Awaiting new norms, insurance cos favour Ulips
"There is demand for linked products but the difference in distributor fees for traditional and unit-linked products has seen traditional products being pushed more,” said a senior official with a private insurance firm.
According to the latest announcement by Insurance Regulatory Development Authority (Irda), the regulator wants to extend caps on commissions to some segments of traditional products too. This, insurers believe, will create more of a level playing field between traditional and linked policies.
In 2008-09, the distributor fee for ULIPs used to be as high as 40% of the first year premium, making it highly attractive for agents. This lead to a lot of consumer complaints after they realised that the returns on these were not as high as what they were promised by agents.
As a result, the insurance regulator capped charges on linked products in September 2010. Despite the odds being against the product, insurers continued to push for linked products, while agents sold more of traditional policies, which offer 25-30% commissions in the first year, as against unit-linked products which garner 5-8% commission.
The average commission in ULIPs as a percentage to premiums collected fell to 4% in 2011-12, from 10% in 2009-10. Individual breakup regarding ULIP products
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