The Insurance Regulatory & Development Authority (Irda) has proposed a string of minimum requirements for agents, including a clause for the renewal of their licences.
The regulator said licences would not be renewed if the agent’s persistency ratio was less than 50 per cent. It said each agent would have to sell a minimum of 20 policies and earn at least Rs 1.5 lakh per annum.
“There is a need to set certain minimum standards and requirements for agents and mandate insurers to review the performance of agents periodically,” Irda said in a draft.
“A minimum 50 per cent persistency ratio for agents is good for the industry. This will encourage agents to sell more long-term products,” said Life Insurance Council Secretary General S B Mathur.
Insurers, however, said the regulator should not limit the number of policies and first-year premium income for agents. “The proposed 50 per cent persistency is a fairly reasonable benchmark. If you have done good selling, the experience of the industry is that you reach 80 per cent persistency,” said Bajaj Capital Managing Director Rajiv Bajaj.
The average persistency ratio of agencies is around 70 per cent but small agencies fail to cross the 50 per cent mark. “Where agents are groomed to become true professionals and build a long-term career, attrition would be less and persistency would certainly be better. It is necessary to have an environment where agents take their careers seriously,” said Irda.
High attrition adds to the cost of the company, since it increases acquisition costs and the burden is passed on to policyholders.
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The regulator has proposed a disincentive for lapses for commission claw back by the insurer, on a proportionate basis. Alternatively, Irda said a part of the first-year commission can be withheld and be paid based on persistency in subsequent years.
Irda said failure of agents has often resulted in high lapsation rates in some of the new and emerging companies. There are several causes of decline in persistency that are linked to agents. Further, spouses and close relatives of employees of insurers would not be engaged as agents by insurers.
Persistency would ensure regular inflow of income to agents through renewal commission. It would also mean lesser acquisition costs for the insurer and protection for the policyholder.
According to a study by Irda on average persistency rates from 2004-05 to 2006-07, bancassurance had the highest persistency followed by tied agency, brokers and corporate agencies.
Persistency is the percentage of life insurance policies for which premiums are paid at the end of a defined period.