Published in Cafemutual on 24th April, 2017
Agent attrition has been an ongoing issue in the life insurance industry. Recent data provided by Life Insurance Council (LIC) shows that over 5.20 lakh agents left the distribution of life insurance policies in the last 5 years. LIC is a trade body of the life insurance industry.
The total strength of insurance agents went down to 20.88 lakh in FY 16-17 from 26.08 lakh in FY 11-12. Experts attribute this attrition to low persistency ratio and recruitment of non-serious agents.
“A few agents find it difficult to retain their clients after the initial years. As a result, the commission income reduces due to low persistency ratio,” said the senior official of a large insurer. He further says that some private insurance companies often recruit unskilled people to achieve their internal targets. Such agents, after acquiring a few clients from their family and friends circle, usually leave the profession, he added.
State owned LIC India, with a purely agent-driven model, lost over 2 lakh agents in five years. The company procures over 98% of its new business through individual agents.
Kapil Mehta of SecureNow Insurance Broker had earlier told Cafemutual 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 minimum criteria for an agent to be considered active. The criteria could depend on new business premium and persistency ratio of agents. Insurance companies terminate those who fail to meet these two criteria.
However, LIC has more individual agents compared to all private life insurers put together. As on March 31, LIC had 10.62 lakh agents while private insurers had 9.55 lakh agents.
The continuous agent attrition is a growing concern for the life insurance industry. IRDAI has increased the commission of insurance agents under various policies. Budget 2017 too has some cheer for insurance agents. It has exempted insurance agents having annual income of up to Rs2.50 lakh from paying TDS.