New agents to service orphaned policies

A panel constituted by the Insurance Regulatory & Development Authority (IRDA) has recommended that new agents should service policyholders whose agents have dropped out of the profession. This would need changes in existing laws to come into effect. This would mean amending Sec 40 (2A) of the Insurance Act, making the new agent eligible for renewal commission on the orphaned policies, same as the renewal commission that would have been paid to the agent who had initially solicited the policy.

Another key recommendation was that commissions could not be bequeathed unless the agent's heirs become agents themselves. The panel, in addition, recommended clawback of commission paid to corporate agents on lapsed policies. Life insurers often pay high first-year commissions on the expectations that they will get a constant stream of premium income over the years. Nevertheless, if the policy lapses after the first year they lose money because of the high first year commission. In markets like the UK, insurers recover the first-year commission from the agent if the policy lapses after a year. This is clawback - recovering commission already paid out. As the panel put it: "In case the distributor/referrer is not able to maintain at least 85% persistency on the portfolio sourced over a three year period, the proportionate fee on the lapsed policy should be clawed back by the insurer."

Yet another panel recommendation is barring corporate agents of one insurer entering into a referral arrangement with another insurer - which leads to a price war between insurers. At present, there are banks that have become corporate agents of one insurance company, but have referred customers to other insurers for a fee.