Photo credit: Ruby Sharma.
State-owned Life Insurance Corporation of India (LIC) has reduced first-year agent commission from 35 per cent to 28 per cent following revision of surrender value norms, sources familiar with the matter said. development. Business standard. However, it has increased the commission on renewal premiums by 7.5 percent, from the current 5 percent.
The minimum sum insured in the revised policies has also been raised to Rs 2 lakh from Rs 1 lakh, effective October 1.
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In June this year, insurance regulator Insurance Regulatory and Development Authority of India issued a master circular on life insurance products, introducing norms to ensure better payouts to customers who abandon their policies prematurely. These rules came into effect on October 1.
Under the revised norms, life insurers are required to pay an enhanced special surrender value (SSV) after completing the first policy year, provided the customer has paid a full annual premium. Previously, companies did not offer such payments to customers who gave up their policies during the first year.
In addition, the rules provide that the discount rate for calculating the paid-up value to determine the SSV will be allowed to be up to 50 basis points higher than the yield on 10-year government securities.
“LIC has reduced first-year commissions from 35 to 28 per cent, including a bonus. Without the bonus, the commission has decreased from 25 percent to 20 percent. The commission on renewal premiums has been increased to 7.5 per cent,” said a source familiar with the matter.
Previously, life insurance industry experts had expected insurance companies to review their payment structures to distributors or their internal rates of return to mitigate the impact on their margins due to the new rules.
“LIC has reduced its commissions and due to the revised commission structure, agents will have to work harder to achieve their Million Dollar Round Table status. To qualify, agents must earn Rs 8 lakh in commission in the first year. With the new commission structure, they will need to sell more policies. Additionally, the chief life insurance advisor is also likely to see a decline in incentives,” said a senior insurance dealer.
The official added, “The life insurer has also increased the sum insured to Rs 2 lakh from the existing Rs 1 lakh. Premiums for LIC products have also increased by 8-9 per cent.”
An email sent to LIC did not elicit a response till the time of going to press.
On September 30, LIC announced in its exchange filing that it had amended 32 of its products and riders in accordance with the new surrender value norms. The insurer also said that any products or riders not included in the list will not be available for new business starting October 1.
As per its Q1 2024-25 filing, LIC had 60 products: 16 participating (peer) products, 25 non-peer products, 11 group products and eight riders.
First published: October 8, 2024 | 18:56 IS
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