First-year windfall may be shortlived for life policy agents
The Insurance Regulatory & Development Authority (IRDA) is likely to look at lowering first-year commissions paid by life insurance companies to their agents.
By TNN |
MUMBAI: The Insurance Regulatory & Development Authority (IRDA) is likely to look at lowering first-year commissions paid by life insurance companies to their agents. Speaking at the sidelines of an insurance seminar in Mumbai on Monday, Irda executive director K Subrahmanyam said the changes in the compensation structure should be linked to the lapsation. Irda-constituted committee headed by former LIC chairman N M Govardhan is likely to recommend lowering the limit of commission on first-year premium payable by insurance companies.
According to studies, the first-year lapsation is high, estimated at not less than 15%. Irda is examining whether reviewing the structure will address the issue, an Irda official said. The ceiling on first-year premium is 40% while it is 7.5% in the second and third years, with the commission on balance term of the policy capped at 5%.
However, what tends to happen, particularly with respect to life insurance policies, is that after paying premium for a year, insurance agents do not remind policyholders of their premium dues as, partly, the commission in subsequent years is not attractive.
The insurance regulator had constituted Govardhan committee in September to review the distribution channels, licensing procedure, commission structure, widening the scope of marketing insurance and examine the need for a system of referral providers, among others. The committee is expected to submit its report by December end.
The pending insurance Bill is also expected to give the insurance regulator more operational flexibility once the amendments to the insurance Acts are cleared.
According to studies, the first-year lapsation is high, estimated at not less than 15%. Irda is examining whether reviewing the structure will address the issue, an Irda official said. The ceiling on first-year premium is 40% while it is 7.5% in the second and third years, with the commission on balance term of the policy capped at 5%.
However, what tends to happen, particularly with respect to life insurance policies, is that after paying premium for a year, insurance agents do not remind policyholders of their premium dues as, partly, the commission in subsequent years is not attractive.
The insurance regulator had constituted Govardhan committee in September to review the distribution channels, licensing procedure, commission structure, widening the scope of marketing insurance and examine the need for a system of referral providers, among others. The committee is expected to submit its report by December end.
The pending insurance Bill is also expected to give the insurance regulator more operational flexibility once the amendments to the insurance Acts are cleared.
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