Estimation of reduction in Expenses by 15-20% : Chief Actuary, HDFC Life

Policyholders are likely to get better returns on their life insurance policies from April as the regulator has asked insurers to bring down their overall expenses.

 In its exposure draft, the Insurance Regulatory and Development Authority of India (IRDAI) has asked insurers to bring down their overall expenses limit for various categories of life insurance products.

 But, according to insurers, if implemented, the proposal will severely hit their marketing budget.

“The overall expense allowances of life insurers have been reduced significantly. Our estimate is that expenses will come down by 15-20 per cent for insurers which could result in better returns to customers as insurers cannot spend as much as they used to earlier,” said Srinivasan Parthasarathy, Chief Actuary & Appointed Actuary, HDFC Life.

“Expenses include all administrative and marketing spends, including commission. So, in order to bring them down, companies can either cut commissions to agents or other general expenses as the overall cost involved in selling a product needs to be brought down,” Parthasarathy added.

Industry experts said several life insurers have asked the Life Insurance Council to take up the matter with the regulator. However, a senior industry official said that the draft is expected to be implemented, as this was the third draft put out by the regulator after consultations with the industry. The new rules will be applicable to all life insurers from April. The insurance regulator has also said that if companies breach the expense limits then the excess expenses will have to be paid from the shareholders’ fund.

 V Manickam, Secretary General, Life Insurance Council, said that a majority of the companies have said that they will be affected and the Council has submitted a representation from the life insurers to the regulator.

A senior official from a life insurance industry said: “Insurers’ marketing budgets, branch expansion plans and commission payouts to intermediaries like agents will take a hit.”

Following passage of the Insurance Amendment Bill, IRDAI now has powers to define the expenses limit and commission payouts to intermediaries. Recently, IRDAI also came out with a draft circular defining the maximum commission payouts to distributors and giving insurance companies flexibility in paying out commissions to insurers within their overall expense limits.

Source: The Hindu

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