Insurance regulator IRDA had released modifications to earlier released persistency norms (11th February, 2011) for life insurance agents. New modifications has been issued keeping in view the objective of ensuring higher levels of persistency of life insurance policies as also conserving the agency force. New modifications –
1. Requirements on Persistency
The Average persistency rate is uniformly set as 50% which is to be reckoned only on number of policies.
What is ‘Persistency’?
‘Persistency’ during a period may be defined as the proportion of policies remaining in force at the end of the period out of the total policies in force at the beginning of the period. In other words, persistency is the percentage of business retained without lapsing or being surrendered. Low lapsation means high persistency and vice versa. Since persistency is a critical factor in the viability and success of insurance companies, they constantly look for ways to increase this percentage.
2. Policies to be exempted
While arriving at the persistency rate, Policies with ‘Auto Cover’ feature embedded as per File & Use approval may be treated as in force during the said ‘Auto Cover period’. Further all the policy exits by way of death, maturity and in-force surrenders may also be exempted in determining the exposure to persistency calculation. ‘Auto Cover Period’ for the purpose of these guidelines is the period during which the policy feature, that continues the life insurance coverage of the life assured for a pre-determined period despite non receipt of renewal premium that is due, becomes operative.
3. Transfer of Agent from one insurer to another
The request for transfer of insurance agency from one Life Insurance Company to the other shall be considered only if the average persistency rate of the agent is at least 50% on the date of application of such transfer. The Persistency Rate shall be on a pro-rata basis and rounded off to the nearest decimal where the financial year is not covered in full.On effecting the transfer, the average persistency rate of 50% shall be reckoned on the policies sold with the new insurer (transferor).
4. Deferred Commission and Servicing of Orphan Policies
The payment of deferred commission pertaining to the original agent is not allowed to the new agent to whom the servicing of policies is transferred. The payment of 50% of eligible commission to the new agent on the premiums procured by him in respect of such policies transferred shall be strictly in accordance with the provisions of Section 40 (2A) of Insurance Act, 1938.
5. Effective Date
The persistency rate requirements will be effective for all agency renewals that are due from 01st July, 2014.