Background
The Authority had directed the Councils to constitute a Regulation Review Committee (RRC) to enhance the ease of doing business and simplify regulations by moving towards a principle-based regime to make them more effective. The RRC recommended the consolidation of the existing prescriptions i.e. the IRDAI (Expenses of Management of Insurers transacting General or Health Insurance Business) Regulations, 2023; IRDAI (Expenses of Management of Insurers transacting Life Insurance Business) Regulations, 2023, and IRDAI (Payment of Commission) Regulations, 2023 under a single prescription. Earlier there were different Regulations for life and general and health insurers, and also for Payment of Commission, however, IRDAI has consolidated all the regulations to provide more comprehensive legislation for the expense of management of all insurers.
Major highlights of the Exposure Draft for General and Health Insurance Business
- Applicability: The Regulations shall be applicable to the Insurers transacting Life, General, or Health Insurance business in India and shall come into effect from April 1, 2024, which shall remain in force for three years thereafter.
- Board-approved policy for Expenses of Management (EOM), Payment of Commission, and Business Plan : To have a well-documented EOM policy approved by its Board on an annual basis, written policy for payment of a commission, which shall be reviewed periodically by the Board, and business plan in the specified format prior to the commencement of the financial year, on an annual basis. This regulation is applicable to all the insurers.
Limit of EOM:
· For insurers carrying General insurance business, the EOM shall not exceed 30% of gross premium written in India in a financial year.
· For insurers exclusively carrying Health insurance business, the EOM shall not exceed 35% of gross premium written in India in a financial year.
- For insurers carrying on Life insurance business, the EOM shall not exceed (i)the amount payable as the commission to the insurance agents, intermediaries or insurance as allowed by the Authority, (ii) commission and expenses reimbursed on reinsurance inward, and operating expenses of life insurance business.
Categories (should we keep it or remove it)
Limits as per categories
single premiums received during the year on policies granting:
- immediate annuity; or deferred annuity;
5%
all premiums received on other single premium policies during the year excluding :
- Group Fund based policies; Individual Pure Risk policies; Group Pure Risk policies; and Policies covered under regulation 8(1) above
5%
all single premiums received during the year on group pure risk policies;
10%
all single premiums received during the year on individual pure-risk policies;
14%
all premiums received on one-year renewable group policies, other than group fund-based policies
15%
Allowance shall be based on the average of Assets under Management (AUM) of Group Fund based policies at the beginning and the end of the financial year
- AUM up to Rs. 10,000 Crore the allowable expense is 1%
- AUM above Rs. 10,000 crore then allowable expense is 0.80 percent
all first year’s premiums and six per cent of all renewal premiums, received during the year on policies (other than group policies) granting deferred annuity and pension in consideration of more than one premium;
15 %
the total sums assured of paid up policies on which no further premiums are payable at the beginning and end of the year;
One-tenth of 1%
Total annuities paid
Three-fourths of 1%
the total sums assured of lapsed policies under the revival period at the beginning and end of the year;
One-fifth of 1%
- Additional Allowance Expenses : : In addition to above mentioned limits, the insurer shall be allowed following additional allowance as prescribed for respective heads:
Heading of expenses
Limits
Expenses incurred towards Insurtech and Insurance awareness
Not exceeding 5% of allowable EOM as specified
Head office expenses – For insurers having branch outside India or having IIO branch
Not exceeding 10% of the GWP written outside India through such branch/ IIO during the year
Expenses towards Rural sector, PMJAY, PMFBY
Not exceeding 15% of the incremental premium over the previous FY, sourced from the rural sector
Expenses towards PMSBY or such other schemes notified by the Authority
Not exceeding 15% of the gross direct premium sourced during the year from such schemes
- Commission payable to Insurance Agent, Intermediaries or Insurance intermediaries by insurers: The total amount of commission payable under general insurance products (including health insurance products offered by General Insurers) and health insurance products offered by standalone health insurers shall not exceed EOM limits as specified under these regulations.
- Return of EOM :
· The Return of EOM shall be prepared (Schedule I for General and Health and Schedule III for Life) in the format prescribed and shall be signed by the Chief Executive Officer, Chief Financial Officer, Chief Compliance Officer, and Appointed Actuary of the Company.
· The Returns shall be certified by the Statutory Auditors and the certificate duly signed by at least one of the statutory auditors shall be filed in the given format.
· The Return shall be reviewed by the Audit Committee prior to being placed for approval of the Board of the Insurer.
· The Return of EOM duly adopted by the Board along with the CTC of Minutes shall be filed with the Authority along with the Audited accounts and statement.
- Return on Payment of Commission: Insurers are to submit the returns on payment of commission within 45 days of the expiration of each financial year and these returns shall be reviewed by the Audit Committee prior to being placed for approval of the Board of the Insurer.
- Forbearance in case of excess EOM:
· Authority may grant forbearance to new insurers in case of excess expenditure up to first 5 years of duration of business.
· Forbearance may be granted to insurers whose actual EOM exceeds allowable EOM for FY 2022-23, subject to confirmation by Board that EOM shall be brought within allowable limits within a period of 3 years i.e by the end of FY 2025-26.
- Compliances:
- Insurers are required to maintain EOM within the allowable limits, any excess in such limits shall be charged to Profit and Loss account.
- In case an Insurer exceeds the limits of expenses or is not in compliance with the directions issued by Authority, it may be subjected to one or more of the following actions;
- Excess to be charged to Profit and Loss Account
- Restrictions on opening of new places of business
- Administer a warning to the insurer
- Cause a valuation of the insurer to evaluate its financial health and soundness
- Penal action under section 102 of the Act
- Restriction of performance incentive to Managing Director (MD) / Chief Executive Officer (CEO) / Whole Time Director (WTD) and Key Management Personnel (KMPs)
- Removal of Managerial Personnel and / or appointment of Administrator
- Restriction on underwriting new business in one or more segments
- Any other action as specified in the Act
IRDAI Expense of Management Regulation
14 November 2023, Exposure Draft
The IRDAI did not include the definition of Commission in the March 2023, expense of Management Regulation
However the IRDAI in its 14 November, 2023 Exposure Draft included the definition of Commission. The definition are as below:
2 d. ‘ “Commission” means any compensation including remuneration, or reward, by whatever name called, paid by an insurer to an Insurance agent, Intermediary or Insurance intermediary, as applicable, for soliciting or procuring or transacting insurance business.’
The IRDAI has provided with the definition of the terms ‘Group Based Policy’, and ‘Pure Risk Product’ in the 2023 EOM Regulation. The definition are as below:
‘(h) “Group Fund Based policies” include non-participating and variable insurance plans wherein a life insurer assures a return, whether guaranteed or otherwise, on the corpus created through periodic or lump-sum contribution received from the master policyholder who is generally the employer/ trustee and employees are the members. These also include the products specifically so mentioned in the Regulations governing the life insurance products.
(i) “Pure Risk Products” are insurance products where the payment of agreed sum (without any saving element) is assured on the happening of any contingency dependent on human life within the term of the policy and does not provide any payment of benefits either before survival or on survival of the insured and/or on maturity of the policy’
The November, 2023 Exposure Draft has removed the two aforementioned terms, i.e., Group Based Policy, and Pure Risk Product
The EOM Policy has had provided for the requirement of Board approved policy in the
Introduced the requirement for Board Approved Policy for Expenses of Management under Regulation 3 of the Regulation.
The IRDAI EoM Regulation did not provide separately for the commission payable to the Corporate Agent/ Intermediaries.
The Exposure Draft 2023, provides separately for the commission payable to the Corporate Agent/ Intermediaries. The relevant regulations are as below:
13. Commission payable to Insurance Agent, Intermediaries or Insurance intermediaries by insurers
- The total amount of commission payable under general insurance products, including health insurance products offered by general insurers and health insurance products offered by standalone health insurers shall not exceed the Expense of Management (EOM) limits specified under these regulations, as amended from time to time.
- The total amount of commission payable under life insurance products including health insurance products offered by life insurers shall not exceed the Expense of Management (EOM) limits specified under these regulations, as amended from time to time.
The IRDAI EoM Regulation did not provide for the Return on payment of commission to the Corporate Agent/ Intermediaries by the Insurer.
The Exposure Draft has provided a separate regulation for prescribing the need for the need of Board approval on the return on payment of Commission by the insurer.
14. Return on payment of Commission by the insurer
(i) All insurers, within 45 days of the expiration of each financial year, shall submit to the Authority the Board approved returns on payment of commission by the insurer to the Insurance agent, Intermediary or Insurance Intermediary.
(ii) The formats for such information and data may be specified by the Authority from time to time.
(iii) These returns shall be reviewed by the Audit Committee prior to being placed for approval of the Board of the insurer .
The reporting segment provides a regulation that includes any other reporting requirement as prescribed by the Authority. The relevant section is provided below:
Reporting Segments:
15 . For the purpose of these Regulations, the following shall be segments which will be monitored by the Authority;
(1) Linked policies:
(a) Life;
(b) General Annuity and Pension;
(c) Health;
(d) Variable.
(2) Non-linked:
(a) Non-participating policies:
(i) Life; 17
(ii) General Annuity and Pension;
(iii) Health;
(v) Variable.
(b) Participating Policies:
(i) Life;
(ii) General Annuity and Pension;
(iii) Health;
(v) Variable.
(3) Variable insurance shall be further segregated into Life, General Annuity and Pension and Health where any such segment contributes ten percent or more of the total premium of an insurer.
(4) Any Other Class as may be specified by the Authority.
This reporting segment sub regulation has been removed in the Exposure Draft. The new provision reads as under:
Reporting Segments:
18. For the purpose of these Regulations, the following shall be segments which will be monitored by the Authority;
(1) Linked policies:
(a) Life;
(b) General Annuity and Pension;
(c) Health;
(d) Others as specified by the Authority.
(2) Non-linked:
(a) Non-participating policies:
(i) Life;
(ii) General Annuity and Pension;
(iii) Health;
(iv) Others as specified by the Authority.
(b) Participating Policies:
(i) Life;
(ii) General Annuity and Pension;
(iii) Health;
(iv) Others as specified by the Authority.
(3) Variable insurance shall be further segregated into Life, General Annuity and Pension and Health.
The Expense of Management provides the additional qualification which is as below:
Additional compliance:
(This has been added after evaluating both regulation i.e (Expenses of Management of Insurers transacting Life Insurance Business) Regulations and (Expenses of Management of Insurers transacting Life Insurance Business) Regulations)
17. In case an insurer exceeds the limits of expenses as specified in these regulations ; in case of participating policies or non-participating policies (including Linked) policies on an overall basis or is not in compliance with the directions issued by the Authority in this regard, it may be subject to one or more of the following actions:
The Exposure Draft, 2023 has removed the words ‘in case of participating policies or non-participating polices (including Linked) policies on an overall basis’
22. Additional compliance:
(1) In case an Insurer exceeds the limits of expenses as specified in regulations 19 and 20, as applicable, or is not in compliance with the directions issued by the Authority in this regard;
The EoM Regulation 2023, (for both Life, General, and Health) provides for repeal and Savings, which provides (Expenses of Management of Insurers transacting Life Insurance Business) Regulations, 2016 and ( Expenses of Management of Insurers transacting General or Health Insurance Business) Regulations 2016 ( This has been added after evaluating both regulation i.e (Expenses of Management of Insurers transacting Life Insurance Business) Regulations and (Expenses of Management of Insurers transacting Life Insurance Business) Regulations ) shall be repealed from the date these Regulations come into force, and anything done or any action taken or purported to have been done or taken in respect of the Regulations mentioned in sub-regulation (1). The Regulation is as below.
20. Repeal and Savings: –
(1) Insurance Regulatory and Development Authority of India (Expenses of Management of Insurers transacting Life Insurance Business) Regulations, 2016 and ( Expenses of Management of Insurers transacting General or Health Insurance Business) Regulations 2016 shall be repealed from the date these Regulations come into force.
(2) Unless otherwise provided by these Regulations, anything done or any action taken or purported to have been done or taken in respect of the Regulations mentioned in sub-regulation (1)
The Exposure Draft, 2023 has an overriding effect not only on IRDAI (Expenses of Management of Insurers transacting General or Health Insurance Business) Regulations, 2023, and IRDAI (Expenses of Management of Insurers transacting Life Insurance Business) Regulations, 2023 but also on Insurance Regulatory and Development Authority of India (Payment of Commission) Regulations, 2023.
24. Repeal and Savings: –
(1) Insurance Regulatory and Development Authority of India (Expenses of Management of Insurers transacting General or Health Insurance Business) Regulations, 2023 shall be repealed from the date these Regulations come into force.
(2) Insurance Regulatory and Development Authority of India (Expenses of Management of Insurers transacting Life Insurance Business) Regulations, 2023 shall be repealed from the date these Regulations come into force.
(3) Insurance Regulatory and Development Authority of India (Payment of Commission) Regulations, 2023 shall be repealed from the date these Regulations come into force.
(4) Unless otherwise provided by these Regulations, anything done or any action taken or purported to have been done or taken in respect of the Regulations mentioned in sub-regulation (1)
For more information please visit:
Regulatory Updates- ElpeeCo.
Source category: IRDAI
Attachments
- /2023/305_Exposure_Draft_EoM_Regulation.pdf
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