Earlier this year, the Insurance Regulatory and Development Authority of India (Irdai) issued an exposure draft on compensation for insurance intermediaries such as agents and brokers. The number of industry stakeholders who have responded to the draft is among the highest ever. Why? Because compensation affects everyone deeply—insurers, intermediaries and buyers.
The exposure draft is wide ranging but my focus is on three aspects: the proposed increase in maximum first-year compensation in individual life insurance, up to 49% of premium in certain cases; the proposed reduction in compensation for group health insurance from 17.5% to 1% of premium; and the short 75-day timeline to implement changes. The final regulations will factor in the considerable feedback, particularly in group health insurance, however, the final outcome remains to be seen.
Increase in first-year compensation in individual life insurance: Main issue in India’s life insurance, a $48-billion market, is that buyers are discarding their insurance in droves due to mis-selling, even if it means a substantial financial loss. According to Irdai’s statistics handbook 2013-14, 13 out of 21 insurers that have been in business for over five years reported a persistency of less than 30% after five years. Two of three customers surrender insurances well before the full term. I am inundated with requests to review insurance portfolios. I usually recommend surrender even if at a loss or retain just because surrendering is prohibitively expensive.
