Insurers want to encourage persistency in agents.
To address concerns on persistency and recovery of acquisition costs after the stiff regulations on unit-linked insurance plans (Ulips), insurance companies are going to raise the commission they pay on renewal premium by up to 100 per cent.
Surrender charges have now been capped from the second year. So far, insurance companies were making money from policy lapses, as there was no cap on discontinuance charge, which went up to 100 per cent for some companies.
“Insurance companies have intimated that commission on Ulips will almost go up by 100 per cent after the new guidelines are in place. The regulator has given a clear message that insurance companies can now make money only the right way,” said Bajaj Capital’s managing director, Sanjeev Bajaj. The commission on second-year premium is around one per cent for some companies.
To make Ulips a long-term protection contract, the Insurance Regulatory & Development Authority (Irda) made significant changes in recent months. It capped the difference between gross and net yield, reduced surrender penalty and mandated higher risk cover with Ulips.
The aim was to give distributors an incentive to persuade policy holders to pay renewal premiums on time. This is detrimental for companies, as the surrender charge is capped and they cannot charge more than 15 per cent if the customers discontinue with the policy in the second year. Insurers, however, will have to give a guaranteed yield after the lock-in period, that is from the fifth year onwards.
“Under the new guidelines, commission on renewal will go up to encourage persistency, as companies will recover charges only when the policy is in force. Acquisition cost cannot be recovered unless the policies are retained longer,” said G V Nageswara Rao, chief executive officer (CEO) and MD, IDBI Fortis.
“Increasing commission on renewal premium is one way of increasing persistency. Though mis-selling is the main reason for lapses, we have to see whether increasing commission is substantive incentive for agents to renew policy,” said India First Life Insurance MD and CEO, P Nandagopal.
Insurers are to also rework the persistency management process. At present, companies send a reminder letter, SMS alerts and calls.
“Philosophically, maintaining high persistency has become very important. There have to be multiple interventions, besides advisors’ intervention like making many touch points — enabling ECS, drop boxes, changing product feature, etc,” said V Srinivasan, chief financial officer, Bharti AXA Life Insurance.
Insurance companies are busy re-filing products. They had sought clarification from the regulator on the new Ulip guidelines and also wanted an extension on complying with the norms.
