Earnings of insurance intermediaries depend on the premium and commission structure, with investment-oriented products like ULIPs offering higher commissions than pure risk plans such as term insurance. This often leads agents to promote high-commission products. While some focus on selling a wide range of policies to existing clients, others aim to build a larger base through pure risk products. Despite global trials of fee-based models, commissions dominate in India to support insurance penetration. Safeguards like expense caps, needs analysis, and an extended free-look period aim to curb mis-selling, though buyers should stay alert to overly lucrative promises.
Don’t Buy The Wrong Policy—Ask These Key Questions First
If there are exceedingly lucrative promises, then the policyholder must double-check the written word
Summary
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Absolute earnings of an insurance intermediary are driven by two factors, i.e., the premium paid and the percentage commission. Pure risk products, such as health and term insurance, tend to be low on ticket size. As a result, absolute earnings are relatively small. Comparatively, the ticket size for investment-oriented products such as Unit Linked Insurance Plans (ULIPs) is much higher. Intermediaries, who focus only on pure risk products, try to build a large base of clientele. Then there is a set of intermediaries who focus on providing a full bouquet of insurance products to their existing clientele.
Traditional insurance plans and ULIPs offer agents upfront commissions. These can range from 15 per cent to 35 per cent, in the first year and trailing commissions thereafter. Term plans offer lower commissions, so you are less likely to find an agent pushing you a term plan.
There have been several experiments globally to move from a commission-based system for intermediaries to a fee-based remuneration. “The latter model allows clients to determine the fees paid to the intermediaries. Generally, such experiments have led to a decline in insurance sales. The Indian insurance market is still at an early stage of evolution. There is a need to encourage distribution to increase penetration in the country,” says Abhishek Bondia, director, Insurance Brokers Association of India (IBAI).
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Smart Buying Starts With Asking The Right Questions
There are several safeguards to prevent misselling. For example, there are cappings on expenses for ULIPs. Intermediaries must conduct a thorough needs analysis. On top of it, recently, the free look period was enhanced for specific products. The policyholder can use the free look period to cancel the policy if there is an instance of mis-selling. Also, the Insurance Regulatory Development Authority of India (Irdai) recently mandated and simplified the CIS. This helps the policyholder understand the most important terms of the policy in a simple manner.
Beware Of Mis-selling
"If there are exceedingly lucrative promises, then the policyholder must double-check the written word. Examples of misselling would include an advisor encouraging not to disclose pre-existing illness, or promising a very high guaranteed rate of return,” says Bondia.
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