Irdai takes firm stance on insurers breaching expense management limits

Regulator's action on EOM breaches signals tighter scrutiny of operating and distribution costs, though experts expect limited short-term business impact

The Insurance Regulatory and Development Authority of India’s (Irdai’s) action against life and non-life insurers for breaching the expense of management (EoM) limits signals that the regulator is serious about bringing operating and distribution costs within prescribed limits, according to industry experts.

 

However, the regulator’s decision to restrict insurers from opening new places is not expected to have a significant short-term impact on their business, as most of the affected companies already have a pan-India presence and established distribution networks.

 

Last week, Irdai barred Edelweiss Life Insurance, Pramerica Life Insurance, ACKO General Insurance, and Niva Bupa Health Insurance from opening new places of business for six months after they breached the regulator-mandated EoM limits for financial year 2025 (FY25).

 

 

According to Irdai’s annual report for FY25, 23 insurance companies, including eight life insurers and 15 non-life insurers, had exceeded the prescribed EoM limits and sought forbearance. 

 

Industry experts expect similar action against companies that remain non-compliant.

 

According to a senior private sector insurance official, “Irdai’s recent action against insurers breaching EoM limits should be viewed as a signal that the regulator is serious about ensuring insurers bring operating and distribution costs within prescribed limits, freeing up more funds for claims and improving affordability.”

 

“The latest action is a message to insurers that they cannot take the limits for granted and companies have to fall in line. But the action itself is not very harsh, at least in the short term, as insurers have established branch networks and distribution infrastructure,” an insurance analyst said.

 

In an exchange filing, Niva Bupa said it was in compliance with Irdai’s EOM regulations for FY26 as well as the first quarter of FY27 and was on track to ensure compliance for the entire year.

 

A senior general insurance official said the high level of commissions was one of the challenges faced by traditional insurers in meeting EoM norms. Even when insurers are compliant in a particular year, fluctuations in commission expenses can make it difficult to sustain compliance for companies whose growth depends heavily on commissions and intermediated distribution.

 

EoM also includes other operating expenses, including IT and human capital costs, which add to the pressure on the prescribed limits, the official said.

 

Under the framework, insurers have operational flexibility as long as overall management expenses remain within prescribed ceilings linked to gross written premium (GWP). 

 

For general insurers, the cap is 30 per cent of GWP, while standalone health insurers are allowed up to 35 per cent. For life insurance business, EoM limits as a percentage of premium continue to be prescribed for different categories of products, with higher limits for certain product categories.

 

According to another senior official at private sector insurer, the Irdai action relates to FY25. Companies outside the prescribed range were reviewed, and hearings were conducted around November-December. The initial review took about six months, with the FY25 review concluding towards the end of 2025, followed by another six to eight months before the final decision was taken. Overall, the process took more than a year from the end of the financial year to the final decision.

 

The official said the restriction on opening new branches was already being implemented informally for companies that were above their EoM limits, as insurers have to obtain regulatory approval before opening a new branch. Such approval was generally not being given where a company was above the EoM threshold. 

 

According to the EoM guidelines, in case of non-compliance, Irdai can take actions including formal warnings, operational restrictions such as a six-month ban on opening new places of business, transfer of excess expenses directly to the shareholder profit and loss account, curbs on incentives and variable pay of key management personnel (KMP), and potential prohibitions on writing specific classes of business in cases of persistent violations.