Proposed commission structure for regular premium life insurance policies, such as term, life, reimbursed and basic policies: A tip of up to Rs 2,000,000 is payable under Schedule VI of the Agents (1972) Rules, provided that the agent has taken out the commercial guarantee for at least 15 years, called “qualification years”. As part of a major restructuring, IRDAI will soon standardize the payment of commissions to agents and intermediaries in life, general and health policy. It is rewarding monetarily and also satisfying for the soul. The commodity that a life insurance agent sells is unique – you are selling and maintaining financial security and, therefore, the compensation model for the same is also unique. The life insurance profession is the “highest paid hard work.” The harder you work, the more commissions you receive. In addition, the sale of life insurance results in repeated commission payments for a sale and, moreover, they continue even after the resignation or death of the agent – provided that he has the required business according to the rules. Individual agents remain relevant in the “Individual Policies” segment. In 2020-2021, individual agents reported approximately 76% of new business premiums for policies sold to individuals. Insurers compensate them through commissions.
For example, insurers who have a high proportion of individual policies (as opposed to group policies) tend to see a greater proportion of their premiums allocated as commissions. The two major insurers that conducted this count in 2020-2021, Tata AIA and MaxLife, received more than 90% of their individual policy premiums. Proposed commission structure for non-life and health insurance The agent will receive 7.5% of the amount paid by the insured (according to standard tables and conditions) as the second and third annual premiums and will continue to receive a 5% renewal fee on each annual premium paid from the fourth year onwards. The renewal fee is payable on the renewal premium. Therefore, you need to make sure that your client maintains the policy in effect. If you remind him to pay premiums, you will do him a good service. Life insurers will not oppose the downward trend in agent commissions. In years when commissions were high, the industry emerged. Insurers needed agents with their feet on the ground to expand the market. Today, the industry is more mature and insurers need it less. In 2013-2014, direct selling overtook individual agents as the primary channel for new bonuses.
These are usually sales made by their own employees and do not necessarily include recurring policy-related commissions. However, you don`t necessarily have to be affected by the latest rule change. Each insurer has a prescribed limit on how much it can spend. It depends on the type of policies sold, the duration of the premium and the duration of the insurance activity. The regulator is now proposing that if an insurer exceeds a certain threshold, the first-year commission on regular individual premium plans be reduced from 35% to 20%. In the event of the death of the agent while his agency exists after the agency has been in force for two years or more, the renewal fee will continue to be paid to his heirs or nominee, provided that an agreement of at least Rs. 1 lakh was in force at the time of death. This product complexity – in which insurance is grouped with investments – is cited to justify the fact that brokerage commissions are higher than, for example, investment funds or real estate. In 2001-2002, when the industry opened up to private corporations and the Life Insurance Corporation (LCA) had a virtual monopoly, the industry paid 9.1% of the premiums it earned in commissions. According to the standard tables and conditions, you will receive an annual commission of 25% of the premium of the first year paid by the insured.
IRDAI has published a draft policy on the payment of commissions and rewards to insurance agents, which proposes to reduce the commission of life insurance agents for regular premium payment policies in the first year from 35% of net premium payments to 20% of net premium payments, including premiums. You are entitled to a bonus commission equal to 40% of the eligible commission for the first year, provided that you meet certain conditions regarding the total guaranteed premium for the first year and the number of lives you insured during your agency year. On Aug. 23, the insurance regulator released draft rules to reduce the commissions that life insurers that exceed their prescribed spending limits can pay agents for new policies sold. While the change is not as profound as some precedents, if it becomes law, it could represent the latest reduction in agent commissions in an industry characterized by product complexity and harsh sales practices. These high payments have helped insurers, including new private insurers, attract agents. In the years that followed, there were aggressive selling – and mis-selling – of life insurance plans amid a rising stock market. As regulation has lagged, this behaviour was most endemic during the 2007/2008 to 2011/2012 period. New policies sold and premiums for new business skyrocketed.
The regulator eventually stepped in and cracked down on the high commissions and sales practices it promoted. Fewer policies were issued, but new premiums continued to increase as the industry grew. Amid several course corrections, the share of commissions in premiums continued to decline, reaching 5.2% in 2020-2021. This figure is still significantly higher than in other sectors, although the latest measure may reduce it further and boost policyholder returns. Meanwhile, there is another growing threat to agents` commissions: direct sales by insurers themselves. With the above recurring income feature of insurance compensation, your income is steadily increasing every year.