Free to Raise Commissions, Insurers Focus on Annuity Plans
The Indian insurance industry is turning to long-term annuity plans, as the nation’s insurance regulator grants insurers the freedom to offer higher commissions to distributors for annuities compared to unit-linked plans (ULIPs), increasing the sale of such products.
Boosting Predicable Income for Insurer, Commitments for Policyholders
Annuities provide predictability and long-term commitments of premium payment on part of the policyholders which help boost predictable income for insurers. The ability to offer higher commissions is further incentivizing sales towards annuities. Earlier, annuity products had a cap on commission at 7.5%, which had acted as a deterrent for distributors. However, this product segment is now growing at double digits for some insurers, as per anonymous insurance executives.
IndiaFirst Life Insurance, one such insurer, has raised commissions on its regular premium deferred annuity plan to match those on its traditional products. These adjustments are aimed to promote the concept of annuities as a category of retirement income.
Complying with EOM Regulations while Offering Higher Commissions
Insurers are ensuring compliance with the overall Expense of Management (EOM) regulations while raising commissions for such products. Previously capped at 7.5%, these commissions are now linked to the premium payment term. For instance, for a five-year premium payment term, commissions reach up to 19%, and for a ten-year premium payment term, they go up to a maximum of 34%. Despite the increase in commissions, customer outcomes remain unaffected as per IndiaFirst Life Insurance’s Deputy Chief Executive Rushabh Gandhi. The company can absorb the impact of higher commissions.
Board-Approved Policy Enables Higher EOM for Certain Categories
Starting this year, the Insurance Regulatory and Development Authority of India has mandated the linking of management expenses to specific product categories for insurance companies. They have a board-approved policy under which higher EOM can be charged for regular life insurance policies that are linked to the premium payment term. For policies with a premium payment term of ten years or more, insurers can charge up to 80% of the first-year premium as part of the EOM. For policies with a premium payment term below 10 years, EOM will be calculated by multiplying it by 7.5%.
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