Irdai’s shift towards principle-based regulations signals a pivotal moment for India’s insurance landscape, fostering transparency and innovation with regard to expenses of management and commission payments. This consolidation of regulations empowers insurers with greater flexibility, while simultaneously safeguarding the interest of policyholders
The Insurance Regulatory and Development Authority of India (Irdai) on January 23, 2024, came out with the first consolidated regulation on expenses of management and commission payments – the Irdai (Expenses of Management, including Commission, of Insurers) Regulations, 2024. This came on the back of a comprehensive review aimed at consolidating existing regulations on expenses of management and commission payments for a more coherent and efficient regulatory framework on the matter.
Way back in March 2023, Irdai had introduced amendments to regulations governing expenses of management (EoM) and commission payments. This was done in a bid to foster a conducive business environment and grant insurance boards the autonomy to make informed decisions. The strategic move aimed at striking a delicate balance between operational flexibility and regulatory oversight, thereby enhancing the efficiency and transparency of the insurance sector.
Incidentally, the amendments which consolidated EoM limits at the company level for general and health insurance segments and streamlined monitoring processes for life insurance, marked a pivotal step towards transitioning to principle-based regulations, Irdai said in a circular. This shift from the erstwhile segmental level to a consolidated framework reflected a commitment to simplifying the regulatory landscape while ensuring robust oversight, it added.
“Currently, efforts are underway to comprehensively review and consolidate regulations, ensuring a more coherent and efficient regulatory framework for the insurance sector. As a result, the first consolidated regulation, Irdai (Expenses of Management, including Commission, of Insurers) Regulations, 2024 has been notified on January 23, 2024,” Irdai said in the circular.
The consolidation of regulations signifies a significant milestone in the regulatory evolution of the insurance sector. By streamlining compliance requirements and enhancing transparency and accountability, the move empowers insurers to navigate the dynamic business landscape with agility and confidence.
Moreover, the shift towards principle-based regulations heralds a new era of adaptability and innovation within the insurance industry. By providing insurers with the flexibility to tailor their operations to meet evolving market demands, the regulatory framework fosters a culture of innovation while simultaneously safeguarding the interests of policyholders.
Irdai said in the circular that as the insurance landscape continues to evolve, stakeholders must embrace this forward-thinking approach to regulation. “By prioritising principle-based frameworks, insurers can leverage regulatory flexibility to drive innovation, enhance competitiveness, and deliver greater value to policyholders,” it said.
Previously, Irdai had implemented a directive on July 29, 2022, signalling a shift in regulatory mechanisms within the insurance sector. This directive mandated the formation of a Regulation Review Committee (RRC), with an objective to overhaul existing regulations to foster a business environment characterised by ease and simplicity.
Comprising representatives from a diverse spectrum of stakeholder groups, the RRC’s core objective was to pivot towards a principles-based regulatory framework, striving for enhanced effectiveness and operational fluidity.
According to Irdai, the move was meant to bring about a re-evaluation of the existing modus operandi, seeking to streamline complexities and usher in a new era of regulatory pragmatism. To accomplish this, nine sub-groups were also assembled, each comprising voices from various sectors of the insurance industry. Recognising the need for specialised expertise in certain domains, the RRC invited industry executives to contribute to select sub-groups, to ensure a nuanced evaluation of regulations. The culmination of this effort resulted in a recommendation by the RRC: the formulation of the Irdai (Expenses of Management, including commission, of insurers) Regulations, 2023.