{"id":4465,"date":"2017-04-11T11:55:21","date_gmt":"2017-04-11T11:55:21","guid":{"rendered":"https:\/\/securenow.in\/blog\/?p=4465"},"modified":"2023-02-17T10:08:15","modified_gmt":"2023-02-17T10:08:15","slug":"insurance-payouts-rise-premiums","status":"publish","type":"post","link":"https:\/\/securenow.in\/insuropedia\/insurance-payouts-rise-premiums\/","title":{"rendered":"As insurance payouts rise, so could your premiums"},"content":{"rendered":"
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Published in Mint, on 10th April 2017
\nFrom this financial year, your insurance agent<\/a> is eligible to get a higher payout for selling you a policy, but did you know that this may increase your premium as well? Last month, the Insurance Regulatory and Development Authority of India (Irdai) in a series of circulars has allowed life and non-life companies to increase their premium from April.
\nThe regulator feels that the new regulations may trigger insurers to revisit the pricing. To accommodate that, it has allowed insurers to adjust premiums by up to 5% without having to re-file the product. \u201cIn order to provide them relief from filing products on account of new regulations on commissions, we have advised them that if the change in premium rate is going to be plus minus 5%, the insurer can simply inform Irdai,\u201d said Nilesh Sathe, member life, Irdai. In the case of non-life products, the hike in premium would be applicable on renewal as well, as these are typically annual contracts, but insurers again needn\u2019t re-file for adjustments up to 5%. \u201cSo if an insurer needs to revise the premiums on account of extra pay-outs, the regulator has made it operationally easy.They just need to give a certificate to the regulator stating clearly that the hike is only due to the increase in payouts,\u201d said Antony Jacob, chief executive officer, Apollo Munich Health Insurance Co. Ltd. Does this mean you pay a higher premium? Perhaps not immediately, and not much.
\nNew pay-out structure<\/strong>
\nLife insurance<\/a> follows a front-loaded commission structure\u2014the first year commission is largely unchanged. However, Irdai has introduced the reward system that can be paid in addition to the commissions, to encourage distributors to clock-in more sales. Now insurers can offer a maximum \u2018reward\u2019 of 20% of first-year commission and this increases the total payout in the first year to a peak rate of 48%.
\nIn case of health insurance<\/a>, there is no hike in the commissions as such. \u201cIf you factor in the rewards of 30% of the commissions, the total pay-out from each policy comes to 19.5%. So the extra 4.5% pay-out can be pooled and paid to outperforming agents. The reward pay-outs from policies sold by intermediaries can\u2019t be used to pay the agents and vice-versa,\u201d added Jacob. In the case of motor insurance<\/a>, the regulations have increased the commissions along with introducing rewards. For a detailed explanation, do read: bit.ly\/2oEoCmA.
\nWill your premiums go up?<\/strong>
\nTwo actuaries that we spoke to say the impact would be marginal. \u201cThe commission rates are capped at 35% and the industry has already been paying commissions in this range, so I don\u2019t expect insurers to increase premium rates for new customers,\u201d said Anil Singh, chief actuarial officer and appointed actuary, Birla Sun Life Insurance Co. Ltd.
\nAnother actuary who didn\u2019t want to be named also said the hike at best would be marginal since the increase in payout would get amortised over the premium payment term.
\nIn the case of non-life, according to an Irdai official we spoke to, so far insurers have not shown any enthusiasm to increase the premiums. But, some feel that this opportunity will be taken up by those with poor combined ratios. \u201cThere are multiple facets to customer acquisition cost, which are segregated into various buckets like commissions, marketing expenses, field sales and infrastructural support. Companies with adverse combined ratio may take this opportunity to consider increasing premiums instead of absorbing the additional pay-out,\u201d said Sandeep Patel, managing director and chief executive officer, Cigna TTK Health Insurance Co. Ltd.
\n\u201cBut if insurers focus on rewarding agents and also focus on technology for distribution optimization and efficiency, acquisition costs can be contained without having to increase premiums,\u201d he added. Combined ratio is the expense ratio plus the loss ratio and it indicates a product\u2019s profitability.
\nAs per K.G. Krishnamoorthy Rao, managing director and chief executive officer, Future Generali India Insurance Co. Ltd, retail health could see a hike.
\n\u201cMedical inflation is about 15% which is not fully factored in…. So the loss ratios go on increasing every year, making it difficult to absorb the costs of extra pay-outs to the distributor. Most insurers will possibly increase premiums for individual health insurance policy<\/a>. I don\u2019t see any impact on motor insurance as insurers offer discounts on own damage premiums, so they will simply adjust for a higher payout by lowering the discounts,\u201d he said.
\nBut according to Kapil Mehta, co-founder, SecureNow Insurance Broker Pvt. Ltd, motor insurance could see a hike too.
\n\u201cThird party insurance <\/a>is mandatory for all plying vehicles…. Increasing commissions and paying rewards may not be required. Moreover, increase in commission and incentives, will be passed on to customers as the loss ratios from third party component is already high,\u201d Mehta said.
\nEven though the industry is adopting a wait and see approach, you might end up paying a slightly higher premium for certain products.<\/p>\n","protected":false},"excerpt":{"rendered":"

Published in Mint, on 10th April 2017 From this financial year, your insurance agent is eligible to get a higher payout for selling you a policy, but did you know that this may increase your premium as well? Last month, the Insurance Regulatory and Development Authority of India (Irdai) in a series of circulars has […]<\/p>\n","protected":false},"author":4,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"om_disable_all_campaigns":false,"_lmt_disableupdate":"","_lmt_disable":"","_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[410,319],"tags":[36,42,150,1403],"class_list":["post-4465","post","type-post","status-publish","format-standard","hentry","category-media-coverage","category-media","tag-health-insurance","tag-life-insurance","tag-motor-insurance","tag-individual-health-insurance-policy"],"acf":[],"modified_by":"SecureNow","_links":{"self":[{"href":"https:\/\/securenow.in\/insuropedia\/wp-json\/wp\/v2\/posts\/4465","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/securenow.in\/insuropedia\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/securenow.in\/insuropedia\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/securenow.in\/insuropedia\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/securenow.in\/insuropedia\/wp-json\/wp\/v2\/comments?post=4465"}],"version-history":[{"count":5,"href":"https:\/\/securenow.in\/insuropedia\/wp-json\/wp\/v2\/posts\/4465\/revisions"}],"predecessor-version":[{"id":25378,"href":"https:\/\/securenow.in\/insuropedia\/wp-json\/wp\/v2\/posts\/4465\/revisions\/25378"}],"wp:attachment":[{"href":"https:\/\/securenow.in\/insuropedia\/wp-json\/wp\/v2\/media?parent=4465"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/securenow.in\/insuropedia\/wp-json\/wp\/v2\/categories?post=4465"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/securenow.in\/insuropedia\/wp-json\/wp\/v2\/tags?post=4465"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}