MUMBAI: The Insurance Regulatory and Development Authority (Irda) plans to allow agents to sell products of more than one insurance company, allowing private insurers to access the vast army of agents selling products of the market leader - the Life Insurance Corporation (LIC).
Agents can sell products of only one insurer under existing norms, but Irda Chairman J Hari Narayan said the current global trend was to do way with tied agents, who can retail products of only one company. "The idea is to allow agents to sell products of more than one company. This model has been tried in Hong Kong. In England, tied agents have vanished," he said.
The capping of charges on unit-linked insurance plans (Ulips) in September 2010 had reduced the income of agents, resulting in many exiting the sector and forcing the regulator to consider opening up alternative avenues of income.
More than 3 lakh agents have exited the insurance business after the regulator introduced stringent norms.
The new norms led to more than 100 products becoming ineligible. The number of agents came down from 3 million in 2009-10 to 2.65 million in 2010-11, according to data compiled by the Life Insurance Council. LIC has 13.5 lakh agents distributing its products.
"The move will increase earnings of agents. Though consumers buy Ulips of private insurers, when it comes to life products they only go for LIC. This would help us bolster our sales," said Renu Dhavan, an agent with ICICI Prudential.
Private insurers have largely followed the bancassurance model, in which banks distribute insurance products. However, access to LIC agents, particularly the bigger ones, will increase the reach of private insurance companies.
LIC had a market share of around 76% in terms of new business premium for the financial year up to August 2011 while the remaining was divided among 23 private insurance companies. The state-owned insurer has been increasing its market share mainly because of its strong base of traditional products, which were unaffected by the change in regulations, and its group retirement plans.
New Norms
The new regulations introduced a year ago increased the lock-in period and quantum of life insurance cover while capping charges that could be paid out as commission to agents.
Before September 2010, bulk of the premium paid in the first year was passed on by the insurer as commission to the agent responsible for bringing in the client. This created an incentive to sell new policies while existing ones were often surrendered after the initial years.
The intent of the new rules was to encourage consumers to buy more protection against accident or death. The Indian insurance market is dominated by Ulips -investment products with a nominal life cover that compete with mutual funds.
Irda had also made it mandatory for agents to retain 50% of their business in the second year.
This regulation, known as persistency norms, refers to the percentage of business retained without lapsing or being surrendered.
Many agents have found it difficult to meet these norms and operate in a scenario where the commission payable has come down.
The difficulties being experienced by agents were one reason for the insurance regulator to consider allowing them to diversify their portfolio.
Some feel that the changes, if implemented, will lead to so-called mis-selling, in which the buyer is not properly informed about the product.
"Private companies will try to lure agents with higher commission as what is happening in the bancassurance channel. Many agents will join private sector companies for easy money and will be out of the business soon," said Anil Jha, senior business executive, Life Insurance Corporation of India.
Bharat Purohit, a Pune-based agent who is said to be one of the largest distributors of LIC policies, said, "There will be more mis-selling. Selling insurance is a subject of trust and relationship."
On average, agents earn Rs 5,000 on a monthly basis and only 5-6% have additional income.
At present, commission is embedded in the insurance product. After the Insurance Act is amended, the regulator will have greater flexibility to change the commission structure. The essence of this change is the agent will become an investment advisor over a period who will be paid by the consumer for his services.
Agents can sell products of only one insurer under existing norms, but Irda Chairman J Hari Narayan said the current global trend was to do way with tied agents, who can retail products of only one company. "The idea is to allow agents to sell products of more than one company. This model has been tried in Hong Kong. In England, tied agents have vanished," he said.
The capping of charges on unit-linked insurance plans (Ulips) in September 2010 had reduced the income of agents, resulting in many exiting the sector and forcing the regulator to consider opening up alternative avenues of income.
More than 3 lakh agents have exited the insurance business after the regulator introduced stringent norms.
The new norms led to more than 100 products becoming ineligible. The number of agents came down from 3 million in 2009-10 to 2.65 million in 2010-11, according to data compiled by the Life Insurance Council. LIC has 13.5 lakh agents distributing its products.
"The move will increase earnings of agents. Though consumers buy Ulips of private insurers, when it comes to life products they only go for LIC. This would help us bolster our sales," said Renu Dhavan, an agent with ICICI Prudential.
Private insurers have largely followed the bancassurance model, in which banks distribute insurance products. However, access to LIC agents, particularly the bigger ones, will increase the reach of private insurance companies.
LIC had a market share of around 76% in terms of new business premium for the financial year up to August 2011 while the remaining was divided among 23 private insurance companies. The state-owned insurer has been increasing its market share mainly because of its strong base of traditional products, which were unaffected by the change in regulations, and its group retirement plans.
New Norms
The new regulations introduced a year ago increased the lock-in period and quantum of life insurance cover while capping charges that could be paid out as commission to agents.
Before September 2010, bulk of the premium paid in the first year was passed on by the insurer as commission to the agent responsible for bringing in the client. This created an incentive to sell new policies while existing ones were often surrendered after the initial years.
The intent of the new rules was to encourage consumers to buy more protection against accident or death. The Indian insurance market is dominated by Ulips -investment products with a nominal life cover that compete with mutual funds.
Irda had also made it mandatory for agents to retain 50% of their business in the second year.
This regulation, known as persistency norms, refers to the percentage of business retained without lapsing or being surrendered.
Many agents have found it difficult to meet these norms and operate in a scenario where the commission payable has come down.
The difficulties being experienced by agents were one reason for the insurance regulator to consider allowing them to diversify their portfolio.
Some feel that the changes, if implemented, will lead to so-called mis-selling, in which the buyer is not properly informed about the product.
"Private companies will try to lure agents with higher commission as what is happening in the bancassurance channel. Many agents will join private sector companies for easy money and will be out of the business soon," said Anil Jha, senior business executive, Life Insurance Corporation of India.
Bharat Purohit, a Pune-based agent who is said to be one of the largest distributors of LIC policies, said, "There will be more mis-selling. Selling insurance is a subject of trust and relationship."
On average, agents earn Rs 5,000 on a monthly basis and only 5-6% have additional income.
At present, commission is embedded in the insurance product. After the Insurance Act is amended, the regulator will have greater flexibility to change the commission structure. The essence of this change is the agent will become an investment advisor over a period who will be paid by the consumer for his services.
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