Pvt life insurers may do away with renewal commissions to agents

Insurance agents are perturbed that some private life insurance companies have decided to discontinue payment of renewal commission after five years in the case of select categories of policies.According to them, under pressure to meet the cap on charges on unit-linked products, some life insurance companies have restructured products in a manner which offer no renewal commissions to agents and distributors after the completion of the first five years of the policy term. They fear this ‘unhealthy practice' could result in more policies getting lapsed.Most insurance companies have reduced renewal commissions. Earlier, distributors used to get an average commission of 2.5-4 per cent for the whole policy term. Now, it has been reduced to 1-2 per cent.“Companies like Aviva and ICICI Prudential have gone ahead and removed renewal commissions after five years,” said Mr Sanjiv Bajaj, Joint Managing Director, Bajaj Capital, a distributor of insurance products.This practice will lead to more policies getting lapsed as distributors will not have any incentive to persuade policy holders to pay renewal premiums on time. This will benefit companies as they have to pay the guaranteed yield only if the customers continue with the policy for the full policy term, said Mr Bajaj.However, Aviva Life in an e-mail response said: “While the renewal commission structure varies from product to product (it is beyond 5 years in some cases), what is uniform across all products is guaranteed Loyalty Additions and Maturity Additions to reward customers for staying invested over long term.”According to ICICI Prudential Life Insurance, the company has brought down renewal commissions by around 1 per cent for some products but has not completely removed renewal commissions paid to agents after five years.” We do not have any product where we do not pay renewal commission after the fifth year. We pay commission right from the first to the tenth year of the policy. After the products are reworked to meet the cap on ULIP charges, we have optimally rationalised the return to the customer and the commission to the agents, under renewal premiums,” said Mr Pranav Mishra, Senior Vice-President and Head-Products, ICICI Prudential Life.Earlier also companies used to cap commissions due to their aggressive pricing tactics. But it was only for low-cost products, such as products for high net worth individuals where acquisition costs are low. But after the cap on charges, they have extended it to most of their unit-linked products, said Mr Rahul Aggarwal, CEO, Optima Insurance Brokers.The concept of acquisition and servicing of clients has changed. Nowadays, some companies use agents only to acquire customers and then use technology to follow up with customers for renewals. Be it via SMS or emails, companies are exploring cost-effective channels to keep in touch with their customers, said Mr Aggarwal. However, even though these channels can be used effectively in the urban markets, they will have to rely on agents and distributors in the rural markets if they want to prevent policies from lapsing.

Pvt life insurers post improved results on better market conditions, cost controls

Cost controls and better capital market conditions helped private life insurance companies post improved performances on the profitability front in 2009-10.
Insurance companies were able to reduce costs as they focused on improving the productivity of their branches and agents rather than indiscriminately opening new branches. There was also less strain of new business on profitability as insurers went slow on growing their business, said industry officials.
Bajaj Allianz Life Insurance reported the highest net profit among life insurers that have declared their results till now. Its net profit soared to Rs 427 crore in 2009-10 from Rs 41 crore in the year ago period. The company's new business premium growth was flat at Rs 4,451 crore (Rs 4,491 crore).
“We were able to control our expenses. We focused on improving the productivity of the distribution network. The focus will be on growing the business without increasing the branch network,” said Mr Kamesh Goyal, Country Manager, Allianz and CEO, Bajaj Allianz Life Insurance.
The company's expense ratio came down to 16.5 per cent (19.2 per cent).
SBI Life Insurance was back in the black posting a net profit of Rs 276 crore, against a loss of Rs 26 crore. The company had one of the lowest expense to gross written premium (GWP) ratio of 6.5 per cent.
ICICI Prudential Life Insurance achieved accounting profitability for the first time since its inception. It reported a net profit of Rs 258 crore, against a loss of Rs 780 crore in the year ago period. However, the company's new business growth shrunk by seven per cent to Rs 6,334 crore.
Kotak Life Insurance's net was higher at Rs 69 crore (Rs 14 crore).
Companies such as HDFC Standard Life, Birla Sun Life and Reliance Life were able to bring down their losses.
Along with cost controls, improved capital market performance due to favourable investment climate also helped boost the net of companies, said Mr Gaurang Shah, Managing Director, Kotak Life Insurance.
Most of the players were able to increase their assets under management.
SBI Life's AUM grew 96 per cent to Rs 28,551 crore. ICICI Prudential increased its AUM by 75 per cent to Rs 57,319 crore. Bajaj Allianz Life's investments grew by 95 per cent to Rs 33,422 crore.