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Joined: March 16, 2009 India

IRDA New Guidelines For Life Insurance Agents

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Expert Author Sadanand Thakur

If you are representing as an Insurance Agent for any Life Insurance Company in India you may be aware of the recent decision taken by. The decision taken by Insurance Regulatory & Development Authority is as follows:

"In a first of its kind measure, Insurance Regulatory & Development Authority has decided to penalize agents if the insurance policies are not renewed. The move, aimed at curtailing wrong selling, will entail commissions being retracted from agents and credited to the policyholders account. And such not renewed policy to be treated as Single Premium Policy".

Being full-time Insurance Agent for ICICI Prudential Life Insurance Company, I personally welcome this decision. This will bring more transparency in the Insurance Industry.

Presently what happens the Insurance Companies recruit the sales team, called as Unit Manager or Development Officers or Sales Managers to recruit and support the insurance agent and in the process they are getting handsome rewards in the form of incentives in addition to their salaries. To earn extra incentives these sales force recruit as many as more insurance agents without looking to their merit. I have found that every such sales personnel recruits almost 100 new agents every year but out of that only 10 to 12 remain in the Industry as regular agents. No one can stop this practice as it is not written on anybody face that whether he will work as agent regularly or quit after some initial sales. Insurance companies are also promoting this practice to increase their sales quantum.

Meantime what happen so many persons gets recruited as Insurance Agents, they bring their own policy then bring the policies of their relatives and friends and after some time they stop introducing new customers due to lack of knowledge about the finance industry. In the process employed, self-employed, unemployed and housewives are get recruited as an Insurance Agents. Most of them do not acquire require knowledge of the industry nor they are serious about their job as an insurance agents. They look it as their income generating tool, earn some commission, pass on the part of it to customers and enjoy from the commissions they get and then quit the industry because they could not full-fill the norms of bringing 12 policies in a year. It's ultimately results negatively on the insurance customers. They become orphan and stop receiving regular after sales service. It has also created lot of difficulties and bad impression of the Insurance Industry. And then came saying "Insurance is sold and not brought".

Though the insurance policy is very much essential for every individual, in the world to protect their family members, in case of untimely death of individual due to any reason whatsoever.

Actually, as far as possible, the job of Insurance Agents or even Mutual Fund distributors should be looked as a full-time career opportunity and it should be encourage by all regulatory bodies. It will boost the employment generation as well as customers will get good after sales services from qualified full-time agents. The percentage of laps of policies will reduce to sizable extent.

In the interest of active Insurance Agents for any life insurance company I make following further suggestions in this regards:

1) As regards to recovery of commissions on the first years commissions paid the agents, in case of laps of insurance policy in 2nd year due to no payment of renewal premium will create lot of problems for the insurance companies, because there is high percentage of agents quits after introducing 1 to 5 policies, they get paid their commissions immediately. Then it will be headache for the Insurance companies to recover the commission from such agents who have already quit their agency business. It will ultimately reflect on the performance of the company and regular premium paying customers shall be sufferer due to increase in expense ratio of the company. After all the companies shall pass on the expenses on the customers and they are not going to bear it from their own pocket.
2) Initial charges, especially in case of Unit Linked policies, are very much ranging from 10% to 60% in the first years premium. And in subsequent years, on renewal premiums it is in the range of 1% to 4%. Out of these charges the insurance agents are paid commissions in the range of 5% to 40%. The charges of different Insurance companies are not unique and they differ from company to company and product to product, it creates conflicts in the minds of customers.
3) I suggest that for all the regular premium insurance policies of all insurance companies the charges should be unique. As in the case of Mutual Fund (it is 2.25% entry load - if invested through the distributor).
4) The rate of commissions to the agents should also be unique in all insurance companies.
5) I suggest that charges should be divided over the period of time depending on the length of policy. The charges should not be more than 3% to 5% on yearly basis and rate of commissions to the agents should be in the range of 2% to 4% for entire term of the policy.
6) To encourage the full-time and regular insurance agents they should be paid trail commissions on the Assets under Management on regular basis at certain percentage say @ 0.5% yearly, on the total Assets under Management on monthly basis, to meet the agency expenses.
7) The insurance business brought in by the outgoing agents should be transferred to such full-time insurance agents who will provide after sales services to the existing customers and they should get renewal commissions for their services and it should also be treated as part of Asset Under Management for calculation of trail commissions.
8) The trail commission is require because at present in Unit Link Insurance Plans policies are having surrender value of 96% after payment of 3 years premium and many customers opt for non paying the future premiums.
9) There should be restriction on the expense ratio of the Insurance Companies on the basis of their fund size.
10) The other charges like policy administration charges, fund management charges should also be identical for all the companies.
11) It will encourage healthy competition among the Insurance companies and skill of the fund managers will have utmost priority. It will ultimately beneficial to the policy holders.
12) It will also encourage healthy competition among the insurance agents because long-term relationship with the customers will have the great value.
13) It will also helpful to the policyholders because they will receive after sales service from somebody.
14) Active insurance agents should be treated after completing minimum 3 years agency business.
15) There should be certain criteria of Minimum laps of policies for such agents.
16) It will ultimately beneficial for active insurance agents as well as end customers.

If you are an Insurance Agent/Advisor for any life insurance company you are welcome to submit your views and opinions on this article. Please circulate this article to you maximum friends.

I further appeal to all insurance agents to get united to fight for our rights. If we get united we can provide good services to the customers and also get benefited ourselves.

Please refer this article to other insurance agents irrespective of the company for which he or she is representing.

Sadanand Thakur
Insurance & Investment Advisor
Thakur Financial Services,
204, Swami Complex, Bazar Peth,
Chiplun-415605, Dist.: Ratnagiri, Maharashta, India

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