Life insurance companies are drawing up plans to compensate their agents in varied ways for selling policies. With the new unit-linked life insurance policy guidelines coming into play, the lowered charges and commissions will not be entirely passed on to the agents, industry experts told Financial Chronicle.

“We are thinking of bearing the entire loss on the company’s book and not pass on the deductions to agents in terms of lowered commissions as of now,” the chief executive of a leading life insurance company said. According to him, many agents will be thrown out of the system with the new Ulip guidelines, which have come into force from September 1.

“The recent Ulip guidelines coupled with the agency persistency guidelines that Irda is working on will ensure that the agency force is reduced to one third of present strength,” the official said.

Many companies such as Birla Sun Life Insurance and Reliance Life Insurance are looking at giving bonus premiums to agents in order to compensate for the reduction in commissions. “Agents will have to be compensated as they are very critical to the business,” a senior Reliance Life official said. According to him, around 60 per cent of current business for the industry is done through the agency force.

TS Vijayan, chairman of Life Insurance Corporation of India, the largest public sector life insurance company by market share, too plans to take the hit on its books by passing very little paid to agents. “We will pass on the reduction to agents to some extent, rest LIC can absorb,” Vijayan told Financial Chronicle on the sidelines of the Global Insurance Summit organised by Assocham in Mumbai on Wednesday.

According to him, the impact of the lowered charges can only be met through higher business volumes.

Others, such as ICICI Prudential Life and SBI Life, rewarding agents with additional first-year premium and enhanced renewal premium is a way to boost sales. “We are contemplating various methods on how to compensate agents,” a senior ICICI Prudential official said.

As per a study done by McKinsey and Company, an average agent working for a private life insurer earns anywhere around Rs 1,000 a month against an active private life insurance agent, who earns around Rs 3,750 a month. An average LIC agent earns around Rs 5,000 a month. There are around 50 lakh registered agents selling life insurance in India.

The new guidelines announced by the insurance regulator in June asked insurance companies to bring down cost overruns in the agency channel to zero from around 27 per cent to 75 per cent at present. “The cost of sales is targeted to be reduced by around 50 per cent in agency channel from 50-100 per cent level to around 25-30 per cent,” Naveen Tahilyani, partner at McKinsey & Company, said in his presentation at the conference.

snehashah@mydigitalfc.com