Irdai Comes Up With New Recommendations To Improve Insurance Penetration

The Insurance Regulatory and Development Authority of India (Irdai) has come out with a new regulation, Irdai (Expenses of Management, including commission, of insurers) Regulations, 2023, as part of its effort to increase insurance penetration and enhance policyholder safeguards.

Way back in July 29, 2022, the Irdai had implemented a directive that mandated the formation of a Regulation Review Committee (RRC). Its objective was to overhaul existing regulations to foster a business environment characterised by ease and simplicity.

The culmination of this effort resulted in the formulation of the Irdai (Expenses of Management, including commission, of insurers) Regulations, 2023. The draft was prepared with the aim of offering insurers increased flexibility in managing their expenditures, including commissions, within the prescribed limits stipulated by the regulatory body.

This recommendation also repealed three prevailing regulations: the Irdai (Expenses of Management of Insurers transacting General or Health Insurance Business) Regulations, 2023; the Irdai (Expenses of Management of Insurers transacting Life Insurance Business) Regulations, 2023; and the Irdai (Payment of Commission) Regulations, 2023.

The new regulation is meant to bring a re-evaluation of the existing modus operandi, and seeks to streamline complexities and usher in a new era of regulatory pragmatism. To accomplish this, nine sub-groups have also been assembled, each comprising voices from various sectors of the insurance industry. Recognising the need for specialised expertise in certain domains, the RRC has also invited industry executives to contribute to select sub-groups, to ensure a nuanced evaluation of regulations.

At its core, these regulations seek to empower insurers with the autonomy to judiciously allocate resources, optimising benefits for policyholders and catalysing a shift in insurance penetration.

Incidentally, insurance firms with branches abroad or in the International Financial Service Centre (IFSC) Insurance Office (IIO) qualify for an extra allowance for head office expenses. This allowance will not exceed 10 per cent of the gross premium income for non-life insurers and 5 per cent for life insurers.

Additional expenses allowed within the overall expense limit cover costs related to government schemes, such as the Pradhan Mantri Suraksha Bima Yojana, Pradhan Mantri Jan Arogya Yojana, and Pradhan Mantri Fasal Bima Yoyaja, and are capped at 15 per cent. Additionally, expenses for promoting insurtech and raising insurance awareness, to broaden customer outreach, can be incurred up to 5 per cent.

The upcoming regulations are anticipated to be effective starting April 1, 2024, and will be applicable for a duration of three years. Stakeholders have until December 6, 2023, to provide their feedback and suggestions on these regulations, as set by the regulator.