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Insurers back upfront payoffs

Barely a day into the new guidelines announced for ULIPs, and with two months to go for their implementation, stakeholders seem to have already worked out a formula to co-exist in the new environment. HT reports. Setting right the imbalances

india Updated: Jun 29, 2010 23:28 IST
HT Correspondent

Barely a day into the new guidelines announced for ULIPs (unit-linked insurance plans), and with two months to go for their implementation, stakeholders seem to have already worked out a formula to co-exist in the new environment.

According to industry insiders, insurers will work on the upfront model and trail commission where some extra commission (that will be later adjusted in the total commission for the five-year period) will be paid upfront from the insurer's pocket to keep distributors running.

Even though distributors will not get high commissions to the tune of 40 per cent in the first year, they can still expect some upfront commissions, though not through the normal route.

"While the total commission paid in five years will remain as per the guideline, insurers will split it in a manner that they pay some additional incentive in the first year from their pockets and will offer trail commission from the second year," said an industry insider on conditions of anonymity.

"Insurers will recover the first-year cost over the remaining period."

Large distributors, however, feel the trail commission model will be good for their business.

"A big trail income is good for our business as it brings stability of revenue," said the head of a large distribution channel, who did not wish to be named.

Some distributors believe that this will lead to a consolidation in the distribution space.

Distributors will have to go for the volume game to keep their revenues intact.

"I think consolidation will happen in the distribution space where strong players will get stronger and marginal players will get eliminated. We will focus on generating volumes," said Rajiv Deep Bajaj, vice chairman and managing director, Bajaj Capital.

While revenues and profits of distributors are likely to get affected because of the new norms, industry players feel that this will lead to better practices.

"Consumers can now expect more stringent advisory standards and better service standards," said Bajaj.