IRDA asks life cos to focus on renewal of existing policies

NEW DELHI: In a stock-taking meeting of life insurance companies recently, the insurance regulator has asked companies to concentrate on renewal of existing policies against focusing only on New Premium Income (NPI). Some of the insurance firms have been growing at a much higher pace relative to the industry.

“The sector has entered into a phase when it is important to pursue not just topline growth, but also ensure that the quality of growth is sustainable. Earlier, the growth was on a lower base. Going forward, it may not be possible to keep up with that rate. Some of the companies have been growing too fast compared with the industry as a whole. It is time companies looked at lapsation ratios,” said Insurance Regulatory and Development Authority (IRDA) chairman CS Rao.

Max New York Life Insurance MD and CEO Gary Bennett said : “The regulator wants a greater focus on renewals and protection and retirement products to add a broader range of options to consumers. We have had a terrific run on ULIPs, but also need to do better at broader asset choice beyond equity. We should not slow down, but keep the customers we have made long-term and give them a much more comprehensive choice of life Insurance products”.

IRDA has put in place a committee for examining the commission structure in the industry. The 10-member committee, which was set up in September 2007, will also examine various distribution channels and is expected to submit its report on December 31 this year. At present, the commission structure is specified in the IRDA Act, 1938. Making changes to the structure will entail amendment to the Act, which can be a lengthy process. The existing commission structure does not incentivise agents to ensure proper customer service and a lower policy lapse ratio.

Life insurance agents get disproportionate commission in the first year itself, and subsequent collection of premiums is not accompanied by an attractive rate of commission as the first year — this increases lapsation ratios.

The committee will also look at linking commissions paid to the quality of service provided to policyholders. “The structure should be such that the agent becomes responsible for the policies he has sold and follows it up in subsequent years.

The payment of the commission should be such that it’s spread over a longer time and not the bulk of it in the first year itself,” Mr Rao suggested. The commission that an agent earns in the first year of the policy can be as high as 40%. For some companies, the lapsation ratios are more than 60%.