IRDAI Expenses of Management Regulations 2024: Impact on Commercial Insurance Buyers

The IRDAI (Expenses of Management, including Commission, of Insurers) Regulations 2024 came into effect on April 1, 2024, consolidating and replacing the separate 2023 expenses-of-management and payment-of-commission regulations, which had themselves swept away the product-level framework established under the IRDAI (Expenses of Management of Insurers transacting General or Health Insurance Business) Regulations 2016. The change is not incremental. The 2016 regulations applied expense limits at the product category level: fire insurance had a prescribed expense limit, motor own-damage had another, marine cargo had another, and so on for each class. Insurers had to stay within those limits for each class, which created a rigid constraint on how they could allocate distribution costs.

The 2024 regulations sweep this away. The new framework applies a single composite Expenses of Management (EOM) cap at the company level, expressed as a flat percentage of the insurer's gross premium written in India. The insurer's total expenses across all lines, including management expenses, commissions, and brokerage, must stay within this composite cap. The 2016 product-level limits no longer apply. An insurer can spend more on fire insurance distribution if it chooses, provided its overall company-level expense ratio remains within the cap.

The headline EOM limit under the 2024 regulations is a single flat cap that does not vary with insurer size:

• Insurers carrying on general insurance business: EOM cap of 30% of gross premium written in India
• Insurers carrying on standalone health insurance business: EOM cap of 35% of gross premium written in India

On top of the base cap, the regulations allow defined additional headroom: up to 5% of the allowable EOM for insurtech and insurance-awareness spending, up to 10% of the premium written outside India through a branch or IFSC office for head-office expenses, and up to 15% of the incremental premium from specified government schemes such as PMSBY, PMJAY, PMFBY and PMJJBY. There is no slab that lowers the cap as an insurer's premium grows; a large insurer and a small insurer in the same class face the same base percentage.

Forbearance applies to insurers in the early years of operation: an insurer with five years or less of business that exceeds the applicable limit is given a segment-wise glide path to bring its expense ratio down, rather than being treated as in breach immediately, and any expenses above the allowable EOM must be charged to the profit and loss account.

Commission and brokerage are governed inside this envelope. Instead of a separate product-wise commission ceiling, each insurer now sets a board-approved commission policy, and the total commission paid must sit within the overall EOM limit. The cap is computed on gross premium written in India for every insurer, so the basis of the calculation is the same across the market; commercial lines insurers, which tend to cede a higher proportion of premium to reinsurance than retail lines, do not get a different denominator.

The shift from product-level to company-level EOM limits creates a freedom that did not exist before: insurers can now actively cross-subsidise between lines. If motor third-party liability (motor TP), which is a mandatory line with regulated tariff-equivalent reference premiums, generates a predictable and stable premium income base, the insurer can use the headroom in the overall EOM cap to increase expenses on a commercial property or fire insurance book where it wants to build market share.

For commercial insurance buyers, this cross-subsidisation freedom has two opposing effects that will play out differently depending on the insurer and the line of business.

The first effect is potential for more competitive pricing on under-penetrated commercial lines. Before the 2024 regulations, an insurer that wanted to offer a better commission to the broker on a large commercial fire risk was constrained by the fire line's prescribed expense limit. Under the new regime, if the insurer's overall EOM is within the composite cap, it can offer a broker commission on a large fire risk that exceeds what the old product-level limit allowed, effectively using the margin from other lines to fund the competitive effort in fire. For buyers, this means their brokers have more flexibility to negotiate commission structures that incentivise the right insurer behaviour on large commercial placements.

The second effect is risk of price increases on lines that were previously cross-subsidised by motor. Motor TP has historically been a loss-making but volume-generating line for many non-life insurers. The premium scale from motor TP created EOM buffer under the 2016 regime that helped absorb distribution costs across the book. Under the 2024 regime, an insurer whose overall expense ratio is already running close to the flat 30% general-insurance cap has less flexibility to absorb high distribution costs on commercial lines, regardless of how large its motor TP book is. Insurers managing close to the cap may rationalise commission structures and push for more efficient placements.

The fire de-tariffing environment is particularly relevant here. Since the IRDAI's de-tariffing of fire rates from 2008, commercial fire premiums have been market-determined. Under the 2024 EOM framework, insurers now have both rate and expense flexibility: they can adjust the premium and the commission simultaneously to manage their overall EOM position. This is new capability that commercial buyers should expect their brokers to be alert to.

Brokerage paid to intermediaries, including licensed insurance brokers under IRDAI (Insurance Brokers) Regulations 2018, is included within the composite EOM cap. This is not new, as commission and brokerage have always been within the expense limit framework, but the implications change significantly when the cap moves from product-level to company-level.

Under the 2016 regime, an insurer operating close to the product-level expense limit for fire insurance had a hard ceiling on what it could pay as fire brokerage. The insurer could not exceed the limit even if its overall company expense ratio was well within bounds. The 2024 regime removes this product-level constraint. An insurer with overall EOM of, say, 26% against the 30% cap for general insurers has 4 percentage points of headroom across its entire book. If it wants to place that headroom entirely into improving broker relationships on commercial fire, it can.

For corporate buyers, this changes the dynamics of broker negotiations with insurers in two ways. Large commercial brokers, who bring consistent premium volume across multiple lines, now have more leverage: an insurer can allocate the available EOM headroom to the broker relationships that generate cross-line volume, not just the premium on a single risk. A broker who places INR 50 crore of diverse commercial premium with an insurer is a more valuable partner under the company-level EOM regime than under the product-level regime, because the insurer can reward that relationship holistically.

However, the EOM cap also creates a constraint that works against buyers in certain market conditions. If an insurer is managing close to its composite EOM limit, particularly common for insurers investing heavily in distribution while running close to the cap, it may reduce brokerage on large commercial accounts to stay within the limit, even if those accounts are well-priced from an underwriting perspective. This is a reversal of the pre-2024 dynamic where the product-level limit was often the binding constraint.

The 2024 regulations also affect the treatment of performance-related broker compensation (contingent commissions, volume overrides, and profitability-based bonuses). These were a contested area under the 2016 regime. The 2024 framework's company-level cap means that any such arrangement is acceptable provided the total expenses including these payments stay within the composite EOM limit. IRDAI has not separately regulated contingent commissions in the 2024 framework, but the composite cap is a harder backstop than the earlier product-level limits.

The 2024 regulations put every general insurer under the same flat 30% cap on expenses of management, measured against gross premium written in India. That single number is more demanding for some insurers than others, because Indian non-life insurers have historically operated with widely varying expense ratios.

Several private non-life insurers have historically run management-expense-plus-commission ratios in the high twenties to around thirty per cent of premium, sustained in part by investment income while combined ratios sat above 100%. For those insurers, a flat 30% cap is a binding constraint that requires visible rationalisation of agency commission structures and direct-marketing spend. Insurers that were already comfortably inside 30% have more room to compete on commercial broker commissions without breaching the limit, and can deploy that headroom selectively on the lines where they want to grow.

Standalone health insurers work to the higher 35% cap, which reflects the higher acquisition and servicing cost of building a retail health book. That extra headroom is one reason standalone health insurers can be more aggressive on group and SME health distribution, where broker and agency costs are high, than a general insurer operating to the 30% cap on the same business.

The New India Assurance Company and other public sector insurers operate under the same 30% cap. Their expense structures are typically higher because of legacy staffing and branch networks, so the cap creates structural pressure to rationalise. Public sector insurers' commercial pricing is therefore squeezed between the need to cover underwriting losses and the need to stay within the EOM cap, which can make them less aggressive on large commercial risks than they were under the prior product-level regime.

IRDAI has been explicit about the rationale for the 2024 EOM reform. The regulatory objective is to improve the long-term financial health of non-life insurers by bringing their expense ratios to sustainable levels. Indian non-life insurance has historically suffered from high expense ratios relative to premium income, with several private sector insurers running expense ratios that, combined with combined ratios above 100%, made profitable operation dependent on investment income. The 2024 regulations are intended to force structural efficiency.

The compliance monitoring mechanism under the 2024 regulations requires each insurer to submit quarterly EOM compliance statements to IRDAI, certified by the appointed actuary and the CFO. The statements must disclose total expenses, gross written premium, reinsurance ceded, reinsurance commission received, and the resulting EOM ratio against the applicable cap. IRDAI's market conduct team monitors these submissions and can initiate regulatory action, including financial penalties under Section 102 of the Insurance Act 1938, against insurers that persistently exceed the EOM cap.

The regulations rely on forbearance rather than an immediate hard stop: an insurer that exceeds the applicable EOM limit must charge the excess expenses to its profit and loss account, and insurers within their first five years of business are given a segment-wise glide path to bring their expense ratio down to the limit. Excess expenses cannot be loaded back onto policyholders, and persistent non-compliance can attract regulatory action under the Insurance Act 1938, including penalties and, in extreme cases, restrictions on new business underwriting.

For commercial buyers, the compliance monitoring mechanism is relevant in one specific way: an insurer under EOM compliance pressure may reduce its commercial book aggressively to protect its EOM ratio, since commercial lines tend to have higher per-policy expense inputs (surveyor fees, broker commission on large cases, underwriting analysis cost) than retail lines. Buyers should monitor whether their key insurers are showing signs of EOM pressure through pricing increases or capacity restrictions on large commercial risks, as this may signal an insurer managing to a regulatory constraint rather than a market pricing rationale.

The 2024 EOM regulations do not directly constrain or benefit corporate insurance buyers. They regulate insurers, not policyholders. But they reshape the incentive environment in which insurance pricing and distribution decisions are made, and risk managers who understand these incentives can act on them.

The most actionable implication is around insurer selection during renewal negotiations. A general insurer already running close to its 30% cap has less expense headroom and may be more resistant to broad broker compensation requests on large commercial risks, while an insurer with room under the cap has more flexibility. For a large commercial buyer with a renewal premium of, say, INR 5 crore, placing the risk with an insurer that is building commercial market share and still has EOM headroom may produce a more aggressive pricing and service offer than placing with an insurer managing close to its cap.

The second implication is around multi-insurer placement on co-insurance basis. Large commercial risks in India, particularly for property values above INR 500 crore, are routinely placed on a co-insurance basis across multiple insurers. The lead insurer sets the rate and terms; following co-insurers take a share. Under the 2024 EOM framework, the lead insurer's expense allocation for this placement (underwriting analysis, lead surveyor fees, broker commission) is borne proportionally by its share. Following insurers have lower per-policy expense inputs. This difference can affect which insurers are willing to lead versus follow on large commercial placements, which in turn affects the pricing dynamic for large buyers.

The third implication is around long-term insurance agreements (LTAs). Multi-year commercial insurance placements that were common before de-tariffing, and have seen some revival, allow buyers to lock in pricing and terms for 2 to 3 years. Under the 2024 EOM regime, insurers writing LTAs must account for the full EOM impact over the policy period, which makes them more careful about LTA pricing. Buyers seeking LTAs on large commercial risks may find that the pricing premium over annual renewals has widened as insurers factor in their forward EOM management.

The shift from the 2016 product-level expense limits to the 2024 composite company-level cap represents a fundamental philosophical change in how IRDAI regulates insurer expenses. Understanding the comparison helps buyers and brokers anticipate where the market will go over the next 2 to 3 years.

Under the 2016 regime, expense limits by product category were meant to prevent insurers from using one profitable line to fund excessive distribution costs in another. The motor TP line's mandatory nature made it a reliable volume anchor, but its price-regulated structure meant that even large motor TP volumes could not generate surplus to fund aggressive commercial fire acquisition strategies. Each line had to stand on its own expense efficiency.

The 2024 composite cap abandons this line-of-business separation and treats the insurer as a unified entity. This is more consistent with how global insurance regulators approach expense management: the EU's Solvency II framework, for example, does not apply product-level expense limits, instead relying on overall capital adequacy and profitability standards. IRDAI's move toward a company-level composite cap brings Indian non-life regulation closer to international norms.

Outstanding questions that the market is still working through include how IRDAI will treat group entities that operate across multiple insurance classes (for example, insurers that write both general and health insurance under a composite licence if the proposed composite licence framework proceeds). The 2024 regulations apply separately to general insurers and health insurers, and the EOM regime for a composite licensee is not yet fully defined.

A second outstanding question is whether the EOM cap will be tightened over time. IRDAI has calibrated the 2024 limits to be achievable by the current Indian market and has signalled they will be reviewed periodically. Global benchmarks suggest that mature insurance markets operate at expense ratios of 18 to 22%, which is significantly below the 30% general-insurance cap in the 2024 regulations. As the Indian market matures and technology reduces distribution costs, further tightening of the caps is likely, which will continue to pressure broker commission structures and create incentives for more efficient digital distribution.

For commercial buyers, the most important signal is that the direction of regulatory travel is toward a more efficient, lower-expense insurance market. That is good for buyers in the long run: lower insurer expense loads mean more premium goes to underwriting and reserves, which should translate to better pricing on well-managed commercial risks.