Insurers Boost Annuity Plans by Increasing Commissions – Insurance
Introduction
Insurance companies, traditionally focused on savings products and unit-linked plans (ULIPs), are now placing emphasis on long-term annuities. The insurance regulator has granted insurers the flexibility to determine commissions, allowing them to offer higher commissions to distributors for annuities compared to ULIPs. This strategic move aims to increase the sale of annuity products, which provide insurers with predictable long-term income.
Increasing Commissions for Annuity Plans of Insurance
The new flexibility in commission determination has prompted insurance companies to raise commissions as per the revised rules. Previously, annuity plans had a capped commission of 7.5%, resulting in less motivation for distributors. However, with the removal of this cap, insurance companies are now able to pay higher commissions, resulting in a substantial growth rate for annuity products among certain insurers.
IndiaFirst Life Insurance Leads the Way
IndiaFirst Life Insurance serves as an example of an insurance company that has adjusted commissions to promote the concept of retirement income. They have raised commissions on their regular premium deferred annuity plan to match the commissions paid on their traditional products. This strategic move aims to position annuities as a significant category within the retirement income segment.
Compliance with Expense of Management (EOM) Regulations
As commissions increase, insurers ensure compliance with the overall EOM regulations. Previously capped at 7.5%, commissions are now linked to the premium payment term. Commissions for a five-year premium payment term can reach up to approximately 19%, while for a ten-year premium payment term, they can reach a maximum of 34%.
Customer Outcomes Unaffected
Despite the increase in commissions, deputy chief executive Rushabh Gandhi assures that customer outcomes remain unaffected. IndiaFirst Life Insurance absorbs the impact of higher commissions, ensuring the interests of the customers are safeguarded.
Board-Approved Policy for Expense of Management
Since April of this year, the Insurance Regulatory and Development Authority of India has mandated insurance companies to link management expenses to specific product categories. Insurers have implemented a board-approved policy where higher EOM is allowed for regular life insurance policies linked to the premium paying term.
For policies with a premium paying term of 10 years and above, insurers can charge 80% of the first-year premium.
For policies with a premium paying term of below 10 years, the EOM is calculated by multiplying it by 7.5%.
By adhering to this policy, insurers ensure transparency and fairness in determining management expenses.
Conclusion
With the greater flexibility in determining commissions, insurance companies are focusing on promoting annuity plans. The adjustment in commissions, along with compliance with EOM regulations, allows for better outcomes for customers. This strategic shift in the insurance market aims to provide individuals with readily available retirement income options while also benefiting the insurers.
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