The Life Insurance Corporation of India (LIC) has always considered its agents the backbone of the company, responsible for the bulk of its business generation. However, recent changes implemented by LIC regarding the restructuring of commission and the introduction of a clawback clause have sparked widespread discontent among agents. On 14th October 2024, the All India Life Insurance Agents Federation (AILIAF) representing 14 lakh agents issued a letter protesting these reforms and demanding their withdrawal. This article delves into the key issues raised by the Federation, the nature of their demands, and the potential consequences if their demands are not met.
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Background of the Protest
LIC recently introduced changes to its commission structure, which the Federation believes are detrimental to agents. The crux of their argument lies in the fact that LIC has reduced the commission percentages while adding a clawback clause. The clawback clause, in particular, has been a source of significant frustration, as it stipulates that agents must return their commission if a policy is surrendered within five years.
The agents, who are often freelancers and not salaried employees, argue that this policy punishes them for factors beyond their control, such as the client’s decision to surrender the policy. According to the Federation, these changes go against the spirit of supporting agents who have been key in building LIC into a financial powerhouse.
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Federation’s Demands
The letter sent by the Federation clearly outlines two main demands:
1. Restoration of the Commission Structure:
Agents demand that the first-year commission should remain at 25%, as it was prior to the restructuring, with a bonus of 40% for policies beyond the first year. They believe this structure is fair, and any reduction in it would impact their livelihood.
2. Increase in Renewal Commission to 9%:
For the second year onwards, agents demand that the renewal commission should be increased to 9% from the current 5%. They argue that with inflation rates around 6-7%, the current commission structure fails to provide agents with enough financial security. The Federation has justified this demand by pointing out that LIC offers its staff up to a 10% discount on premiums, and in direct selling, discounts as high as 15% are given. Therefore, they believe LIC can easily afford to raise agent commissions to 9% without financial strain.
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Analysis of Commission Structures
To understand the core of this protest, it’s important to compare the old and new commission structures.
Old Commission Structure:
Under the previous structure, agents received a commission of 25% in the first year, followed by 7.5% in the second and third years. For the remaining years of a policy’s term, the commission was fixed at 5%. This system ensured that agents earned around 125% in total commission over the life of a 20-year policy.
New Commission Structure:
LIC has reduced the first-year commission to 20% but retained the 40% bonus. The second- and third-year commission remains the same at 7.5%, but this rate now continues for four years instead of three. After the fifth year, the commission reverts to 5%. Over the life of a 20-year policy, the total commission still amounts to 125%, but the structure has been altered.
The Federation argues that while the overall commission remains unchanged, the structural changes place unnecessary pressure on agents, particularly in the early years of the policy when their income is most crucial.
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The Impact of the Clawback Clause
One of the most contentious elements of the new policy changes is the introduction of the clawback clause. This clause allows LIC to recover the commission paid to an agent if a policyholder surrenders the policy within five years.
Agents feel that this clause is unfair, as they have no control over whether a client chooses to surrender a policy. The Federation’s letter passionately argues that no agent wants their policyholders to surrender policies. Agents invest considerable time, effort, and money in securing these policies, only to be penalized if a client, for reasons unrelated to the agent’s performance, decides to surrender the policy.
The Federation has requested LIC to completely withdraw this clause, highlighting that it adds unnecessary risk to an already challenging profession.
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Call for Nationwide Agitation
The tone of the letter reflects the deep frustration among agents. If their demands are not met within 15 days, the Federation has vowed to initiate nationwide protests, including peaceful demonstrations at all LIC branches, a non-cooperation movement, and dharnas at LIC headquarters in Mumbai (Yogakshema).
The Federation has also indicated that they are prepared to escalate their protest to a national level, involving prominent public figures such as Anna Hazare. Letters will be written to all central ministers and Members of Parliament to garner political support, and a massive dharna is planned in front of Parliament. A similar demonstration, held against the D. Swaroop Committee, saw the participation of 50,000 agents, underscoring the seriousness of the Federation’s demands.
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Justification for the Demands
The Federation provides several arguments in favor of their demands. They argue that agents contribute significantly more to LIC success than the company’s employees, as 96% of LIC business comes from insurance agents. Furthermore, they highlight the generous discounts LIC provides to its staff and in direct sales, suggesting that LIC can easily afford to increase agent commissions to 9%.
The Federation’s position is that LIC current commission structure does not reflect the inflationary pressures agents face, nor does it adequately compensate them for their critical role in the company’s success. They believe that their demands are both reasonable and achievable, given LIC financial strength.
Also see: LIC New Policy on Premium Refunds for Lapsed Policies in Moradabad
Conclusion
The protest launched by LIC agents marks a significant moment in the company’s history. The agents, long considered the pillars of LIC, are now voicing their dissatisfaction with a commission structure they feel undervalues their contribution. Their demand for a restoration of the old commission structure and an increase in the renewal commission to 9% reflects the financial pressures they face in today’s inflationary environment.
The clawback clause, in particular, has added a layer of uncertainty to an already volatile profession, and agents are calling for its complete withdrawal. If LIC does not respond favorably to these demands, the situation could escalate into nationwide protests that could disrupt LIC operations.
Ultimately, this protest underscores the importance of fair compensation for agents, who continue to play a vital role in LIC success. As the Federation continues to advocate for their cause, all eyes will be on LIC next move. Will the company respond to its agents’ demands, or will this conflict continue to escalate?
FAQs
What are LIC agents protesting against?
LIC agents are protesting against the recent restructuring of the commission structure and the introduction of a clawback clause, which allows the company to recover commissions if a policy is surrendered within five years.
What are the two main demands of the LIC agents?
The agents are demanding the restoration of the first-year commission to 25% (plus a 40% bonus) and an increase in the renewal commission from the second year onwards to 9%.
What is the clawback clause in LIC new policy?
The clawback clause allows LIC to reclaim the commission paid to an agent if the policyholder surrenders the policy within the first five years, which agents feel unfairly penalizes them.
How has the commission structure changed for LIC agents?
The first-year commission has been reduced from 25% to 20%, although the total commission over a 20-year policy term remains the same. The second- and third-year commission of 7.5% now applies for four years, instead of three.
What actions are LIC agents planning if their demands are not met?
If LIC does not meet their demands within 15 days, the agents plan to launch nationwide protests, including peaceful demonstrations, a non-cooperation movement, and a dharna in front of Parliament.
Disclaimer: The information provided in this article is based on a public letter and protest document shared by the All India Life Insurance Agents Federation. The analysis and opinions presented reflect the perspective of the Federation and do not represent the official stance of LIC. Readers are advised to consult LIC or their advisors for official policy details and updates.