The IRDA initiative is welcome, but it will help only a subset of orphan policies. The customer with lapsed policies expecting new allotted agent may be in for a surprise

The Insurance Regulatory and Development Authority (IRDA) has recently issued guidelines on an orphan life insurance policy. The guidelines allow 100% of the renewal commission to allotted to the agent for revival of a lapsed policy as well as for future renewals. At present, a new agent is entitled to renewal commission of only 50% of what the procuring agent would have been entitled had the policy continued to be in force and that too if lapsed policies required medical examination.

The guidelines are good for life insurance agents who help in revival of lapsed policies which were sold by another agent who may no longer be working with same insurer or dead. A policy on which premium remains unpaid even after six months from the due date is considered as lapsed policy.
Here are some important points:

•    Single premium or policies on which no further premiums are due for payment are not eligible for new agent allotment.
•    The allotted agent shall not part with the policyholder information to any third party/entity nor use it for any other business purposes. However there is no bar in an allotted agent to canvass new policies to the policyholder after reviving the lapsed allotted policies.
•    No upfront/advance payments to agents are allowed on account of the policy allotments.
•    The payment of remuneration shall cease with the exit of an allotted agent by any means.
•    The policies that are allotted for servicing shall not be counted for persistency of the allotted agent.
•    The number of policies allotted to an agent shall not exceed 20% of the total number of policies that were introduced by him/her and in-force as on the date of allotment.
•    Insurers shall have in place a board approved policy for allotment of lapsed orphan policies which is in compliance with these guidelines.
•    Insurers shall also take into account the track record of the agent and complaints registered against an agent, etc. while allotting the orphan policies.
•    Where the lapsed orphan policy allotted is not revived within six months from the date of such allotment, life insurers shall have the discretion to undo the allotment by issuing a formal notice to the allotted agent and re-allot to any other agent.

The guidelines have been hailed by the media, but the details are in the fine print. The renewal commission can be paid to the allotted agent only if the original agent who sold the policy is not entitled to the commission. This is a big if, as per insurance regulations.

Under Section 44, except on grounds of fraud, an agent who has served an insurance company for a period of five years shall be entitled, subject to certain conditions, to renewal commission on policies if s/he discontinues his agency. Agents who have completed 10 years of service with a given insurance company and stops for any reason his/her agency business but does not join another company are entitled to renewal commission on all such policies which they had placed. The agent’s heir will get it even after the agent dies. It is a contract between an agent and the life insurance company as renewal commission is just deferred compensation which cannot be taken away if the agent has completed certain time with the insurance company.

IRDA’s initiative to have the insurance company allot a lapsed policy to another agent and give the allotted agent the renewal commission is only applicable to a subset of lapsed policies. Addressing the issue of lapsed policies by incentivising agents is welcome step by IRDA, but who will help to revive the lapsed policies wherein the policy seller is still entitled to commission even though s/he is no longer with the insurer or may be even dead?

A veteran life insurance agent asks: “Who will help such customers with services like loan processing, change of nomination or even filing to death claim? The agent who sold the policy is gone (left the insurer or dead) and there is no allotted agent to the policy for any kind of servicing. Life insurance companies keep renewal commissions when the policy seller is not entitled for renewal commission. It happens as many agents leave the business after one or two years. The insurer should use these funds to incentivise agents to revive a lapsed policy even when the policy seller is entitled for the commission, but has left business after completing required years or dead.”

While a life insurance agent can get renewal commission after leaving the business and even passing it to his/her heir, a general insurance agent does not get anything. Most of the general insurance policies are renewable every year and there is no concept of renewal commission payment if the agent has left business or dead. It’s something on the wish-list of general insurance agents.