The Indian regulator, the Insurance Regulatory and Development Authority of India (IRDAI), has taken action against life and non-life insurers that violated established Expense on Management (EoM) limits. Industry experts believe this demonstrates the regulator's seriousness in ensuring operational and distribution costs comply with prescribed frameworks.
However, the regulator's decision to restrict insurers from opening new branches is not expected to have a significant short-term impact on their business, as most affected companies already have a presence across India and established distribution networks.
Regulatory Measures Implemented
Last week, IRDAI prohibited Edelweiss Life Insurance, Pramerica Life Insurance, ACKO General Insurance, and Niva Bupa Health Insurance from opening new business locations for six months after exceeding the EoM limits set by the regulator for the financial year 2025 (FY25).
According to IRDAI's annual report for FY25, 23 insurance companies, including eight life insurers and fifteen non-life insurers, exceeded the set EoM limits and requested an extension.
Industry experts predict that similar measures may be applied to companies that continue to fail to comply with the requirements.
Expert Opinions and Challenges
According to a senior private sector official in the insurance industry, the recent actions by IRDAI against insurers who violated EoM limits should be seen as a signal of the regulator's serious intent to ensure that insurers keep operational and distribution expenses within established norms, which will allow more funds to be released for claim payouts and increase service accessibility.
An insurance analyst noted that the latest action serves as a warning to insurers about the inadmissibility of ignoring limits, and companies must bring their operations into compliance. However, at least in the short term, the action itself is not overly severe, given that insurers possess established branch networks and distribution infrastructure.
Niva Bupa reported in exchange documentation that it complies with IRDAI's EoM norms for both FY26 and the first quarter of FY27, and is on track to ensure compliance throughout the year.
A senior official in general insurance pointed out that high commission payments were one of the issues faced by traditional insurers when complying with EoM norms. He added that even when meeting requirements in a given year, fluctuations in commission expenses can make it difficult to maintain compliance for companies whose growth heavily relies on commissions and intermediary distribution.
Furthermore, EoM includes other operating expenses such as IT and human capital costs, which increases pressure on the set limits, the official explained.
Regulatory Framework and Decision-Making Process
Under the current system, insurers retain operational flexibility provided that overall management expenses remain within the established caps related to Gross Written Premium (GWP). For general insurers, the limit is 30% of GWP, while specialized health insurers are allowed up to 35%. For life insurance businesses, EoM limits as a percentage of premium continue to be set for various product categories, with higher limits set for some categories.
Another senior private sector official stated that IRDAI's actions pertain to FY25. Companies exceeding the established range were audited, and hearings took place around November-December. The initial audit took about six months, and the completion of the FY25 audit occurred closer to the end of 2025, followed by another six to eight months before a final decision was made. Thus, the entire process took over a year from the end of the fiscal year to the issuance of the final decision.
This official also noted that the restriction on opening new branches had been informally applied to companies exceeding their EoM limits, as insurers are required to obtain regulatory approval before opening a new branch, and such approval was usually not granted if the company exceeded the EoM threshold.
According to EoM guidelines, in case of non-compliance, IRDAI may apply various measures, including formal warnings, operational restrictions such as a six-month ban on opening new business locations, transferring excess expenses directly to losses and shareholder profit, limiting incentives and variable compensation of Key Management Personnel (KMP), and potential prohibition of certain types of business in case of persistent violations.