Kathmandu. It has been found that life insurance companies have spent almost double the amount in the distribution of incentives and almost double the regulatory provisions.
According to information received from the sources of two licensed life insurers, the cost of incentives is more than 35 percent. CEOs are playing with the savings of the insured in the hope of sustaining a 4-year term or continuing another term by showing unusual progress in their tenure.
According to the circular issued by the Nepal Insurance Authority, the life insurer can spend up to 18 percent of the incentive to the agent on the basis of the first insurance income. This means that in addition to the direct commission received by the agent, the agent can distribute up to 18 percent of the first insurance premium earned by the agent as an incentive.
According to the statistics of the incentive distribution of a life insurer obtained by Insurance Khabar, about 36 percent of the income of the first insurance premium has been distributed to the first, second and third level agents.
In particular, the provision of incentive distribution has been introduced with the objective of providing professional training to the new entrant agents, teaching the art of selling, and also encouraging the leadership of the agent to help in the expansion of the agent network. There are two levels of agents who avail the benefits of such incentives, the first is the Business Developer (BD) and the second is the Agency Manager (AM) designation. However, such a designation is not recognized by the Insurance Act and Regulations.
The general public may be curious as to how incentives are distributed on the basis of the insurance income earned by one agent in the leadership network implemented for the promotion of professional agents in life insurance companies. We have tried to illustrate the distortion in the distribution of incentives through an example. This example is based on the assumption that agents at all three levels have sold a 15-year term insurance plan.
Out of the three agents included here, the first level agent has earned Rs 1 crore in the first insurance premium in a year. They have earned a minimum of five lakh rupees in the first insurance premium to maintain the second and third level.
Distribution of facilities: The agent at the lowest level i.e. the first level receives an additional allowance of Rs. 70,000 per month as first insurance premium. The agent leader who is at the second level also enjoys a salary of Rs 70,000.
Now, the remaining third level agent will earn a monthly salary of Rs. 50,000 (70 lakhs) of the first level agent’s income and Rs. 500,000 in the first insurance premium. In this way, the insurer has given a total of Rs. 100 per month as salary or incentive to the agents of all three levels during the period of 12 months. 22 lakh 80 thousand has been paid.
Apart from this, the life insurer has also been implementing the incentive scheme on a monthly basis. Under this scheme, the insurer provides up to 4.5% of the first insurance premium earned in cash or equivalent to the same amount. Including this expense, the insurer has to distribute Rs. 4,95,000 monthly in the incentive plan out of the first insurance premium of Rs. 1.10 crore.
The income earned by the agent is not limited to this. The third level agent earns an additional incentive of Rs. 280,000 at the rate of 4% of the 70% first insurance premium earned by the first level agent. The second level of the agent leader has given the entire Rs. They get an incentive of Rs 4 lakh for 4 percent of 1 crore. In addition to this, Rs. 1,40,000 should also be distributed to the Agent Club opened by the insurer in various names. Thus, the total amount of Rs. The agent has earned Rs. 1.10 crore from the life insurer in a year. They have been able to earn Rs 35,95,000 as an incentive.
While earning Rs. 1 crore 10 lakhs in the first insurance premium, the insurer has to pay the agent only about Rs. They pay Rs 36 lakh in incentives. This amount does not include the direct commission expenses that the agent receives. In the first year, the total was Rs. The insurer has paid 25% commission to the agent for the first insurance premium income of Rs. 1.10 crore. 27 lakh 50 thousand has been paid.
Including the amount of direct commission and incentives to be distributed at three levels, Rs. The insurer earned Rs. 11 million in agent commission and incentives. 63 lakh 45 thousand is out. The insured has a balance of Rs. 46,65,000.
If we calculate in percentage terms, 57.68 percent of the first insurance premium will be released in the first year by adding the amount of commission and incentives provided by the insurer to the agent in the first year.
This fact has led to alarming distortions in some life insurance companies. If more than 57 percent of the amount collected from the insured is distributed to the agent, then what amount will such a company invest and can meet the minimum expectations of the insured?
Manoj Lal Karna, the chief executive officer of Union Life Insurance, was forced to resign before completing his second term at Himalayan Life Insurance after the merger. Due to his emphasis on the sale of loss-making insurance plans in the interest of improving short-term performance and uncontrolled spending, the bonus rate of some insurance policies is the lowest among the life insurance companies. The agent himself was forced to resign by protesting against him saying that he could not sell the insurance policy due to the bonus rate being too low.
This fact also answers the question of why an insured does not get back even the amount equivalent to the premium paid by him when he surrenders the policy after the first three years.
