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Insurance Upfront commission should be in line with trail commission in life insurance: RBI committee

Upfront commission should be in line with trail commission in life insurance: RBI committee

RBI committee recommends uniformity between first year commission and renewal commission to improve the persistency ratio.
Rosevina Gonsalves Aug 29, 2017

With a view to improve persistency ratio, the RBI Committee headed by Dr. Tarun Ramadorai, Professor of Financial Economics, Imperial college London, has proposed rationalization of commission structure in life insurance. The committee has recommended uniformity between first year commission and renewal commission.

Currently, insurance intermediaries get up to 40% of annual premium as the first year commission on term life insurance policies and 35% of annual premium on traditional policies such as whole life insurance, endowment and money back policies. These intermediaries receive 7.5% of total premium as renewal commission or trail commission throughout the premium paying term.

As a result, a few insurance agents sell fresh policies every year due to higher first year commission. In fact, IRDAI data shows that the 13th month persistency ratio for the life insurance industry was at 61% in 2016. It reduces to just 28% in the fifth year. This indicates that almost 72% of life insurance policies do not last for five years.

In its recommendation, the committee said, “The current distribution incentives in the industry provide for high commissions for agents for initial product sales, but subsequently far lower commissions allowed for renewals of pre-existing policies. This set of financial incentives appears misaligned in the direction of skewing household outcomes towards initial take up of policies, and subsequent lapsation.”

The committee has also highlighted the fact that many households are unaware of the impact of lapsation on their future claims.

In April 2016, RBI had set up this committee to look at various facets of household finance in India and make recommendations to enable better participation of Indian households in financial markets. 

12 Comments
Prashant · 1 month ago
Today an article has come saying that in all foreign countries the news is 'another rape in India'. This is the only news which foreign media prints and nothing good about India. Then why should we follow what foreign return or the person studied in the foreign country is recommending? A/C cabins are good for them but we need someone from the ground and studied in our country to be heading these committees. The one who understands us and our situations( ground realities)more. The one who is on the ground or atleast closer to it. The idea of rationalisation is not bad but in disguise they will kill the agents by putting a weird cap on them like what they did in Mutual Funds and compulsarily and forcefully making us go for RIA(Which is against the investor benefit because the product becomes expensive and the advuse is not necessarily unbiased since AMCs will go to RIAs and give them goodies in form or in kind and lure them to make people invest in their funds.
This is absolutely foolish. The only thung the finance industry needs is to stop banks and brokers from selling insurance and mutual funds and leave us alone and let us if not help us to take these products in a righteous manner to the people of this great country.
Prashant · 1 month ago
Also when it comes to misselling only insurance agents are written in your article? Kindly explain the reason why? Real missellers are banks and brokers. Very few agents would actually missell whereas most of the banks and broker's sale is a missell. You are maligning our image and that is unjust. Please sgiw us the data where it shows that we sell fresh policies every year. And we want the entire survey report with how many companies were consulted, how many agents were scutinised and which channels( Banka, direct, amway, brokers and web aggregators) were scrutinised deeply. They will have to publish the data brcause this will affect a huge population of our country.
Anil kumar dixit · 1 month ago
Anil Kumar Dixit
Prashant jee bikul thik kaha aapne
( Banka, direct, amway, brokers and web aggregators and also in insurance company agencies model) is mostly do mis selling the any type of product, only one aim 1st year more and more commission earning. So in my thinking if industries want to very nit and clean selling, so stop the all above Chanel's, only DSF channel is promote.
Reply
Prashant · 1 month ago
Also when it comes to misselling only insurance agents are written in your article? Kindly explain the reason why? Real missellers are banks and brokers. Very few agents would actually missell whereas most of the banks and broker's sale is a missell. You are maligning our image and that is unjust. Please sgiw us the data where it shows that we sell fresh policies every year. And we want the entire survey report with how many companies were consulted, how many agents were scutinised and which channels( Banka, direct, amway, brokers and web aggregators) were scrutinised deeply. They will have to publish the data brcause this will affect a huge population of our country.
Tarun · 1 month ago
MF ki liye Bolo Kuch tarunsaheb where commis r in Paise. Insurance already is heavy margin zero skill sale product
Prashant · 1 month ago
Zero skill? You should start selling it then you will come to know.
Reply
S.GOVARDHAN · 1 month ago
As per the RBI Committee headed by Dr. Tarun Ramadorai, Professor of Financial Economics, Imperial college London, say the first year commission is High and renewal comission is low in Life insurance industry for Agents.
In my opinion As iam an agent of LIC to procure a new business from a client i have to visit him in his place more than 10 times to close the business. Comission given to me in the first year 35% is very low, vice versa for renewals also now a days i have to visit my clients more than 10 times to renew their policy. So its not the fair one of reduce the commission in first year.
As per todays economic scenario both the first year and renewal commission should be raised.
I oppose this RBI Committee headed by Dr. Tarun Ramadorai, Professor of Financial Economics, Imperial college London recommendations.
I kindly request this committee not to play in the AGENT'S COMMUNITIES LIFE.
S.GOVARDHAN
0812227779
Arvind Thakur · 1 month ago
Bharat ??? ???? ???? ??????? ????? head ???? ???? ??
Rajesh Gupta · 1 month ago
Everyone justify himself. Its a fact that other then term insurance , all other are to kill clients. Goverment should bar all other policies and all non performing Mutual Funds. Keep it simple for the public. Insurance should not be a investment product. MF should not have insurance.
Prashant · 1 month ago
Most foolish statements
Reply
ANIL PATIL · 1 month ago
Yes Upfront should be in line with trail.It should be 50% every year.Policyholder/investor Jaye chulhe me hume to sirf commision se matlab hai.
Prashant · 1 month ago
Most foolish statement
Reply
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