The Insurance Regulatory and Development Authority of India (Irdai) has barred Edelweiss Life Insurance, Pramerica Life Insurance, ACKO General Insurance, and Niva Bupa Health Insurance from opening new places of business for six months after they breached the regulator-mandated expense of management (EoM) limits for financial year 2025 (FY25). According to Irdai's annual report for FY25, 23 insurance companies, including 8 life insurers and 15 non-life insurers, had exceeded the prescribed EoM limits and sought forbearance. Industry experts expect similar action against companies that remain non-compliant.
A senior private sector insurance official stated that Irdai's action against insurers breaching EoM limits should be viewed as a signal that the regulator is serious about ensuring insurers bring operating and distribution costs within prescribed limits, freeing up more funds for claims and improving affordability. An insurance analyst noted that the action itself is not very harsh in the short term, as insurers have established branch networks and distribution infrastructure. Niva Bupa confirmed in an exchange filing that it was in compliance with Irdai's EOM regulations for FY26 as well as the first quarter of FY27 and was on track to ensure compliance for the entire year.
A senior general insurance official identified high levels of commissions as one of the challenges faced by traditional insurers in meeting EoM norms. Even when insurers are compliant in a particular year, fluctuations in commission expenses can make it difficult to sustain compliance for companies whose growth depends heavily on commissions and intermediated distribution. EoM also includes other operating expenses, including IT and human capital costs, which add to the pressure on prescribed limits.
Under the current framework, insurers have operational flexibility as long as overall management expenses remain within prescribed ceilings linked to gross written premium (GWP). For general insurers, the cap is 30% of GWP, while standalone health insurers are allowed up to 35%. For life insurance business, EoM limits as a percentage of premium continue to be prescribed for different categories of products, with higher limits for certain product categories. According to a senior official at a private sector insurer, the Irdai action relates to FY25, with companies outside the prescribed range reviewed around November-December, followed by an initial review taking about six months and the final decision taken after another six to eight months.
The restriction on opening new branches was already being implemented informally for companies above their EoM limits, as insurers must obtain regulatory approval before opening a new branch, which was generally not being given where a company was above the EoM threshold. According to the EoM guidelines, in case of non-compliance, Irdai can take actions including formal warnings, operational restrictions such as a six-month ban on opening new places of business, transfer of excess expenses directly to the shareholder profit and loss account, curbs on incentives and variable pay of key management personnel, and potential prohibitions on writing specific classes of business in cases of persistent violations.
