Insurance regulator (IRDAI) is likely to approve expenses of management and commission regulations for general insurance companies.
The point of commission and expense of management in the insurance sector has been talking points for quite some time now. There was a draft consultation paper, which was released by the insurance regulator.
Now, there have been rounds of consultation. The insurance regulator met general insurance companies and post that a near-final decision has been made on what could be the expenses of management limit for general insurance companies, and also the commission limit for general insurance companies.
So, what is expenses of management?
It is essentially made out of two things - one is the commission which insurance companies can pay to sell their insurance product and the second one is the operating expenses like salaries they pay.
CNBC-TV18 learned from sources that IRDAI has nearly fixed the expenses of management limit to 30 percent of the gross premium collected by general insurance companies, which means if a company collects Rs 100 of premium in a year, the expenses of management which is commission and operating expenses put together can only be up to Rs 30.
More flexibility has been given on the commission side, which falls under the expenses of management. So, the regulator has removed any sort of cap when it comes to commission, but with the condition that it has to remain under the master expenses of management limit of 30 percent. So your commission can't exceed 30 percent of the gross premium.
Now, it is up to insurance companies if 30 percent is the limit or Rs 30 out of Rs 100 is the limit. They can spend Rs 25 on commission but then they will only have Rs 5 as other operating expenses. They can reduce commission and increase operating expense.