Why LIC Agents are Strike – The recent strike called by Life Insurance Corporation (LIC) agents across India has stirred considerable attention and concern in the financial and insurance sectors. Represented by the Life Insurance Agents Federation of India (LIAFI), LIC agents are demanding reforms that they believe are crucial for their financial stability and the long-term sustainability of the industry. Let’s delve into the reasons behind their strike and explore their primary demands.
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Reasons Behind the LIC Agents’ Strike
LIC agents have raised grievances about recent policy changes and commission structures, which they claim are detrimental to their livelihood. LIC has reduced the first-year commission rate for agents from 35% to 28%. This reduction, combined with other factors like the high inflation rate in India, has sparked discontent among agents who feel they are not being fairly compensated for their efforts. In addition, agents cite ongoing challenges due to the implementation of the Clawback Clause, a rule that allows LIC to reclaim commissions if policies are surrendered within a specified period.
This protest is a culmination of months of frustration, with agents feeling undervalued and unsupported by LIC management. Despite warnings from LIC to avoid disrupting branch operations, agents have been pushed to demonstrate due to the apparent disregard for their demands. Below are the specific demands they hope will be addressed through this strike.
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Key demands of LIC agents
Below are the 5 major demands of LIC agents and why these demands are important for them.
1. Restoration of 35% commission rate
One of the primary demands is to restore the first year commission rate to 35%. Currently, agents are receiving a reduced commission of 28% from 35% before October 1, which they argue is inadequate given the rising costs and high inflation rate in India. Agents argue that a fair commission structure is necessary to maintain their standard of living and motivate them to continue selling LIC policies effectively.
This demand is rooted in the need for income security for agents, many of whom work as the sole breadwinners for their families. As independent contractors, LIC agents rely heavily on commission-based earnings, and a reduction in these earnings affects their financial stability.
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2. Increase in renewal commission by 9%
Agents have also requested an increase in renewal commission from the current rate to 9%. They argue that the current rate of 5% is inadequate, as inflation eats away at a significant portion of this income. The rationale behind this demand is to ensure that agents are adequately compensated for the continued work they do in serving existing customers and maintaining policies.
The increased renewal commission will encourage agents to focus on policy retention and improve persistency ratios, a metric highly valued by LIC for financial health and customer satisfaction.
3. Increase entry age for endowment plans to 55 years
Currently, many LIC endowment plans have an entry age limit of 50 years. Agents argue that raising this limit to 55 years will allow them to serve a wider audience, especially older individuals looking for safe investment options. This change will expand the potential market for LIC policies, benefiting both agents and policyholders.
Endowment policies often attract older customers looking for savings and life insurance options, and agents believe this adjustment will help meet the demands of an underserved segment of customers.
4. Elimination of GST on delayed premium payments
The inclusion of Goods and Services Tax (GST) on delayed premium payments has been another sore point. Agents argue that this tax further burdens policyholders, discouraging them from continuing their policies and increasing policy lapse rates. Many customers are unable to make timely payments due to unforeseen financial difficulties, and the additional GST charge further complicates these issues. LIC agents are advocating the removal of GST on late premiums to reduce financial pressure on customers and reduce policy lapses.
By removing this GST burden, LIC can promote better continuation rates, which is beneficial for both policyholders and agents.
5. Elimination of clawback clause
The clawback clause has been a highly controversial issue among agents. Under this clause, agents have to return their commission if a policyholder surrenders their policy within five years of purchase. LIC agents argue that it is unfair to penalise them for a policyholder’s decision to surrender, as many external factors can influence this choice. Moreover, many agents feel that they cannot be held fully responsible for customer behaviour beyond their control.
The demand for abolition of the clawback clause is based on the argument that it unfairly places the responsibility for policy retention entirely on agents, while the reality is that both LIC and agents should share responsibility for customer satisfaction and retention.
Also see: LIC Restructured Commission and Clawback Clause
Additional Concerns Raised by LIC Agents
Beyond the primary demands, agents have highlighted several broader concerns that reflect the underlying challenges in the LIC structure.
Inadequate Support and Training
Many agents have expressed frustration with limited support from Development Officers (DOs) and LIC’s training programs. Despite LIC’s efforts, agents report that they often lack proper guidance and resources to effectively market policies and avoid mis-selling. They argue that additional training and support, particularly for younger and newer agents, would significantly improve their ability to serve clients responsibly and professionally.
Persistency-Linked Bonuses
Some experts have suggested that persistency-linked bonuses could be a viable alternative to the clawback clause. This approach would reward agents for maintaining customer loyalty and policy renewals, without penalizing them when policyholders surrender due to personal reasons. Such a bonus structure could also drive agents to provide superior customer service, ultimately benefiting LIC’s persistency rate.
Issue with Bonus Rates vs. Premium Increase
A widespread concern among agents is LIC discrepancy between premium increases and bonus rates. Agents claim that while LIC recently raised premiums, it did not adjust bonus rates to match, effectively diminishing the policy’s value in the eyes of customers. This mismatch has led to increased dissatisfaction among clients, ultimately impacting agents’ ability to maintain relationships and encourage policy renewals.
Agents argue that bonus rates should be adjusted in line with premium hikes, creating a fairer structure for both policyholders and agents. This adjustment would help agents retain existing policies and reduce surrender rates.
Introduction of Policy Trading
Some agents have proposed an innovative solution for policyholders who wish to surrender their policies—policy trading. This concept would allow policyholders to transfer ownership of their policies to interested third parties, preserving the policy’s integrity while benefiting both the original policyholder and the agent. In this model, agents would continue to receive commissions, persistency rates would remain unaffected, and policyholders would have an option other than surrendering.
This proposal reflects agents’ adaptability and willingness to explore creative solutions to address persistency issues, although it would require regulatory approval.
LIC’s Response and the Path Forward
LIC management has acknowledged the agents’ demands but has yet to provide any definitive resolutions. While they have urged agents to avoid disrupting operations, LIC has also been exploring alternative solutions, such as encouraging agents to increase policy volumes to offset reduced commission rates.
Some LIC officials argue that the clawback clause encourages persistency and is essential for ensuring that agents sell policies responsibly. However, they have also acknowledged that this clause may require refinement, particularly given the widespread opposition it has faced. Experts have recommended that LIC implement persistency-linked bonuses as a middle ground, rewarding agents for retaining clients rather than penalizing them when policies are surrendered.
The Implications of Ignoring Agents’ Demands
LIC agents play a critical role in LIC’s success, as they are responsible for bringing in approximately 96% of the company’s business. The ongoing strike is a clear indicator of the growing discontent within the agent community. If LIC does not address these issues, it risks alienating a significant portion of its workforce, which could have long-term repercussions for the organization’s growth and stability.
Conclusion: Will LIC Fulfill These Demands?
The demands put forward by LIC agents are aimed at creating a fairer and more sustainable working environment. Restoration of the first-year commission rate, increase in renewal commissions, adjustment of entry age limits, removal of GST on late payments, and the elimination of the clawback clause are all steps that agents believe will improve their livelihoods and the quality of service they can offer customers.
The strike and the mounting pressure from LIAFI signify that LIC must take these demands seriously if it wishes to retain its workforce’s dedication and loyalty. For now, the outcome remains uncertain, but it is clear that LIC must find a balance that considers both agents’ needs and the organization’s operational requirements. By addressing these core issues, LIC can enhance agent satisfaction, improve customer experience, and ensure sustainable growth in a highly competitive industry.
FAQs
What prompted LIC agents to go on strike?
LIC agents are protesting due to recent changes in commission structures, the implementation of the Clawback Clause, and other policies that they feel undermine their income and job security. The reduction of the first-year commission from 35% to 28% and other demands around renewal commissions and policyholder age limits have sparked their current grievances.
What is the Clawback Clause, and why do agents want it removed?
The Clawback Clause allows LIC to reclaim agent commissions if a policy is surrendered within five years. Agents argue it’s unfair to penalize them for factors outside their control, like a policyholder’s decision to surrender, and they believe it puts undue financial strain on agents.
How would removing GST on late premiums benefit policyholders?
Removing GST on late premium payments would reduce financial pressure on policyholders, making it easier to maintain policies without additional charges. This would likely help lower policy lapse rates, supporting agents in their client retention efforts.
What are agents’ demands concerning the renewal commission?
Agents are asking for the renewal commission to be increased from 5% to 9%, to offset the impact of inflation. They argue that a higher renewal commission would provide fair compensation for the continuous service they offer to policyholders.
How is LIC responding to these demands?
LIC has acknowledged the agents’ demands but hasn’t committed to specific changes. While they encourage agents to avoid disrupting branch operations, LIC has been considering alternative solutions, such as persistency-linked bonuses, to improve retention without eliminating the Clawback Clause.
Disclaimer: This article is based on publicly available information and recent reports regarding the ongoing LIC agents’ strike and their demands. It is intended solely for informational purposes and does not represent the official stance of LIC or any associated entities. Readers are encouraged to verify all information with official LIC communications or trusted sources.