Customers may gain from new Irda guidelines

Customers may gain from new Irda guidelines

Effective from 1 July, the Insurance Regulatory and Development Authority (Irda) has made it mandatory for life as well as non-life insurance agents to attain a persistency rate of at least 50% by 2011-12. Persistency rate is the percentage of policy contracts that are still in force (at a specified point of time) after they have been issued.

The minimum persistency will increase to 75% effective April 2014. This rate will be calculated in terms of both premium and number of policies procured by agents. If an agent fails to achieve the mandated level, their licence may not be renewed.

For the customers

According to experts, a high persistency can only be attained by an agent through reduced mis-selling of insurance products and improved services. “In many cases, a policyholder decides to discontinue the policy as it does not serve the purpose for which it was bought. With the new guidelines, agents will be forced to suggest products according to the customers’ needs," says Chirag Jain, chief operating officer, Canara HSBC Life Insurance Co. Ltd. “The quality of the post-sale services will also improve," says P. Nandagopal, managing director and chief executive officer, IndiaFirst Life Insurance Co. Ltd, a joint venture insurance company.

For the agents

According to the new guidelines, the payment of deferred commission will also be subject to achieving the required persistency rate. Every insurance company will have to devise their own guidelines on deferment of payments to agents. “The days of part-timers are now over. Only those agents who are full timers and professional will be able to generate enough business so as to become eligible for deferred payments. This means customers will no longer encounter erratic agents," says G.V. Nageswara Rao, managing director and chief executive officer, IDBI Federal Life Insurance Co. Ltd.

K.G. Krishnamoorthy Rao, managing director and chief executive, officer Future Generali India Insurance Co. Ltd, agrees. “Insurers will soon decide the minimum business an agent is required to achieve in a given year. The short cuts would not work any longer and only those agents who take their business seriously will be able to survive," he says.

Customers stand to gain as higher persistency rate would mean more business for insurers, which in turn may pass on the benefit to the customers.