IRDA is micro managing life insurers: Experts

19-Jul-2010

The Insurance Regulatory and Development Authority (IRDA) seems to be trying to micro-manage the sector with its proposed measures on hiking the policy persistency (policy continuity/renewal) ratio, say life insurance industry experts. In an exposure draft on persistency of life insurance policies, the IRDA has suggested a target of 20 policies per year for individual agents and a minimum first year premium income of Rs.150,000.

IRDA has also proposed non-renewal of an agent's licence where the persistency ratio is less than 50 percent. Further, there shall be a disincentive for a lapse, in the form of commission clawback by the insurer on a proportionate basis. Alternatively, a part of the first year commission shall be withheld and be paid based on persistency in later years, the draft suggests.

The regulator has called for comments from the Life Insurance Council, General Insurance Council, consumer organisations and the general public by July 31, 2010, while excluding the nearly three million agents. "Ulips accounting for nearly 85 percent of the industry's sales are sold by companies/agents as a short-term investment product that can be encashed after the lock-in period. The blame for this and other ills of plaguing the sector entirely rests with the IRDA," R. Ramakrishnan, a member of the Malhotra Committee on insurance reforms, told media.

"Even in the US and UK, only 10 percent of the life insurance policies are held to maturity. IRDA should not make the agents a scapegoat for its and life insurers' failures," he added. Ramakrishnan and other industry experts said if the IRDA wants to focus on policy persistency than it should fix the minimum persistency ratio for the life insurers and not for the agents. Saying that data collected by IRDA should be interpreted properly, Ramakrishnan said the LIC's high persistency in Ulip is mainly due the fact that it sells single premium policies with two percent commission, whereas the private sector products are annual premium and the agency commission is 20 percent.

Officials of private life insurers said that procuring 20 policies by an agent is a tall task as the average productivity of an agent is 0.3 policies per month and an active agent may get one policy per month. By prescribing productivity targets, IRDA is trying to "micro-manage" the sector, is the unanimous views of a cross-section of industry officials that IANS spoke to. Agent targets are the prerogative of insurers, they said.

Source : www.insuremagic.com