Some half-a-dozen life insurance companies have come under fire from the Insurance Regulatory & Development Authority (IRDA) for crossing prescribed norms on administration expenses such as commissions, fund management fees, custodial fees, and expenses on marketing and advertising.
The expense ratio has a direct impact on the profitability of an insurance company and is important for long term sustainability. Many life insurance companies are yet to break even, and rising expenses could further delay their break-even.
IRDA member R Kannan said, “Out of the 22 life insurance companies, 6 or 7 companies have exceeded the expense ratio. We have told them to keep it in check. The capping of the charges for Unit Linked Insurance Plans (by IRDA) will help in bringing a discipline in expenditure management by companies."
The prescribed ratio depends upon the number of years an insurer has been in operation.
According to a study by Crisil Research with Assocham, private sector insurers in 2007-08 had an average total commission expense ratio of 9.87 per cent. The figure for market leader Life Insurance Company of India, on the other hand, was a mere 6.87 per cent.