The state-owned Life Insurance Corporation (LIC) of India has reduced the first-year agent commission from 35 per cent to 28 per cent following the revision of surrender value norms, sources familiar with the development told Business Standard. However, it has increased the commission for renewal premiums by 7.5 per cent, from 5 per cent currently.
The minimum sum assured on the revised policies has also been raised to Rs 2 lakh from Rs 1 lakh, effective from October 1.
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In June this year, the insurance regulator — Insurance Regulatory and Development Authority of India — issued a master circular on life insurance products, introducing norms to ensure better payouts for customers who exit their policies prematurely. These norms became effective on October 1.
According to the revised norms, life insurers must pay an enhanced special surrender value (SSV) after the completion of the first policy year, provided the customer has paid one full-year premium. Previously, companies did not offer such payouts to customers surrendering their policies within the first year.
Additionally, the norms state that the discount rate for calculating the paid-up value to determine the SSV will be allowed to be up to 50 basis points higher than the 10-year government security yield.
“LIC has reduced first-year commissions to 28 per cent from 35 per cent, including a bonus. Without the bonus, the commission has decreased from 25 per cent to 20 per cent. Commission on renewal premiums have been increased to 7.5 per cent,” said a source familiar with the matter.
Earlier, life insurance industry experts had expected insurance companies to revise their distributor payout structures or internal rates of return to mitigate the impact on their margins due to the new norms.
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“LIC has reduced its commissions, and due to the revised commission structure, agents will have to work harder to achieve their Million Dollar Round Table status. To qualify, agents must earn Rs 8 lakh in commission in the first year. With the new commission structure, they will need to sell more policies. Furthermore, the chief life insurance advisor is also likely to see a decrease in incentives,” a senior insurance distributor said.
The official added, “The life insurer has also increased the sum insured to Rs 2 lakh from the existing Rs 1 lakh. Premiums on LIC’s products have also risen by 8-9 per cent.”
An email to LIC did not elicit a response until the time of going to press.
On September 30, LIC announced in its exchange filing that it had modified 32 of its products and riders in accordance with the new surrender value norms. The insurer also said that any product or rider not included in the list would not be available for new business effective October 1.
According to its first-quarter 2024-25 presentation, LIC had 60 products: 16 participating (par) products, 25 non-par products, 11 group products, and eight riders.