In what may lead to lesser front-loading of insurance policies, the Insurance Regulatory and Development Authority (Irda) plans to spread the commission over the tenure of the policy. "We are going to ask insurers to suggest ways to increase persistency levels. This will happen only after they tweak the commission structure," said a senior Irda official. 

Most insurance policies are highly front-loaded. For instance, insurance agents earn over 40 per cent as commission in most unit-linked insurance plans (Ulips) in the first year. Even commissions for term plans and endowment plans are 20-35 per cent in the first year. The commissions decline significantly, especially for term and endowment policies, after the first year. The agent, as a result, loses interest in pursuing the policyholder.

In case of mutual funds, the distributor earns a commission of 1.25 per cent in the first year (upfront fees plus trail commission). After that, there is an annualised trail commission of 50-75 basis points every year. This, the mutual fund industry said, keeps the distributor interested in the investor.  By proposing to spread the commission over the tenure of the plan, Irda thinks agents will continue to pursue the policyholders.     

Recently, Irda had extended the minimum term of a Ulip from three to five years. It had also made other proposals, including capping the first year surrender charge at 15 per cent for a policy over 10 years. This surrender charge would continue declining and go away in the sixth year.  However, experts said persistence levels were already on the rise.

"Persistency levels are already improving because of the measures taken by Irda in the last two years. Tenure of products has gone up as the lock-in has increased to five years," said S B Mathur, secretary general, Life Insurance Council.

The insurance industry reported 80 per cent persistency in 2008-09, an increase of 7 per cent over the previous year.