New agents to service orphaned policiesA 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.
Apnainsurance.com Research Bureau
04 Jan 2008
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.