What’s new under the IRDAI’s Exposure Draft on Expenses of Management Regulations?

-Mahak Agarwal, Executive (corplaw@vinodkothari.com)

On 14th November, 2023, the IRDAI released an Exposure Draft EOM Regulations, 2023 (‘Exposure Draft’) which proposes to repeal the following regulations:

1. Insurance Regulatory and Development Authority of India (Expenses of Management of Insurers transacting General or Health Insurance Business) Regulations, 2023;
2. Insurance Regulatory and Development Authority of India (Expenses of Management of Insurers transacting Life Insurance Business) Regulations, 2023 and
3. Insurance Regulatory and Development Authority of India (Payment of Commission) Regulations, 2023.

The Exposure Draft is seemingly a consolidation of the aforesaid regulations with a few modifications. Further, most of these so-called modifications are essentially in the nature of rephrasing certain statements, for instance, formulation of business plan ‘in advance’ being replaced with ‘prior to commencement of financial year’.

While there are no changes that may be termed very significant, yet, some provisions are either slightly different or completely new, which have been discussed below :

• Elimination of certain definitions

The definitions of Group Fund Based Policies and Pure Risk Products which initially formed part of the IRDAI (Expenses of Management of Insurers transacting Life Insurance Business) Regulations, 2023 have been excluded from the list of definitions provided in the draft regulations. The usage of these terms across the document have, however, remained unchanged. Having said that, on the face of it, the exclusion seems to have be a mere omission as opposed to a prudent elimination.

• Variation in scope of Board approved policy for payment of commission

In respect of Board approved policy for payment of commission, the scope of the policy has been reduced by eliminating the following:

1. enhances the performance of the Insurance agent, Intermediary or Insurance intermediary;
2. gives an indication on the relative degree of importance placed on each of the above (i.e. the indicative list of points required to be covered under the policy)

Further, the proposed regulations suggest that the policy for payment of commission may be subsumed in the board approved policy for Expenses of Management. This means that the requirement of two separate policies may be done away with and a single policy may be adopted.

• Notifying additional scheme under Additional Allowable Expenses

Under Additional Allowable Expenses, an additional scheme being the Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) has been notified by the Authority, premium sourced in respect of which shall be allowed additionally.

• Eliminating premium threshold in respect of segments to be monitored

In respect of segments to be monitored by the Authority, under the categorisation of ‘variable insurance’, the requirement of each segment contributing ten percent or more of the total premium of an insurer has been done away with. This means that such variable segments shall be monitored by the Authority irrespective of their premium contribution.

Basis the above, one may conclude that while a prelim read of the Exposure Draft suggests ‘enhanced benefits to policyholders’, ‘improved insurance penetration’ and ‘providing flexibility’ to insurers to manage their expenses, a detailed study of the same suggests that the  proposed regulations will not seemingly have any major impact or actionables on part of insurance companies. As stated earlier, the same is only a compilation of the existing regulations, evidently for ease of user reference.

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