Agents ditch unit linked insurance plans due to reduced commissions

Commission payouts in ULIPs has fallen 31% in FY2012-13, shows IRDA data.

The commission payout of insurers in ULIPs has come down by 31% from Rs. 1,734 crore in FY2012-13 to Rs. 1,194 crore in FY2011-12, shows the latest IRDA data. Experts attributed this decline to the reduced commission structure in ULIPs.

Insurance agents preferred to sell traditional policies which offer higher commissions as compared to ULIPs.

IRDA data shows that 24 life insurance companies paid Rs. 18,024 crore in commission for traditional policies in FY2012-13 compared to Rs. 16,765 crore in FY 2011-12, a rise of 8%. Ritesh Sheth of Tejas Consultancy said that many insurance companies aggressively promoted endowment policies last year.

Life insurer’s commission payout grew 4% from Rs. 18,499 crore in FY 2011-12 to Rs. 19,218 crore in FY 2012-13 on account of rise in sales of traditional policies. Traditional policies accounted for 83% of total premium collected during last fiscal, shows an annual report published by IRDA.

Typically, insurance companies incur two major expenses - commission expense and operating expense.

“Since new business premium collection and sale of new policies in ULIPs witnessed a slowdown in FY 2012-13, the expenses incurred on commission payout declined drastically,” said a CEO of a life insurance company. He added that IRDA had earlier nudged insurance companies not to sell ULIPs without evaluating client’s risk profile. Hence, many insurance companies had shifted their focus from ULIPs to long term traditional policies, he added.

Pankaj Mathpal of Optima Money points out that many investors lost their money in ULIPs which resulted in decline of sales and consequently in commission payout.

While LIC paid a whopping commission of Rs. 14,768 crore in FY 2012-13 as against Rs. 14,036 crore in FY 2011-12, a rise of 5% , 23 private insurance companies incurred Rs. 4450 crore on their commission expenses, a marginal decline compared to last year.

Among private insurers, ICICI Prudential has disbursed highest commission of Rs. 765 crore in FY 2012-13. The commission payout of HDFC Life and Max Life were Rs. 639 crore and Rs. 614 crore respectively in previous fiscal. 

Commission expense of top ten insurers

Source: IRDA

While five companies – LIC, ICICI Prudential, HDFC, Max LIfe and Kotak Mahindra saw an increase in their commission expenses, other five companies like SBI, Bajaj Allianz, Birla Sun Life, Reliance, and Tata AIA registered decline in their commission expenses.

Commission expense ratio

In terms of commission expense ratio - the ratio of commission expense and the premium underwritten, new companies like Edelweiss Tokio, DLF Pramerica and India First incurred highest commission expense ratio - 14%, 13% and 11% respectively.

General insurers

The commission expense of general insurance companies grew 18% to Rs. 3,943 crore in FY 2012-13 as against Rs.3,335 crore in the previous fiscal. The commission payouts of public and private general insurers stood at Rs. 2,505 crore and Rs. 1,438 crore respectively in FY 2012-13 as against Rs. 2,255 crore and Rs. 1,080 crore respectively in FY 2011-12.