Life Insurance Agents To Get Persistency-Linked Incentives

Life Insurance Agents To Get Persistency-Linked Incentives

Hit by a drop in customer’s disposable incomes and a fall in new business premia, life insurers are pulling out all stops to ensure persistency rates remain high. Now, the commissions and incentives of agents are being linked to persistency rates, apart from the business generated.

Agent’s commissions are calculated as the percentage of premium paid by a customer. While the first year commission for a new policy currently stands at 14%, the Insurance Regulatory and Development Authority’s (IRDA) new traditional product norms set it at 15%.

In its non-linked product guidelines to be implemented from first October 2013, IRDA has said commission rates for policies with longer tenure would be higher than those with shorter term policies. For policies with tenures of at least 12 years, the commission would be 35% of the premium.

Insurers say that to get the most out of agents, they are looking to incentivise agents in a different way. Agents do not get incentivised if they get volumes; they are better incentivised for selling the correct policy to a customer.

A correct policy would be one that would address the needs of the customer. This made agents responsible towards customers and the client was satisfied with the service. This way, the agent wasn’t in a rush to sell a large number of policies to secure more commission, but was able to sell the best policies to different customers.

In 2011, IRDA had brought out persistency guidelines for individual life insurance agents. It had said that the average persistency rate was uniformly set at 50%, which was to be reckoned on the number of policies alone. The persistency rate requirement would be effective for agency renewals due from first July, 2014.

In 2011, private life insurers had started the practice of clawback of commission to improve the persistency ratio of agents and arrest lapses in insurance policies. The clawback clause helped insurers recover a part or all of the commissions paid to agents if the policy was cancelled within a given period.

Once the new product guidelines come into effect, the clawback of commission would be done away; however, added incentives and bonuses would not be given to agents with poor persistency rates.

Insurers say that they encourage their sales team to do need-based selling, as this ensure that all –the customer, the company and agent – benefit.

As a process, insurers ensure that if the 13th month persistency falls for any agent, it impacts commission, rewards and recognition. IRDA had issued guidelines on non-renewal of licenses if the 13th month persistency for agent fell below the threshold.

Life insurers say that with the new norms set to be implemented from first October, 2013, persistency would assume greater importance in the life insurance industry. Apart from the emphasis on renewals commission, special benefits such as club membership and promotions were offered to agents with higher persistency rates.

While earlier, the life insurance industry had base commission and added bonus for agents performing well, increased competition had led to insurers paying all cash components to agents upfront.

With the new norms in place, productivity and persistency bonuses are expected to return to the industry. Bonuses apart from the base commission would be based on whether agents were able to motivate customers to renew policies.