Life insurance agents will have to ensure that at least 50 per cent of their clients do not default on premium payment from 2011-12 and 75 per cent from 2014-15; License renewal will depend on meeting persistency requirement
Mumbai: Every life insurance agent has to work towards achieving a persistency ratio of at least 50 per cent for each of the three years starting from April 2011. From 2014-15, the persistency ratio will have to be at least 75 per cent.
The requirement of high persistency ratio for every insurance agent has been prescribed by the Insurance Regulatory and Development Authority (IRDA) in its new guidelines on persistency ratio of agents.
Persistency ratio is the percentage of policyholders who regularly pay premiums for continuation of insurance cover. A higher persistency ratio means less number of policies lapse every year.
License renewal linked to persistency ratio
IRDA said license of all agents will be renewed based on the fulfillment of the persistency ratio criteria. All agents will have to maintain a correct and complete record of the various policies sold and their persistency on a yearly basis. Agents will have to get the record of policies sold and premium payment endorsed by the insurer at the end of each year, IRDA said.
Lapse rate trends
The guidelines for agents on persistency ratio have been issued based on a study on “Lapsation and its impact on life insurance industry” conducted in 2008 for the period 2002-03 to 2006-07. The average persistency rate had dropped during the period of the study. The persistency ratio in terms of number of policies sold had fallen to 62.19 per cent from 87.81 per cent and in terms of premium paid to 73.74 per cent from 90.97 per cent.
IRDA said it is the responsibility of the insurers as well as agents to ensure that high persistency ratio is maintained for life insurance policies. Low persistency affects the policyholders as there is forfeiture of premium paid and loss of protection. For the insurer, high rate of policy lapses means they do not fully recover the high cost incurred during the sale of insurance cover. Poor persistency in turn would affect their profitability. The adverse effect of poor persistency is also felt on agents as early surrender results in loss of renewal commissions.
Term assurance policies showed the highest rate of lapse whereas pension policies showed the least lapse rates among all.
The average lapse rate for corporate agents is 26.18 per cent, brokers 20.16 per cent, tied agents 18.56 per cent and bancassurance channel 12.84 per cent.
IRDA has also barred relatives of employees of insurance companies to act as agents for the same insurer. In respect of orphan policies, the regulator has asked the insurers to allow transfer of policies to another agent and pay 50 per cent of the deferred commission which the original agent received.