Regulations shall come into force from 1st April 2023
The Regulations shall be applicable to Insurers transacting the life insurance business in India.
Relevant Definitions: The Regulation introduces new definitions such as:
- ‘Charges’ means charge against profits such as income tax and other taxes like Goods and Service Tax (GST) borne by the insurer and other charges which are levied against the profits.
- ‘Duration of Business’ means the duration of an insurer’s business reckoned from the beginning of the financial year of commencement of business if the date of commencement is in the first half of the financial year and from the beginning of the immediately succeeding financial year if the date of commencement is in the second half of the financial year.
- ‘Insurtech Expenses’ means expenses incurred towards technology-enabled innovation in insurance services (policyholder oriented) that could result in new business models, applications, processes or products.
- ‘Insurance Awareness’ means awareness creation done by Insurers through (a) direct campaigns including through branches, social media campaign etc. and/or (b) supporting Life Insurance Council to educate its customers and public at large in making the right choices by being aware of insurance requirements and role of the Insurance agents, intermediaries or Insurance intermediaries,
Provided that it shall not include Insurance Advertisement as defined under IRDAI (Insurance Advertisements and Disclosure) Regulations, 2021 as amended from time to time.
- ‘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.
- ‘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.
What includes in the Expenses of Management (EOM) :
Expenses of Management” shall include :
- all expenses in the nature of operating expenses of life insurance business.
- commission to insurance agents, intermediaries or insurance intermediaries.
- commission and expenses on reinsurance inward which are charged to Revenue Account.
Provided that, it shall not include the Charges as defined in these Regulations.
Limit of Expenses of Management (EOM) :
No insurer shall, in respect of the life insurance business transacted by it in India, spend as expenses of management in any financial year an amount exceeding the aggregate sum of:-
1
5% of all single premiums received during the year on policies granting:
(a) An immediate annuity; or
(b) A deferred annuity;
2
5% of all single premiums received during the year of all premiums received on other single premium policies during the year excluding:
(a) Group Fund based policies.
(b) Individual Pure Risk policies.
(c) Group Pure Risk policies; and
(d) Policies covered under clause (1) above;
3
10% of all single premiums received during the year on group pure risk policies
4
14% of all single premiums received during the year on individual pure risk policies
5
15% of all premiums received on one-year renewable group policies, other than group fund based policies.
6
Group Fund based policies: Allowance shall be based on the average of Assets under Management of Group Fund based policies at the beginning and at the end of the financial year as under: –
Average Assets under Management (AUM)
Allowable Expenses of Management
Up to Rs.10,000 crore
1 %
In excess of Rs.10,000 crore
0.80 %
7
15% of all first year’s premiums and 6% of all renewal premiums, received during the year on policies granting deferred annuity in consideration of more than one premium
8
3/4 of 1% of all annuities paid during the year
9
1/10 of 1% of the average of the total sums assured of paid up policies on which no further premiums are payable at the beginning and end of the year
10
1/15 of 1% of the average of the total sums assured of lapsed policies under the revival period at the beginning and end of the year
11
An amount computed on the basis of the percentage of regular premiums pure risk business as specified in Sr.No.1(i) of Schedule-I.
Additional allowance : In addition to above mentioned limits, the insurer shall be allowed following additional allowance as prescribed for respective heads:
Heading of expenses
Limits
Head office expenses
Insurer having his principal place of business in India and having branch outside India or having International Financial Service Centre Insurance (IFSC) Insurance Office (IIO) shall be allowed an additional allowance towards share of Head Office expenses
Not exceeding 5% of the GWP.
Expenses incurred towards Rural Sector
Not exceeding 15% of the incremental premium over the previous FY, sourced from the rural sector
Expenses towards PMJJBY or such other schemes notified by the Authority
Not exceeding 15% of the gross direct premium sourced during the year from such schemes
Expenses incurred towards Insurtech and Insurance awareness
Not exceeding 5% of allowable EOM as specified in Regulation 3
Board Approved Policy and Business Plan
- Insurer shall have a board approved policy and an annual business plan prepared well in advance. The Policy and the Business Plan has to be framed in the manner and prescribing the parameters given under the Regulation. The Policy to be reviewed by the Board of the insurers on an annual basis.
- The Appointed Actuary and the Chief Financial Officer shall be responsible for ensuring that the allocation and apportionment of the expenses of management are in accordance with the Board approved policy.
The business plan formulated as above shall be monitored by the Board at regular intervals.
Returns
- The Return of EOM shall be signed by 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 expenses of management duly adopted by the Board along with the certified true copy of minutes of the meetings wherein the committee(s) and/or Board of the insurer has approved these documents, shall be filed with the Authority.
Forbearance in case of excess Expenses of Management
- 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 that EOM shall be brought within allowable limits within 3 years i.e FY 2025-26.
- 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 the amount of actual expenses of management exceeds by 10 percent or more of the projected expenses of management as per the business plan formulated in terms of Regulation 8 & 9, no variable pay shall be payable to Managing Director (MD) / Chief Executive Officer (CEO) / Whole-Time Directors (WTD) and Key Managerial Personnel (KMPs) for the said financial year. The Nomination and Remuneration Committee shall ensure the compliance of the same.
Source category: IRDAI
Attachments
- /2023/175_2023-03-27-IRDAI_Regultions_EoM_of_Life_Insurance_business_.pdf
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