The Insurance Regulatory and Development Authority of India (Irdai) has barred four insurers–Acko General Insurance, Niva Bupa Health Insurance, Pramerica Life Insurance and Edelweiss Life Insurance–from opening new branches for six months after finding lapses in following regulatory expenses of management (EoM) limits in FY25. Mint takes a look at what this means for the companies.
What does the order say?
The four insurers breached their EoM limits for the second consecutive year in FY25. Only Niva Bupa was granted forbearance in FY24, while the other three had previously been denied it. All four insurers had requested a forbearance again this time, but were refused despite the General Insurance and Life Insurance Council recommending leniency.
Acko had the largest excess expenditure at ₹334.78 crore, more than half of its permitted expenditure of ₹650.37 crore.
Irdai's FY25 annual report records that 23 insurers, eight in life and 15 in non-life, exceeded the limits and sought leniency.
What are expenses of management?
Management expenses are the costs a company or investment fund incurs during daily operations and administration, including commission payments, salaries, rent, technology and advertising expenditures. It technically covers everything it takes to run an insurance business, excluding premium payments.
The ceiling is calculated as a share of the gross premium written–30% for general insurers, 35% for standalone health insurers, with product-wise caps for life insurance.
Why is there a cap?
Whatever an insurer does not spend on itself is what pays claims and holds prices down, which is how industry executives describe the purpose. A company carrying high costs either settles less generously or charges more. The regulator implemented the new broad EoM cap in April 2023
Fixed commission caps for each line of business were breached routinely, with the extra routed through outside agencies until tax authorities objected.
R. Balasundaram, an advisory board member for online insurance aggregator Policybazaar and an industry veteran with four decades of experience, said two things drove the change: complaints that distribution costs were too high and the pressure from the tax authorities.
"So you decide and pay whatever you want and it will go legally," he said. “But at the same time I would monitor you, because you are handling policyholders' funds, that your overall expenses (that includes distribution costs, and expenses not exceeding 30% of gross premium)," he added.
What did the four insurers say?
The companies did not respond to Mint’s queries on the reasons for their excess spending. Their pleas for forbearance, however, are detailed in Irdai’s orders.
Acko sought regulatory forbearance after its gross written premium fell to ₹2,067 crore, below the ₹2,750 crore it had projected, citing weak industry growth and changes in premium recognition. To be sure, Acko is a direct-to-customer, digital insurer.
Niva Bupa cited expansion, technology and a brand transition. Edelweiss Life said its spending had fallen from 135% of the permitted amount in FY22 to 112% in FY25, and Pramerica Life pointed to an improving trajectory without naming a cause.
"This disproves two misconceptions... Commissions are the sole reason for the overall expenses of an insurer to burgeon. Not so. Technology does not come cheap. It has huge capital and operational expenditure." He said the regulator must weigh this before any commission rationalisation draft.
Nilesh Sathe, former member of Irdai and current board member of Tata AIA Life Insurance, said, "For your technological expense, 5% additional expense is allowed." He added that the regulator had already accounted for it.
Is a six-month ban a serious penalty?
Sathe said it is meant to be corrective, since new offices carry costs that take time to recover, while established ones sell at a lower cost per policy. "So Irdai may say, do not open any office, and this is precisely the first step that Irdai does," he said. Existing branches are left untouched.
Sathe said the lag is built in. "Once the accounts are ready, then you come to know whether the expense of management limits have exceeded," he said. "You don't know in advance."
Niva Bupa has stated that in FY26 they were within EoM limits, “so why a delayed penalty now?”, asked Balasundaram.
What happens next?
A spokesperson for Edelweiss Life told Mint that it is compliant for FY26 and that operations are unaffected. Niva Bupa has told the exchanges 20 August that it was within the limits in FY26 and the first quarter of FY27. Acko and Pramerica Life did not respond to mailed queries till press time.
Sathe said an insurer breaching the limit is first asked to provide a plan to return within two, three, or five years, with the regulator monitoring it. Only when that fails is it stopped from opening offices, where these four are now.
The next action could be a cut in the pay of key management personnel, and the final step is the cancellation of the licence. The excess, meanwhile, eats into capital. "Shareholders, if they don't pump in additional capital, your solvency will get impacted," he said.
"It is not that they have committed some grievous crime that the Irdai has stepped in," he said. "This is to give them a chance to improve."