The expense ratio of several general insurers has increased, instead of coming down, after the Insurance Regulatory and Development Authority of India (Irdai) introduced the expenses of management (EoM) guidelines, according to Kamesh Goyal, chairman of Go Digit General Insurance.
Addressing the Q2FY25 earnings call, Goyal said the expense ratio is rising as insurers are focusing more on writing business in lower-commission segments while also increasing commission on the retail side. “This is leading to a situation where the growth rate (of the industry) has come down and expense ratios are going up.”
The expense ratio measures how much an insurance company spends to operate, compared to premiums it collects.
Also ReadYour Money: Factor investing for volatile times
In January, the Irdai introduced Expenses of Management, including Commission, of Insurers Regulations, 2024. The new regulations, which came into force from April, place caps on expenses of life and general insurers. The EoM of general insurers is limited to 30% of their gross written premium in a financial year.
Last week, the Irdai issued a show-cause notice to Go Digit after its expenses of management exceeded the prescribed limits for the six months ended September 2024.
Goyal said while large private insurers have recorded an increase in EoM in the first half of the current fiscal, Go Digit’s expense ratio has actually come down by 2.8% – from 41.1% in H1FY24 to 38.2% in H1FY25.
He added that Irdai has issued show-cause notice because it had ‘no visibility’ on Go Digit’s expenses in FY25. “We filed a forbearance application with Irdai in May 2023 and a detailed business plan in December 2023 based on performance of H1FY24. We haven’t heard from the regulator from December 2023 to October 2024.”
Also ReadIf total tax liability above Rs 10k, pay tax on STCG in advance
The company has already submitted a glide path (on expenses) to the regulator and will be able to achieve it in three years, he added.
“Companies have become aggressive in group health (employer-employee insurance) to make up for the EoM. They will actually see a very bad outcome on loss ratios because their profitability will suffer…” Goyal said.
» Read More
