The Insurance Regulatory and Development Authority of India (Irdai) in its annual report has said that the public sector life insurance company LIC is paying 27.61% as a commission to the agents from the first year premium. To understand this, if you are paying Rs 100 as the first premium while buying a policy, then Rs 27 is paid as a commission to the agent from your first-year premium.
It is important to note that this is the average amount of commission paid to the insurance agents. Hence, some policies can have higher commissions and others may have lower commissions. Typically, term insurance policies have lower commissions as compared to endowment policies. However, unit-linked insurance plans (ULIPs) typically have the lowest commission payment when compared with other categories of life insurance policies. This also indicates that the commission paid on non-linked endowment and term plans is much higher than the average rate of 27%.
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Irdai data also highlights that there has been a substantial increase in the premium collected from non-linked policies (such as endowment plans, term plans etc.) as compared to unit-linked policies. The premium collected from non-linked policies – offering life coverage – increased from Rs 4,45,678.26 crore to Rs 5,05,741.57 crore. On the other hand, linked policies insurance premiums collected grew from Rs 88,625.45 crore to Rs 91,479.51 crore.
Traditional products contributed to 86.59% of the total premium collected and the share of ULIPs stood at 13.41%.
The business from traditional products grew by 14.40% and the same for ULIPs is 4.61%, according to the report.
Though the Irdai report reveals that LIC is paying 27% as commission, however, growth in the commission paid by LIC is lower than what is paid by private sector life insurance companies. Private-sector life insurance companies paid more money as commissions as compared to public-sector life insurance companies. The ratio of first-year commission to premium received in private sector companies grew from 10.94% in 2021-22 to 15.78% in FY 2022-23 – an increase of almost 5%. However, there was a very low growth in the public sector company’s first-year commission increased from 26.55% to 27.61% – a hike of approximately 1% only.
One can infer that private life insurance companies are focussing more on selling non-linked plans including endowment plans and term insurance than UILIPs which has resulted in higher growth in commission payment.
It is important to note that there has been a growth in the total premium received by life insurance companies by 12.98%. This has also led to a slight increase in commission expenses to 5.41% in FY 2022-23 from 5.18% in FY 2021-22. The percentage is expressed in terms of commission paid as the percentage of the premium received.
Despite an increase in commission paid by the private sector, the first-year premium collection has also dipped. For private-sector companies, the first-year premium collection decreased from Rs 73,943.39 crores in FY 2021-22 to Rs 70,834.75 crores in FY 2022-23.
However, for public sector companies, the first-year premium collection increased from Rs 36,649.35 crores in FY 2021-22 to Rs 39,089.94 crores.