These amendments follow the main circular of the Insurance Regulatory and Development Authority of India (Irdai) on life insurance products (Insurance Products Regulations, 2024). The major changes include reducing the entry age for purchasing an endowment plan from 55 to 50 years. The basic minimum insured amount has been increased to ₹2 million ₹1 lakh with an increase in premium rates. Interestingly, the policy now acquires a cash value at the end of the first year, provided the full one year’s premium has been paid. Before, it was two years.

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What the agents say

The revised agent commissions are a corollary of changes to staffing plans. The decision did not go down well with officers. The Life Insurance Agents Federation of India (All India LIAFI) and regional federations are planning to launch a nationwide event. They staged peaceful protests in front of LIC branches.

“The commission of agents has remained the same since the inception of the LIC in 1956 until September 2024, while the salaries of LIC employees and executives have only increased. LIC had reduced the commission by almost 7%, including bonus payments. We demand that the first year commission remains as it is, which is almost 35% (including bonus),” said Nayan Kumar Kamal, National President, All India LIAFI.

The agents also demand that the commission in the second year be increased to 9%. Certainly, life insurers can pay up to 7.5% renewal commission. Ranvir Sharma, national president of Life Insurance Agents’ Federation of India – 1964, a sub-federation of All India LIAFI, said LIC pays only 5 per cent.

“Our demand for 9% is justified because LIC offers a 10% discount on policies sold by LIC staff and 15% in direct sales. When LIC can support such a discount, our renewal commission could be at minus 9%,” he said.

The Federation believes that the clawback clause is even more worrying. “What is our fault in case of surrenders? We should not be held responsible if a policyholder faces financial difficulties and does not pay their premiums,” Kamal said.

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They also said that reducing the entry age to take out an insurance policy to 50 should be reconsidered. “People nearing retirement would want to take out insurance policies to leave a legacy for their family. When life expectancy increases, the decision to reduce the age bar is regressive,” Sharma said.

They also demanded a reduction in GST on late premium payment charges. “When you charge GST on the premium, why do you also add it to the late fee? This makes our job difficult when we convince policyholders to continue with their policy,” Sharma added.

Questions sent to LIC remained unanswered till the time of filing the story.

What industry experts say

Krish Prabhakar, insurance industry veteran and managing director of Kuwait-based Zain Insurtech, said that given the direct correlation between the improvement in cash value and the acquisition cost (commission of agent), reducing commission is a no-brainer and agents should instead focus on increasing it. volumes.

“Agents need to focus on increasing the volume of policies sold with better persistence. A positive cash value from the end of the first year is not the norm and therefore LIC has a justification to adjust the structures “My guess is that agents earn more than 70% first year premium in the first three years on participating policies, with renewal commissions lagging behind for the service,” he said.

When it comes to clawback, this clause exists in developed markets like Europe and Singapore, and even in less developed markets like Malaysia and Taiwan, according to Ketan Mehta, founder of ACESO, a company that provides solutions to insured. “The persistence rate is high in these countries,” he said.

Persistence bonuses can offset commission recovery. “In my opinion, full buyouts occur largely due to the mismatch between the client’s needs and their financial means, which is part of the due diligence that agents are expected to perform before closing a sale” , Prabhakar said. “If customers are not stretched to capacity and do not have cushions in case of emergency, full buyouts can be minimized or even eliminated. It is a reflection on the quality of the sale by the agent and therefore a bad sale has consequences. Overall, commission recoupments can be offset by persistence bonuses. »

The persistence rate tells you how many policies have been renewed in a given period. It is 77% over a 13-month period and more than 50% over 60 months, according to LIC data. This means that more than 20% of policies are discontinued within the first year and half of policies do not exceed five years.

Lack of training

Agents may have to accept the new commission structure as LIC has issued a notice saying it will take disciplinary action against agents who “impede the smooth running of its offices and interfere with the delivery of appropriate services to its policyholders “.

Reducing commissions and tying them to persistence will help, but it’s just as important to put more time and effort into agent training. “The quality and level of education of a few officers is questionable. Even a tenth pass can appear for a nominal exam to become an LIC officer. Earlier, LIC provided training of 100 hours which was first reduced to 50 hours and now it is in just 25 hours, blatant mis-selling by agents in bancassurance channels is also common,” Mehta said.

Sharma agreed. “Mis-selling happens because young boys are lured to make easy money. They don’t understand the product and sell it to people. Why should we, who have devoted our entire lives to LIC, suffer?” Sharma said.

It will be interesting to see if the new commission structure will help improve retention. The solution may lie in the creation of a secondary market in which policyholders can sell their policies to interested buyers.

“It is a win-win situation for policyholders, agents and insurance companies. Although there is no full-fledged secondary market in India, unlike some developed markets, a one-off assignment is possible .ALIP (grant of a life insurance policy) can resolve “It can also ensure that a part of the death benefit will return to the beneficiary even after the surrender. At the same time, insurance companies can protect their assets under management by not having to pay a surrender fee,” Mehta said.

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