Rebating in selling Life Insurance

India is a developing country with a huge potential for sale of life insurance. Despite the fact that the Public Sector Life Insurer, the monolith Life Insurance Corporation of India (LIC) has been in the business of selling life insurance to Indians for over 51 years and there is another group of new private insurers engaged in the same activity for almost 7 years now, a vast majority of eligible people have either no insurance or hold inadequate insurance cover. Undoubtedly with the opening of the life insurance sector to private players since Oct. 2000, there has been tremendous growth in the area of selling life insurance in India. India has an estimated population of over 1.1 bn people as of 2007 and it is increasing by the day despite all efforts made by the Govt. of India to arrest the growth. While the no. of new births has definitely come down over last few decades, the no. of people living longer is also increasing because of improved standards of living and better health care available. All efforts made by all the life insurance companies, both in public and private sector, have resulted in providing cover to only about 20% of the population.

No doubt the awareness level has gone up to a great extent but the need for buying life insurance is still not felt by the people, including highly educated and wealthy people. Life Insurance is still sold and not bought, which, unfortunately, is also the condition worldwide.
Obviously, the job of selling life insurance falls on the shoulders of the intermediaries like Life Insurance Agents ( individuals, corporate agents and insurance brokers).

Unfortunately, despite all the efforts made by the Insurance Regulatory and Development Authority (IRDA) and the provision under section 41 of Insurance Act, 1938, the menace of rebating is still prevalent.

This Section prohibits offer and acceptance of any part of commission received by the agent as an inducement for buying a life insurance policy and provides for fine to be imposed on the giver and taker to the extent of Rs.500. Despite the fact that this section has been a part of law for over 60 years and every body knows that rebate is offered and accepted in a majority of cases, not a single case has been booked under this law and no penalty seems to have been imposed on any body.

Life Insurance Selling is not an ordinary job. A Life Insurance Agent is supposed to be a professional with high degree of knowledge and expertise. Like a doctor, engineer, architect, chartered accountant or a tax consultant, he too is a professional in his own right. He helps a person to plan for his children's education, marriage, start in life and for his own post retirement period when his income either stops or dwindles but his needs do not reduce. In fact, a Life Insurance Agent helps a person to forget his worries for his future to make provisions for all stages in life so that he can have a peace of mind.

A Life Insurance Agent not only helps a person to plan for all these activities but also helps him to realize these by buying various kinds of risk covers.

They say"There is no substitute for Life Insurance." This statement is absolutely right because this is the only method through which one can buy an estate in instalments and go on paying for it and ultimately, the estate belongs to him, when he has paid all the instalments. It also assures that if the person dies before the payment of final instalment (even if he has paid only one instalment), the estate still belongs to him and passes on to his heirs on his death.

When a professional with this kind of instrument approaches an individual to help him realise his dreams, the first question asked by the prospective buyer is "How much commission will you pay me, if I buy this policy through you?" Is it not unethical to ask this question to a person who is helping you to realise your dreams? Does he not have a family to support? Do his children not need education? I ask the following questions to the people who ask such questions:

1. Does a Life Insurance Agent get a free pass from Indian Railways to travel?
2. Does he get a free bus travel?
3. Does he get a free Scooter, Motor cycle or a Car?
4. Does he get free petrol or diesel to run these vehicles?
5. Do his children get free education?
6. Is there no expenditure on the marriages of his sons and daughters? Does the society bear
expenses?
7. Does he get free rations?
8. Does he get a free house?

If the answers to all these questions are YES, I have absolutely no grouse against people asking to share a part of his commission. But if the answers to all these questions are NO, can any body tell me how is this man going to live respectfully as a member of the society?

When we visit a doctor, does the doctor pay any money to us after providing consultation to us?

When we ask an architect to design a house for us, does he pay any money to us after giving the design.

Similarly, does a Chartered Accountant or Tax Consultant provide free consultations to us and also pay a certain amount to us for having obliged him by visiting him and availing of his services?

My questions may seem silly. I agree because this particular issue has never received the attention of any body. People have taken it as a matter of right to ask and to take money from life insurance agents. In fact, surprisingly, instead of thanking a life Insurance Agent for helping the person to realise his financial dreams, many people show as if they have done a favour to the agent.

One argument which is generally advanced by the people demanding rebate is that an insurance agent gets a hefty commission in the first year and continues getting a small amount year after year. It is, therefore, desirable that he parts with a portion of his first year (and sometimes even 2nd, 3rd, 4th and 5th year also) commission while selling a policy because he will continue getting commission for several years.

I have the following answers to this argument:

1. As said earlier, selling life insurance is not an easy job. It takes a lot of effort to locate a potential buyer, seek an appointment, meet him several times, make presentations to him, meet several objections, before a sale is closed. Naturally, this needs a lot of time, effort and frequent travel. And, remember, all these are costly.

2. An agent is supposed to be in constant touch with his customer from pre-sale to post-sale till
the policy matures. Apart from reminding him to pay the premiums on times, he helps him in keeping the policy in force so that he gets all the promised benefits.

3. If the life assured dies, the agent has to ensure that the death claim is settled in favour of the nominee.

4. What is the guarantee that the person will live till the date of maturity because while life is uncertain, death is certain. Only time is not known. Suppose, he dies in the second year, all the commissions paid by the agent will be lost.

5. What is the guarantee that the life assured will continue the policy till maturity. He may stop it after 2 or 3 years, resulting in loss of all commission paid as a rebate.

6. The Insurance Agent, apart from incurring all expenses, also pays income tax on the income earned by him, while the life assured takes away the rebate in cash.

I do not know whether any body agrees with my arguments or not. I am convinced that it is time all agents must start saying NO to any one demanding commission. Or let the IRDA make it legal. In that case, the agent will pay the rebate by cheque and claim rebate on his income tax and also will charge his clients fee for pre-sale and after-sale services.