Life insurance companies will now have varied reward-and-recognition mechanisms for distributors, since the Insurance Regulatory and Development Authority (IRDA) has now allowed them to decide on persistency norms.
The IRDA has said that all life insurers are required to have their own company-specific criterion for renewal of individual and corporate agencies from July 1, 2014. At present, agents are required to have a 50% average persistency rate in number of policies.
Persistency refers to the ability to keep renewing a customer’s insurance policy, till it reaches maturity. The higher the persistency rate, the higher are renewal premiums for the company.
The IRDA said that the renewal of individual agency license and corporate agency license will not be subject to meeting the persistency rates earlier stated by IRDA. Insurers say that this is a welcome move since each insurer will now be able to take their own decisions on persistency. They also say that they are already focusing on quality advisors and agent productivity.
In 2011, private life insurers had started the practice of clawback of commission to improve the persistency ratio of agents and arrest lapses in insurance policies. The clawback clause helped insurers recover a part or all of the commission paid to agents if the policy was cancelled within a given period.
In its earlier persistency guidelines issued (and subsequently revised) in 2011, IRDA had said that for all renewals prior to the financial year 2014-15, the average persistency rate for each agent for the year’s 2011-12, 2012-13 and 2013-14 shall be at least 50% in terms of number of policies procured by such agent.
It has said that from the financial year 2014-15, the persistency rate for each agent shall be at least 75% in terms of both policies and premium procured by such agent. Further, this stipulated persistency rate requirements was to be effective for all corporate agency renewals due from July 1, 2014.
Insurers say that instead of revoking the license of agents for poor persistency, now companies will be able to motivate them in the right manner. They also say that IRDA’s relaxation for each life insurer to decide their own persistency norms will be beneficial since each insurer has a different model.
There could be some reductions in commissions for agents with lower persistency. Also, the right rewards would be given to those who have performed better than others, say insurers. They also say that with IRDA’s latest go ahead to insurers to fix own persistency formulas, it will be easier to retain agents and improve renewals through better training and development.
vinay mohanty
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