Premium in Rs, crore

The new limit on EoM will be effective from April 1

The general and health insurers have to ensure that their expenses of management are within the allowable limit on the overall basis. Where the insurer has exceeded the allowable limits of expenses of management, the excess of such expenses will be charged to the Profit and Loss Account, said the new regulations

Hyderabad:

As decided by insurance regulator IRDAI, the government has notified that no general insurers can incur expenses of management(EoM) in excess of 30 percent of gross premium written in India in a financial year.

Similarly, for an exclusive health insurer EoM limit is fixed at 35 percent of gross premium written in India in a financial year.

The new limit on EoM will be effective from April 1 for the next three years.

For an insurance company, EoM includes operating expenses, commission to insurance agents and intermediaries and commission and expenses on reinsurance.

The IRDAI will also come out with a EOM limit for Indian life insurers.

Earlier in the day, the government had notified the regulations removing the cap on payment of commissions to insurance intermediaries like agents, brokers, banks, Original Equipment Manufacturers(OEM) within the overall limit of EoM

Head Office Expenses
An insurer having his principal place of business in India and having branch offices outside India or having International Financial Service Centre (IFSC) Insurance office (IIO) will be allowed an additional allowance not exceeding 10 per cent of the gross premium income written outside India through towards share of head office expenses.

Expenses incurred towards Rural sector, Pradhan Mantri Suraksha Bima Yojana (PMSBY), Pradhan Mantri Jan Arogya Yojana (PMJAY) and Pradhan Mantri Fasal Bima Yojana (PMFBY) business or such other schemes as notified by the IRDAI and an insurer reporting growth in the gross direct premium sourced from Rural Sector, PMJAY and PMFBY or such other schemes as specified by the IRDAI will be be allowed an additional allowance of 15 per cent of the incremental premium over the previous financial year, sourced from the rural sector and the above specified schemes.

The general and health insurers have to ensure that their expenses of management are within the allowable limit on the overall basis. Where the insurer has exceeded the allowable limits of expenses of management, the excess of such expenses will be charged to the Profit and Loss Account, said the new regulations.

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, no variable pay will paid 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 will ensure the compliance of the same.

In case an insurer exceeds the limits of expenses of management or does not follow the directions issued by the IRDAI , it may be subject to one or more of the following:
-Excess to be charged to Profit and Loss Account, Restriction on opening of new places of business, Administer a warning to the insurer, Removal of Managerial Personnel and / or appointment of Administrator.

The IRDAI can also also direct the insurer not to underwrite new business in one or more segments in case of repeated breach of the limits of expenses or violation of any direction issued by the IRDAI under the new regulations.

An insurer will be allowed an additional allowance towards Insurtech and Insurance Awareness expenses to the extent of five percent of the allowable expenses of management.

Every insurer will have a well-documented policy approved by its Board on annual basis, which has to specify:
-Measures to bring cost effectiveness in the conduct of business and reduction of the expenses of management on an annual basis,
– Manner of transfer of benefits, arising from reduction of expenses and/or from directly sourced business to the policyholders by way of reduction in premium,
-Manner in which compliance with computation of additional allowance as per regulation will be ensured;

Business Plan:
Every insurer will formulate a business plan in advance on an annual basis, which has be approved by the respective Boards. The business plan has to clearly specify the following-
-the projected requirements of capital during the said financial year,
– projection of solvency margin on a quarterly basis,
– the projection of expenses of management (in rupees as well as percentage of gross premium written in India) and the compliance or otherwise with the limits of expenses of management.

The IRDAI may exercise forbearance in case an insurer exceeds the limits of expenses of management. Such forbearance may be exercised on a case to case basis in respect of insurers having ‘duration of business’ upto 5 years, said the notification.

In case of an insurer having actual expenses of management more than the allowable expenses of management for the financial year 2022-23, the IRDAI , having regard to the business model of the insurer, may grant forbearance, subject to the confirmation by its board that it will bring its actual expenses within the allowable limits, within a period of 3 years i.e. by the financial year 2025-26.