Looking at ways to enhance your business & career? Log onto streetsahead.in to upgrade yourself!
SUBSCRIBE NEWSLETTER
Insurance Life insurance agents get over 20% of the premium collected as first year commission

Life insurance agents get over 20% of the premium collected as first year commission

Commission expense ratio of life insurance industry has increased to 20.29% in FY 2017-18 compared to 18.43% in FY 2016-17.
Nishant Patnaik Mar 15, 2019

The commission expense ratio i.e. commission paid with respect to the premium received of the life insurance industry has increased last fiscal.

IRDAI’s latest data shows that the first year commission expense ratio of the life insurance industry has increased from 18% in FY 2016-17 to 20% in FY 2017-18. This indicates agents have received 20% of the total premium they have collected as first year commission.

While the first year commission expense ratio of LIC India was close to 30%, it was 14% for private life insurers. Experts attributed this to the focus of LIC in selling traditional policies like money back, whole life and endowment. However, private life insurers focus more on linked policies such as ULIPs, which pay comparatively less commission than traditional policies.

The first year commission of traditional policies like whole life, endowment and money back having over 12 years of premium payment term is 35% of annual premium, insurers can pay up to 15-33% of annual premium on policies having premium paying term of less than 12 years depending on the tenure. Higher the tenure, more would be the upfront commission.

However, the commission expense ratio of the life insurance industry has reduced marginally in renewal business. The life insurer have seen their commission expense ratio decline marginally from 4.41% in FY 2016-17 to 4.27% in FY 2017-18. This is largely due to low persistency ratio of the life insurance industry. Persistency refers to the ability to keep renewing a customer’s policy till it reaches maturity. The higher the persistency rate, the higher the renewal premiums. Currently, the insurance regulator has fixed the trail commission (renewal commission) at 7.5% throughout the premium paying term.

In single premium policy where insurance agents receive 2% of the total premium as commission, the commission expense ratio of the life insurance industry was 0.55% in FY 2017-18 compared to 0.38% in FY2016-17.

Overall, the life insurance industry has commission expense ratio of 5.53% last fiscal. In its annual report, IRDAI said, “The overall commission expenses ratio (commission expenses as a percentage of premiums) increased marginally to 5.53 percent in 2017-18 from 5.29 percent in 2016-17. However, total commission increased by 14.63 percent (total premium growth 9.64 percent), first year commission increased by 21.93 percent (first year premium growth 10.75 percent), new business commission increased by 23.37 percent (new business premium growth 10.82 percent) and renewal commission increased by 5.36 percent (renewal premium growth 8.79 percent). The single premium has increased by 10.85 percent while single commission increased by 58.67 percent. However, there is some variation in the position when compared between the private insurers and LIC.”

In absolute terms, the life insurance industry has disbursed gross commission of Rs.25,353 crore in FY 2017-18 as against Rs.22,117 crore in the corresponding period preceding fiscal, an increase of 15% in a year.

Click to clap
9 Comments
Ravikumat · 5 days ago
I fail to understand the purpose behind writing this article, and the audience for,
are u telling that Insurance advisors are getting more commission or are u telling that the Insurance companies are paying more commission , or are u telling that the mutual fund advisors are being paid less. These are well known facts not only in the local market but almost in all countries . The regulators of each segment are aware of this and doing things right.
May be one can use this space for some educational gyan.
These are my opinion .
Prashant · 5 days ago
This article is to misguide people that insurance agents are earning more commissions than mutual funds agents which is absolutely wrong. Insurance agents get commissions on premiums where as mutual funds agents get commissions on AUM so mutual fund commissions are much higher than insurance. Eventhough insurance is 100 times more difficult to distribute compared to mutual funds still Mutual funds agents are paid much better. So this article is to misguide people in thinking that Insurance agents get a lot of commission. In USA,who we as in our great economists and finance people and regulators follow, the commission on first year premium is 120%. So this is a nonsensical article.
Shyam More · 5 days ago
Hi completely agree with article there is nothing disagreement on this, some one seems to be insurance agent ,
Writer explain in better manner insurance is critical and important if it's health, motor,term,etc..but y it is need when comes to investment and retirement why to loose your money,better put it in ppf, EPF,NPS or direct stock if you very Vell versed with it
The biggest fraudsters are regulator who are allowed them to rob public money openly in day
Reply
M m Chattopadhyay · 5 days ago
Recently SEBI reduces mf ifa income by abolshing UPFRONT but IRDAI INCREASE it
Now ifa get only TRAIL ANNUALISED 1%.JUST COMPARE.
Prashant · 5 days ago
When did IRDAI increase the commission limit? Please don't be a fool and play into their hands. They want to divide us and rule. Also if insurance commissions go down will you start earning more? Why are you jealous looking at other's income which actually is much lower than Yours(only percentage shown is higher) and not try and save your income by getting together and protesting. I didn't see any protest at any level by anyone. Why is it that by looking at other's pain we feel good Although our pain is much more than theirs? If they reduce insurance commissions will it increase your commissions? Please save your profession and not kill others because you are weak and are afraid of the regulators.
Reply
Vikas Gupta · 5 days ago
I am unable to understand Govt. policies in different financial products: In Mutual Funds, commission structure is less than 1% while in Life insurance, it is up to 70% & in General Insurance, it is up to 20%.
Vikas Kumar · 5 days ago
What about the production costing, time consuming to sell a policy? ??
Only see commission rate. It's not justify.
Arvind · 5 days ago
Ask policy holders about there experience with the LIC agent. No one is happy still they are earning commission
DEEPAK KUMAR · 5 days ago
We are here for knowledgeable things not for this type of rubbish news. Please care for the time of users.
Wish to stay on top of your game? Get daily tips, ideas and articles to grow your business.
Subscribe to Cafemutual Newsletter.