Irdai proposes limits on expenses of management of life insurers

Insurance regulator releases exposure draft aiming to provide greater flexibility to insurers as far as their corporate agency tie-ups are concerned

The insurance regulator has proposed to put limits on expenses of management (EoM) of life insurers, wherein they have said that the expenses of the companies should not exceed an amount computed on the basis of percentages in respect of various segments of business written during a financial year.

In an exposure draft, the regulator said life insurers should not spend an amount exceeding 5 per cent of all single premiums received during the year on policies granting immediate annuity, deferred annuity; 10 per cent of all single premiums received during the year on group pure risk policies and individual risk policies; 15 per cent of all premiums received on one-year renewable group policies, other than group fund based policies, and so on.

However, they will allow insurers reporting growth in the gross premium sourced from rural sector and Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) business additional allowance, provided such allowance shall not exceed 10 per cent of the incremental premium over the previous financial year. Similarly, life insurers will be allowed additional allowance towards insurtech expenses; IndAS; and insurance awareness.

The regulator has also asked insurers to have a board approved business plan, which should have measures to bring cost effectiveness in the conduct of business and reduction of the expenses of management on an annual basis. It should also aim to transfer benefits arising from reduction of expenses from the directly sourced business to the policyholders by way of reduction in the premium.

The regulator has also come out with an exposure draft aiming to provide greater flexibility to insurers as far as their corporate agency tie-ups are concerned. In the draft, they have proposed to increase the maximum limit of tie-ups with insurers for corporate agents from the existing three for each category of insurance to nine for each category of insurance. And insurance marketing firms (IMF) can also have tie-ups with six insurance companies each in the life, health, and general insurance sector. Currently, they can solicit and procure insurance products of two insurers each in the three sectors.

The regulator has also mooted the proposal of removing the requirement of insurers taking prior approval for raising resources through Other Forms of Capital (OFC). Also, prior approval requirement for exercising call option under OFC issue has also been proposed to be removed.