Irdai Steps Up Action Against Insurers For Breaching Expense Limits

The Insurance Regulatory and Development Authority of India (Irdai) appears to be taking a harder line on insurers that fail to keep their expenses within prescribed limits.

The regulator recently barred Edelweiss Life Insurance, Pramerica Life Insurance, ACKO General Insurance and Niva Bupa Health Insurance from opening new places of business for six months. The action relates to breaches of expense of management, or EoM, limits during financial year 2024-25.

EoM broadly covers the expenses an insurer incurs in running and distributing its business. This covers commissions paid to distributors and intermediaries, as well as spending on staff, technology and day-to-day operations.

What The Expense Limits Say

Irdai allows insurers some flexibility in managing individual expense heads, but the overall expenses have to remain within the prescribed ceiling.

For general insurers, the EoM limit is 30 per cent of gross written premium, while standalone health insurers can spend up to 35 per cent. Life insurers have separate expense limits depending on the type of product, according to a recent report by Business Standard.

The limits matter because higher operating and distribution expenses leave insurers with less room to manage other costs. Industry experts cited in the report said the latest action indicates that insurers cannot afford to treat the prescribed ceilings casually.

Irdai's annual report for FY25 showed that 23 insurers had exceeded the prescribed EoM limits and sought regulatory forbearance. This included eight life insurers and 15 non-life insurers. Experts expect the regulator to take similar action where companies continue to remain outside the permitted range.

Will Policyholders See An Immediate Impact?

The restriction on opening new places of business may not have a major near-term impact on the four insurers because they already have established distribution networks and a wide presence.

The pressure, however, is likely to be greater on companies that depend heavily on commissions and intermediated sales. Commission expenses can move sharply from year to year, making it difficult for some insurers to remain within the overall ceiling. Technology and employee costs also add to the expense burden.

Niva Bupa has said that it was compliant with the EoM regulations in FY26 and in the first quarter of FY27, and that it remained on track to comply for the full year.

The latest orders also show that regulatory action on expense breaches may take time. According to an industry official cited in the report, the FY25 cases went through reviews and hearings before the final restrictions were imposed.

For insurers, the message is clear: expense limits are no longer just a reporting requirement. Persistent breaches can now translate into business restrictions.

FAQs

1. What is Expense of Management (EoM) in insurance?
EoM includes the costs insurers incur in running and distributing their business, such as commissions, employee expenses, technology and operations.

2. What action has Irdai taken against the four insurers?
Irdai has barred Edelweiss Life, Pramerica Life, ACKO General and Niva Bupa Health from opening new places of business for six months.

3. Will the restriction affect existing policyholders?
There is unlikely to be any major immediate impact on existing policyholders, as the insurers can continue operating through their established distribution networks.