New Agent’s Target: Churning, Cash Premium and Compliance
Sunita, 29, has just passed her insurance agent examination and joined a small agency in Lucknow. She has 30 prospects: 12 shopkeepers, 10 salaried employees and 8 two-wheeler owners. Her agency target is ₹50,000 fresh premium in the first month. A shopkeeper wants to surrender a six-year-old endowment policy and use the surrender value to buy a new policy for his daughter’s education. Another prospect asks Sunita to fill the proposal form and accepts a cash premium of ₹15,000 at his shop. A third wants only the cheapest motor policy and refuses to disclose his previous claim history. Sunita’s commission on the new endowment would be 35% of the first-year premium, while term and motor commissions are lower. She is tempted to close the target quickly.
1. Identify the regulatory and ethical problems in the three situations and explain the consequences for Sunita and the clients.
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First, replacing a six-year-old endowment merely to buy a new policy can be churning. The client may lose surrender value, restart the waiting period and pay acquisition costs; the replacement may not be suitable. The agent must do a needs analysis and disclose the disadvantages of replacement. Second, filling the proposal form for the prospect and accepting cash at his shop is improper. The proposal must be completed by the proposer, with the agent assisting only; the premium must be paid to the insurer through official channels and a proper receipt issued. Cash handling creates misappropriation and anti-money-laundering risks. Third, selling motor insurance without recording the previous claim history can amount to non-disclosure and may lead to rejection at claim time.
Consequences include cancellation of the agency, forfeiture of commission, penalties under the insurance regulatory framework, and personal liability for misselling. The clients may lose cover or receive reduced claims.
2. Advise Sunita on how to handle the surrender proposal and the cash-premium request while retaining the client relationship.
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For the surrender proposal, Sunita should obtain the existing policy details, surrender value, loan status and the client’s actual goal. She should compare continuing the old policy with a paid-up option, a reduced paid-up policy or a new term plan, and document why any replacement is suitable. If the old policy is affordable, continuing it may be better; if the client needs pure protection, a term plan can be added without surrendering. The client should sign a replacement disclosure if required.
For the cash premium, she should explain that she cannot accept cash personally. She should help the prospect complete the proposal accurately, arrange payment through the insurer’s official app, bank or authorised collection point, and issue a receipt. She should record the source of funds and complete KYC. If the prospect refuses, she should decline the business rather than risk her licence and the client’s cover.
3. Prepare a 30-day action plan for Sunita covering segmentation, suitability and persistency, with a realistic commission estimate.
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Segment the 30 prospects: shopkeepers need shop fire, health and personal accident; salaried employees need term and health cover; two-wheeler owners need mandatory third-party cover and optional own damage. Fix 10 appointments in week one, 15 in week two, and follow-ups thereafter. For each client, record income, dependants, existing cover, loans and risk appetite, and recommend a product only after a needs analysis. Do not chase the ₹50,000 target by pushing one product.
Commission estimate: if she sells a ₹50,000 annual premium endowment at 35%, the first-year commission is ₹17,500 before tax. But that is a one-time, front-loaded figure; term and motor commissions are lower and renewal commission is trail-based. A persistent book of 20 health and motor renewals is more valuable than one large lapse-prone sale. She should maintain a compliance diary, issue official receipts, keep proposal and KYC records, and monitor 13th-month persistency. Short-term target pressure should not override suitability.