In a bid to ensure that there are fewer lapsed policies, the insurance regulator has made it tougher for agents to shift loyalties. The new guidelines ensure that all agents — individuals, corporate as well as banks — continue to sell policies of the same insurance company for at least three years.
Life insurance companies have been taken aback by the onerous responsibilities placed on them for granting a 'no objection certificate (NOC)', which enables their agent to move to another company. In the life insurance industry, those policies where the insurance agent has quit the organization are termed as 'orphan' policies, as there is no intermediary to service them. Historically, lapse ratio has been higher among orphan policies when compared with policies that are serviced by an agent.
One reason why agents quit is to join rival companies. To ensure that an agent shifting loyalties does not leave behind orphan policies, Insurance Regulatory and Development Authority (IRDA) has put in a number of preconditions that the agent has to fulfill before he can obtain an NOC from his principal.
Firstly, the agent has to submit details of all his policyholders including their contact details. The insurance company, in turn, has to ensure an alternative service arrangement for all those policyholders. Companies have also been asked to withhold renewal commissions of those agents, who quit before completing five years of services.
Insurance firms say that many of the guidelines are extremely demanding and insurance companies would simply refuse to grant NOCs to agents, who want to join another company rather than follow the difficult procedure.
"The guidelines are clearly aimed at reducing lapsation of life insurance policies," said Rahul Aggarwal, CEO, Optima Insurance Brokers. He added that it was very likely that the regulator would come out with similar guidelines asking insurers to make arrangements for agents who drop out of the profession altogether.
Among other things, the life company has to ensure that there is an alternate arrangement for taking care of the policies orphaned by any agents exit. These arrangements, the regulator has said, should go beyond a call centre facility, which is also an essential requirement. Insurance companies have been asked to intimate to each policyholder that their agent has quit and there are alternate arrangements being made to service them.
"At present, agents have to wait for 60 days before joining another company. It would appear that the new guidelines override the existing arrangement," said the CEO of a life insurance company.
He added that individual agents might try to work around the new norms by appearing for the qualifying examination once again to get a duplicate license. At the same time, many corporate agents function almost like brokers by creating new entities for new partnerships.
"It is the banks which will find it difficult to shift loyalties," he said.
source: ET
