Some insurers may cut agent workforce due to new norms on unit-linked plans.
Though the Insurance Regulatory and Development Authority (Irda) has revised the guidelines on charges for unit-linked insurance plans (Ulips), insurance companies say they will still need to cut down the agents’ commission.
The commissions are expected to fall as the companies will have to bring down their overall charges after Irda’s new norms on Ulips come into force.
“The easiest way to reduce the overall cost is to bring down the commission paid to the agents. To reduce the capital strain, the companies will have to relook at their expenses,” said Bharti AXA Life Insurance Chief Actuary GLN Sarma.
Irda had yesterday said that the capped charges would not include mortality fees. Despite mortality being kept out, the average agent commission would fall to 12 per cent from 15 per cent at present, according to industry estimates.
The regulator had said that the difference between the net yield and the gross yield could not exceed 3 per cent. Within this, the fund management charges are restricted at 135 basis points. The regulator has also directed the companies to illustrate returns based on gross as well as net yields in their brochures. Since the net yield comes to 6-6.5 per cent in most cases, insurers will have to redesign their cost structure.
“Agents make very less commission by selling policies where the industry average is as low as 15 per cent. With little penetration, companies need agents to acquire more customers. The agents will lose interest if the commissions are brought down,” said a KPMG executive.
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“Agents will not push Ulips,” said Life Insurance Corporation (LIC) Development Officer HP Singh.
Private insurance companies said they might be forced to cut down the inefficient workforce. Also, the attrition level may go up as agents will be forced to increase productivity in a bid to earn the same level of income. According to a report from brokerage house Edelweiss, analysts estimate that the expansion of the agency force will be limited this year.
However, the country’s largest life insurer, LIC, said it had no plan to bring down the commissions. “We would rather focus on efficiency and increase our agents’ productivity than cutting down their commissions,” said LIC Managing Director D K Mehrotra.
LIC pays 7.5 per cent commission, which is much below the industry average of 15 per cent. The insurance behemoth has around 1.3 million agents.
The total number of agents in the country is 2.7 million. Agents may now show less interest in selling small policies as they will not earn good returns on them. LIC’s Mehrotra said the minimum ticket size would be raised from Rs 5,000 to above Rs 10,000.