Pure term insurance products may see price hike with revised commissions

First year premiums in life insurance products could see an upward revision as the regulator has proposed higher commissions for these products that could go as high as 50% for such policies with premium paying term of 12 years or more.

The Insurance Regulatory and Development Authority of India (IRDAI), in an exposure draft on remuneration for insurance agents and intermediaries, has proposed higher commission for agents in the first year as also subsequent years to incentivise these distributors. 

Even in single-premium policies, for pure risk products without return of premium, a higher commission of 10% has been proposed for agents.  These commissions indicated are paid as a percentage of the premium paid in the first year and the subsequent years of the policies.

Apart from pure risk/term plans, other policies with a longer premium paying term have higher commissions for agents. Further, it has also said that insurance companies can give rewards over and above commissions.

R M Vishakha, MD & CEO, IndiaFirst Life Insurance said that the proposals would help incentivise agents and especially would be beneficial in the group term space to bring it on par with non-life sector, though she said that there could be more loading in first year premiums.

With respect to rewards, IRDAI said that this should not be more than 20% of first year commission or remuneration in case of individual insurance agents and 40% of first year commission or remuneration in case of insurance intermediaries. 

Industry officials also said that additional responsibility has also been put on agents as the regulator has asked them to make more transparent disclosures to policyholders about the premiums and how they have been calculated. In another exposure draft on appointment of insurance agents, IRDAI has said that agents, among other duties, should disclose the scales of commission in respect of the insurance product offered for sale, if asked by the prospect. Hence, when commission rates are revised, these disclosures may be needed to be given if sought.

The proposal says that in regular premium policies (par and non-par), for policies with premium paying term of 12 years and more will have 50% first year commissions for agents and 10% for the subsequent years. For those with term of 5-11 years, the commission will be 40% of first year premium and 10% in subsequent years. 

Deepak Mittal, MD & CEO of Edelweiss Tokio Life Insurance said that directionally, the guidelines are the right step and allows insurance company boards and allows having flexible incentives based on performance and business quality.

Non-life insurance plans could also see some marginal impact of commission revisions. IRDAI has said that even in motor insurance, commission of 10% for first year and second year of registration of vehicle will be payable whereas it will be 15 per cent from third year onwards.

In retail health, policies with one year duration have commission of 15%, whereas those with three year duration will have the same commission to be paid during all three years as a percentage of the premium.

The government health insurance scheme will also have commission of 0.5% of premium subject to a cap of Rs 50,000 per scheme per policy year. This is applicable for both life and non-life sector.

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