Agents are critical, we must incentivize them to stay: LIC
Premium- The insurer said Irdai regulations on payments limit its ability to incentivize intermediaries
MUMBAI : Life Insurance Corp. of India’s latest regulatory filing offers a peek into the heart of its agent network, the impact of attrition in this network, and the challenges in finding and retaining enough agents to distribute its policies.
In its red herring prospectus (RHP), LIC said there is no guarantee that it will be able to find and replace agents, and it needs to incentivize them better. A failure to attract and retain talent could have a material adverse effect on operations, it said. The company’s initial public offering opens on 4 May and closes on 9 May.
“The 3.60% decrease in the number of our active agents from 31 March 2021 to 31 December 2021 was primarily due to covid-19 adversely affecting our agents’ ability to distribute our products due to lockdowns and social distancing measures limiting in-person interactions," LIC said in the IPO documents.
LIC had 1.33 million individual agents as of 31 December 2021, accounting for 55% of the total insurance agents in the country. ICICI Prudential Life had the second-largest network with 196,785 agents.
As LIC’s agent numbers fell, productivity fell, too.
“[T]he average productivity of our individual agents in India fell from 18.11 policies sold per year in fiscal 2020 to 15.49 policies sold per year during fiscal 2021 due to the impact of covid-19," said the insurance firm.
Having agents to sell policies is important at a time there is a need for personal connect to improve business. LIC says agents can hand-hold customers, explain the advantages of specific policies and differences among various products, provide advice on the suitability of the product on the basis of customer needs, remind them about premium payments, and help with cheque collections.
Failure to attract talent will adversely impact operations for the company about to go public.
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“If we fail to attract and retain agents, our ability to market and sell our products and provide our customers with the level of service we aim to provide them could be adversely affected since a considerable decrease in the number of our agents could lead to us having reduced capacity in distributing our products, which could have a material adverse effect on our results of operations," stated the RHP.
As of 31 March 2021, LIC had 1.35 million individuals in its agent network compared with 1.1 million individuals for the entire private life insurance industry. Individual agents continue to account for as much as 58% of the individual life insurance premium for fiscal 2021.
LIC cautioned that agents need to be trained and incentivized better and warned that it is facing “high attrition".
“The Insurance Regulatory and Development Authority of India (Payment of Commission or Remuneration or Reward to Insurance Agents and Insurance Intermediaries) Regulations, 2016 limits our ability to incentivize our insurance intermediaries in India (e.g., individual agents, corporate agents, insurance brokers, bancassurance partners, brokers and insurance marketing firms) by imposing limits on the payment of commission or remuneration to such agents and intermediaries," the IPO documents said.
LIC attracts and retains talent through incentives including remuneration, retirement benefits, advances, group insurance, training support, pre- and post-sale support services and lending its brand name.
“We may need to increase commission and other benefits to attract and retain enough agents, subject to the cap on commission payable to our agents," said LIC.
The LIC IPO has received ₹13,000 crore worth of investment commitments from anchor investors, more than twice the value of shares offered to such investors. Shares will be allotted to anchor investors on 2 May.
The government will sell 3.5% of LIC or 221.3 million shares. Of this, 22 million shares will be reserved for policyholders and 1.5 million for employees of the insurance behemoth. The government expects to raise about ₹21,000 crore at the upper end of the price band in what would be India’s largest such sale.
The IPO values LIC at ₹6 trillion, almost near its embedded valuation and much lower than the ₹10 trillion to ₹15 trillion range that news reports said it would when the company filed its draft IPO papers in February.
However, the stake sale is still much lower than the minimum 5% stake sale it had initially planned. Geopolitical tensions, soaring oil prices and monetary tightening by major central banks have made global investors jittery about emerging markets stocks, crimping demand for LIC’s shares.