No commission on insurance sales!

There was an amazing news item now. Mr. D Swaroop said Rs. 15,000 crores was paid as commission to the insurance distributors, so they have decided to eliminate commissions. Fantastic idea, should be immediately implemented!

Vow! So the investors save Rs. 15,000 crores.

A quick calculation showed that the insurance companies paid Rs. 22,000 crores as rent, Rs. 4,000 crores on food and beverages, Rs. 10,000 crores on electricity….etc.

So it has been decided that insurance companies cannot use agents (no commissions), no electricity (electricity will be saved), and there will be no tea or coffee provided in life insurance companies. All landlords will have to give the premises free to the insurance companies (out of love for the industry!).

One CXO of a big life insurance company said “the way I know, LI cannot work!” Of course they are being very considerate in 2010 you can be paid 15% commission…then 7.5% and nil in 2011!

Do they even realise that out of Rs. 15,000 crores – a huge part would have been paid as salaries (by banks), as rebates (by many of the agents and some banks – oops it is illegal), some paid as rent, for petrol, for clerical salaries, telephone charges, advertising…etc. The way Mr. Swaroop said Rs. 15,000 crores (btw there are about 30 lakh agents atleast, so on an equitable basis the per capita income is Rs. 5o,000 per year!) he felt like he has unearthed the next Scam!

As a typical government agency is somebody trying to force people to sell NPS? Another lousy government program…Er You thought i said NPS is good, correct? Will write about horribly priced annuity in a later post.

Swaroop committee, swarup ‘no comission’ ‘zero load’ ‘no commission on life insurance sales’

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13 Responses to “No commission on insurance sales!”

  1. nice article subra,
    btw i have been waiting to hear ur uncompromising views as ever on NPS.

  2. I don’t see anything wrong if Insurance moves the same way MF is doing currently. Let Agents charge for advice & services in a manner fair to customers. In fact, we can shift from Agent (who represents company) to Broker (who represents Customer) culture.

  3. While there may be some mis-selling taking place, the solution is Ridiculous; Very few realize that it requires visits to HALF a DOZEN prospects before getting One who shows interest; and only a few of these will actually fill the form. So the commission is well JUSTIFIED; It would interesting if the babus who seat in A/C rooms & decide about OUR commission, are willing to go out ONE day and try to actually SELL insurance; It should be an Eye-Opener to them; Getting Fat Salaries doing practically nothing is what the Government Folks get; While poor hard working genuine people like us get screwed;

    The babus get pensions for life; for doing very little worth while. Pushing papers from one table to another; Demanding Bribes every time. Ours is hard honest Work!; Nobody thinks of the thousands of WIDOWS who are grateful that some brave Insurance guy took pains to come and recommend the policy; and the families who can life a life of dignity without being cheated by all the crooks around; Full CREDIT to the Insurance agent who took pains to approach the customer; Besides insurance in an enforced savings. Chances are high the investment put towards insurance, would otherwise be spend on booze or worst.

    Why not go forward and Ban commissions on sales of product like Cars/ Flats/ Property? On commissions made by doctors for recommending needless Medical test; Insurance needs agents; Without commission I bet, sales will be 1/10 of todays; [A.S]

  4. if the commission will be stoped then who will sell the policy and who will provide the services to the people .
    will the branch manager or the underwritter do these all thing
    and due to this too much unemployment will occur

  5. In a county in the United Kingdom, there was a major problem – of Drinking and Driving. The county met and decided that they could do one or all of the following:

    Ban driving
    Ban cars
    Ban drinking
    Ban people
    Ban roads

    However they could not come to a conclusion. So they appointed a committee which decided to

    Ban driving, it that did not work ban drinking, if that to did not help ban people. They decided not to ban cars because that would cause a loss of revenue!

    So a few old indexed pensioners have decided to ban mutual funds and life insurance sales. Obviously products are so good that people will line up to the offices of insur companies and mutual funds and buy the products!

  6. JAISIMHA KADAMBI on October 6th, 2009 at 9:58 pm


    just tell me the commision is an intergal part of insurance industry. we work in a rejection industry for the 10 calls we make the hit ratio for an agent is 1 at the end of the day does he / she not deserve the credit how many times will a ceo /misinter knock at the door for premium..we are doing social responsibility job. if it is so easy why does not every body take it up it does not require much education. but to work the way up in this industry requires tremendous determination

  7. hi,

    the way agents treat there customer, i think it is well justified to withdraw the commision. Intially they will do lot of followup etc… but once we become customer then it is dumped.. they will start chasing some new bakra… old customer is left on his own. To add to insult the same fellow keeps on getting the commision. We can not even say that stop giving commission to that fellow.

    What ever intiative for MF and Insurance towards zero commision is good.

  8. The insurance companies need the agents, and can appoint them in whatever way they seem fit. But, when the agents start pushing ULIPS guised as “3 year investment plans” that give an “assured 30% returns per annum”, and when you take the matter up with the agent, she tells you that the insurance company conducted a sales workshop that provided them with the numbers, one wonders what kind of regulation exists in the market.

    What percentage of insured Indians have adequate life cover in the form of term isurance policies would give a better idea of insurance sales strategies? If MFs cannot have entry loads, ULIPs do not deserve them either.

  9. Yes I agree that in any direct marketing / agent based marketing operation you may have to approach a dozen customers before you find one person willing to buy the product – insurance.

    So – why should the poor customer who buys that insurance be penalized with over 40..60% of his premium going to LIC agent commissions, management fees etc?

    If LIC wants to incentivize agents to sell, they can take some amount (even 15000 crores) from their profits, and other income (for example from trading in stocks, operating a mutual fund etc).

    It is absolutely not fair to have one customer who buys a policy subsidize the agent on a scale to compensate for the dozen customers who dont buy the policy.

    Even for a properly sold policy (and this doesnt deny that a lot of LIC agents simply sell the policies that make more commission for them, and these days are much more interested in selling long term pension funds, ULIPs etc).

    That “logic” I see above in most of the comments is utterly selfish.

  10. Why can’t things be kept simple? Why isn’t it mandatory for insurance companies to disclose expenses as a part of premium income?

    For example, if a given insurance firm collected Rs. 100 during a given quarter, then it should be required to detail every bit of expenditure. Maybe like:

    Rs. 25.00 Commission
    Rs. 35.00 Operating expenses (rent, electricity, salary, etc. etc.)

    Human beings are inherently greedy, that’s why they readily accept what is communicated to them by the agents. If one attempts to work out the maths, then it might be apparent that what is being conveyed isn’t probably possible in real life.

    Moreover, I find this concept of ULIPs (or rather insurance in which one accepts money at the end of the term) to be pretty funny. A lot of this can actually be attributed to the fact that a vast majority of the people in this country thrive on black money. And the regulations provide insurance as an excellent means to convert this black to white.

  11. ashish dandekar on April 9th, 2010 at 7:34 pm

    what will whole time investment advisors do then? should we come on
    road .what about our family responsibiltes,where should they go?
    what is alternative for income for us?
    this is a question of more than 10lac overall advisors. your one ammendment can ruin our life.
    shuold we do robary or hamali or beg near mandir.first work on our rehabilitation programme and then do shch silly things.

  12. ashish dandekar on April 9th, 2010 at 7:48 pm

    m/f and now insurance after using us for popularity ,service, of the product ur throwing us like cockroach. we do the work for people and for industry but we do not have any pension like govt. also we handle important docu. and cash
    for which no compensation is provided. we have no vacation day neiher holiday.rather others holiday is our most working day.
    but let me remind u one thing no body can do every thing. so today or tomorrow you will need us again for servicebut we are always at ur service

  13. Yes. An insurance agent is the most difficult job. Facing rejections needs great determination to move on. and the fat commission is one of the reasons that kept them moving on.

    BUT have you ever thought of why most of the people are rejecting insurance agents? This is because there are many black sheeps in the insurance industry that give wrong advices to their clients because they want a higher commission. their “commission” comes before their “mission”. they will ask clients to buy the product that reap the highest commission rather than the product that best suit the client.

    If there is no commission scheme , and insurance agents are salaried based on their experience and expertise in their financial advice. People will change their perception of insurance agents. the Public will start looking for insurance agents for professional advice.

    the public need professional financial advisors, not commission-motivated insurance agents.

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