New Delhi: A group of six to seven life insurers is seeking more room from India’s insurance regulator to exceed expense limits, arguing that the current rules can penalize smaller companies for spending on the distribution and infrastructure needed to grow.
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, according to people familiar with the matter.
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, they said.
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. The EoM rules are intended to be corrective in nature.
Smaller and mid-sized insurers argue that a premium-linked framework can make it difficult to invest ahead of growth. 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.
“We explained to them how we should shape EoM so that it helps us put more money in growing the business,” said a senior executive aware of the matter.
With a limited expense pool at a mid-sized or small company, “if we don't have money, we are not able to create a discussion on reinvestment.”
The group had earlier met Irdai’s whole-time member for life insurance to discuss the changes, and a note has now gone to the chairman, the executive said. Questions sent to Irdai by email did not elicit a response.
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. Most other regular-premium products have limits of 80% and 17.5%, respectively, with lower limits for shorter-tenure and single-premium policies.
These product-level limits feed into two overall ceilings, one for participating business and another for non-participating and linked business. Irdai can waive a breach for insurers that have been in business for up to five years, but that provision excludes most of the mid-sized companies now seeking relief. A separate one-time concession covered breaches in fiscal 2024, subject to insurers committing to return within the limits by the end of fiscal 2026.
The insurers have proposed that a fixed base cost of up to ₹100 crore—the cost of running an insurance business—be allowed outside the EoM framework, according to people. Expenses above that base could then be subject to the EoM caps, they said.
“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 case for some flexibility has support among industry consultants, although not for a blanket ₹100 crore exemption.
Mid-sized insurers are “somewhat justified” in seeking relief when a breach is small, said Aniruddha Marathe, managing director and partner at Boston Consulting Group. But the impact of a ₹100 crore threshold would vary significantly by insurer, he said.
For a large life insurer with operating expenses of about ₹2,000 crore, excluding commissions, ₹100 crore would not be particularly large. For a much smaller insurer, however, the same amount could represent a substantial share of its cost base, Marathe said.
The removal of GST (Goods and Services Tax) on retail life insurance policies has added to the pressure, while smaller insurers entering new bancassurance relationships also face significant upfront costs, he said.
“There is scope for more nuanced guidance and regulation without fundamentally changing the overall framework,” Marathe said.
Former Irdai member Nilesh Sathe, now a board member at Tata AIA Life Insurance, takes a different view of the product-level limits. He said they do not amount to micromanagement because the pricing of a life insurance product is based on three core assumptions—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. Removing those limits, he said, could make pricing more ad hoc.
Irdai’s annual report for fiscal 2025 shows the scale of the issue. Twenty-three insurers, eight life insurers and 15 non-life insurers, exceeded their prescribed EoM limits and sought forbearance.