Life insurance policies follow a front loaded commission structure where a fat chunk of the first-year premium is paid to the agents upfront as a commission. The Insurance Regulatory and Development Authority of India (Irdai) has retained the structure in its recent notification. The rules also allow for an extra 20% of the commission in the first year in the name of rewards. Here’s what experts had to say on whether front-end commission structure should continue for the industry:
SANKET KAWATKAR
Principal and consulting actuary, life insurance (India), Milliman India Pvt. Ltd
It is important for the agents to get a higher commission in the initial years because it is not easy to sell life insurance. But for corporate agents, a less skewed commission structure may be possible given the ability of the companies to sustain for longer periods without making profits. Indeed, in some other markets, there are structures available, wherein a distributor’s compensation is linked to the assets under management generated by him. Having said this, the issues arising due to skewed commission pay-outs can’t be ignored.
