Agent attrition may be a major cause of concern for insurance companies; however, active insurance distributors may now benefit from this attrition.
The new Insurance Amendment Bill has done away with a provision in which insurers were required to pay renewal commission to agents who left insurance distribution business after five years of service. That means, no renewal commission will be paid to agents who have left insurance distribution business irrespective of the years of service. Earlier, insurance companies were allowed to discontinue commission payment of agents who left distribution business within five years.
In a report titled ‘Indian insurance sector – Building Growth, Building Value’, EY states, “The amended bill has responded well to the burning issue in the insurance industry of high agency attrition, impacting both productivity and activity. Post the amendment, insurers are not required to pay agents who cease to be associated with them.”
Data collated from Life Insurance Council (LIC), a trade body of life insurance industry, shows that over 1.62 lakh agents in India have left distribution of life insurance policies in just a year. The total number of insurance agents went down to 20.1 lakh in June 2015 from 21.7 lakh in June 2014.
While private life insurers witnessed attrition of over one lakh agents, LIC has lost close to 55,000 agents in a year. As on June 2015, LIC had 11.34 lakh agents, the corresponding number for private insurers was 8.73 lakh, shows LIC data.
Experts say many agents, after acquiring a few clients from their family and friends circle, leave the profession.
Many policy holders who bought their policies from such drop-out agents are facing servicing problem from insurance companies. To tackle this issue, IRDAI came up with guidelines on orphan policies in 2012.
Orphan policies are those which are abandoned by drop-out insurance agents. Only those policies which have a longer tenure and require regular premium payouts can be termed as ‘Orphan’. Single premium policies are not termed as orphan policies.
Insurance companies are allowed to allot such orphan policies to individual insurance agents whose license is in force. These agents are termed as ‘allottee agents’. Insurance companies are required to take consent of such insurance agents before the allotment process.
Before allotting policies, insurance companies are required to check the complete track record of ‘allottee agents’ like ability, feasibility and number of complaints registered against them.
A senior official from a private life insurance companies told Cafemutual that his company chooses allottee agents on the basis of performance. The proportion of allotment depend on number of such agents. Typically, insurance companies allot orphan policies in equal proportion among such agents. However, insurers can allot all policies to an individual agent due to unavailability of active agents in small cities and rural areas, he added.
If these allotted orphan policies don’t receive any response within six month of the date of allotment then insurance companies are allowed to re-allocate these policies to other agents.
These ‘allottee agents’ are eligible to get trail commission for servicing these orphaned policies. However, no upfront commissions are paid to such agents. The insurance companies also have to submit periodic reports of allotment of orphan policies to IRDAI.