Higher Commissions for Selling Insurance: IRDAI to Consider Demands from LIC Agents

The Insurance Regulatory and Development Authority of India (IRDAI) is currently reviewing seven demands put forward by life insurance agents, including those representing LIC. The agents have requested an increase in commissions and revisions to new regulations; however, a final decision is yet to be reached.

A significant change could be on the horizon regarding the commissions earned by insurance agents. If you have already purchased an LIC policy or are considering buying one through an insurance agent, this news is relevant to you. The IRDAI is examining seven demands submitted by the Life Insurance Agents Federation of India (LIAFI). The federation seeks higher commissions for selling insurance policies, as well as fair compensation for the effort involved in providing ongoing policy-related services.

The IRDAI has released a consultation paper proposing changes to regulations concerning insurance distribution. The LIAFI has raised objections to certain aspects of these proposed rules and has called for an increase in commission rates. It remains to be seen whether these demands will ultimately be approved.

What are the commission-related demands made by LIC agents?

The LIAFI has proposed a commission structure based on the policy term, with varying rates for the first year. The federation argues that agents perform numerous responsibilities beyond merely selling policies, and therefore, they deserve better compensation.

For policies with a premium payment term of 5 to 9 years, a 27% commission for the first year has been requested.
For policies with a term of 10 to 14 years, a 30% commission for the first year has been proposed.
For policies with a term of 15 years or more, a 35% commission for the first year has been requested.
Additionally, it has been proposed that the renewal commission from the second to the sixth year be set at 7.5%. A demand has been made for a 6% renewal commission from the seventh year until the policy reaches maturity.
However, these are merely proposals put forward by the agents; there is no indication that they have been approved by the IRDAI or are set to be implemented.

Agents troubled by low earnings and rising expenses

LIAFI states that agents' earnings are low, while the costs associated with their work continue to rise. According to the federation, the average monthly commission income for an LIC agent is approximately ₹16,774. Furthermore, agents incur expenses related to client outreach, travel, the use of telecommunication and digital tools, and the provision of various policy-related services. LIAFI warns that if agents' earnings continue to decline, it may become difficult to attract new individuals to this profession.

What changes might occur under the IRDAI’s proposed regulations?

The IRDAI’s consultation paper includes proposals such as capping commissions, mandating the disclosure of payments made to agents, and clawing back (recovering) commissions in cases where policies are sold through improper practices. LIAFI has opposed these proposed regulations, specifically objecting to the provisions for the automatic recovery of commissions in the event of a customer complaint or policy termination.

Feedback invited until October 25

The IRDAI has received the agents' demands. Stakeholders have been asked to provide their feedback by October 25. It remains to be seen to what extent the agents' demands will be incorporated into the final guidelines.