Management expense caps announced for general insurers

Motor, health allowed higher expenses than other categories; heavy penalties if limits are exceeded

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The Insurance Regulatory and Development Authority of India (Irdai) has brought out a new set of norms on expenses of management for general insurance and standalone health insurance companies, based on the line of business. These take effect from this financial year.

In the segments of motor, health retail and miscellaneous retail (like public liability), the expenses allowed are higher. There would be penalties if the expense limits are exceeded.

Expenses of management would include all those in the nature of operating expenses — commission, brokerage, remuneration to agents and to intermediaries, charged to the revenue account.

No general insurance or health insurance business can exceed the amount stipulated. In motor insurance, the allowable expense is 37.5 per cent of gross premium for the first Rs 500 crore. It is 32.5 per cent for the next Rs 250 crore and 30 per cent for the balance.

Any violation of the limits on an overall basis could even lead to restriction on performance incentives for the managing director, chief executive officer, wholetime directors and key management. Also, possible restrictions on opening of new places of business and removal of managerial personnel and/or appointment of administrator.

Irdai said it may also direct the insurer to not underwrite new business in one or more segments in case of persistent violation of these regulations. It has also asked insurers to ensure that at the segment level, the deviation between actual incurred claim ratio and that projected at the time of filing of a product be not more than 10 per cent.

If there be a deviation higher than this over a period of three years, an exception report and a plan of action, specifying the reasons, has to be sent to it.