Insurers may soon have to lower agent commission for ‘participating products’

Insurers may soon have to lower commissions to insurance agents in certain product categories, such as participating products even as they are faced with high agent attrition.

Incidentally, to improve the returns on insurance products, the Insurance Regulatory and Development Authority of India (IRDAI) has approved a proposal to bring down insurers’ overall expenses by around 15 per cent, said Nilesh Sathe, Member-Life, IRDAI.

“If insurers breach the expense limits defined by the regulator, the excess payout will have to come from the shareholders’ fund and not from the policyholders’ account,” Sathe added.

This comes even as the market regulator SEBI has asked mutual funds to disclose the commission payout to agents and to disclose to investors the commissions paid to their distributors, including payouts in the form of gifts, trips and sponsorships.

Sathe said that while the regulator has not asked insurers to reduce commission payouts, insurers will have to comply with the expense limit regulations and bring down administrative expenses.

In fact, in the draft circular, the regulator has proposed higher commissions to insurance intermediaries, including agents, to provide a relatively sustainable career for them. This comes as data from the Life Insurance Council show that life insurers lost 51,278 agents in 2015-16.

Arijit Basu, MD and CEO, SBI Life Insurance, said that the challenge for many insurers will be to manage commission payouts to agents within the expense limit.

Industry experts say that while the regulator had streamlined other product categories, such as unit-linked products where the commission payout is restricted and clearly defined in the benefit illustration, the expense limits are likely to impact their marketing budgets and commission payout in categories such as participating products where the charges are ambiguous.

Participating products are essentially non-guaranteed products, where the insured gets a ‘profit or loss’ that the insurer generates by investing the premium collected.

Sanket Kawatkar, Principal and Consulting Actuary at Milliman, said that in participating products, expenses in excess of the proposed limits, which were previously shared 90 per cent by the policyholder and 10 per cent by the insurer, will have to be fully borne by the shareholder.

COMMENT NOW