Contrary to the perception, life insurance agents are paid much higher commission on selling traditional plans, against unit-linked insurance plans (Ulips).
Commission paid by life insurance companies including Life Insurance Corporation (LIC) and 22 private insurers under traditional plans was 12.54 per cent of the premium, while for Ulips its was only 4.19 per cent in 2010-11.
According to the Insurance Regulatory and Development Authority (Irda) annual report, total commission paid to life insurance agents in 2010-11 was Rs 18,280.29 crore, compared with Rs 18,054.03 crore in the previous year. Commission paid under traditional plans was Rs 14,532.33 crore and under Ulips was Rs 3,747.96 crore.
Life insurers that paid more than 20 per cent of first years’ premium as commission in 2010-11 were Reliance Life Insurance (24.69 per cent), Future Generali Life Insurance (23.68 per cent), Birla Sun Life Insurance (21.49 per cent), IDBI Federal Life Insurance (20.81 per cent) and Bajaj Allianz Life Insurance (20.37 per cent).
Under Ulips, most insurance companies paid less than 5 per cent commission.
“Ulip commission has fallen due to change in regulatory norms that became effective in October 2010. Commission paid under traditional plans is higher because they have longer tenure, while most Ulips are for shorter tenure,” said GV Nageswara Rao, MD and CEO, IDBI Federal Life Insurance Company.
Product mix has changed heavily with distinct bias towards traditional plans. In 2010-11, about 50 per cent of the life insurance plans sold were traditional and rest Ulips. However, it has changed to 75 per cent traditional and 25 per cent Ulip in 2011-12, said a senior official of LIC. He added, “Ulips are no longer in demand. Even customers are looking for guaranteed returns.”
Before Ulip guidelines in October 2010, commission paid on Ulips were as high as 40 per cent of the premium. Since the guidelines capped overall commissions paid to agents by more than half, insurers have been struggling with low sales as agents do not find it profitable to sell Ulips. Before October 2010, Ulips contributed to about 75-80 per cent of the total sales.
[Source - BS]
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