Why LIC should worry about losing its agents

“A forgotten insurance policy saved my family," says Shabbir Rangwala. “My father, Asgar Ali Rangwala (Kikabhai’s son), was there when the insurance paper was found and he told me that was the moment he decided to join a sector that saved families. He sold insurance from 1942 onwards and later became an LIC agent. I followed him," he adds, noting that he became a Life Insurance Corporation of India (LIC) agent in 1970.

Rangwala, 72, wanted to become a lecturer, but knew there was more money to be earned in the insurance sector through commissions. “When I started, I earned ₹270 as commission every month. The earnings of an agent can grow manifold with the right training and mentoring on how to spot the needs of a client," he says.

However, Rangwala is no longer an LIC agent today, having joined the insurer’s rival ICICI Prudential three years ago as it offered “better prospects". Like him, thousands of LIC’s agents have deserted India’s biggest life insurer to join its rivals or pursue careers in other fields.

Indeed, in the draft red herring prospectus (DRHP) for its initial public offering (IPO), which opens today, LIC had sounded a note of caution: “If we fail to attract and retain agents, our ability to market and sell our products and provide our customers with the level of service we aim to provide them could be adversely affected since a considerable decrease in the number of our agents could lead to us having reduced capacity in distributing our products, which could have a material adverse effect on our results of operations."

The reasons for the fall in LIC’s agent numbers are many. To begin with, the advent of online insurance providers and aggregators has negated the need for agents as everything is done online. Secondly, rivals have been wooing LIC’s agents, as was the case with Rangwala, offering better compensation packages and incentives. Commissions appear to be another issue—LIC has cited the Insurance Regulatory and Development Authority (IRDA) of India’s 2016 rules, capping commissions in its DRHP, saying they have limited its ability to offer agents incentives. Also, unlike in earlier times, people entering the job market have many more career options before them and becoming an insurance agent is rarely at the top of the list.

To be sure, LIC’s 1.3 million agents (as of December 2021) are not an endangered species. They are, in fact, the largest insurance sales force in the country by far, accounting for 55% of the total number of agents in the country. ICICI Prudential Life is a distant second with 196,785 agents (8.5%).

Nevertheless, for any insurance company, holding on to every agent is crucial because they are the thread linking not just to a customer but to their family, neighbours and acquaintances over multiple generations.

In the age of cryptocurrencies, LIC is also grappling with agent productivity. “The average productivity of our individual agents in India fell from 18.11 policies sold per year in fiscal 2020 to 15.49 policies sold per year during fiscal 2021 due to the impact of covid-19," it says in the DRHP.

While its rivals’ agents make full use of technology to quickly capture customer details and close a sale, LIC is not that nimble.

Commission Issue

Top agents earn commissions in crores and beat the salaries earned by most CXOs in India Inc. But not everyone makes it that far. Many an agent drops out along the way. Those who stay, like Bharat Parekh, who has been an LIC agent since 1985 (when he was 18), make it big.

Today, he has 45,000 policies under his belt, over 30 employees and pension plans worth many crores of rupees. Parekh has been featured extensively in reports by the media but refuses to divulge the average income he and other top agents earn from commissions. He, however, is quick to note: “Agents need better commissions to join this job and not head for an ecommerce platform."

LIC has acknowledged that agents need to be trained and incentivised better, noting that it is facing “high attrition".

“The Insurance Regulatory and Development Authority of India (Payment of Commission or Remuneration or Reward to Insurance Agents and Insurance Intermediaries) Regulations, 2016, limits our ability to incentivize our insurance intermediaries in India (e.g., individual agents, corporate agents, insurance brokers... and insurance marketing firms) by imposing limits on the payment of commission or remuneration to such agents and intermediaries," the IPO documents said.

“We may need to increase commission and other benefits to attract and retain enough agents, subject to the cap on commission payable to our agents," the RHP notes. Mint spoke to a number of LIC agents, who said that their commissions depend on the type of policies they sell and can range between 2% and 25%, factoring in the premium and policy tenure.

The latest caps by the sector regulator state that if an insurance company is more than 12 years old, the first-year commission is capped at 35%. For single-premium pension policies, the commission payable is capped at 2% of the premium. In the case of a regular premium pension policy, the commission payable in the first year is capped at 7.5%; in the following years, the commission is capped at 2% of the premium. On non-life policies, the cap on commissions is 15%.

Lack of training

Senior agents Mint spoke to expressed concern that the new crop may not last long in the industry. They felt that agents do not get the training and mentorship they need to make it in this industry.

“LIC needs to have better trained agents to compete among so many products today," says Rangwala. Covid has only made the work of an agent harder as families want to keep more money in hand and are averse to taking up new policies that may dent their liquidity.

Gopinath Krishnaraj, a 46-year-old commerce graduate who has been selling insurance since 1997, adds his voice to the demand for better agent training. “Entry should also be made tougher; not everyone can become an insurance agent. It needs marketing skills that not all possess," he laments.

Currently, LIC agents have to be at least 18 years old and pass standard X. They have to clear a test the insurance regulator conducts but senior agents say the bar isn’t high.

That low entry bar on selling insurance has become one of the main hurdles for LIC. Part-time professionals, home makers and even interns can work as agents.

A Mumbai-based agent who did not want his name revealed said that earlier generations of agents were mentored better. Digital training, he says, is not the same as having someone going into the field with you.

“There are stories about how senior agents hauled up juniors for not dressing up smartly, they would be taken to task if they were not aware of the latest offerings and could not correctly tap into the needs of the clients with their products. Today, it is all via the phone and the connect is missing," said the LIC agent.

‘Those were the days’

Parekh, a veteran LIC agent, has seen the insurance market mature in India. He says the work of an agent has come a long way from maintaining a ‘bai khata’ (ledger) to using analytics to learn more about a customer.

Parekh, now 55, joined LIC at the age of 18 as a part-timer since he had to support his family financially. He maintains about 100 books that contain his customers’ birthdays, anniversaries, premium dates and policy claim timelines.

“I used to go through obituary columns in newspapers every morning in Nagpur. I used to then visit the grieving families for the next few days, trying to understand if there are any insurance claims that the family can benefit from," recalls Parekh, who has two offices, one in Fort, Mumbai, and the other in Nagpur.

For him keeping in touch and understanding which policy is best suited for a customer are the two most important factors for an agent’s success. “No one entertained us earlier. Insurance agents were considered to be the harbingers of death. Today, I have high networth clients who call us from the hospital when there is a birth in the family so that I can chalk up an insurance policy," says Parekh.

He does not see the rise of digital insurers affecting the prospects of LIC agents. “It’s a push and pull concept. You may buy car insurance online but for life insurance you will meet an agent and find out details that will impact your family. Car insurance is short term and you can go wrong with it and renew it again. The same is not the case when terms are for two decades and more," explains Parekh.

Rewards for patience

“I tell the younger lot to give it five years before you can see the impact on your career. A private job will give yearly hikes but an insurance agent’s commissions start to increase after a few years. That bet has to be taken," says a Kolkata-based LIC agent who has been in the business for a decade. Over five years, an agent can build a decent book, earning commissions from new business and renewal premiums. With each year, those earnings will rise.

“Also, after a few years of building a base, you won’t have a 9am-5pm job, but can choose your client meetings and pace of work. How many firms will offer that," he wonders.

In an old LIC ad, Ritu Nanda, perhaps LIC’s best known and biggest agent, echoes that sentiment. She urges the educated to become LIC agents. “Be your own boss; earn as much as you want; work at a time you choose to," she says. According to some reports, she set a record selling 17,000 LIC pension plans in a day. Nanda, who passed away in 2020, was actor and director Raj Kapoor’s daughter and was married to industrialist Rajan Nanda.

Parekh, too, counsels agents to be patient, because selling insurance with LIC takes time and is not a quick fix for money. “Both customers and agents need to have more patience. LIC is not immediate," he says.

LIC offers its agents remuneration, retirement benefits, advances, group insurance, training support, as well as pre- and post-sales support services. The job, the Kolkata-based agent underlines, comes with many benefits, particularly the stability of being linked with a 70-year-old government backed firm. “There is a convenient housing loan for agents, and festival advances that private players won’t give," says the agent, who did not want to be named.

“We didn’t have too many career options in our day. Today, there are many options, but if you look beyond the gruelling hours, this is one of the best career choices one can make. Instead of selling insurance, one needs to look at the profession as that of a financial consultant," says Krishnaraj.

But that “image" of a professional “financial consultant" is often lacking. Rangwala recalls that he was not allowed inside the homes of many customers. Tired of chasing leads, he left his job for a while in the 70s and joined a hotel in Mumbai at the front desk.

“I worked there for 9-10 months. I saw and realized that even in the hospitality sector there is a ‘Yes, Sir’ culture, where the customer is treated with utmost respect. Then why should we in the insurance sector get upset and join some other industry," wonders Rangwala. He soon left his hospitality job and went back to working as an agent.

Nevertheless, LIC does have a tough job, going ahead.

Many like Parekh remain confident LIC can retain its loyal agents. “Covid made it difficult for agents to go into homes but now things are looking up. I am sure LIC will work to retain agents. Once an LIC agent, always an LIC agent!"