Source: BL
Context:
The Insurance Regulatory and Development Authority of India (IRDAI) has sought explanations from 23 insurance companies—8 life insurers and 15 non-life insurers—for overshooting prescribed limits on expenses of management, mainly commissions.
Background
- Action taken under the IRDAI (Expenses of Management, including Commission, of Insurers) Regulations, 2024.
- The regulator is examining submissions and will decide penal action on a case-by-case basis after due process.
IRDAI (Expenses of Management, including Commission, of Insurers) Regulations, 2024
These regulations, notified by the Insurance Regulatory and Development Authority of India, lay down a new, flexible framework to regulate Expenses of Management (EoM) of insurers, including commission and distribution expenses.
They replace the rigid product-wise expense caps with an overall EoM-based approach.
Objectives
- Promote operational efficiency and cost discipline
- Provide pricing and distribution flexibility to insurers
- Enhance policyholder protection and transparency
- Support insurance penetration and inclusion
Key Provisions
1. Expenses of Management (EoM) Concept
EoM includes:
- Commission and remuneration to agents/intermediaries
- Marketing and distribution costs
- Operating and administrative expenses
Regulated through an overall EoM ratio, not individual product caps.
2. EoM Limits (Overall Ceiling)
- Separate EoM limits prescribed for:
- Life insurers
- General insurers
- Health insurers
- Reinsurers
- Limits linked to gross premium written and business mix
3. Flexibility in Commission
- Insurers can decide commission structures freely
- No product-wise or channel-wise caps
- Subject to:
- Overall EoM ceiling
- Board-approved expense policy
4. Board & Governance Requirements
- Mandatory Board-approved EoM policy
- Policy must ensure:
- Reasonableness of expenses
- Fair treatment of policyholders
- Long-term sustainability
5. Disclosure & Oversight
- Enhanced public disclosures on expenses
- Annual certification by:
- Appointed Actuary
- CEO/CFO
- IRDAI empowered to intervene in case of:
- Persistent breach
- Mis-selling or unfair practices
