Commissions on insurance sales to rise in April.

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What?

The Insurance Regulatory and Development Authority of India (IRDAI) has recently released a notification that details the new rates of commissions to be paid to insurance agents and intermediaries (brokers, web aggregators, insurance marketing companies, etc.). There are new rates for the sale of life insurance and non-life insurance policies, but not on micro-insurance policies.

The notification also states that if a person acquires an insurance policy without the aid of any agent or intermediary, then no commission will be paid to any party.

Insurance companies are also now expected to maintain a solid written policy that outlines their payment process, rates, commission, rewards, remuneration, etc. to insurance agents and intermediaries – this policy is to be approved by the insurance company’s board of directors.

Why?

The IRDAI and insurance companies together feel that India is largely un-insured. The reach of insurance products has not fully penetrated the rural sector, and even in the urban sector there are many without insurance.

The move will also serve to instill a sense of trust in the entire concept of having an insurance policy – something that many Indians prefer not to bother themselves with. Recent polls suggest a lack of confidence in insurance companies by the common Indian, who feel that insurers merely collect premiums and depend on obscure clauses to avoid having to make promised pay outs.

This is totally justifiable for the common man, and is a point that requires some explanation from the insurance companies. According to the IRDA’s Death Claim Settlement Ratio Data of 2015-2016:

  1. Life Insurance Corporation of India issued 7,61,983 policies but only paid out 7,49,249 of the claims that were made. That’s 12,374 people to whom promised benefits weren’t paid for whatever reason.
  2. ICICI Prudential Life Insurance issued 11,034 policies but only paid out 10,615 of the claims that were made. That’s 719 people to whom promised benefits weren’t paid for whatever reason.
  3. HDFC Standard Life Insurance issued 12,430 policies but only paid out 11,811 of the claims that were made. That’s 619 people to whom promised benefits weren’t paid for whatever reason.
  4. Birla SunLife issued 7,204 polices but only paid out 6,372 of the claims that were made. That’s 832 people to whom promised benefits weren’t paid for whatever reason.
  5. Reliance Life issued 14,618 policies but only paid out 13,714 of the claims that were made. That’s 904 people to whom promised benefits weren’t paid for whatever reason.

The official list contains details of 24 registered insurers in India. It should be noted, however, that claim settlement ratio is only one of the factors that determine the reliability of an insurer.

Details

For life insurance policies, the new proposed payment structure is as under:

  • Single premium:
    • 2% on individual life insurance products.
    • 5% on individual pure risk products.
    • 2% on individual immediate and deferred annuity products.
    • 5% on group pure risk products.
  • Regular premium:
    • 40% is the first year commission on individual pure risk or term plans, and 10% on every subsequent renewal.
    • 15% is the commission for the first 5 years on individual non-pure risk plans, and 35% for policies taken for over 12 years + 7.5% on renewal premium.

For non-life insurance policies, the new proposed payment structure is as under:

  • 15% of the premium for comprehensive and own damage motor insurance policies.
  • 5% of the premium for third party motor insurance policies (new category of commissions).
  • 15% of the premium for individual health insurance policies.
  • 5% of the premium for group health insurance policies.
  • 15% of the premium for retail fire insurance policies.
  • 15% of the premium for marine and other miscellaneous policies.

If you’re getting a whole bunch of calls from insurance agents, now you know why.

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