The agents distributing the state-owned Life Insurance Corporation of India policies are up in arms against the new claw back norm introduced for policies surrendered prematurely by the policy holders.
The agents of LIC have also raised their apprehension against the reduction in the first-year commission to 28 per cent from 35 per cent following the revision of surrender value norms. However, LIC has increased the commission for renewal premiums to 7.5 per cent from 5 per cent currently.
The minimum sum assured on the revised policies has also been raised to ₹2 lakh from ₹1 lakh, effective from October 1.
IRDAI circular
In June, Insurance Regulatory and Development Authority of India had issued a master circular on life insurance products, introducing norms to ensure better payouts for customers who exit their policies prematurely. The new norms came into effect from October 1.
The All India Life Insurance Agent Federation of India, in a letter addressed to Sidhhartha Mohanty, MD and CEO, said the 14 lakh agents of LIC strongly feel that the steps taken by the Corporation is very much harmful to agents.. in the name of restructuring the commission has been reduced when the agents have been demanding an increase in payout.
The commission should be kept as it was at 25 per cent plus 40 per cent (of commission) as bonus in the first year and from second year till the end of the policy it should be increased to 9 per cent, according to the Federation.
Plans strike
“We strongly protest the claw back clause and request your good self to withdraw this. If the move is not rolled back, agents will be compelled to go on nation-wide strike,” it added in the letter.
The claw back clause allows LIC to recover the agents commission if the policyholder surrenders it prematurely after paying the first premium.
The new commission structure of LIC will reduce the first-year payout from 35 per cent to 28 per cent at a time when the cost of operations has gone up steadily in the last few years, said an LIC agent.
On top of this, he added LIC also wants to take the money back it has paid as commission for bringing in business for them, if the policyholders surrender their policy for whatever reason.
Under the new special surrender value norm, endowment policyholders on premature exit after paying for the first year will receive a marginal payout after providing for expenses.
However, in the earlier regime policyholders had to forego the entire premium paid if they exited after paying the first premium. LIC is trying to protect its margin by passing on some of the cost burden by cutting on commission to agents.
An email sent to LIC seeking its comments on the aforementioned developments remained unanswered at press time.