Your Money: Keeping the agent-policyholder tie intact

A life insurance agent, at times, doubles up as a financial planning advisor to the policyholder also

Your Money: Keeping the agent-policyholder tie intact
Faster nominal wage growth, albeit from a lower base, results in a greater lift to lifetime earnings in India than in the advanced economies.

In the insurance industry, policy servicing is an integral part of the product itself. Without policy servicing, the product ceases to exist. Unless the agents and policyholders are in touch with each other, the policyholders may miss out something very important concerning the use of the policy. Some unscrupulous person may make the policyholder surrender his policy to buy a new one. This results in loss for the policyholder, the insurer and the agent.

Many policyholders complain that the agents do not keep in touch with them. This can happen for a variety of reasons. In some cases, agents are terminated or have exited from the industry on their own volition. But there are other cases which merit special attention. Let us get some reality check about agents’ commissions.

Commissions earned by agents

Many of us have a false perception that agents earn huge commissions and other incentives from their companies. Some experts advise the customers to ask the agents to clearly state how much commission they are going to earn from selling a policy. The fact is, agents do not earn unlimited commissions. Yes, the first commission is really good. But renewal commissions are significantly lower than this. All agents are not entitled to additional incentives and allowances.The first year commission is the bread and butter of agents as they have worked hard to discover suitable customers and sell suitable products to them.

Many customers ask agents to share a part of the first commission (and sometimes the entire first commission) with them as a condition for buying the policies. First, such an act of rebating violates Section 41 of Insurance Act 1938, prohibiting all types of rebates and the agent risks losing his job. Second, if agents forego the first commission, it will take a very long time to recover the loss suffered by them. If the first commission is 25% and renewal commission is 5%, then the agent can break even only after six years. An agent may not find it worthwhile to run an extra mile for such clients.

A stable life insurance agent has about 500 to 1000 customers to service. Usually, an agent is not just a life insurance agent. He takes up agencies of non-life insurance company, post office, housing finance company or even mutual funds.

That is why a mature agent is able to provide comprehensive financial services. It’s in the interest of the policyholder to remain associated with the agent not just during the term of the policy but beyond that also. Here is a financial planning expert who is available almost free of cost and offers all advice on insurance and financial planning. In our country, only life insurance agents have been able to carve out a pre-eminent position as family friends. Customers are expected to select those agents who have a track record of excellent customer servicing.

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First published on: 27-05-2022 at 00:45 IST
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