Health insurers seek expense cap tweaks

Standalone health insurers want mandatory products, including motor third-party, crop insurance and government-sponsored health schemes, excluded from the base used to calculate expense-of-management limits

The stakeholders have made the recommendation to the Insurance Regulatory and Development Authority of India (Irdai) as part of its feedback on the proposed changes to EoM regulations, said Nilesh Kambli, CFO, Star Health.

"The point is, for government health business or for motor third-party business, which are mandatory in nature, there is no intermediary involved and should not be allowed for the 25% limit," said Kambli. "These should be removed from the base so that the EOMs are more reflective of the actual cost that is being used for distribution of consumer-facing products."

Star Health is one of India's leading standalone health insurers.

The regulator has proposed bringing general insurers and standalone health insurers under a common EoM framework, with the expense limit set to decline to 20% over five years. Under the transition discussed on the call, insurers would need to bring the limit down to 25% within two years.

Standalone health insurers have argued that government-sponsored health schemes and mandatory products such as motor third-party and crop insurance have different distribution economics from retail insurance, said Kambli. These businesses may not involve intermediary commissions, but their premiums can form part of the base against which insurers' expenses are calculated.

Including them in the calculation base could give general insurers greater headroom to incur expenses on other products, while standalone health insurers, which have a different business mix, could face a relative disadvantage, according to Star Health Insurance. The company said the exclusion would help create a level playing field between general insurers and standalone health insurers as the regulator moves towards a common framework.

Standalone health insurers have also questioned whether they should be subject to the same expense limits as general insurers, given differences in their business models.

"Standalone health insurers focus exclusively on health insurance and retail customers, while general insurers operate across multiple lines, including motor, crop and government-sponsored insurance schemes," said the CEO of another health insurance company, declining to be named. "This provides general insurers with a different premium base and distribution-cost structure, giving them greater flexibility to absorb expenses on retail products."

Under the proposed framework, the Irdai plans to revise the methodology for calculating the overall expense-of-management (EoM) limits and prescribe product-wise caps on commissions.

Currently, EoM is capped at 30% of gross written premium (GWP) for general insurers and 35% for standalone health insurers, while life insurers follow a separate formula based on different premium categories. The regulator has proposed calculating EoM as a percentage of gross direct premium income (GDPI) instead of GWP which would exclude inward reinsurance premiums from the calculation.