Group Insurance vs. Individual Insurance: Who Gets What Commission?

Understanding the commission structures for group and individual policies is crucial for both policyholders and intermediaries in the insurance field. Commissions play a significant role in the distribution of insurance products, influencing the incentives of agents and brokers. This article delves into the commission dynamics of group and individual insurance policies, shedding light on who earns what and why these structures matter.

Understanding Insurance Commissions

Insurance commissions are fees paid to intermediaries—agents, brokers, or corporate agents—for facilitating the sale and servicing of insurance policies. These commissions are typically a percentage of the premium paid by the policyholder and serve as the primary income for many in the insurance distribution network.

What is Group Insurance?

Group insurance refers to policies purchased by an organisation to cover a group of individuals, such as employees, members of a society, or association members. The key characteristics of group employee insurance include:

• Single Master Policy: A single policy covers all members, simplifying administration.
• Lower Premiums: Group policies often come with lower premiums due to the collective bargaining power.
• Simplified Underwriting: Medical examinations and detailed underwriting processes are often streamlined or waived.

Commission Structure in Group Insurance

The commission structure for group insurance differs from individual policies. Typically, the commissions are:

• Lower Percentage: Commissions are generally lower in group insurance due to the bulk nature of the policy.
• Flat Rate: Some insurers offer a flat commission rate irrespective of the policy size.
• Renewal Commissions: Agents may receive renewal commissions, but these are often lower than the initial commission.

For instance, in India, the Insurance Regulatory and Development Authority of India (IRDAI) has set guidelines for commission rates. For health insurance policies under group schemes, the commission can be around 7.5% for employer-employee groups. However, for non-employer-employee groups, the commission can be higher, up to 15%.

Factors Influencing Group Insurance Commissions

A range of variables shapes the commission rates in individual insurance, each playing a distinct role in determining an intermediary's remuneration. Understanding factors influencing group insurance commission can offer valuable insight into how commissions are calculated and why they may vary across policies and agents.

Policy Type

The specific nature of the health insurance product plays a crucial role in determining the commission structure offered to intermediaries. For instance, basic hospitalisation policies, which provide essential coverage for inpatient treatment, typically offer a different commission scale when compared to comprehensive health plans that include maternity benefits, wellness packages, outpatient care, or critical illness add-ons. Basic policies, owing to their simplicity and lower premium costs, often attract more modest commission rates.

Premium Amount

The commission earned by a health insurance agent is also heavily influenced by the premium size of the policy being sold. Higher premium policies result in greater absolute commission earnings, even when the percentage remains unchanged. For example, an agent selling a family floater plan with enhanced coverage and a sum insured of ₹20 lakh or more will earn a substantially higher commission than when selling an individual plan with a basic ₹2 lakh cover. In addition, some insurers implement tiered commission models, where the commission percentage increases once certain premium thresholds are met.

Agent's Role and Channel of Distribution

The capacity in which an insurance agent operates also affects the commission structure. A direct agent, who works solely for one insurance company, may have a different commission model compared to an independent broker or corporate agent, who has access to products from multiple insurers. Direct agents might benefit from fixed commission brackets, along with potential bonuses for reaching specific sales targets.

Insurer's Sales and Marketing Strategy

Each insurance provider has its own internal strategy for attracting and retaining agents. Some insurers may choose to incentivise agents more aggressively, offering higher commission rates, performance-linked bonuses, or additional perks such as overseas trips, training programmes, or tiered rewards. This approach is often seen in competitive markets where insurers are eager to boost their individual product sales.

Persistency and Client Retention

While often overlooked, policy persistency—that is, the percentage of policies that continue without lapsing—is increasingly being factored into commission structures. Insurers are now placing a stronger emphasis on customer retention, rewarding agents who sell policies that stay in force over the long term. This not only ensures stable revenue for the insurer but also reflects well on the agent's ability to sell suitable, sustainable coverage.

Regulatory Framework

The overarching regulatory environment plays a pivotal role in shaping commission structures across all insurance types. Regulatory authorities such as the Insurance Regulatory and Development Authority of India (IRDAI) periodically review and update the maximum permissible commission rates, especially for life and health insurance products. These limits are designed to promote transparency, prevent mis-selling, and safeguard the interests of policyholders.

What is Individual Insurance?

Individual insurance policies are tailored to cover a single individual or family. These policies are customised based on the individual's needs, preferences, and health conditions. The characteristics include:

• Personalised Coverage: Policies are designed to meet specific requirements.
• Higher Premiums: Due to the lack of group discounts, premiums are typically higher.
• Detailed Underwriting: Comprehensive medical examinations and assessments are often required.

Commission Structure in Individual Insurance

Commissions for individual insurance policies are generally higher than those for group policies. The structure includes:

• Higher Initial Commissions: Agents can earn a significant percentage of the first year's premium.
• Renewal Commissions: Agents receive commissions on policy renewals, which can continue for several years.
• Performance Incentives: Additional bonuses and incentives are often provided based on sales performance.

In India, for life insurance products, the commission rates can vary. For instance, for individual pure risk products, brokers may receive a commission of 7.5% for the first year and 2% for subsequent years .

Factors Influencing Individual Insurance Commissions

The commission rates in individual insurance are influenced by:

• Policy Type: Term plans may offer different commission structures.
• Premium Amount: Higher premium policies may attract higher commissions.
• Agent's Role: Direct agents may have different commission rates compared to brokers.
• Insurer's Strategy: Insurers may offer varying commission structures to attract agents.

Also Read : Group Health Insurance vs. Individual Plans: Pros and Cons for Employees

Concluding Thoughts

Understanding the commission structures in group and individual insurance policies is essential for both policyholders and intermediaries. While group insurance offers cost-effective solutions with standardised coverage, individual insurance provides personalised options with potentially higher commissions for agents. Both models have their advantages and challenges, and the choice between them depends on individual needs, preferences, and circumstances.

FAQs

1. Who receives the commission in a group insurance policy?

   The commission is typically paid to the intermediary, such as a broker or corporate agent, who arranges the group policy. Due to the volume and simplified servicing, it’s usually a lower percentage than in individual insurance.

2. Is the commission structure the same across all types of health insurance?

   No, it varies. Basic hospital plans offer modest commissions, while comprehensive or high-premium policies tend to pay more due to added complexity and coverage.

3. Do agents earn renewal commissions on group employee insurance?

   Yes, though usually at a lower rate than initial commissions. Renewal commissions help incentivise agents to maintain long-term relationships with corporate clients.