High Policy Surrender - Restructuring Agent Commission

Private-sector life insurers are preparing to adjust commission structures for distribution channels, following regulations that came into effect on 1 October requiring insurers to offer higher surrender values for endowment policies.

Leading life insurance firms are set to meet next week with the Life Insurance Council, an industry association, to establish a uniform commission framework. Options under consideration include clawbacks, commission deferrals, and outright reductions.

The objective is to maintain consistency in commission payments or sales remuneration across the industry and mitigate disruption for distributors. With clawbacks of commissions from agents if a policy is reduced early, insurers wish to discourage mis-selling and to ensure that they explain insurance policies fully to prospective buyers.

India’s biggest insurer, the only state-controlled Life Insurance Corporation of India, has reduced the first-year commission rate on its policies to 20% from 25% and the bonus rate to 8% from 10%.