State-owned Life Insurance Corporation of India (LIC) has realigned its commission structures for its distributors in accordance with new surrender value norms but has no plans to introduce any “clawback”, it said in a post-earnings analyst call on Friday.
“It depends on our experience because the new products have been filed from October 1,” said Siddhartha Mohanty, managing director and chief executive officer.
The insurance regulator has revised the surrender value norms, and the revised ones came into effect on October 1.
According to those, companies have been mandated to pay enhanced special surrender value (SSV) to policyholders after the completion of the first policy year if the customer has paid one full-year premium.
Previously, companies did not pay such an amount to customers surrendering their policies in the first year.
Following this, LIC had reduced first-year commission on policies from 35 per cent to 28 per cent due to the revision.
However, it has hiked the renewal premium charge to 7.5 per cent from the current 5 per cent.
The minimum sum insured under the amended plans has also been increased to Rs 2 lakh from Rs 1 lakh, starting October 1.
“Commissions have been realigned, not reduced. Whatever was given during the entire duration of the policy, agents will still get that.
"Some restructuring has been done, so there is no reduction, per se, which is a perception now,” Mohanty said.
LIC launched 32 products on October 1 in accordance with the revised norms and the corporation has 35 products.
The “clawback of commission” clause allows the insurer to recover agents’ commission if the policyholder surrenders the policy prematurely after paying the first premium.
During the post-earnings media call, LIC said it intended to enter the bond forward rate agreement (FRA) market “very soon” and it was in talks with five to six banks regarding this.
FRAs are contracts between banks and insurance firms, enabling insurers to lock in interest rates for a future date, protecting them from market volatility.
By entering into such agreements, insurers can offer guaranteed returns to policyholders.
“We are going live very soon. We are roping in 5-6 banks who are active in this segment.
"We are going to take a very calibrated approach as we are just starting it.
"We will have to see the depth in the market to the extent it is possible and available and depending upon the interest rate outlook that we will have from time to time.”
However, the management did not give the names of the banks.
