However, the regulator has provided for additional allowances for expenses incurred in the rural sector. Among them are the Pradhan Mantri Suraksha Bima Yojana (PMSBY), the Pradhan Mantri Jan Arogya Yojana (PMJAY), and the Pradhan Mantri Fasal Bima Yojana (PMFBY) (PMFBY). “The allowance provided shall not exceed 10% of the incremental premium from the previous fiscal year, sourced from the rural sector and the above-mentioned schemes,” the regulator stated in the exposure draught.
“There have been some issues with fixed cost allocation, but with a composite limit, such issues will be addressed.” This is beneficial to the industry because it allows companies to invest in areas other than their many products. Certain products necessitate greater investment, and there is always the concern that one does not exceed the prescribed limit,” said a private sector general insurance executive.
Furthermore, the regulator has stated that every insurer will have an annual board-approved policy. This would aim to improve cost effectiveness in business operations and reduce annual company expenses. Irdai has also proposed that every insurer develop an annual business plan in advance. It should be based on the capital requirements for the fiscal year in question. It should also project quarterly solvency margins, company expenses, and compliance within the Irdai limit.
“Any move that limits the company expense is a welcome step because companies today, with so much technological innovation and vast distribution, should reduce their expenses. This will be good for the policyholders in general,” said the chief executive of a general insurance company.
Currently, insurance companies are required to adhere to business line-specific limits. Furthermore, the regulator is attempting to end the practise of segmental compliance of company expense and reporting. All expenses in the nature of operating costs would be included in the company’s expenses. Commission, brokerage/remuneration, and rewards to insurance agents, intermediaries, and insurance intermediaries are examples of compensation. Commission and expenses on reinsurance inward may also be charged to the revenue account.
“An insurer reporting growth in the gross direct premium sourced from the rural sector — the PMSBY, PMJAY and PMFBY — would be given an additional allowance.
In the event that the regulator’s proposed limits are exceeded, the insurer may be required to maintain additional solvency. In addition, if the provisions are violated again, the regulator may, among other things, limit the performance incentive of the managing director / chief executive officer / whole-time directors and key management personnel.