 "LIC. life insurance corporation")
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The state-owned Life Insurance Corporation of India (LIC) has reduced the first-year commission from 35 per cent to 28 per cent following the revision in surrender value norms, sources aware of the development told Business Standard, while increasing the commission for renewal premiums to 7.5 per cent, up from the current 5 per cent.
The minimum sum insured for term policies has also been increased to Rs 2 lakh from Rs 1 lakh, with effect from October 1.
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In June 2024, the insurance regulator—Insurance Regulatory and Development Authority of India (Irdai)—issued a master circular on life insurance products, introducing norms to ensure better payouts for customers who exit their policies prematurely. The norms took effect on October 1, 2024.
As per 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 pay such an amount to customers surrendering their policies within the first year.
Additionally, the norms stipulate that the discount rate for calculating SSV can be up to 50 basis points higher than the 10-year G-Sec yield.
“LIC has reduced commissions on first-year policies to 28 per cent from 35 per cent with bonus. Without bonus, the commission was 25 per cent, and it has now been reduced to 20 per cent. The renewal premiums have been increased to 7.5 per cent,” said a person familiar with the matter.
Earlier, life insurance industry experts had expected insurance companies to revise their distributor payout structures or adjust the internal rate of return (IRR) to mitigate the impact on their margins due to the new norms.
“LIC has reduced its commissions, and due to the revised commission structure, agents will need to work harder to qualify for Million Dollar Round Table (MDRT). To be part of MDRT, agents need to earn Rs 8 lakh as commission in the first year. With the revised commission structure, they will need to sell more policies. Furthermore, Chief Life Insurance Advisors (CLIAs) are also likely to see a drop 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. The premium on LIC’s products has been raised by 8-9 per cent.”
An email to LIC did not elicit a response by the time of going to press.
On September 30, 2024, in its exchange filing, LIC stated that it has modified 32 of its products and riders as per the new surrender value norms. The insurer also noted that any product or rider outside the list will not be available for new business with effect from October 1, 2024.
As per the presentation for Q1 FY25, LIC had 60 products, of which 16 were participating products, 25 non-participating products, 11 group products, and 8 riders.
First Published: Oct 08 2024 | 6:56 PM IST
