Mumbai: Life insurers will be allowed to offer group insurance policies to their agents under a proposal cleared by the industry regulator. This could help insurers retain agents who have been leaving the industry after the Insurance Regulatory and Development Authority (Irda) tightened commission norms.The industry has 2.8 million agents.
A senior Irda official said that at the first stage, the regulator will allow life insurers to offer group health and group term assurance policies to their agents.
India opened the insurance industry to the private sector in 2000, but no private insurer is allowed to offer group insurance cover to its own agents. The cover will be an incentive for agents who have recently seen a drastic cut in their commissions.
Irda will issue guidelines on group insurance for agents in the next two weeks, the official said.
“Those agents who have been with a company for 5-10 years should be incentivized in some ways. We feel it will help the industry retain the performing and serious agents in the business,” the Irda official said. He declined to be identified as the final guidelines are yet to be framed.
Under the proposed structure, an agent may be offered a health cover of up to Rs2 lakh annually as a part of the group health insurance plan. The group term assurance plan is also likely to offer a life cover of Rs2-3 lakh.
All agents who have completed 5-10 years will be offered these covers at a nominal premium, the Irda official said. “A company may opt to offer different plans with different sum assured and premia under a single group insurance, according to the experience of the agents with the same company,” he said.
There are 23 life insurers in India with total assets worth around Rs13 trillion. Till October, the industry collected new business premia of Rs69,707.92 crore. Nearly 80% of the new business premia in life insurance comes from sales of unit-linked insurance policies (Ulips).
Ulips are hybrid products that combine life insurance and investments.
Till August, life insurance agents could earn up to 40% as first-year commission from the sale of Ulips. Such lucrative front-ended commissions were drawing millions into the business of selling insurance. In fact, since 2000, the number of life insurance agents in India has grown fourfold from 700,000.
Following a sudden tightening of Ulip norms in September and the erosion in commissions, the insurance business has turned unattractive for agents.
Irda also capped surrender charges, stipulated a minimum risk cover, top-up benefits, and fixed gains or sum assured for Ulips.
The most significant reform has been a cut in commissions that insurance companies used to pay their agents for selling Ulips—from 57.5% over five years to 30-32%. The first-year commission has been brought down from 35% to 10-15%, according to a second Irda official, who also didn’t want to be named. For pension plans, the first-year commission has come down from 7.5% to around 5.5%.
These norms forced companies to curtail their agency cost, and the agents started looking for different jobs to earn more.
“It will certainly help the industry to motivate agents and attract performing people to remain in the business. This in turn will result in better advice for customers and increase productivity of the agents,” said S.B. Mathur, secretary, Life Insurance Council, a lobby for life insurers in India.
Interestingly, Irda has also tightened the performance criteria for agents recently in its effort to improve the persistency ratio in the industry. The persistency ratio refers to the proportion of policies that get renewed every year.
Some of the performance criteria for agents are to ensure an average annual persistency ratio of at least 50%.
Among other norms, the minimum number of policies per agent need to be 20 per annum and the minimum first-year premium income to be procured by an agent Rs1.5 lakh a year.
These rules are yet to be finalized by Irda, but industry experts say that when these rules are enforced, 50% of the agents will be out of business.
The Irda official quoted in the first instance said the final guidelines on both agents’ performance criteria and provision of group health and term assurance policies will be announced later this month.
“Only good agents are required in the industry, and group health and term policies at nominal premium should help companies incentivize the agents,” said the second Irda official.