Published in Cafemutual on 26th August, 2016
Agent attrition has been an ongoing issue in the life insurance industry. A recent data provided by Life Insurance Council (LIC) shows that around 27000 agents have left the distribution of life insurance policies. LIC is a trade body of the life insurance industry.
Surprisingly, state owned LIC India has lost over 76,000 in the last one year as on July 2016. Experts attribute this attrition to low persistency ratio and termination of inactive agents.
Kapil Mehta of SecureNow Insurance Broker said that this attrition is good for LIC. “This attrition reflects that management is keen on reducing the cost of bearing inactive agents. LIC wants to ensure that only productive agents remain with the company. Since the total number of active LIC agents is somewhere close to 30%, we may see further attrition.”
Typically, insurance companies set a minimum criteria for an agent to be considered as an active agent. This criteria could be depend on new business premium and persistency ratio of agents. Insurance companies terminate those who fail to meet these two criteria.
Interestingly, private life insurers have added close to 50,000 agents during this period. The increase in agency force was due to improvement in recruitment standards. Experts are of the view that the private insurers have improved their agent recruitment process and training quality in order to create skilled distribution force to grow business.
However, a few experts have a different opinion. Mehta said that a few private insurers are just adding agents on their books. They have very few active agents, said Mehta.
IRDAI has proposed to increase the upfront commission in order to check this attrition. In January, IRDAI had issued an exposure draft on payment of commission and rewards to insurance agents in which it has hiked the first year commission (upfront commission) in pure risk policies like term insurance plans having premium paying term of over 12 years to 50% of annual premium. The regulator has hiked commissions in other segments too.