IRDAI EoM limits crackdown: The Insurance Regulatory and Development Authority of India has barred four insurers from opening new places of business for six months after they exceeded prescribed expenses of management limits in FY25. The orders against ACKO General Insurance, Niva Bupa Health Insurance, Edelweiss Life Insurance and Pramerica Life Insurance mark a tougher phase in the regulator’s handling of an old problem: how much insurers should be allowed to spend on acquiring customers and building scale before those costs become unacceptable.
The immediate sanction is limited. The four insurers can continue selling policies and servicing existing customers. They have not been ordered to close branches. Yet restricting physical expansion is a warning with consequences, particularly because the regulations give IRDAI scope to escalate its response if breaches persist.
READ | Jan Suraksha insurance cover needs a realistic reset
What IRDAI EoM limits cover
Expenses of management, or EoM, cover the operating expenses of an insurance business as well as commissions paid to agents and intermediaries. Under the 2024 regulations, a general insurer may spend up to 30% of gross premium written in India, while the ceiling for a standalone health insurer is 35%. Life insurance is governed by product and business-segment limits rather than a single percentage.
The purpose of the rules is broader than cutting costs. IRDAI says insurers should manage expenses within prescribed limits so that resources are used to improve policyholder benefits and insurance penetration. The regulations require each insurer to have a board-approved expense policy and annual business plan, including projections for EoM and solvency.
The framework also recognises that expansion costs money. Insurers receive additional allowances for expenditure on insurtech and insurance awareness, and for specified rural and government-backed insurance business. The regulator has therefore left room for companies to invest in distribution and technology while keeping an overall check on costs.
Insurance distribution remains expensive
Insurance remains a distribution-heavy business. Agents, brokers, banks and other intermediaries continue to play an important role, and commissions form part of EoM under the regulations. A company seeking rapid growth may incur substantial customer-acquisition costs before the resulting premium income reaches scale.
That can explain a high expense ratio. It cannot become a permanent exemption from the rules. An insurer that repeatedly spends well above the permissible level has to demonstrate that its acquisition costs are falling as the business grows. Otherwise, the problem lies in the economics of its distribution model.
The FY25 breaches were substantial in some cases. ACKO incurred EoM of ₹985.15 crore against allowable expenses of ₹650.37 crore, an excess of ₹334.78 crore. Niva Bupa exceeded its allowable level by ₹248.37 crore. Pramerica Life was ₹137.79 crore above its applicable limit, while Edelweiss Life exceeded its limits by ₹89.95 crore.
READ | LIC market share ambition faces the digital insurance test
The cost problem is wider than four insurers
These cases form part of a broader industry problem. IRDAI’s 2024-25 annual report says eight of the 25 life insurers operating during the year exceeded EoM limits on an overall basis in their participating or non-participating businesses. Among non-life insurers, 15 were non-compliant and had sought regulatory forbearance.
That scale of non-compliance suggests that insurers and the regulator are still working through the economics of the new expense regime. Some companies are investing ahead of revenue. Others may simply have cost structures that have yet to adjust to the limits.
The distinction matters because an EoM breach is a measure of expense discipline, not a solvency test. The present orders do not say that the four insurers cannot meet claims or are financially unsound. IRDAI’s regulations separately provide for a valuation of an insurer’s financial health if the regulator considers that necessary.
Niva Bupa illustrates the point. The company has told the exchanges that it complied with the EoM regulations for FY26 and the first quarter of FY27 and expects to remain compliant for the full year. The six-month restriction relates to its FY25 breach.
READ | Universal health coverage begins with prevention, not insurance
IRDAI must make the glide path credible
IRDAI still has to accommodate a policy objective that pulls in the other direction. India needs more insurance. Overall insurance penetration remained at 3.7% of GDP in 2024-25, with life insurance at 2.7% and non-life at 1%. The global figure was 7.3% in 2024.
Reaching more households will require investment in distribution, technology, products and customer service. Cost ceilings that ignore the economics of expansion could work against that objective. The 2024 rules already recognise this by providing additional allowances and a route to regulatory forbearance in specified circumstances. They also allowed insurers that exceeded their limits in FY24 a transition towards compliance by the end of FY26.
That flexibility makes enforcement more defensible. An insurer given time to reduce costs must eventually show that the promised operating leverage has arrived. Repeated requests for forbearance cannot substitute for a viable cost structure.
India’s insurance penetration problem will not be solved by making distribution uneconomic. Nor can insurers assume that acquisition costs may remain above regulatory ceilings until scale eventually arrives. IRDAI’s task is to distinguish genuine investment in growth from a business model that remains expensive after years of operation. Consistent enforcement of that distinction would matter more than the severity of any single order.