the premium position.
Reserves can be easily maintained which are the requirements of a financial company. The
Superior Assets current superior assets will boost confidence of the consumers. The assets can be used to built
a brand which Is very essential for boosting sales. Goodwill is a very important asset for the
company which should be maintained.
Data advantage is a capability which not every company can maintain, which is very costly. This
can help in knowing the premium position.
Distinctive Expertise in specific skills i.e. high education level and knowledge will give better prices and
Capabilities returns.
Customer feedback becomes an essential criterion because taking timely feedbacks helps in
improvements in the company products.

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Sound reputations with the customers and maintaining good relationships with the
stakeholders and a cordial environment within the company that is employee-employer
Strategic relationships.
Relationships

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Grid C (i)

Competing in a market for ‘Standardized products’

Competitive Decision: How would you compete in this position?

Customers

Product/ Service

Geography

Channels to Market

Level of Vertical
Integration

Grid C (ii)

Building competitive advantages for a ‘Standardized products’.

How could existing advantages meet the key success factors for competing in market for ‘Standardized
products’? (Or how could they be used to build an advantage relevant to this market?

Superior Assets

Distinctive
Capabilities

Strategic
Relationships

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Exercise 3: Using strategic concepts

Exercise B – Briefing note

The business issue: educating consumers about why values of funds fluctuate and
affect their pensions and investments.

The Scenario

You are the spokesperson for LifeSage, a major Life insurance company. Publicity continues to highlight the
fact that growing numbers of endowment (both Unit Linked and With profits) policyholders are being
disappointed by the value of their accumulated fund at its maturity date compared with the projections they
had received when taking out the policies. Often, they are also given significantly different figures within a
short time frame between asking for projections in the run up to the maturity date, and the final figure they
are quoted. In the light of growing criticism, you have been asked onto a TV consumer programme to explain,
on behalf of the financial sector, why fund values can vary so greatly from projections.

You know that fund values fluctuate for varied and complex reasons, but you suspect the interviewer will try
to focus solely on the charges and performance of companies such as LifeSage, which marketed the policies
and managed the funds.

As a condition of appearing on the programme, you have told the producer that while you will acknowledge
points they may make about the financial sector, your key aim will be to explain the external factors that
affect fund values and are beyond the control of the providers.

The producer has stressed you should not make the message too complex for a general TV audience and that
your airtime is limited, so a few key messages will have more impact than a mass of facts and figures.

A colleague has suggested your message might be more memorable if you took a broader view than purely
economic factors. A useful way to think about this might be to use the PEST framework (political, economic,
societal, technological shocks impacting businesses), to think about how to explain the different influences at
work.

You previously asked a junior executive assistant in your team to gather some research material and some
key points have been collected, but currently it is a jumble of facts and issues and the assistant has now had to
move on to another task.

So you now need to sort through the headlines to identify the most significant underlying issues that have
affected policyholders whose funds are reaching maturity now and in the next five years. If you think there
are more significant factors than are reflected in these headlines you can use your own ideas in your message.

What you need to do

1. Read the summary of recent ‘headlines’ gathered from newspapers by your executive assistant – see
below. The Below headlines are just to give an idea of what may be possible reasons for the
fluctuation. The student is expected to come up with at least 2 reasons not covered in the
headlines.
2. Look at the PEST framework document to help you identify the underlying issues that have led to
both the topical newspaper headlines provided as well as the reasons that the student has identified.
Identify which are major factors that have an impact on the value of funds.

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3. Use the template provided to note the two or three most important factors in each of the PEST
categories that you would mention in your interview and why they have had an impact on fund
values.

Newspaper headings

Do you know where your money is invested – equities, bonds or fixed deposits? Consumers urged to learn
more about the funds their investments are in, to better understand their future prospects.

Financial Index now unbalanced by market value of major company representing high percentage of
the index value – what does this mean for tracker funds?
Exceptional growth in Japan raises value of specialist regional funds.

Will ‘with profits’ investors be without profits in future, as so-called ‘smoothing’ effect is defeated by
poor market returns?
Low deposit rates attract cautious investors into bonds.

Government raises limit for premium bonds – and cash keeps flowing in from savings looking for
wins.
Increasing regulatory demands increase cost burden in financial companies.

Savers suffer, but borrowing breaks previous records to make the most of low interest rates.

Demand for equities increases prices – is this the start of the next bull market?
Public spending set to overshoot by many thousand crores – government gets ready to issue bonds to finance
borrowing.

Financial companies sell equities to ensure they meet new solvency requirements.
Politicians tell us to expect a low-inflation future – but our perceptions are shaped by our high-inflation past.

Key Highlights of the Union Budget - Government Introduces a Securities Transaction Tax.
Growth in Indian equity markets expected to lag behind other world regions.

Technology – administration of funds may become more streamlined, therefore saving costs.
Consolidation in finance sector expected to reduce costs - but major players spend more on winning
customers.

Computer virus wipes millions off corporate profits…and share values.

Personal savings ratio in urban India drops to lowest level in 10 years, as consumers’ attitude to debt and
security changes.

Funds that sold shares in bear markets now miss out on rising markets.

Government orders financial companies to speed up compensation payouts for mis-selling.

Computerised Exchanges have raised interdependence and volatility of markets.

Borrowers facing interest rate hikes.

Commodities rise in value as growing markets suck in raw materials for manufacture.

On-line services help individuals manage their own investment portfolios.

Diamonds& agriculture land. …Investors head for anything other than conventional savings.

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Money moves from quoted companies to small ventures as investors look for higher growth.

The PEST framework

The following is a breakdown of sub-issues within the PEST framework. Use it to help you identify
underlying factors that have led to the newspaper headlines you have been given and which may have a
major impact on the values of a fund.

i) Political/legislative factors
 Government attitude to anti-competitive practices and public interest
 Health and safety issues
 Environmental controls
 Trade regulations
 Employment law
 Tax regimes
 Government stability

ii) Economic factors

 The stage of the business cycle
 Growth trends
 Inflation
 Money supply
 Rates of unemployment
 Disposable income
 Cost of energy and base materials

iii) Societal factors

 Demographics
 Income distribution
 Polarisation of income
 Welfare needs
 Social mobility
 Life style changes
 Attitudes to work/leisure
 Education levels
 Consumer power
 Ethics

iv) Technological trends/shocks

 Discoveries/innovations
 Speed of technology transfer
 Rate of obsolescence
 Government investment
 Incentives to industry sectors

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PEST Factor Why the factor may have an impact on the value of a fund
 Government is keen to encourage competition in the market.
This will cut down the sales of individual firms and some
companies may suffer losses due to severe competition. In such
scenarios individual share prices will fall and so the returns on
equity markets.

 Government has build up various methods to tackle various

environmental issues. Such method has lead to closure of
various companies which were not environmental friendly. This
is one of the reasons in decline of growth of capital markets.
Political /
Legislative
 Government has liberalised trade regulations since 1992 and
has lead to more competition because of foreign players
entering in the market. This has lead to increase in competition
and hence putting extra strain on local players.

 Legislation may limit the proportion of investible assets in

different assets such as overseas equity from fast growing
economies and this may reduce the fund return earned.

PEST Factor Why the factor may have an impact on the value of a fund
 Various economic instabilities in the market reduce the overall
return to the individual investors.

 There are various phases in the economic cycle. When the

economy is in booming phase, people earns more return from
their investments but when economy is in recession or
depression phase, Growth of the funds sharply declines.

Economic  A perception of high-inflation in near future may increase the

expected return on government bonds issued to finance borrowing as
Investors need an additional return to bear the risk of inflation
eroding the real value of their money. This may make bonds
attractive.

 Money moves from quoted companies to small ventures as investors

are looking for a high growth.

PEST Factor Why the factor may have an impact on the value of a fund
Societal  A n increased competition to succeed may have caused agents to
overlook business ethics and sell endowment products to customers
whose needs may not be fulfilled by the product they are selling and
hence there may be a mismatch in expectations from the funds
(projections) and actual return.

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 Personal savings ratio in India has dropped to lowest in 10 years

signifying a change in the financial habits of people may be due to
changing demographics as most of the population consists of young
individuals whose priority may be spending on consumer goods.
Banks may offer attractive interest rates to encourage saving which
may hamper relative attractiveness of other asset classes hampering
the return earned.

PEST Factor Why the factor may have an impact on the value of a fund
 Computerised Exchanges have raised interdependence and volatility
of market due to added ease of transactions

Technological  Online administration of funds may mean decrease in dealing costs

making the fund management process smoother for companies which
is a reason to cheer for investors.

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Exercise 3: Using strategic concepts

Exercise C – Briefing note

The business issue: treating customers fairly

The Scenario

You have just been promoted to acting CEO of AZURE, a market leader in general insurance with a
particular strength in property policies.

The Communications Director has asked you to help arrest damage being done to the company brand by
media commentators running a story about a claim AZURE is refusing to pay out on. The angle for the
media coverage is to contrast AZURE’s current behaviour versus its new advertising campaign, based on
the bold claim of being ‘the nation’s favourite insurance company’.

The problem revolves around a group of customers who held AZURE insurance policies covering their
buildings and home contents. The customers lived in a newly-built block of flats built on a site of
reclaimed land. Recently, extreme weather conditions and heavy rains had caused flooding, which led to
some land slippage beneath the foundations of the flats.

AZURE were advised of the situation immediately and gave the go-ahead for emergency work to quickly
underpin the building and prevent much greater damage. The Managing Agent paid for the work from the
residents’ management account, and subsequently lodged a claim with AZURE.

The construction company for the properties had negotiated a group deal with AZURE, and had bundled
the first year’s buildings insurance in a package of other benefits offered ‘free’ to buyers of the 50 flats.
This saved each of the householders the equivalent of Rs. 5000. All the customers had taken up AZURE’s
offer to add contents insurance to their policy, at an average extra cost of Rs. 5500. At the time, AZURE’s
sales unit were pleased, as they estimated it normally costs the company around Rs.1000 to sign up a new
customer.

However, AZURE’s claims investigators soon revisited the site and, on closer examination with other
experts, concluded that the construction company had cut corners when preparing the land and the
building’s foundations. This meant some declarations the builder made when negotiating the bulk
contract were not accurate and AZURE declared the contract invalid and stated this released them of any
liability. The builder was contacted, but disputed the finding and denies any responsibility.

The Director of Claims says that the company’s lawyers advise that AZURE is within its rights not to pay
out if a declaration made on the contract was untrue. He also says this also makes the Contents
insurances invalid – because if AZURE had known the risks to the building, they would not have
underwritten the contents business. He further emphasises his position by pointing out he is following
the company’s stated objectives – to put shareholders first. Shareholders’ interests are not served by
making payments on large claims when these can be avoided. Not only that – payouts on claims also
affect future premiums. This claim for the building underpinning is Rs. 1 Crore – a significant sum! On
top of this, combined contents claims from the 50 flats total around Rs. 12 lakhs.

This implies a payout per policy of over Rs. 2 Lakhs and, even if their renewal rates were raised above the
average increase of 5% per year, it would take years to recoup the payouts on these policies.

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The Communications Director, however, disagrees strongly. She states that the householders were
unaware of the risks, had believed they had buildings cover and had bought their contents policies in
good faith. As such, they should not be treated as if they had tried to cheat the company.

Another point the Communications Director makes is that after the media coverage, 550 customers called
the helpline in one day, trying to clarify cover and payout conditions on their own policies, and indicating
they are unlikely to renew if AZURE treats customers as has been reported.

The Marketing Director noted this is not unexpected, and said: ‘one satisfied customer tells three others,
one unhappy customer tells 11 – but that’s without using the mass media to tell their story. We get most
‘customer satisfaction’ stories from people where we’ve actually resolved a problem, and then they stay
with us long beyond the 5 year period averaged across most customers.’

Both the Communications Director and the Marketing Director think it is best to pay out on the policies
and take action to recoup the costs from the builder.

You have spoken to the legal department yourself and they’ve advised you that the builder could be
pursued for negligence – but why not leave this to the householders? There is also some doubt that the
house builder could afford to pay, so the money may never be recouped. If you wanted to be seen as a
‘favourite’ company, why not offer a small compensation – say Rs.10,000 – to each policyholder but on the
basis this was a gesture of goodwill, not an admission they hold valid policies.

Clearly, you face a difficult task in trying to please everyone, and you need to make some judgements on
how to balance the different suggestions that have been made i.e.

Option 1. Refuse to compensate customers, as there are grounds to argue the risk was insured on
the basis of inadequate information. You can also cite your duty to protect shareholders’
funds.
Option 2. You could make a small payment per customer as a nominal gesture of goodwill, while
ensuring it was understood this is not admitting liability to pay.
Option 3. You could agree a statement to the media explaining that you are about to contact each
person affected to assure them their claims will be honoured.

What you need to do

Task 1

As acting CEO, you’ll be well accustomed to taking a view on what makes most overall commercial sense
for the company, based on top line information such as you have here.

Set out in Grid (A) your views on the advantages and disadvantages of each option.

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Grid (A)

Task 1: Should AZURE pay out on the policy?

Advantages:

Option 1
Disadvantages:

Advantages:

Option 2
Disadvantages:

Advantages:

Option 3
Disadvantages:

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Task 2: Realigning Azure’s Objectives

You can see the company clearly needs to review its objectives, as they seem to be encouraging company
executives to pull in several different directions. When you’ve tackled the claims issue, look at AZURE’s
existing objectives and think about why these may create confusion.
As acting CEO, you should take the opportunity to review if these objectives are really cohesive, and think
how you might better manage to communicate to staff a set of financial, strategic and non-financial
objectives that are mutually supportive and can guide decisions.
1. Consider the extracts you have on AZURE’s objectives, strategic intent, mission, strategy and
tactics, as set out in Grid (B).
2. Identify if they contain any contradictory aims.
3. Come up with a new top line objective and think about what impact this might have on the
other levels – suggesting changes as appropriate by setting them out in Grid (B) under
‘Comments’.

Extracts from AZURE’s Staff handbook

To put shareholders first, giving them the highest return on investment

available in the general insurance sector.
Objective
For the next five years, create a year-on-year improvement in the margin
between insurance revenues and payouts.
Strategic Intent To be the nation’s favourite financial services company.
To offer the widest range of products in general insurance.
To continuously innovate in our processes.
Mission To make use of the most sophisticated technological aides in pursuit of our
profit objectives.
To conduct ourselves with integrity and win customer trust.
Strategy To proactively seek out low risk, high income customers.
Information sharing to avoid fraudulent claims. Use data warehouse for
customer profiling on past claims made across insurance categories.
Tactics Increase number of claims investigators.
Raise level of proof required for payouts and rigorous analysis prior to claims
payouts

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Grid (B)

Objective To put shareholders first, giving them the highest return on investment available in the
general insurance sector.
For the next five years, create a year-on-year improvement on the margin between
insurance revenues and payouts.
Comments:

Strategic To be the nation’s favourite financial services company.

Intent Comments:

Mission To offer the widest range of products in general insurance.

To continuously innovate in our processes.
To make use of the most sophisticated technological aides in pursuit of our profit
objectives.
To conduct ourselves with integrity and win customer trust.
Comments:

Strategy To proactively seek out low risk, high income customers.

Comments:

Tactics Information sharing to avoid fraudulent claims. Use data warehouse for customer profiling
on past claims made across insurance categories.
Increase number of claims investigators.
Raise level of proof required for payouts and rigorous analysis prior to claims payouts
Comments:

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Exercise 4
Problem solving
Having studied the tutorials on the i-coach website that relate to problem-solving (see i-coach -
Introduction - Problem-solving, including the 'Explore' items), read the problem solving exercises below
and solve any 1.

Problem 1

Your 30th birthday falls due in 6 months. What celebration should you plan?

Problem 2

An insurance company is considering entering the annuity market. It plans to launch a variety of products
simultaneously like an immediate annuity product, a deferred annuity, and a joint life annuity.

What factors must the company consider to achieve a successful launch of its offering?

Problem 3

You are a consultant to a company that owns a chain of coffee shops in a large city, Coffeeville. You have
been asked to advice on whether the company should open a new shop in the neighbouring town of
Teatown.

What aspects would you cover in your report?

Problem 4

You work for a company that sells car insurance. The market is very competitive, there are many
providers in the market, and premiums are being driven down. Your own market share has been reducing
as follows:

Year Market share (%) Premium income (£m)

One year ago 20 190
Two years ago 25 200
Three years ago 30 220

Should your company advertise through television for the next year costing £1m per month?

Problem solving proforma

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IAI CB3 – June 2022

Which problem have you chosen? Problem no

Go through the five stages described below, entering items in each of the tables.

STAGE 1: Generate a list of 25 issues/questions (divergent thinking) against the bullet points below

 How is the performance of all coffee shops of client company in CoffeeVille over last three
years?
 Study of the existing market share distribution of coffee shops’ market in TeaTown.
 Capacity and willingness of suppliers of Coffeeville to supply in teatown.
 Backup suppliers for material and inventories in teatown.
 Need for some experienced staff from Coffeeville to be shifted to teatown.
 Planning of new recruitments to be made in teatown.
 Level of wage rate in teatown.
 Availability of beneficial locations for setting of coffee shops.
 Whether coffee chain in teatown should be setup or not?
 Assuming coffee shops are to be set up what is the proposed plan of action?
 What is the total population of target customers in teatown?
 Which are the competitor brands in teatown?
 Comparison of general profitability ratio of coffee shops in coffee ville and teatown.
 Estimated cost analysis.
 Peoples taste and preference of coffee and tea.
 General standard of living in teatown.
 Divergence of funds for setting up of a shop in teatown.
 Legal requirements of purchase or lease with land owners in teatown.
 Who are the contractors for setting up infrastructure in teatown?
 Future scope of expansion.
 Projection of inflows and outflows in the next 5 years.
 Transportation cost.
 Frequency of citizens of teatown to go to coffee shops.


STAGE 2: Identify about 5 key themes within these questions and enter them against the bullet
points below

 Feasibility study – yes/no study

 Funds requirement and procurement
 Location and legal requirements
 Contractors, vendors and suppliers
 Administration and staff

STAGE 3: Arrange against the bullet, sub-bullet, and sub-sub-bullet points below, your
issues/questions from Stage 1 into top level questions and sub-questions based on your themes in
Stage 2
 Feasibility –
1. Status of coffee shops in tea town in general.
a) Profitability of coffee shops in teatown.
b) Distribution of market share.
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IAI CB3 – June 2022

2. Cost-Benefit Analysis
a) Projected fund outflow and inflow over first 5 years
b) Feasibility in financial terms
3. Target market in teatown
a) Population of target customers
b) Propensity and frequency of customers going to teatown for coffee
 Funds Requirement and procurement
1. Requirements
a) Projected cost of setting up
b) Breakup of fixed and current cost for first 5 years
2. Procurement
a) Interest rate, fixed and working capital
b) Loan requirements
c) Documentation
 Location and legality
1. Strategic locations
a) Identifying locations from sales and competition point of view
b) Avavilability of land on these locations
2. Legal compliances
a) Legal agreements for purchase/lease of lands
b) Statutory permissions and licensing
 Contractors, Vendors, suppliers
1. Existing
a) Capacity of existing suppliers to supply materials to tea town.
b) Cost effectiveness of transporting
2. Local contractors and suppliers
a) Backup supplies and inventories in teatown itself
b) Tie up with local contractors for making shop buildings
 Administration and staff
1. Administration
a) Preparation of administration hierarchy
b) Laying down supervision and reporting channels
2. Staffing
a) Shifting some experienced staff to teatown
b) Possibilities of new local recruitment.

STAGE 4: Refine your wording in Stage 3 to ensure no gaps and no overlaps (so mutually exclusive,
completely exhaustive). Suggest copy your points from Stage 3 into the table below and then refine
your wording
 Feasibility Study -
1. Status of coffee shops in tea town in general.
a) Profitability
b) Market Share
2. Target Customers

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IAI CB3 – June 2022

a) Population
b) Propensity and frequency
3. Cost benefit analysis
a) Projected fund outflow and inflow
b) Overall feasibility
 Fund =s requirement and procurement
1. Requirement
a) Overall projected cost
b) Fixed and current cost
2. Procurement
a) Available financing options
b) Working capital loans and interest rates
c) Documentation
 Location and legality
1. Location
a) Strategic locations
b) Availability of land
2. Legal Compliances
a) Legal agreements
b) Statutory permissions
 Contractors, vendors and suppliers
1. Existing
a) Capacity of existing suppliers
b) Cost effectiveness of transporting material
2. Local contractors
a) Tie up with local contractors for setting up infrastructure
b) Backup supplies
 Administration and staff
1. Administration
a) Preparing hierarchy
b) Supervision and reporting channels
2. Staffing
a) Shifting experienced staff
b) Recruiting new local staff

STAGE 5: Identify the dominating questions and the key hypotheses (no more than 3 of each) and
enter them against the bullet points below
Dominating questions:
 Whether total funds required for setting up can be made available from the
accumulated funds of the company and whether additional requirements will be
met by bank finance?
 Whether in view of feasibility studies and cost benefit analysis worked out on the
basis of target customers and frequency of going to coffee shops, is it a
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IAI CB3 – June 2022

strategically sound decision of setting up of coffee shops in tea town?

 Existing suppliers may extend their willingness to supply material to teatown as well and
cost effectiveness of the same needs to be analyzed?

Key hypotheses:
1. Strategically sound decision of setting up coffee shops in tea town.
2. Total requirments of funds and their procurement
3. Role of existing and local contractor, suppliers and vendors in setting up.

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Exercise 5

Case studies
Having studied the professionalism slides and notes, you are required to consider three case studies in
accordance with the table below according to the month of your birthday. The case studies are on the
following pages.

The month of your Your case studies

birthday

January Case studies 1, 3 and 4

February Case studies 2, 4 and 5

March Case studies 3, 5 and 6

April Case studies 1, 4 and 6

May Case studies 1, 2 and 5

June Case studies 2, 3 and 6

July Case studies 3, 4 and 6

August Case studies 3, 4 and 5

September Case studies 2, 4 and 5

October Case studies 1, 3 and 6

November Case studies 1, 2 and 5

December Case studies 1, 2 and 6

I have completed case study numbers: 2, 3 and 6

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Exercise 5: Case study 1 – Offer of gifts

Discuss the action you should take in response to the offer of one of the following from someone with
whom (directly or indirectly) you have a professional relationship.

(a) An initialled pocket diary.

(b) An invitation to a dinner party.
(c) Company products to the value of Rs 1000.
(d) An expensive suit piece at Diwali.
(e) A day at a major sports event, in the VIP box
(f) Invitation to dinner for your spouse and self.
(g) An all expenses paid Holiday in Goa for one week.

Consider separately the position of:

(i) An actuary employed by an Audit firm (the offer comes from the CEO of an Insurance company,
whose annual peer review is done by you).

(ii) An actuary employed by an insurance company (the offer comes from a reinsurer who wants to do
business with you).

(iii) A consulting actuary.

Case study 1 proforma

Enter the 2 most important points you can think of for each of the gifts (a) to (g) relative to any of the
positions (i) to (iii), indicating in each case which position you have used.

Gift Point Your view

(a) 1
2
(b) 1
2
(c) 1
2
(d) 1
2
(e) 1
2
(f) 1
2
(g) 1
2

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Exercise 5: Case study 2 - Privileged information

After a lively evening at an event organised by the Institute of Actuaries of India, following a sessional
meeting, you recall participating in interesting discussions on the following topics:

1. Mortality investigations.
2. Duties carried out by actuaries in your organisation.
3. Calculation of reserves on unit-linked policies.
4. General salary levels of actuaries in your organisation.
5. Current product development being undertaken.
6. Detailed bases of investment guarantee valuations you carry out.
7. Premium revisions to take into account higher commission rates and the taxation changes.

You learnt a great deal from these discussions which will benefit you (and your company). However, you
did notice that the voluble consulting actuary and the friendly reassurer prefaced all their remarks and
information with the phrase “one of my clients” or “I know of a company that” respectively, so that it was
never clear which company they were talking about. By contrast, every experience you related inevitably
referred to your own company.

How do you decide in discussions with other actuaries which subjects are professional and therefore can
be discussed openly and which are commercial and therefore secret? Please illustrate with reference to
the above list of topics.

Case study 2 proforma

Enter the 2 most important points you can think of for each of the 7 topics in answer to the question
posed by the case study.

Topic Point Your view

1 1 Mortality trend in the market can be talked about in general
2 The company’s mortality assumptions should not be revealed.
2 1 The work done by the actuaries can be discussed.
2 Company’s unique strategies must not be disclosed.
3 1 General features of the product can be discussed.
2 Company specific method must not be revealed
4 1 A range which is presently given in the industry can be talked about
2 We are not supposed to talk about salary figures of any person in particular.
5 1 No, this must not be shared or talked about
2 Popular products can be discussed
6 1 We should not talk about underlying assumptions
2 Advantages and disadvantages of different valuation techniques can be
discussed
7 1 As this applies to all these companies it can be talked about
2 The commissions and company’s response to increase in premium should not
be discussed

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Exercise 5: Case study 3 - Errors

An error is discovered in your work/another actuary's. What action do you take?

Case study 3 proforma

Enter the 5 most important points you can think of in answer to the question posed by the case study.

1 I will evaluate the impact of error on results and will check that if it can result in legal suits from
client side.
2 I will check whether this error has happened intentionally or not? Is it a typo error or system error
and how much other actuary is liable for this error?
3 I will check if results have communicated to clients or not. If not, I will ask authorised person for to
not to display or communicate results further.
4 I will report to my supervisor after making all the findings.
5 I will ask legal department/ or request my manager to ask to look into incidence so that company
can prepare for any legal consequences.

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Exercise 5: Case study 4 - A friend of a friend

A friend’s father feels he will be worse off by the buyout of a minority (but significant) stake of his insurer
by another party. Your friend believes that you know something about how insurance companies work
and asks you to find out something for her father. What should you do?

Case study 4 proforma

Enter the 5 most important points you can think of in answer to the question posed by the case study.

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Exercise 5: Case study 5 - Can’t sign / won’t sign

You are a senior experienced student providing reports for review by a qualified but less experienced
actuary. The less experienced actuary refuses to provide official sign off for your work. What should you
do?

Case study 5 proforma

Enter the 5 most important points you can think of in answer to the question posed by the case study.

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Exercise 5: Case study 6 - Working late

Joyeeta is Head of Marketing at the Householders Insurance co. Ltd. She enjoys her work, especially
working with her team who are lively, loyal and committed. The company is planning to launch a new
internet based motor insurance policy and her team is in charge of the marketing strategy across the
country. The Director of Corporate Communications has let it be known to Joyeeta that there is a lot
riding on the success of the new product, both the future of the company and her own position.

Despite this added pressure, the team has enjoyed putting together the marketing strategy, and Joyeeta
can honestly say they have all given 110%. Often they would stay late, order a take-away, and brain
storm until the early hours.

Launch week approaches, and several of the print adverts have not been approved by the Board. It’s
going to be a long night if Joyeeta and her team are going to make the changes needed and meet the
deadline for the key publications. If they miss them, the campaign loses an integral part of its focus.

The team groans when Joyeeta breaks the news to them, but on the whole they are good-natured about it.

However, Sugandha, Joyeeta’s second-in-command, pulls her to one side.

“I’m sorry, Joyeeta,” she says,” I really can’t stay late tonight. It’s my son’s final exam and I need to make
sure he studies.”

Joyeeta tells her not to worry. She’s sure they’ll be able to get through without her. But then Baldev asks
her for a word in private.

“I’m afraid I can’t stay late tonight,” he says.

“Oh Baldev!” groans Joyeeta, “Please! We need you! Especially since Sugandha isn’t able to make it. With
two people down we’d never make the deadline! Please stay! I promise not to ask you again!”

Baldev reluctantly agrees.

Later, Aditya comes up to Joyeeta. “I couldn’t help overhearing your conversation with Baldev,” he says.
“I don’t know if you’re aware, but his wife’s in hospital and she’s being operated on this evening.”
What are Joyeeta’s options?

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Case study 6 proforma

Enter the 5 most important points you can think of in answer to the question posed by the case study.

1
As Sugandha is second in command Joyeeta can give off to Baldev and can ask Sugandha to stay
back explaining Baldev’s situation
2
Joyeeta can ask Sugandha to work from home and can stretch her shift to meet the work
deadlines. While she can boost up the other team mwmbers by explaining Baldev’s situation.
3 Meanwhile she can motivate other team members to understand the importance of the project
and since Baldev is not there, they should work at a faster pace.

4 Though the situation can be well handled still she needs to inform the higher authorities. So
that they are aware of the present situation in the organisation.

5
Since less time is available to train new people, she can ask help from the other department
completing some admin work.

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Exercise 6

Business game proforma

Describe briefly in the table 10 business related points you have learnt, or increased your knowledge of,
as a result of participating in the business game.

1
Learned to tackle arguments and find common solutions where team members have
difference of opinions.
2 Learnt how to use financials for extracting information regarding company.

3
Understood how different factors affect share price of a company.
4
Prioritizing tasks in a list of important tasks from the companies view point.
5
Analysing impact of a particular strategy on prices and market share.

6
Learnt how to find loopholes in the business strategy.
7
Diversification should be done at the right time, otherwise business growth can be
hampered.
8 Employee motivation is a very essential for growth of the company without which the
company cannot function.

9
Using different softwares for analysis for predicting future trends of share price.
10
Team work was a major thing which was learnt and reporting.

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Exercise 7
Legal awareness case study proforma
You will need to work through the tutorials of Legal (trust, tort, contract & company) to
complete the legal awareness case study proforma.

Contract law

Samsthanik Corporation (SamCo) offers Logistic Solutions. One of its operations is of providing
of road transport facilities extending throughout India. SamCo transports goods through its own
vehicles, or through other transport operators wherever needed. This enables them to reach all
those cities where their own moderate sized fleet cannot reach. SamCo is a registered ‘common
carrier’ under the Carriage by Road Act 2007.

Vineet Equipment Company (VinCo) has a transport contract with SamCo for transport of
VinCo’s products throughout India for one year Jun 2014 to May 2015. Since this business is
important for SamCo, they have agreed as follows:

i) SamCo will transport the goods by its own vehicles, or whenever necessary, vehicles of
other operators. SamCo will ensure that other operators will be registered common
carriers under the Carriage by Road Act 2007.
ii) SamCo agrees to be liable for loss or damage to goods beyond the limit given in Section 10
of the Act (read with Rule 12 of the Carriage by Road Rules). SamCo takes responsibility
for loss or damage arising from any cause whatsoever, including causes beyond its
control. For an extra payment, SamCo also undertakes a higher risk for all consignments
and agrees to be liable, to the extent of lower of the following amounts,
a. fifteen times the freight, and
b. 90 % of the value of goods as declared and accepted in the goods forwarding note
of each consignment.
iii) SamCo has also agreed to remain liable for the goods upto seven days after the expected
date of delivery stated in the goods receipt of each consignment.
iv) SamCo accepts all other liability that falls upon a common carrier under the Carriage by
Road Act 2007.
v) VinCo assures enough business to SamCo equivalent to freight of Rs 50 lakhs during the
year.

SamCo has approached Indica Insurance Co Ltd (Indica) for a separate comprehensive all-
purpose insurance cover that will cover all consignments under this contract. SamCo and Indica
seek your advice. For this purpose you have to answer the following queries that they raise:

1 Is SamCo entitled to engage other No, Samco is not entitled to engage others because he
operators for carrying consignments of has signed a contract with VinCo and not the other
VinCo? parties. SamCo hasn’t taken any consultancy with other
operators what so ever so they do not become liable to
it.
2 Will SamCo be liable to VinCo for any Yes, he will be liable to VinCo for any consignment lost
consignment lost by negligence of the by negligence. The contract clearly states he will be
operator engaged by SamCo? liable for any damage which happens for whatever

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reason even if it is done by a third party.

3 What is the minimum liability of the The common carrier has, a general responsibility for
common carrier prescribed by law if the loss, destruction, damage, or deterioration in transit
goods consigned are lost or damaged as or non-delivery of any consignment trusted to him for
regards extent of liability, and extent of carriage which is subject to a few exceptions such as act
delay ? of god, act of war or public enemy, riots, arrest or
seizure and order, restriction or prohibition, The
carrier would however be liable for any loss or damage
which is due to his negligence. Liable to the limited
amount as may be prescribed having regard to the
value, freight and nature of goods, documents or
articles of the consignment.
4 Should Indica restrict its liability under Yes, it would be the right decision to do so because the
the proposed insurance to the contract made is over-bearing and can cause a lot of
minimum liability imposed by law? losses.

5 Can Indica provide insurance for goods If Samco decides to get insurance specifically for the
lost or damaged by (i) negligence of or situations mentioned then it can give insurance
(ii) criminal acts of employees of depending on the valuation of the goods to be insured.
SamCo?

6 Can Indica decline to provide insurance Yes it can decide that, to provide insurance depending
for goods lost or damaged while being on the situation and proper analyses of the contract
carried by other transport operators between Samco and VinCo.
engaged by SamCo?

Company Law
Lakshmi Finance Ltd (the “Company”) was incorporated in September 2000. The Company was
in the business of providing finance to people interested in buying property. From June 2001,
Aseem was its Managing Director. His sister, Sara, was the controlling shareholder and was also
a director. In October 2003, their sister Malika also joined as director. Both Sara and Malika
were non-executive directors. Two other non-family member directors were also appointed and
resigned as directors from time to time.
State Bank of India financed the Company and provided credit facilities of various amounts. The
facilities increased from Rs.2.5 crore in November 2001 to Rs.20.5 crore in July 2005.
Between 7 October 2002 and 15 November 2006, Aseem misappropriated approximately Rs.6
crore of the Company’s money. Investigations into affairs of the Company revealed that that
Aseem had committed a fraud. Aseem was convicted.
This was not Aseems’s first conviction. In 1993, he had been convicted on five counts of
obtaining or attempting to obtain property by deception, and was sentenced to 21 months
imprisonment. In 1997, he was again convicted of attempting to obtain property by deception
and sentenced to two years imprisonment. This fact was never brought to the notice of the non-
family directors.
In November 2006 the Company sought to recover this misappropriated money from Malika
and Sara in their capacity as directors of the Company. The claim against Malika and Sara rested
on various arguments, the most important one being the claim that the losses were caused by
Malika and Sara’s failure as directors. In particular it was claimed that they had been completely
inactive in the management of the Company and that this inactivity represented a breach of the

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duties which they owed the Company as directors, rendering them liable to restore all the funds
misappropriated by Aseem.
Questions:
1 Are Malika and Sara liable to make good Ground of inaction may be on the fact that they might
the loss suffered by the company on the not know that Aseem had committed such frauds and
ground of inaction? been convicted because they were on and off non-
executive directors.
2 Would Malika and Sara been liable if Yes, they would have been liable. If they figure out there
they had taken some steps to discharge has been manipulations then they should have taken
their duties as directors by, for example, actions against Aseem. If they do not take any action
asking questions about accounting they become liable as much as Aseem.
entries which were manipulated?

3 Will the past record of Aseem’s ability No, there is no way which can give them an excuse to
to deceive his fellow directors be a get out because it is their duty to find out everything
factor to excuse the conduct of Sara and about their co-directors and before signing a contract.
Malika? They will be liable if they couldn’t find out about their
co-director.
4 Is Aseem’s non-disclosure of the fact of Yes, it will disqualify him as a director.
his earlier conviction a ground that will
disqualify him as a director?

5 As both Malika and Sara were aware of Yes, it was their duty to inform the other directors of
their brother Aseem’s earlier the misconduct of Aseem, if they do not do so its
conviction, was it their duty to disclose violation of the company laws.
their brother’s transactions to the other
directors of the company?

6 Can they take a defence “it wasn’t me”, Yes, they are liable for failing to monitor the actions of
and say that they were not involved in other directors or to scrutinise the accounts and to ask
the day-to-day affairs of the company? the appropriate actions.
Are they liable for failing to monitor the They cannot get out by saying that it wasn’t them, they
actions of other directors or to are as much liable as Aseem for not asking the right
scrutinise accounts and to ask
questions from time to time.
appropriate questions.?

Tort Law

Mr. Saini Sharma a senior Scientist in a renowned Chemical Laboratory, Bangalore, aged 45
years, checked in Hotel Continental International, Pune on 31 December, 2013. He landed at
Pune on 31 December, 2013 and was scheduled to continue his journey to Frankfurt on 2
January, 2014 to attend a World Science Congress between 5 and 8 of January 2014 at Munich,
where he was invited to present his research paper.
In the evening of 1 January, 2014, Mr. Sharma decided to take a plunge in the swimming pool
maintained by the Hotel. He reached the poolside counter at 9.00 pm. There was no one at the
counter. He entered the doors leading to the pool, and swiftly walked to the pool, threw his
towel and personal belongings on a chair, and dived straight in. The Hotel security guard ran
after him shouting at him that the pool was closed. Mr Sharma hit his head on the bottom of the
swimming pool, and suffered grievous injuries, long hospitalization and prolonged treatment.
The following facts are revealed:

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The swimming pool closed every-day at 7.00 pm. The brochures and documents about hotel
facilities kept in hotel rooms stated that the swimming pool shall close at 9.00 pm. The counter,
near the pool, that kept record of persons entering the pool and kept custody of their things,
was closed when Mr Sharma went for swimming. A board placed near the counter gave
instructions regarding usage of the pool. One such instruction stated that the pool closed at 7.00
.pm. The board was strategically placed that anyone who entered the place could see the board.
It is mandatory for five star hotels to close swimming pools after 7.00 p.m.
The door leading to the pool was wide open when Mr Sharma walked towards the pool. Mr
Sharma did not keep his personal belongings at the counter since the counter was closed, but
carried them with him and kept them on a chair near the pool. There was no one in the pool
when Mr Sharma dived in. Mr Sharma dived into the shallow side of the pool. There was only
one security guard sitting close to the pool. The security guard had closed most of the lights on
the pool, except those that would were necessary for keeping the place lighted for security
reasons.
M Sharma had taken a swim on 31 December, 2013 between 6.30 to 7.00 pm. He had full
knowledge about the rules and regulations of the Hotel.
On 1 July, 2014 Mr Sharma filed a suit against Hotel Continental International for recovery of an
amount of Rs.75 lakhs, by way of damages and interest calculated @ 12% from the date of the
filing of the suit until payment and costs. While the suit was pending, Mr. Sharma died of heart
attack while undergoing treatment for the accident. His wife and 2 minor children, a girl and a
boy, were brought on record as his legal representatives. The claim was amended, and an
additional clause seeking compensation arising to dependants from his death was included.
Hotel Continental International has approached you. The following queries arise for your
consideration:

Questions
1 Was Hotel Continental International No, they were no negligent but they should at all times
negligent? keep a life guard near the pool.

2 Whether Mr Sharma, the plaintiff, failed Yes, he did fail to take care of himself, because he could
to take reasonable care of himself? have checked the pool and then jumped in or even
enquired that whether the pool is open or not.
3 Is Mr Sharma is guilty of contributory He is guilty to a certain extent, i.e., for not taking the
negligence ? If so, to what extent and required precautions like checking with the reception
effect? desk, checking the pool, straight away jumping in the
pool is anyway dangerous.
4 Did Mr Sharma have the last Yes, he did have the last opportunity to avoid accident.
opportunity to avoid accident?

5 Whether the wife and children of Mr Yes, the wife and the children of Mr. Sharma can
Sharma could continue the suit after his continue the case even against the wishes of Mr.
death (Refer to section 306 of the Sharma, according to section 306 of the Succession Act.
Succession Act, judgment of the
Supreme Court of 1988 in M Veerappan
v Evelyn Sequiera, and Fatal Accidents
Act 1855) ?

6 Will the Hotel be liable for losses arising No, they shouldn’t be liable about this because the
from death of Mr Sharma? mistake was majorly on the part of Mr. Sharma. But the
hotel can be set liable for keeping the pool empty and

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not keeping the electricity on at that point of time. Pool

lights should be on at all points of time.
7 What heads of loss are likely to be Loss of life, compensations for the problems to the
awarded after death of Mr Sharma? family, security, etc., will be few of the heads of loss.
What is the significance of the fact and Mr, Sharma is the senior scientist which is a very
nature of Mr Sharma’s employment? important job for innovation and for the country, thus
is a very significant job.

Assignment: Trust Law

Giridharilal Sharma is an agriculturist. He owns, among other properties, a house taken on lease,
and agricultural land adjoining a National Highway.
He made a will in 2010. By his will, he created a trust for the benefit of his two grandsons,
Anand aged 14, and Amrut aged 19. Giridharilal appointed Mansing, Pratap and Bajirao as
trustees under this will, and transferred his property including agricultural land to them in
trust. The nature of benefits to be given to his two grandsons is distinctly mentioned in the will.
Giridharilal died in 2013.
The house is leasehold and kept in trust for Anand. When its lease was to about to expire, the
trustees considered it their duty to apply for renewal. The lessor refuses to renew the lease in
favour of Anand, because he was a minor. Mansing therefore got the lease renewed in his own
name.
With an intention or earning income from the agricultural property given in the will for the
benefit of Amrut, the trustees made a contract with Litmus Advertising Agency who proposed to
erect huge advertisement hoardings on it facing the National Highway. The contract has
happened because of good offices and intervention of Bajirao. According to the terms of this
contract, the Agency was allowed to erect the hoarding flexes only for two months. Litmus
Advertising Agency did not remove the flexes, nor paid licence fees for the period beyond these
two months. The three trustees decided to file a suit against the Agency. They unanimously
decided and made a resolution authorizing Bajirao to file the suit.
Bajirao collected licence fees from Litmus Advertising Agency and deposited the amount in his
personal account. Bajirao accepted similar proposals from two more advertising agencies
without consulting Mansing or Pratap. The advance amount he got from these agencies also he
deposited in his personal account. Bajirao then purchased land in his own name with these
funds, and his own funds.
Meanwhile Pratap intends to leave India permanently.

Questions

1 Can Anand Sharma claim lease of the Once Anand attains the age of majority he can claim the
house? lease amounts, since he is a minor, the lease can only
claim by the trustee.
2 Is a suit filed by Bajirao against Litmus Its maintainable because it was approved by all the
Advertising Agency maintainable? parties to the property, but after not consulting and
taking the lease then he cannot have the suit filed.
3 What right does Amrut have concerning All the income received from the National Highway land
the land purchased by Bajirao? should be given to Amrut and not Bajirao. Hence he has
the right to claim from Bajirao.
4 How does Pratap’s absence from India Then the agreement breaks, he can transfer the trust to

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affect the trust? What is the remedy? somebody else and then leave India.

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