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

The IRDAI (Expenses of Management of Insurers transacting General or Health Insurance Business) Regulations 2024 came into effect on April 1, 2024, replacing the earlier framework established under the IRDAI (Expenses of Management of Insurers transacting General and 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, based on the insurer's gross written premium. 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 EOM limits under the 2024 regulations are tiered by gross written premium:

• Insurers with GWP up to INR 2,500 crore: EOM cap of 35% of GWP
• Insurers with GWP between INR 2,500 crore and INR 7,500 crore: EOM cap of 30% of GWP
• Insurers with GWP above INR 7,500 crore: EOM cap of 25% of GWP

A glide path applies to newly licensed insurers: those in their first three years of operations have higher permitted EOM ratios to account for the elevated expenses of building a distribution network before scale is achieved.

The 2024 amendment also changes the denominator for the EOM calculation: reinsurance commission income received from reinsurers is excluded from the GWP denominator. This means the EOM limit is computed on net retained premium (GWP minus reinsurance ceded and reinsurance commission), giving an effectively higher permitted expense amount for insurers with significant reinsurance programmes. Commercial lines insurers, which tend to cede a higher proportion of premium to reinsurance than retail lines, benefit from this change.

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 tier-based regime, as insurers with large motor TP books grow their GWP and move into lower EOM tiers (30% or 25% versus the earlier more generous limits), they have less flexibility to absorb high distribution costs on commercial lines. Insurers managing to the tighter 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 — 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, 22% against a 25% cap has 3 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 smaller insurers in the 35% cap tier who are investing heavily in distribution — it may reduce brokerage on large commercial accounts to stay within the cap, 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 publicly available financials of listed Indian non-life insurers provide a real-world view of how the 2024 regulations have begun to affect expense management in the first year of operation.

ICICI Lombard General Insurance, one of the largest private non-life insurers by GWP (approximately INR 25,000 crore in FY2024-25), falls in the 25% EOM cap tier. Their reported expense ratio in FY2023-24 (pre-regulation) was approximately 27 to 28% of net earned premium, which means they were above what the new 25% cap requires. The first year of the new regulation has required a meaningful reduction in expense allocation. ICICI Lombard's published investor communications for H1 FY2025-26 show operating expense ratios trending downward toward the regulated cap level. The reduction has come through rationalisation of agency commission structures and more selective use of direct marketing spend.

Bajaj Allianz General Insurance (INR 18,000 to 20,000 crore GWP range) similarly falls in the 25% tier. Their expense ratios have historically been better controlled than the industry average, and the 2024 regulations have had a less disruptive impact. Bajaj Allianz has used the composite cap flexibility to maintain competitive broker commissions on commercial property lines where they are seeking volume growth, while tightening retail motor commission structures.

For smaller insurers in the 35% cap tier — including newer private entrants and some of the specialist health insurers who are active in group health policies for commercial clients — the 35% cap provides more room but also reflects the higher cost base of building a non-scale business. These insurers can afford to be more aggressive on commercial accounts from an EOM headroom perspective, which is one reason that smaller insurers have been gaining commercial market share in certain segments.

The New India Assurance Company and other public sector insurers operate under the same EOM regulations. Their expense structures are typically higher due to legacy staffing and branch networks, and the 2024 regulations create pressure to rationalise. Public sector insurers' commercial pricing is therefore under structural pressure to both cover underwriting losses and stay within the EOM cap, which may make them less competitive on large commercial risks than they were under the prior 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 IRDAI Act Section 102, against insurers that persistently exceed the EOM cap.

The regulations include a grace period mechanism: an insurer that exceeds its EOM cap in a given year must submit a remediation plan to IRDAI within 45 days and must return to compliance within the following year. The grace period can be used once in any five-year rolling period. Persistent non-compliance after the grace period can attract penalties up to INR 25 lakh per violation 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. Insurers in lower EOM tiers (the 25% cap group) have less expense headroom and may be more resistant to broad broker compensation requests on large commercial risks. Insurers in the 35% cap tier have more flexibility. For a large commercial buyer with a renewal premium of, say, INR 5 crore, placing the risk with a smaller insurer who is building commercial market share and has EOM headroom may produce a more aggressive pricing and service offer than placing with a top-five insurer managing close to its 25% 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 UK'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 stated that the 2024 tiers are calibrated to be achievable by the current Indian market and will be reviewed every 3 years. Global benchmarks suggest that mature insurance markets operate at expense ratios of 18 to 22%, which is significantly below even the top-tier 25% 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.