Irdai issues exposure draft on EoM for insurers based on RRC suggestions

The Insurance Regulatory and Development Authority of India (Irdai) has released an exposure draft on the Expenses of Management (EoM) including a commission for both life and non-life insurance companies, based on the recommendation from the Regulation Review Committee (RRC).

The RRC recommended merging the commission and EOM regulations to create a single regulation instead of maintaining separate ones.

Irdai had directed the Councils to constitute an RRC comprising representatives from all stakeholder groups to enhance the ease of doing business and simplifying regulations by moving towards a principles-based regime in order to make them more effective.

The RRC recommended Irdai (EoM, including commission, of insurers) Regulations 2023 after repealing three separate regulations.

The three repealed regulations are Insurance Regulatory and Development Authority of India (EoM of Insurers transacting General or Health Insurance Business) Regulations, 2023; Insurance Regulatory and Development Authority of India (EoM of Insurers transacting Life Insurance Business) Regulations, 2023, and Insurance Regulatory and Development Authority of India (Payment of Commission) Regulations, 2023.

The exposure draft has upheld and continues to propose a 30 per cent and 35 per cent limit on EoM for general insurers and standalone health insurers, respectively.

In the draft, the regulator said that life insurers should not spend an amount exceeding 5 per cent of all single premiums received during the year on policies granting immediate annuity, deferred annuity, 10 per cent of all single premiums received during the year on group pure risk policies.

The draft has revised the limit of all individual risk policies from 10 per cent set earlier to 14 per cent. The limit was 15 per cent of all premiums received on one-year renewable group policies, other than group fund-based policies.

The draft said that 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 at the end of the financial year.

For AUM up to Rs 10,000 crore, the allowable EoM will be 1 per cent, whereas, for amounts more than Rs 10,000 crore, the allowable EoM will be 0.80 per cent.

Irdai had come up with an exposure draft on the EoM for life and non-life insurers in 2022. The draft released on Tuesday is based on the recommendations from the RRC.

“There were too many regulations and it had to be simplified. This was the intention of RRC by merging the regulations,” noted a senior official from the industry.

Bikash Choudhary, Chief Actuarial & Governance Officer at IndiaFirst Life Insurance said, “While we are still studying the exposure draft shared by the regulator, prima facie, it appears to be a merger of two regulations, the EOM and commission regulations, notified on March 26, 2023. However, there seems to be more detailed reporting to the Authority on the expenses of management.”

“The main objective of the proposed draft regulations is to enable and provide flexibility to the insurers to manage their expenses, including commissions, within the overall limits as specified by the Authority to optimally utilise their resources for enhancing benefits to policyholders and to improve insurance penetration,” the regulator noted.

Insurance companies having branches outside India or in the International Financial Service Centre (IFSC) Insurance Office (IIO) are eligible for an additional allowance of Head Office Expenses which will not exceed 10 per cent of the gross premium income for non-life insurers and 5 per cent for life insurers.

The additional allowable expenses within the overall expense limit also include expenses incurred towards government schemes such as Pradhan Mantri Suraksha Bima Yojana, Pradhan Mantri Jan Arogya Yojana, Pradhan Mantri Fasal Bima Yoyaja of 15 per cent, as well as expenses incurred towards promoting insurTech and insurance awareness of up to 5 per cent to expand customer reach.

The new regulations are expected to come into force from April 1, 2024, and will remain in force for a period of three years thereafter. The regulator has given a deadline of up to December 6, 2023, for the stakeholders to give their comments and suggestions on the same.