Published in Mint on 26th June 2018.
Tarun Chugh, Managing director and CEO, Bajaj Allianz Life Insurance Co. Ltd
Insurers can have their own policy
Under the amended Insurance Act of 1938, payment of renewal commissions to terminated agents after 5 years of service or payment of hereditary commissions to legal heirs of agents after their death, is no longer mandatory. As per Irdai Regulations, 2016 (Payment of Commission or Remuneration or Reward to Insurance Agents and Insurance Intermediaries), life insurers can now prepare their own policy around hereditary commissions.
Our approach has always been to reward quality and loyalty. Our policy on the hereditary commission is that we will pay them to the nominee of the deceased agents, irrespective of their tenure with us. Also, if an agent who has completed 10 years with us, then in recognition of his service, we will continue to pay commissions on every renewal premium received on policies sourced by him. We are in the business of providing a financial cover to enable family members to continue with minimal financial impact in case the breadwinner dies. By paying out the hereditary commission, we are taking a step ahead on this core proposition.
Kapil Mehta, Co-founder, Securenow Insurance Broker Pvt. Ltd
Pay commissions if agent stays active
There are two perspectives that matter in hereditary commissions. All of us, including agents, should be paid for the work we do. Not more, not less. The best agents are committed because they want to build a large renewal book that provides an annuity income. The need for an annuity helps agents face negative perceptions and rejection built into their job.
I think renewal commissions should be paid only if an agent is actively working on the policy. They collect the premium, address policyholders’ queries, ensure receipts are delivered, and support claims. If an agent moves out of the business and stops these activities, a common enough problem, then commissions should not be paid. Similarly, if an agent dies and the renewal responsibility is taken up by the insurer, then hereditary commissions should not be paid.
However, insurers should encourage agents to show commitment by providing performing agents with term insurance. Financially, this is similar to hereditary commissions, but the alignment between work and reward is better.
Agents, customers need incentives
The penetration of life insurance in India is low and hence people need to be incentivised to educate on the need, amount and type of insurance one needs. But the interests of the agent and the policyholder need to be aligned so that they are both incentivised by the things that are right for the customer. Protection of life, liabilities and goals and adequate cover is required, so the agent has to ensure hand-holding through the process and even beyond, regular servicing of the policy and also help at the time of claim settlement. However, when the agent dies, the commissions can go to his nominee. While the nominee may/may not take care of the clients, he/she is entitled to commissions, the insurance company’s stand to pay the hereditary commissions to the nominee is welcome. The insurance company has to ensure that where the nominee is being paid instead of the agent, the client is serviced by them directly as well so that the client doesn’t suffer in this. The reminders, claim settlement etc. is as seamless for them as it would be, had their agent been alive.
Paying nominees of agents is debatable
Insurance is a long-term contract and the services of an agent may be required in terms of assistance in paying premiums, administrative work like the change in nominees in policies, change of address as well as maturity or death claim settlement. It may be debatable whether paying a percentage of policy premium (instead of a lump sum amount) on an ongoing basis for providing these services is fair or not—as the time taken for providing these services would be almost identical, irrespective of the sum assured or premium. In fact, with most insurers providing online recourse for servicing matters, it’s easy for customers to do it herself.
It is even more debatable if such renewal commissions need to be paid to the nominee after the death of the agent. Unless the nominee is going to continue agency work, they may not be able to provide any services and the customer is left on her own. In such a situation, continuing to pay the agent or the company retaining that amount is not in the customer’s interest. The insurer could credit this to the customer’s account instead.