Kathmandu. In the neighboring country of India, there is a policy provision regarding the control of the rate of insurance in life insurance and the distribution of commission for the promotion of professional agents. According to this provision, if the insurance policy expires in the second or third year of the issuance of the policy or is surrendered within five years, then the agent has to return a certain amount of commission to the insurer.
The agent has been fined that the insurance policy has expired as the agent has deliberately sold the insurance policy without considering the purchasing capacity, savings capacity and needs and feelings of the insured.
In fact, in the life insurance sector, it is not just the change in the financial status of the insured that is behind the lapse of the insurance policy and the high surrender rate. This includes the inadequate and incorrect information given by the agent to the insured about the terms and facilities of the policy, ignoring the purchasing power and saving capacity of the insured, ignoring the stability or stability of the insured’s source of income, filing false policies in the greed of higher commission, distributing false assurances in violation of the code of conduct. As a result, the insured may not be able to pay the renewal insurance premium with only 1 year’s savings after paying the first year’s installment with the money saved for a long time.
Globally, the average rate of inactive and surrender of insurance in life insurance is between 15% and 25%. Due to the tendency of the insurer to lie to the regulator about the surrender rate in Nepal, the exact data or picture has not been revealed. The regulator has not strictly checked the accuracy of the insurer or surrender rate or has not shown interest in taking action even though the insurer has lied in the data.
According to the insurer, even if it is the job of the agent to add new insurance or customers in developed countries, it is the responsibility of the insurer to provide reliable services to the insured and encourage them to regularize the policy. However, in countries like South Asia, where the access to insurance has not been expanded, the role of the agent is also necessary in the after-sales service, so the insurer pays some amount of commission to the agent even in the renewal of the insurance account.
Life Insurance Corporation India, a state-owned life insurer in India, has reduced the commission rate from 35 per cent to 25 per cent in the first year and from 5 per cent to 7.5 per cent from the second year onwards. Since the implementation of this system since 2024, there has been a decline in both the surrender rate and the spending rate.
Private sector Indian life insurers have also made provision for distributing agents’ commissions and bonuses on the basis of the insurance policy continuity rate. There is a provision to use scissors for the commission to the bonus (incentive) for the first insurance premium of the agent with a high interest rate or surrender rate.
In Nepal too, voices have been raised in favor of revising the commission rate due to agents of non-professional character. In the initial years, when the commission rate and incentive facilities were high, the tendency of the agent to forcibly insure a large insurer, ignoring the condition and necessity of the insured, is noteworthy.
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