
Life Insurance Corporation (LIC) agents are raising concerns over recent commission adjustments and new surrender value regulations, which they fear could impact their earnings. Under the new structure, LIC reduced the first-year commission from 35% to 28%, per reports.
These changes follow new surrender value norms issued by the Insurance Regulatory and Development Authority of India (IRDAI), effective October 1, aimed at enhancing payouts to policyholders who exit early.
Notably, LIC is not the only one concerned; other players in the insurance sector are also affected by the recent changes to surrender value norms, impacting the entire life insurance industry. "With the new surrender rules effective from October 1, we anticipate an impact on our overall margins," said Prashant Tripathy, MD and CEO of Max Life Insurance, in an interview with Business Today.
In a letter addressed to Siddhartha Mohanty, MD and CEO of LIC, the All India Life Insurance Agent Federation of India expressed discontent, arguing that the restructuring has effectively reduced their total commission. The letter criticises the division of agents into "high producers" and "low producers," calling instead for uniform commission rates. “Instead of increasing commission rates as per IRDAI guidelines, the management is reducing them. We strongly object to this and request a fair, uniform commission for all agents,” the federation’s statement read.
However, Mohanty clarified in a statement to The New Indian Express that the overall commission structure has not been reduced but realigned. “The total commission an agent received before October 1 remains unchanged. The perception of reduced commission is incorrect. Under the new structure, agents will continue to earn what they did previously,” Mohanty explained.
Adding to the concerns is LIC’s proposal to introduce a clawback clause. This clause would allow LIC to reclaim an agent’s commission if a policyholder surrenders the policy shortly after the first premium. Agents are strongly opposing this clause, equating it to regulatory provisions that could lead to job termination if certain standards are not met. “The clawback clause is draconian. We oppose it and request the management to scrap it,” the letter stated, warning of a potential nationwide strike if the clause isn’t withdrawn. A letter addressed to Mohanty also states, "We want to express our dissatisfaction for not being consulted before restructuring the commission and clawback clause."
However, Tripathy states a key focus for insurers in the wake of these changes is improving persistency, which is the measure of how many policyholders continue with their policies over time. He said, "Max Life is striving to raise its 13th-month persistency rate from around 87-88% to 95%. Achieving higher persistency will not only help insurers manage the impact on margins but also ensure that customers continue to benefit from long-term insurance coverage."
The new special surrender value norms under the IRDAI guidelines mean that policyholders who exit prematurely after paying only the first-year premium will receive a small payout, unlike the previous norm where exiting early meant forfeiting the entire premium. LIC’s cost-control measures, which include adjustments to agent commissions, appear aimed at balancing the financial implications of these changes on its margins.
Agents, however, argue that these adjustments unfairly shift the cost burden onto them, impacting their lives. The federation’s letter concludes with a strong message urging LIC to reconsider, underscoring the risk of widespread protest should their concerns remain unaddressed.