IRDAI (Expenses of Management, including Commission, of Insurers) Regulations, 2024

Background

The Authority has published IRDAI (Expenses of Management, including Commission, of Insurers) Regulations, 2024 (‘EOM Regulations’) on January 22, 2024 with an intent to strike a balance between operational flexibility and oversight by capping the EoM. The objective of EOM Regulations is to streamline the existing array of regulatory stipulations. Earlier there were different Regulations such as IRDAI (Expenses of Management transacting Life Insurance Products) Regulations, 2023, IRDAI (Expenses of Management transacting General & Health Insurance Products) Regulations, 2023 and IRDAI (Payment of Commission) Regulations, 2023. However, in order to simplify the regulatory landscape, to reduce the burden of compliance on Insurers, IRDAI has consolidated all the regulations to provide more comprehensive legislation on expenses of management.

Major highlights of the EOM Regulations

1. Applicability: The EOM 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.

2. Board-approved policies 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.

3. Limit of Expenses of Management (EOM):

a. For insurers carrying General insurance business, the EOM shall not exceed 30% of gross premium written in India in a financial year.

b. For insurers exclusively carrying Health insurance business, the EOM shall not exceed 35% of gross premium written in India in a financial year.

c. 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 (iii) 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-fiftieth of 1%

4. 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

For General and Health Insurers: Such allowance shall not exceed 10% of the GWP written outside India through such branch/ IIO during the year.

For Life Insurers: Such allowance shall not exceed 5% 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

5. 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), health insurance products offered by standalone health insurers and life insurance products offered by Life Insurers shall not exceed EOM limits as specified under EOM Regulations.

6. Return of EOM :

a. The Return of EOM shall be prepared (Schedule II for General and Health and Schedule I 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.

b. 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.

c. The Return shall be reviewed by the Audit Committee prior to being placed for approval of the Board of the Insurer.

d. 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.

7. 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.

8. Forbearance in case of excess EOM:

a. Authority may grant forbearance to new insurers in case of excess expenditure up to first 5 years of duration of business.

b. 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 2 years i.e. by the end of FY 2025-26.

9. Compliances:

a. Insurers are required to maintain EOM within the allowable limits, any excess in such limits shall be charged to Profit and Loss account.

b. 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;

i. Excess to be charged to Profit and Loss Account

ii. Restrictions on opening of new places of business

iii. Administer a warning to the insurer

iv. Cause a valuation of the insurer to evaluate its financial health and soundness

v. Penal action under section 102 of the Act

vi. Restriction of performance incentive to Managing Director (MD) / Chief Executive Officer (CEO) / Whole Time Director (WTD) and Key Management Personnel (KMPs)

vii. Removal of Managerial Personnel and / or appointment of Administrator

viii. Restriction on underwriting new business in one or more segments

ix. Any other action as specified in the Act.

Source category: IRDAI

Attachments

• /2024/339_Press_Release_-_Moving_towards_principle_based_regulations.pdf
• /2024/339_IRDAI_(EOM,_including_Commission_of_Insurers)_Regulations_2024_(22_January_2024).pdf