LIC restructuring Ulip costs to protect agent commissions
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To keep agents’ commissions for unit-linked policies (Ulip) intact, Life Insurance Corporation of India (LIC) is looking to increase the
minimum premium payable and minimum lock-in order to adhere to the expenses cap norms brought in by Insurance Regulatory Development Authority (Irda).
It is also planning to reduce fund management and other charges to adhere to the cap so that agents' commissions remain the same.
“From January 2010, the cap on expenses for Ulips will be applicable and we have asked our actuaries to restructure some of our products. They have been asked to cut expenses like manager's charges but not tinker with agents commissions or development officer's incentives,” said Mr TS Vijayan, chairman LIC. He was addressing LIC agents at the 38th Chairman's Club Convention in Kolkata on Saturday.
Policies with tenures of 10 years or less, the difference between gross and net yields to a policyholder should not exceed 300 basis points -- one-hundredth of a percentage point.
Simply put, charges on Ulips should not exceed 3 percentage points of gross yields, of which fund management charges should not exceed 1.5 percentage pints. For policies of more than 10 years, the charges should not exceed 2.25 percentage points of gross yields, of which fund management charges are capped at 1.25 percentage points.
Explaining, he said: "We may have to raise minimum premium from Rs 25,000 to Rs 40,000 and increase the lock in period from five years to 10 years so that commissions can be kept intact. The actuaries are presently working on it."
There was a proposal by a recent committee on agents commission structure that opined payment of commissions by policyholders through a different cheque. The policy holder will have the option to bargain and pay any commission he likes after the agent has serviced him in the form of selling the life cover. LIC is not too keen on implementing this policy for its own 14 lakh-odd agents.
Commenting on this proposal Mr Vijayan said: "The idea is to negotiate with policy holders for the commission. Let this proposal be implemented in some other segment and only if successful we may see about its implementation in the life insurance segment. We cannot let the income of our 14 lakh agents fall."
Mr Vijayan felt policy holders in India do not have the mindset to pay after being convinced of the ability of an agent to sell a policy hence his commission needs to remain embedded in the premium for the policy.
Source - economictimes.com
