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.