The IRDAI has issued an exposure draft of a regulation that consolidates and simplifies rules governing the expenses of management (EoM), including commission, of insurers.
According to the regulator, the main objective of the proposed regulations, called “IRDAI (Expenses of Management, including commission, of insurers) Regulations, 2023”, when finalised, is to enable and provide flexibility to the insurers to manage their expenses, including commissions, within the overall limits as specified by the IRDAI, to optimally utilise their resources to enhance benefits for policyholders and to improve insurance penetration.
The exposure draft was issued on 14 November after the IRDAI had considered the recommendations of the Regulation Review Committee (RRC) and keeping in mind the interests of policyholders.
The IRDAI by its order dated 29 July 2022 directed the establishment of the RRC comprising representatives from all stakeholder groups to enhance the ease of doing business and simplifying regulations by moving towards a principles-based regime. Nine sub-groups drawing representations from various stakeholders were formed. Additionally, industry executives were invited to some of the sub-groups wherever the need for specific domain expertise was deemed necessary.
The RRC recommended the IRDAI (Expenses of Management, including commission, of insurers) Regulations, 2023 after repealing three outdated regulations.
General and health insurance
Among various provisions, the exposure draft continues to propose a 30% and 35% limit on EoM for general insurers and standalone health insurers, respectively.
Life insurance
In addition, the draft provisions for life insurers spell out that they should not spend an amount exceeding
(1) 5% of all single premiums received during the year on policies granting:
(a) immediate annuity; or
(b) deferred annuity;
(2) 5% of all premiums received on other single premium policies during the year excluding:
(a) Group Fund based policies;
(b) Individual Pure Risk policies;
(c) Group Pure Risk policies; and
(d) Policies covered under (1) above;
(3) 10% of all single premiums received during the year on group pure risk policies;
(4) 14% of all single premiums received during the year on individual pure-risk policies;
(5) 15% of all premiums received on one-year renewable group policies, other than group fund-based policies;
(6) Group Fund-based policies: Allowance shall be based on the average of Assets under Management (AUM) of group-based policies at the beginning and at the end of the financial year as under
The allowance for the group fund-based policies would be based on the average of Assets under Management (AUM) of the policies at the beginning and the end of the financial year. For AUM up to INR100bn ($1.2bn), the allowable EoM will be 1%, whereas, for amounts more than INR100bn, the allowable EoM will be 0.80%.
(7) 15% of all first year’s premiums and six per cent of all renewal premiums, received during the year on policies (other than group policies) granting deferred annuity and pension in consideration of more than one premium;
(8) Three fourth of 1% of all annuities paid during the year;
(9) One-tenth of 1% of the average of the total sums assured of paid-up policies on which no further premiums are payable at the beginning and end of the year;
(10) One-fifth of 1% of the average of the total sums assured of lapsed policies under the revival period at the beginning and end of the year.
There are various other provisions included in the draft exposure. For details, see this webpage.
The new regulations are expected to come into force on 1 April 2024 and will remain in force for three years thereafter.
