The Insurance Regulatory and Development Authority of India (Irdai) has pulled up life insurers for under-reporting operating expenses and asked them to adhere to the specified format for presentation of financial statements.
The insurance regulator has asked life insurers to disclose operating expenses incurred during a period in entirety in their revenue account.
The regulator, in 2016, had set a limit for managing expenses of life insurers and the excess expenses incurred by the insurers beyond the permissible limit is supposed to be charged to shareholder account (the profit or loss account).
However, the regulator has observed that some insurers were under-reporting operating expenses which does not reflect the true picture of their expense over-run position.
Hence, Irdai has asked the insurers to report the gross amount of operating expense actually incurred during a period in the revenue account, without deducting “excess of expense over the allowable limit.”
Also, the insurers have to report the contribution from shareholders account towards the excess management expense as income under revenue account in a separate line item.
Similarly, contribution to policyholders’ account towards excess management expense beyond the set limit has to be reported under profit and loss account as “expenses other than those directly related to insurance business.”
Moreover, remuneration to managing directors, chief executive officers (CEOs) and whole-time directors over and above the set limit, has to be shown separately in the profit and loss account or the shareholder account.
“The problem of under-reporting operating expenses is mainly with smaller companies and problem with CEO salary is with bigger companies. This circular has been issued to bring everyone on an equal platform,” said a former Irdai official.