IRDAI issues draft notification on rules limiting expenses of life insurance companies - details

After health and general insurance companies, the Insurance Regulatory and Development Authority of India (IRDAI) has issued a draft notification on the limits of expenses for life insurance companies. For life insurance companies, the expenditure limit will be in consonance with their policy business. This means that there will be a limit on what companies will spend on agents’ commissions, rewards, employee salaries and other expenses. In pure risk products which are also referred to as Term insurance plans, for selling a policy for the first year, the expense limit will now be capped 80 per cent of the overall premium, as per the draft. As for renewal premium, the EoM (Expense of Management) could be at 25 per cent.  

For life insurance plans which are not under the pure risk category, the first year expense will be capped 80 per cent of the overall premium. As for renewal plans, the EoM will be capped at 17.5 per cent of the overall premium. 

In annuity plans with single premiums, the expense allowed will be up to 5 per cent of the total premium, the draft said. For individual pure risk and group policies with a single premium, the maximum expenditure allowed will be 10 per cent.

The insurance regulator IRDAI has asked the life insurance companies to reduce their expenses and pass on the benefits to the customers. It has also made provisions to stop allowances of the top management of the companies in the event of a violation of the IRDAI rules mandating the limit of expenditure.