HDFC Life has revised its commissions based on the persistency profile of the distributor. “It is a combination depending on the level of business, partners, inherent persistency in that channel, and so on. We have done a combination of commission clawback, commission deferral, and reduction in commission. It is fairly bespoke for every relationship,” said Vibha Padalkar, managing director and chief executive officer (MD & CEO) of the company.
Axis Max Life has also followed a similar strategy and revised its commissions for various distributors based on how they perform on persistency scale.
“If the persistency is very high, then we have in some cases used clawback. If the persistency is low, then we have reduced the commissions. But we have also created a gradient that if persistency improved, the distribution partner will get paid more. So, really it is a lot persistency-linked,” said Prashant Tripathy, MD & CEO of Axis Max Life.
According to Amit Palta, Chief Products & Distribution Officer, ICICI Prudential Life Insurance, the company has nearly completed its negotiations about commission structures with distribution partners in alignment with surrender value guidelines.
“Different partners have agreed for different structures, different models. It also had to be aligned with what their Opex (operating expenses) requirement was, what their business models are. So, for more than 95 per cent of our partners, we have closed the arrangement, the revised structures, and whatever is pending is something very small. I think we will get over it in the next couple of weeks,” he said.
On the other hand, SBI Life Insurance said that it has changed only the reward structure and not the commission structure.
Meanwhile, LIC has made revision in premium rates in some of the products.
“We did not change rates in products which had good margin. We revised the minimum ticket sizes on products based on persistency experience. Thirdly, the age band at which we are going to provide these products was also relooked at… Realignment of the commission rates was done along with those changes. Now the intent for these changes was definitely not to increase the margin, but to ensure that the margins are not hit as well as the experience,” LIC’s management said during their post-earnings analyst call.
Irdai revised the surrender value norms whereby life insurance companies have to pay higher special surrender value (SSV) to policyholders on completion of the first policy year if they have paid the full-year premium for a year. Earlier, the companies did not have to pay customers who surrendered their policies at the end of first year.
The companies had to launch all their products as per the new norms by December 31, 2024. The revised surrender guidelines were expected to impact the profitability margins of life insurers. In order to mitigate it and improve persistency levels, the companies have undertaken multiple strategies, including redesigning products and commission structures.
* Persistency ratio refers to the percentage of policy holders who pay their renewal premium
* It reflects the quality of sales made by the insurer
* Measured at different stages: 13th month, 25th month, 37th month, 49th month, 61st month
* In Q3FY25, the 13th month persistency ratio of LIC stood at 68.6%, SBI Life at 82.67%, HDFC Life at 81.9%, ICICI Prudential Life at 85.8%
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