IRDAI Scrutinises Insurers for Breaching Expense & Commission Limits

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