LIC is paying 27% as commission from first-year premium

LIC is paying 27% as commission

Irdai has released its annual report today. The report highlights the fact that how much commission life insurance companies pay to their agents. The report further said that despite the increase in commission payments, there has been no significant increase in premium growth. Read on to know more.

The Indian Insurance Regulatory and Development Authority (IRDA) has said in its annual report that public sector life insurance company LIC is paying 27.61% commission to agents on the first year’s premium. To understand this, if you are paying Rs 100 as first premium when you buy the policy, then Rs 27 is given to the agent as commission from your first year’s premium.

It is important to note that this is the average amount of commission paid to insurance agents. Therefore, some policies may have higher commissions and others may have lower commissions. Typically, term insurance policies have lower commissions than endowment policies. However, unit-linked insurance plans (ULIPs) generally have the lowest commission payouts compared to other categories of life insurance policies. It also shows that the commission paid on non-linked endowment and term plans is much higher than the average rate of 27%.

IRDAI data also highlights that there has been a substantial increase in premiums collected from non-linked policies (like endowment plans, term plans, etc.) compared to unit-linked policies. Premiums collected from non-linked policies – offering life coverage – rose to Rs 5,05,741.57 crore from Rs 4,45,678.26 crore. On the other hand, linked policy insurance premium collected increased from Rs 88,625.45 crore to Rs 91,479.51 crore.
The contribution of traditional products to the total premium collected was 86.59% and the share of ULIP was 13.41%.

As per the report, the business from traditional products grew by 14.40% and for ULIP it is 4.61%.
However the IRDAI report shows that LIC is paying 27% as commission, however, the increase in commission paid by LIC is less than that paid by private sector life insurance companies. Private sector life insurance companies paid more money as commission as compared to public sector life insurance companies. The ratio of first year commission to premium received in private sector companies increased from 10.94% in FY 2021-22 to 15.78% in FY 2022-23 – an increase of about 5%. However, the first-year commission of the public sector company saw a very small increase, rising from 26.55% to 27.61% – an increase of only 1%.

One can speculate that private life insurance companies are focusing more on selling non-linked plans, including endowment plans and term insurance, than UILIPs, resulting in higher commission payouts.
It is noteworthy that the total premium received by life insurance companies has increased by 12.98 percent. This has resulted in a marginal increase in commission expense from 5.18% in FY 2021-22 to 5.41% in FY 2022-23. The percentage is expressed as commission paid as a percentage of the premium received.

Despite the increase in commission paid by the private sector, first year premium collections have also declined. For private sector companies, first-year premium collections declined from Rs 73,943.39 crore in FY 2021-22 to Rs 70,834.75 crore in FY 2022-23.

However, for public sector companies, first-year premium collections increased from Rs 36,649.35 crore to Rs 39,089.94 crore in FY 2021-22.

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