A change in regulations is forcing life insurance companies to give marching orders to thousands of agency managers. The industry expects a 20% shrinkage in workforce following the new Ulip guidelines which force insurance companies to work with margins that are a fraction of what they are today.

The decision to cut costs overnight follows a July 20 meeting with the Insurance Regulatory & Development Authority (Irda), where the regulator refused to give companies more time to meet the new guidelines. According to those present at the meeting, a senior Irda official is understood to have told the companies: "Every party comes to an end and your party is over".

The private life insurance industry has on its rolls around 3 million agents. As in end-December, private life insurance companies had 1,52,874 employees. Over three-fourths of these are executives involved in sales. Insurers estimate that a million agents will drop out. This will lead to a proportionate drop in the number of agency manager

In HDFC Standard Life, there are talks of large layoffs, particularly in sales. In response to a query, HDFC Standard Life said, "In the run-up to meet the September 1 deadline of the new Ulip guidelines rolled out by Irda, we are currently assessing its impact on our product range, cost structure and incentives/commissions.

So far, we have not undertaken any step on rationalising our workforce. As an organisation, we continue to monitor under-performers/poor performers, which is a regular exercise carried out by the organisation, irrespective of the market condition".

"The recent Irda circular would not lead to an incremental change but to a fundamental change in the way we do business. Overall, I see a 20% workforce reduction in the insurance market over the next 6-10 months," said Rajesh Relan, managing director, Metlife India. He adds that while the customer is the clear winner, insurance companies will have to cut operating expenses drastically to be able to provide for the stipulated yield to the customer.

"This would require companies to cut costs at all levels, including investments for growth. Current sales models would need to be reoriented. It will also lead to dramatic reduction in commissions and put many small agents out of business. The new Ulip regulations go against the grain of financial inclusion as they restrict insurers from selling lower ticket size Ulips," said Mr Relan.