Insurers bank on traditional products

Launch child, pension plans on the conventional platform to give more commission to agents

In what will earn insurance agents a higher commission, life insurance companies are launching new traditional products along with revised unit-linked insurance plans (Ulips).

After the new tighter rules on Ulips came into effect from September 1, traditional products have taken centre stage. Now, most insurers are targeting a mix of 65:35 between Ulips and traditional products, against the present figure of 85:15.

“We are in favour of paying good commission to intermediaries. We believe insurance has always been sold on high commissions and will continue to be like that,” said Star Union Daiichi Managing Director and CEO Kamaljit Sahay. He said the new products devised on the traditional front would fetch 35 per cent commission on policies with tenures of more than 15 years. For a five-year plan, it would be 15 per cent. He added commissions on Ulips to banks had dropped from 8.5 per cent to 6.05 per cent in the revised structure.

Apart from the high commission, the margin on traditional products is 10 per cent. Also, they have a lock-in of three years as against the five-year lock-in on Ulips in the new guidelines. For products with tenures of five years, Life Insurance Corporation gives 7.5 per cent commission. This figure is 25 per cent for a 15-20 year product.

“Dependence on traditional products is going to increase. Though the margin is lower than that on Ulips, they have a higher commission and a shorter lock-in period,” said Life Insurance Council Secretary General S B Mathur.

“The commission should be commensurate with the efforts put in by the agents,” said Sanjiv Pujari, appointed actuary, SBI Life. He said this product had suddenly taken centre stage. “Different new features are being tried out in traditional products to lure policyholders. We need to see how much efforts by companies and agents turn into actual sales, since these products are not as transparent as Ulips,” he added.

Under the revised norms, average commissions on new Ulips have fallen to seven-nine per cent. Earlier, agents use to earn 12-15 per cent.

While launching new products based on the the revised guidelines, insurance companies also launched traditional policies.

Aviva Life launched Aviva Life Shield Advantage with an additional feature, that is, a return of premium with optional protection against disease and disability. ING Life launched a child plan on the traditional platform. Star Union Daiichi also launched a pension plan on the platform.

Private players have always stayed away from traditional business, as the solvency margin is high compared to Ulips. This means higher capital for insurance companies.

“Although these products are less transparent, agents will start selling them to supplement their income,” said a senior executive of a life insurance company.