Insurance industry greets new law on commission- Business News

Insurance industry greets new law on commission

The insurance industry said that the new law will help arrest the high attrition rate, which has been dogging the sector for many years.

  • Mumbai,  March 15, 2015  
  • |  
  • UPDATED   16:25 IST
Insurance industry greets new law on commission
Photo: Reuters

Insurance industry has welcomed the new law that empowers regulator Irda to fix agency commission, saying this will help arrest the high attrition rate, which has been dogging the sector for many years.

Despite high attrition rates-in the first ten months of this fiscal a whopping 5,83,000 agents have left the industry-the agents are the largest sales force for all life insurers. The industry has been blaming this to the low-fee structure, which the previous insurance law had mandated.

There were 21,09,718 agents as of end January 2014 as against 21,89,000 at the beginning of April last.

As per the existing system, up to 25 per cent of the first year premium is given to the agents as commission in traditional policies. However, this is a low 15 per cent in case of money-back policies and other Ulips products.

"The new Insurance Act empowers Irda to finalise the agency commission structure and inform us. Also, it can enact regulations in such a way that commissions become attractive for the agents," V Manickam, secretary general of Life Insurance Council, which is recognized as a self regulatory organization under the new law, told PTI.

Private players ICICI Prudential Life gets 30 per cent of its business through its agency force.

"The commission should be product-wise and focus must be on how to establish a synergy between product, distribution and technology as the idea should be on how to increase insurance penetration," a senior company official said.

Meanwhile, the Life Insurance Council is gearing up to send monthly report relating to addition and deletion of agents and send the same to Irda and the finance ministry.

While 5,03,000 new agents joined the sector since the beginning of this fiscal, as many as 5,83,000 agents have left the industry as of end January, resulting in a net attrition of 80,000 agents during the 10-month period, as per data.

It will be the responsibility of insurers to recruit, train and finally issue licence to their agents.

"We will collect monthly data from all the 24 life insurers, including state-owned LIC relating to appointment of new agents and removal of existing agents from job and after preparing a balance available, we will furnish the details to Irda and Finance Ministry on a monthly basis," Manickam said.

"We are preparing a set of bye-laws which should be ready by next month," he added.

The new insurance law recognises the Life Insurance Council as a self-regulating body and empowers it to frame bye-laws for elections, meetings and levy and collect fees from its members.

On the status of existing agents, Manickam said, "There will be a continuity as none of the existing performing agents can be removed by insurers now."

The council became headless since last December after Irda member DD Singh resigned as chairmanship as the new bill did not envisage any Irda member to hold any such post.

Currently, there are 24 members in the council, who are the heads life insurers. However, the new law restricts this number to 10, out of which 4 will from the industry including one from agent representatives. The chairman will be nominated by Irda from among the 4 industry members.