Thanks to healthy growth in new business premium collection of traditional policies and pension products, the commission payout of life insurance companies to distributors went up by 8% in FY 2013-14 from Rs.19,262 crore in FY 2012-13 to Rs.20,846 crore in FY 2013-14, shows an annual report published by IRDAI.
The growth was primarily driven by regular premium policies in which insurance companies paid commission of Rs. 11,500 crore. Similarly, life insurers had disbursed an additional commission of Rs. 9,007 crore on renewal of such policies. Both traditional and pension products fall under this category.
Meanwhile, the commission payout in single premium policies declined marginally to Rs. 340 crore in FY 2013-14. ULIPs and a few endowment policies come under this category. Typically, life insurers pay one time upfront commission of 2% to distributors on such policies. Hence, insurance agents preferred to sell traditional policies which offer higher commissions as compared to such policies.
However, the increase in commission payout to distributors didn’t match up with the rise in AUM. The AUM of life insurance companies went up by 12% to Rs. 19.6 lakh crore in FY 2013-14. Typically, insurance companies incur two major expenses - commission expense and operating expense.
The commission expense ratio - the ratio of commission expense and the premium underwritten - has declined marginally to 6.63% in FY 2013-14. Industry experts attributed this to slowdown in sales of insurance policies after implementation of new product guideline with effect from January 2014. IRDA data too suggested that the growth in new business premium collection declined in the fourth quarter of FY 2013-14.
In its annual report, IRDA said, “During 2013-14, the life insurance industry reported an increase in expenses of management in proportion to increase in expenses of management in proportion to increase in gross premium collected. The commission expenses ratio decreased marginally to 6.63% in 2013-14 from 6.71% in 2012-13. Overall, while the commission expenses increased in the case of regular premium and renewal premium, there has been a fall in the commission paid towards single premium products.”
IRDAI data shows that 24 life insurance companies paid Rs.18,024 crore in commission for traditional policies and pension products in FY2013-14 compared to Rs.16,765 crore in FY 2012-3, a rise of 8%. Traditional policies and pension products accounted for 83% of total industry AUM in the previous fiscal.
While LIC paid a whopping commission of Rs. 16,763 crore in FY 2013-14 as against Rs. 14,790 crore in FY 2012-13, a rise of 13% , 23 private insurance companies incurred Rs. 4084 crore on their commission expenses, a marginal decline compared to last year.
General insurers
The commission expense of general insurance companies grew 17% to Rs.4,624 crore in FY 2013-14 as against Rs. 3,943 crore in FY 2012-13. The commission payouts of public and private general insurers stood at Rs. 2,870 crore and Rs. 1,754 crore respectively in FY 2013-14. The commission expenses continued to be the highest in the motor segment, which stood at Rs.1628 crore in FY 2013-14.