The Insurance Regulatory and Development Authority (IRDA) has introduced
a new regulatory norm for life insurance agents wherein they (agents)
face the risk of losing their licenses if half their policies sold lapse
within three years.
Life insurance agents will now have to ensure that 50% of the policies
they sell till March 2014 do not lapse, beyond which they will have to
maintain a persistency of 75% for the remaining policies, according to
the new norm. From July 2011, all agents will have to adhere to the new
persistency norm.
Moreover, in order to move one step forward and be vigilant, IRDA has
also directed that employees of insurance companies cannot engage their
relatives as agents in the same insurance company. However, as a relief
agents would be eligible to take over orphan policies and be entitled to
receive 50% of the deferred commission, which the original agent was
eligible for. A policy becomes orphaned when its original agent quits the company and is not serviced by anyone.
Insurance agents, in order to earn high commissions sell
various insurance policies to individuals dangling the carrot of tax
benefit. But later policyholders struggle to meet their premium
obligations for various reasons - one being mis-selling. This thus has
led to an industry average lapse of around 30%, due to which customers
lose and companies gain (as the policyholder is not refunded any
premiums in most cases). In our opinion the initiative taken by IRDA is a
disciplinary one, and it would instill insurance products being promoted
in a wise manner to serious customers, and would ensure better service
being provided by insurance agents, hopefully.
Persistency Ratio : A ratio which reveals the percentage of policies that continue paying premium over the premium paying term. The higher the ratio the better it is.