Insurance Regulatory and Development Authority of India (IRDAI)’s Member (Life) has said that the Authority has found that life insurers in the country do not pay adequate commissions to their agents. According to him, many agents end up getting only 10% of total premium as first year commission instead of 35%. It is a disconcerting statement, which implies that insurance companies are not only taking customers for a ride, but also duping own agents. If so, IRDAI needs to investigate and penalise the errant life insurance companies along with making the report public. IRDAI needs to investigate the agent commission disclosures made by the insurers and check if they fulfil the same.
An endowment policy of premium payment term of 12 years or more will pay 35% of premium as commission to the agent. LIC will pay 35% for agents who have been with the company for five years or more. For others, the commission will be 25% of premium unless he/she is able to sell six policies in a year which entails for full commission of 35%. Once the LIC agent completes six policies in a year, the additional 10% of commission will be paid for all the prior policies sold in that year.
It is unlikely that any agent will accept 10% commission instead of the usual 25%-35% without making any complaint. If so, will IRDAI corroborate their statement with actual data? Is the statement made only to justify IRDAI Member (Life) assertion that agents do not churn policies due to unattractive incentives? Churning of life insurance policies is a major mis-selling to earn high first year commission offered by traditional policies. IRDAI seems to be turning a blind eye to existing policy lapse to mis-sell new policy with justification of mere 10% agent commission which is hard to believe.
In reality, IRDAI seems to be confused about agent commission. IRDAI chairman hinted at an imminent cap on insurers’ expense ratio. It can force insurers to reduce the commission paid to agents and usher in more affordable products. IRDAI chairman wants insurers to use data from insurance information bureau for its analytics to help bring down the cost of insurers. But at the same time, IRDAI member (life) has stated that Indian life insurance companies do not pay hefty commissions to their agents and that the agents needs to be compensated adequately for their hard work. Insurance being a push-product is difficult to sell to prospective customers. It’s IRDAI flip-flop on agent commission.
If IRDAI can change the front loaded commission of ULIPs in September 2010 to be distributed over the years, then why can’t it do the same for traditional products? Is it difficult to see that more traditional products are sold instead of a better product ULIP just because of first year commission? Will traditional products be pushed by agents if they are getting only 10% instead of 35% allowed for the product? Various committees have recommended rationalization of upfront commission structure of insurance agents to increase the persistency ratio. But, IRDAI seems to be in denial mode and trying to find justification for continuation of high first year commission with hard to believe assertions.
IRDAI has launched a central database of all insurance sales persons in India. The database, called ‘Envoy’, is supposed to ensure that all licensed insurance sales persons working for insurers and intermediaries, including entities such as insurance agents, broker qualified persons, specified persons of corporate agents, authorised verifiers of web aggregators, point of sales persons (POS), etc, do not work with multiple insurers and intermediaries in the same business category. With so many cases of fraudulent selling by unlicensed personnel to dupe customers with false promises, IRDAI’s focus should be to curb the menace of deceit instead of trying to ensure that licensed agent works only for one insurer or intermediary. Instead of questioning the insurers who underwrite such fraudulently sold policies, IRDAI is interested in licensed agent compliance to not work with multiple insurers and intermediaries.
From: Deepak Xxxxx
Date: Sat, Feb 5, 2011 at 12:26 AM
Subject: Fwd: Out of Office AutoReply: Agent code 107918-atrocious deduction of renewal commission-IRDA LIC.CODE-CMG-327490-UPTO-04-12-2013
AXXXTxxx
Any dispute between an agent and Insurance company-for commissions-IRDA CAN NOT DO ANY THING LEGALLY.
Reply is from HORSES' mouth.( Dt.4th Feb.2011)
Deepak
Mumbai 400 0xx.
---------- Forwarded message ----------
From: agent
Date: Fri, Feb 4, 2011 at 4:30 PM
Subject: Out of Office AutoReply: Agent code 107918-atrocious deduction of renewal commission-IRDA LIC.CODE-CMG-327490-UPTO-04-12-2013
To: Deepak
Dear Sir/Madam,
Thanks for your email-
With regards to Agents FAQ following are our replies:
1. Transfer of License :
Kindly refer the 2nd September 2009 circular on the following link :
http://www.irdaindia.org/sep09_flash.htm
Transfer of Agent license from one Insurer to other the procedure is
That the Agent is expected to get NOC and apply to New Insurer DP (Designated Person) and register him self on web portal www irdaonline.org
2. Issue of duplicate license/Data Correction etc.
For any kind of servicing of license kindly approach the DP (Designated Person ) who has issued the license
3. Remuneration:
For any kind of Remuneration issue, Non payment of commission, wrong calculation etc. gifts and related matter Kindly approach the Head office of the Insurance company only. Since our role in these mater is limited to facilitator.
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For any other queries kindly send email putting the Subject of your email as: “Agent reminder†to [email protected]
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