LIC agents’ associations up in arms against ‘lower’ commissions, threaten protests at branches

LIC agents set to hold demonstrations across branches in the country

The Life Insurance Corporation of India (LIC) is facing trouble from disgruntled agents. These agents are upset with LIC’s decision to “reduce commission payouts” as well as a 'clawback clause' after the new special surrender value (payout on early exit) norms were implemented.

These rules, which came into effect from October 1 for existing policies, ensure that policyholders are eligible to receive part of their premiums paid back, even if they were to exit after paying the first premium.

Demand to withdraw changes to commission structure

The agents are now demanding a rollback of LIC’s decisions. Some agents are planning to start a nationwide agitation and demonstrations at LIC branches.

An intermediaries’ association, Life Insurance Agents’ Federation of India, has written to its members, exhorting them to exert pressure on LIC to withdraw the changes. “In order to incorporate one-year surrender value, LIC has made many changes without consulting any of our organisations. The changes are neither agent-friendly, nor policyholder-friendly,” the letter, a copy of which Moneycontrol has accessed, stated. The association has planned a series of demonstrations at LIC offices until October 30, according to its website.

However, other agents believe LIC may not go ahead with the clawback clause for now. "This was the primary concern - that LIC will recover the commission paid to us in the first year, if the policyholder surrenders the policy. But we have been told that the corporation is yet to take a call on the implementation of the clawback clause. So for now, agents do not intend to go ahead with any agitation," said a veteran Mumbai-based LIC agent.

Also read: New IRDAI rules: Life insurance policyholders to get higher early-exit payouts from October 1

IRDAI’s surrender value rules kick in from Oct 1

The special surrender value norms are part of revised insurance product regulations issued by the Insurance Regulatory and Development Authority of India (IRDAI) in March, followed by the master circular with detailed norms in June.

While the rules were already applicable to new products launched since then, the regulator had granted life insurance companies time till September 30 to re-file their existing plans to comply with the new norms.

Put simply, compared to the present scenario, the special surrender value (SSV) — payout on premature exit for endowment policyholders who may choose to terminate their policy because of mis-selling or inability to pay premiums - will go up.

After the new regulations came into force, policyholders surrendering their policies are entitled to get a part of their premium back even if they surrender after paying the first premium, unlike earlier.

Also read: Economic survey calls out 'rampant' mis-selling in insurance, banking, urges action

This change in surrender value norms is bound to force insurers to link commissions with persistency by moving to trail-based commissions, or having a clawback provision in place for the first year's commission in case of early surrender, according to a post-regulatory changes note from Emkay Global.