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Irdai proposes management expense limit for insurers

The Insurance Regulatory and Development Authority of India (Irdai) has also proposed to remove caps on payment of commission to insurance agents and intermediaries.

Irdai proposes management expense limit for insurers
On Wednesday, the regulater issued revised exposure drafts of the EoM for both non-life and life insurers after consultations with stakeholders.

Insurance regulator Irdai has come up with a revised exposure draft on the expenses of management (EoM) for the non-life insurance companies and proposed a revised 30% and 35% caps on EoM in case of general insurers and standalone health insurers, respectively, after taking into consideration the insurance industry’s views.

The Insurance Regulatory and Development Authority of India (Irdai) has also proposed to remove caps on payment of commission to insurance agents and intermediaries. In the earlier exposure draft, released on August 23, it had proposed to put a lower cap of 20% on commission paid to the agents and intermediaries of both non-life and life insurance companies. Notably, it had proposed a 30% cap on EoM for the general insurance companies in the exposure draft issued on August 1.

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On Wednesday, the regulater issued revised exposure drafts of the EoM for both non-life and life insurers after consultations with stakeholders. Accordingly, the regulator also issued a revised exposure draft on payment of commission.

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Based on the comments received from various stakeholders and one to one discussions with them, draft IRDAI (Payment of Commission or Remuneration or Reward to Insurance Agents and Insurance Intermediaries) Regulations 2022 has been revised to IRDAI (Payment of Commission) Regulation 2022, according to the regulator.

“The revised draft regulations emphasize on the board’s oversight through a board approved policy on the payment of commission whereby due consideration is to be placed on interest of the policyholders and the insurance agents and intermediaries and insurance intermediaries while also enhancing the performance of the insurance agents and intermediaries or insurance intermediaries,” it informed.

Irdai has streamlined the expenses of management (EoM) guidelines for insurance companies, now proposing blanket cap on EoM to the extent of 30% of gross written premium in India for general insurance companies and 35% for standalone health insurance companies.

For an insurance company, EoM includes operating expenses, commission to insurance agents and intermediaries and commission and expenses on reinsurance. EoM is currently in the range of 20% to 37.5% for non-life insurers.

The additional allowable expenses within the overall expense cap now also include expenses incurred towards government schemes such as Pradhan Mantri Suraksha Bima Yojana, Pradhan Mantri Jan Arogya Yojana, Pradhan Mantri Fasal Bima Yoyaja (15%) as well as expenses incurred towards promoting insuretech and insurance awareness of up to 5% to widen customer reach.

In the life insurance segment, there is also a noticeable change in caps for expenses on annuity policies. Under the revised draft, on deferred annuity policies, there is now a cap of 15% of all first-year premiums and 6% of all renewal premiums received during the year.

The new regulations are expected to come into force from April 1, 2023, and will remain in force for a period of three years thereafter. “It is hereby clarified that while various regulatory reforms initiated/taken up by the regulator are aimed at increasing insurance penetration and facilitating sustainable growth of the industry, efforts are made to ensure that interests of all stakeholders and particularly the policyholders are taken into consideration in the various measures undertaken,” the regulator added.

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