Insurance commission set to spike from April; get ready for greater attention from agents

From April, insurance agents will get higher commission for selling life and non-life insurance policies. Insurance Regulatory and Development Authority of India (Irdai) has issued a notification setting the new rate of commissions to be paid to insurance intermediaries.

The insurance intermediaries include corporate agents, insurance brokers, web aggregators and insurance marketing firms. If the policy is procured directly by an insurer, then no commission or remuneration will be paid to an insurance agent. Moreover, no insurer will pay both commission to an insurance agent and remuneration to an insurance intermediary on the same insurance policy. The regulations on new commissions will not be applicable on micro insurance policies.

Irdai has mandated that every insurer will have a written policy for payment of commission or remuneration or reward to insurance agents and insurance intermediary which will have to be approved by the board of the company.

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The objective is to increase insurance penetration and density in the country. It is also expected to bring cost efficiencies and simplification of the administration of insurance business.

Life insurance policies

In single premium category, an agent will get 2% for selling individual life product, 7.5% for individual pure risk products, 2% for individual immediate and deferred annuity products and 5% for group pure risk products.

For regular premium products, there are two categories: pure risk and those other than pure risk or those bundled with investments. The first year commission for individual pure risk or term plan will be 40%, and 10% will be paid to the agent for every renewal premium. In case of non-pure risk cover, the commission for the first five years will be 15% and will rise up to 35% for policies over 12 years. Apart from this, the agent will also get renewal premium, which is 7.5% every year. So, effectively on the 12th year, an agent will get commission of 42.5%. In other words, the commission structure in this particular category is linked to persistency of the policy. Analysts say this will help in increasing the persistency of policy across insurers and lapsation will drop.

Non-life insurance policies

Irdai also increased the commission for non-life insurance policies. It has increased commission structure in comprehensive or own damage motor insurance policies to 15% of the premium. This commission will be only on premium charged towards own damage. Also, for the first time, it has introduced commissions on third-party motor insurance at 2.5% of the annual premium.

For selling individual health insurance policy, commission will be 15% of premium paid and for group health policy it will be 7.5%. Irdai has also changed the commission structure for fire and marine insurance. In the retail fire segment, an agent will get 15% of the annual premium and 16.5% in case of an intermediary. The commission payouts in marine insurance policies and miscellaneous policies remain unchanged for agents which was 15% of annual premium. However, it has been increased for intermediaries to 16.5% of annual premium.