Sell more policies for better renewal ratio: Insurance regulator

19-Jul-2010

In order to increase the persistency or continuity of life insurance policies by policyholders, the Insurance Regulatory and Development Authority (IRDA) has suggested agents sell more policies per year. In an exposure draft on persistency of life insurance policies, the IRDA has suggested a series of measures, including asking them to procure a minimum of 20 polices per year and a minimum first year premium income of Rs.150,000. Where an agent falls short of achieving either of the above, they would have to achieve proportionately more in either one to make up for the shortfall.

According to the exposure draft, an agent's licence may not be renewed where the persistency ratio (policy renewal ratio) is less than 50 per cent. Further, there shall be a disincentive for lapsation in the form of commission clawback by the insurer, on a proportionate basis. Alternatively, a part of the first year commission shall be withheld and be paid based on persistency in later years, the draft suggests.

In an attempt to curb dummy agents, the IRDA has also suggested that spouses and close relatives of employees of insurers shall not be engaged as agents by insurers. Reacting to IRDA's proposals, R Ramakrishnan, a member of the Malhotra Committee on insurance reforms said, "Let the regulator prescribe the persistency ratio of the insurer and not the productivity norms for agents. It is for the insurers to prescribe the productivity norms for their agents."

According to him, IRDA is trying to micromanage the sector which it should not do. The regulator has called for comments from Life Insurance Council, General Insurance Council, consumer organisations and general public by July 31, 2010 while excluding the agents.

Interestingly the 61 month persistency ratio of individual agency channel for private life insurers for the three year period 2004-05 to 2006-07 is around 50 per cent much higher than that of corporate agents (just below 45 per cent), brokers (less than 40 per cent). The persistency of bancassurance channel (policies sold by banks) is above 50 per cent.

Source : www.insuremagic.com