In 2023, the Insurance Regulatory and Development Authority of India (“IRDAI”) had notified the IRDAI (Payment of Commission) Regulations, 2023 (“Commission Regulations”) (replacing the IRDAI (Payment of Commission or Remuneration or Reward to Insurance Agents and Insurance Intermediaries) Regulations, 2016 (the “2016 Regulations”), the IRDAI (Expenses of Management (“EoM”) of Insurers transacting Life Insurance Business) Regulations 2023 (replacing the IRDAI (EoM of Insurers transacting Life Insurance Business) Regulations 2016), and the IRDAI (EoM of Insurers transacting General or Health Insurance Business) Regulations 2023 (replacing the IRDAI (EoM of Insurers transacting General or Health Insurance Business) Regulations 2016) (“2023 Regulations”). The 2023 Regulations introduced a significant change to the commission regime as set out in the 2016 Regulations. Significantly, the product-based cap on commissions was removed and instead insurers were given the freedom to determine the commissions payable, subject to limits within the EoM of each insurer. Our analysis of the 2023 Regulations can be found here.

On 22 January 2024, the IRDAI notified the (EoM, including Commission, of Insurers) Regulations, 2024 (“EoM Regulations”), unifying the 2023 Regulations. These came into effect from 1 April 2024. We have analysed this new regime in our alert available here.

On 15 May 2024, the IRDAI also notified the Master Circular on Expenses of Management, including Commission, of Insurers, 2024 (“EoM Master Circular”), which provides further operational details relating to the obligations under the EoM Regulations.

No substantial changes have been introduced in the regime relating to commissions by the EoM Regulations and the EoM Master Circular and the principal requirements as introduced by the 2023 Regulations remain mostly the same.

In this summary, we have highlighted the key requirements under the EoM Regulations and the EoM Master Circular.

Business Plan
The IRDAI has directed that the business plan must be prepared by each insurer before the commencement of every financial year. The EoM Master Circular lists down the following minimum projections of such business plan:

1. Capital requirements during the relevant financial year;
2. Solvency margin on a quarterly basis; and
3. EoM

The mandatory calculations that must be included in each such business plan and the format for the same has also been specified in the EoM Master Circular. The business plan is to be reviewed periodically by each insurer, however, the intervals for review have not been specified.

Board policy on EoM and commissions
The requirement for a board approved policy for EoM continues under the EoM Regulations. The EoM Regulations have elaborated on the following minimum requirements for this board policy:

1. Measures to bring cost effectiveness in the conduct of business and reduction of the expenses of management on an annual basis;
2. Manner of transfer of benefits, arising from reduction of expenses and/or from the directly sourced business to the policyholders by way of reduction in the premium;
3. Manner in which the compliance with computation of additional allowance as per the EoM Regulations shall be ensured; and
4. Manner of allocation and apportionment of expenses of management amongst various business segments including at least the: (a) expenses which shall be allocated; (b) basis of allocation; (c) expenses which shall be apportioned; and (d) basis of such apportionment.

This policy must be formulated and approved annually by the board of the insurer. The insurers are also obliged to have a board approved policy on commissions. While the key requirements for this policy remain the same as the 2023 Regulations, the EoM Regulations have listed down certain additional parameters for this board policy including simplicity in administration, cost effectiveness and protection of interests of the stakeholders. The IRDAI has also now clarified that insurers also have the option to formulate a single policy by subsuming the Board policy for payment of commission within the EoM Board policy.

Filing of returns for EoM and commissions

Through the Master Circular on Submission of Returns dated 14 June 2024 (“Returns Master Circular”), the IRDAI has standardised the formats for filing of returns for commissions and EoM. Both the returns are to be prepared at the end of every financial year and approved by the audit committee followed by an approval from board of the insurer before being filed with the IRDAI. The returns for EoM need to be accompanied with a certificate from the statutory auditor and filed along with the audited financials of the insurer. The returns for commissions must be filed within 45 days from the expiry of every financial year.

The formats for filing of returns for EoM and the certificate of a statutory auditor have been provided in the EoM Regulations and EoM Master Circular respectively. The format for filing of returns for commissions has been specified in the Returns Master Circular.

Authors: Deepa Christopher – Partner, Chhavi Singhal – Senior Associate and Dhruvi Shah – Associate.

Disclaimer: This alert highlights only key issues and is not intended to be comprehensive. The contents of this alert do not constitute any opinion or determination on, or certification in respect of, the application of Indian law by Talwar Thakore & Associates (“TT&A”). No part of this alert should be considered an advertisement or solicitation of TT&A’s professional services.