A group of six to seven life insurers is seeking more flexibility from India's insurance regulator to exceed expense limits, arguing that current rules can penalize smaller companies for necessary spending on distribution and infrastructure. According to reports from Mint, the insurers have approached the Insurance Regulatory and Development Authority of India (Irdai) seeking a relaxation of up to ₹100 crore for breaches of expenses of management (EoM) limits. They are also seeking a broader overhaul of the framework, including recognition of a fixed base cost for running an insurer, with spending above that level linked to premiums written.
The push comes after Irdai in August barred Acko General Insurance, Niva Bupa Health Insurance, Pramerica Life Insurance and Edelweiss Life Insurance from opening new branches for six months after they breached their EoM limits for a second consecutive year in fiscal 2025. Under the current framework, general insurers have a single ceiling of 30% of gross premium, while life insurers are subject to product-specific limits. Pure-risk products allow expenses of up to 100% of first-year premium and 25% on renewal, while most other regular-premium products have limits of 80% and 17.5%, respectively. These product-level limits feed into two overall ceilings, one for participating business and another for non-participating and linked business.
Smaller and mid-sized insurers argue that a premium-linked framework can make it difficult to invest ahead of growth. As reported by Mint, costs such as setting up distribution networks, developing technology and building new partnerships have to be incurred before the additional premium that would support those expenses is generated. A senior executive explained that without sufficient expense pool, companies cannot create discussions on reinvestment. The group has proposed that a fixed base cost of up to ₹100 crore be allowed outside the EoM framework, with expenses above that base subject to EoM caps. "Is there a basic cost to run an organisation? For example, everything is not linked to business," the executive said. "Today the EoM is, if you sell ₹100 worth of premium, you will get something to spend. For businesses which are scaling up, how will they get there?"
The expense relief push comes amid broader discussions about insurance market reforms, with industry experts advocating for a more nuanced approach. According to recent analysis, India's life insurance market sold about 2.70 crore new individual policies in 2024-25, with LIC selling 1.78 crore and private insurers 92.5 lakh. However, complaints under unfair business practices rose to 26,667 from 23,335 year-earlier, representing approximately 1 in 1,000 policies sold. Individual agents currently bring in roughly 51% of individual new-business premium, while banks account for about 33% through bancassurance. The reform debate centers on whether to focus on sharper tools like clearer disclosures, simpler products, mandatory needs checks, and real penalties when misselling is proven, rather than fundamentally changing intermediary payment structures.
Aniruddha Marathe from Boston Consulting Group said mid-sized insurers are somewhat justified in seeking relief when breaches are small, but noted that the impact of a ₹100 crore threshold would vary significantly by insurer. For a large life insurer with operating expenses of about ₹2,000 crore, excluding commissions, ₹100 crore would not be particularly large, while the same amount could represent a substantial share of costs for much smaller insurers. Former Irdai member Nilesh Sathe takes a different view, arguing that product-level limits do not amount to micromanagement because life insurance pricing is based on three core assumptions including mortality, investment income and expenses of management. "You cannot have plan of insurance without these assumptions," Sathe said, arguing that an insurer that spends more than the expense assumption built into a product needs to account for the difference.