Why your insurance commission isnt unlimited: the IRDAI 2024 Expenses of Management and Commission master circular

When an insurance agent earns a commission on the policy you buy, that payout is no longer governed by a fixed, product-by-product ceiling. Since the Insurance Regulatory and Development Authority of India (IRDAI) notified the IRDAI (Expenses of Management, including Commission, of Insurers) Regulations, 2024 on 23 January 2024, and supplemented them with a Master Circular (Ref IRDAI/F&I/CIR/79/5/2024) dated 15 May 2024, commission has been folded into a single, board-approved "Expenses of Management" (EOM) budget that each insurer must stay within.

This matters because for decades the older regime prescribed rigid commission slabs for each class of policy. The 2024 framework, which applies to all life, general and health insurers from the date of issuance, replaces those product-wise caps with one overall spending limit - 30 per cent of gross premium for general insurers and 35 per cent for health insurers, among others. The practical effect on your premium, and on how your claim reserve is protected, is significant. Here is exactly how the rule works.

The Rule / Product

The governing instrument is the IRDAI (Expenses of Management, including Commission, of Insurers) Regulations, 2024, notified on 23 January 2024, which consolidated the earlier Expenses of Management Regulations and the Payment of Commission Regulations of 2023 into one code. The accompanying Master Circular Ref IRDAI/F&I/CIR/79/5/2024, dated 15 May 2024, was issued under Section 34 of the Insurance Act, 1938, Section 14 of the IRDA Act, 1999, and Regulation 23 of the 2024 Regulations, and it operationalises the framework across life, general and health insurers.

The core change is structural. Under the old system, commission was capped separately for each product line, so an insurer could pay only up to a stated percentage on, say, a first-year life premium. The 2024 Regulations abolish those individual ceilings. Instead, commission is now treated as one component of a single Expenses of Management pool, and an insurer is free to decide how much commission to pay on any product provided its total EOM stays inside the overall limit for the financial year.

Those overall limits are set out in Regulations 6, 7 and 8. Under Regulation 6, a general insurer's EOM must not exceed 30 per cent of gross premium written in India in a financial year, while a standalone health insurer's EOM must not exceed 35 per cent of gross premium written in India. For life insurers, Regulations 7 and 8 prescribe a build-up limit computed as the sum of segment-wise percentages, so the allowable figure varies with the mix of business each life insurer writes during the year.

Regulation 8 lists the life segment allowances precisely: 15 per cent of first-year regular premiums and 6 per cent of renewal premiums; 5 per cent of most single premiums; 10 per cent of single premiums on group pure-risk policies and 14 per cent on individual pure-risk single-premium policies; 15 per cent on one-year renewable group policies; and three-fourths of one per cent (0.75 per cent) of annuities paid during the year. Group fund-based business earns 1 per cent on average Assets under Management up to Rs 10,000 crore and 0.80 per cent on AUM above Rs 10,000 crore.

On top of these base limits, Regulations 10 and 11 permit three additional allowances. Regulation 10 allows an extra 5 per cent of the allowable EOM (computed under Regulation 6 or 8) towards Insurtech and insurance-awareness expenses. Regulation 11(1) allows head-office expenses for foreign insurers or IFSC Insurance Offices, capped at 10 per cent of gross premium for general and health insurers and 5 per cent for life insurers. Regulation 11(2) allows a rural-and-schemes allowance of up to 15 per cent of the incremental premium over the previous year sourced from the rural sector and government schemes such as PMSBY, PMJAY and PMFBY, subject to the prior year's actual expenditure on those segments.

Chapter I of the Master Circular (referring to Regulation 4) requires every insurer to adopt a board-approved policy on commission structure covering at least seven elements: stated objectives and principles, fairness and reasonableness, appropriate distribution methods, a review process conducted by the audit committee at least annually, market-conduct governance, monitoring and reporting to the board, and applicability. Critically, the circular states that no new commission structure shall apply to policies already sold.

Why It Matters

For policyholders, the biggest protection is where the overspend lands. Regulation 17 read with the Master Circular provides that if an insurer's actual EOM exceeds the allowable limit, the excess must be charged to the Profit and Loss Account, meaning shareholders absorb it rather than the policyholders' fund. Under the 2024 Regulations that spare capacity cannot quietly inflate your premium or erode the reserve set aside to pay your claim.

The reform also changes selling incentives. Because there is no longer a guaranteed product-wise commission slab, and because Regulation 4 forces a board policy that must identify and address conflicts of interest, the framework discourages agents from recommending a product purely because it carries a higher payout. If you are comparing a term plan against a bundled savings policy, run both through the term insurance premium calculator before you accept an intermediary's suggestion, because the cheaper protection is often the one that earned the seller less.

There is a discipline mechanism with teeth. The Master Circular provides that if an insurer's actual EOM exceeds its own business-plan projection (formulated under Regulation 5) by 10 per cent or more, no variable pay may be drawn by key managerial personnel for that year. Regulation 17 further gives insurers a two-year glide path to bring costs within the allowable limits by the end of financial year 2025-26, and on repeated breach the Authority may direct an insurer not to underwrite new business in the offending segment.

For buyers of unit-linked and savings products the transparency gain is direct. Since the EOM budget now includes commission, the cost of distribution competes for the same rupee as operating expenses, which pressures insurers to run leaner. When you weigh a market-linked policy against a mutual fund, the ULIP versus mutual fund calculator lets you see the drag from charges over a 10-year or 15-year horizon, and the higher an insurer's expense ratio, the more of your money is consumed before it is invested.

Worked Numbers

Consider a general insurer that writes Rs 5,000 crore of gross premium in India in a financial year. Under Regulation 6, its base EOM limit is 30 per cent, or Rs 1,500 crore. If it spends 5 per cent of that base on Insurtech and awareness under Regulation 10 (Rs 75 crore) and qualifies for a Regulation 11(2) rural-and-schemes allowance of Rs 30 crore, its total permitted EOM for the year is Rs 1,605 crore. Commission is not capped separately; it simply has to fit inside this pool alongside operating expenses.

In this illustration the insurer overspends by Rs 95 crore. That excess is charged to the Profit and Loss Account, not the policyholders' fund, and the insurer must correct course within the two-year window ending financial year 2025-26. Note that commission of Rs 600 crore was legitimate under the 2024 framework only because the combined EOM figure was tested against the Rs 1,605 crore ceiling, not against any single product slab.

A life insurer's limit is additive across segments. Take an insurer whose annual premium composition is set out below; applying the Regulation 8 percentages yields a single allowable EOM of Rs 372 crore, which is then the ceiling for the sum of its operating expenses and all commission for the year.

The renewal book illustrates why persistency matters to insurers: Rs 3,000 crore of renewals generates only Rs 180 crore of allowance at 6 per cent, whereas Rs 1,000 crore of first-year business generates Rs 150 crore at 15 per cent. To model how the premium you actually pay behaves across policy years, the health insurance premium calculator is a useful companion, since renewal loadings and age-banding feed the same expense arithmetic insurers manage under Regulation 8.

Pitfalls

The EOM reform controls what an insurer spends; it does not touch the policy wording that decides whether your claim is paid. The most expensive traps sit in the fine print, and the 2024 Regulations do not override them. A sub-limit can cap a specific head such as cataract surgery at a fixed rupee amount regardless of your Rs 10 lakh sum insured, so a large cover can still leave you underpaid on a common procedure.

A room-rent capping clause is the most under-appreciated of these. If your policy limits the room category to, say, 1 per cent of sum insured per day and you occupy a higher-tariff room, the insurer applies proportionate deduction across the entire bill, not just the room charge. On a Rs 4 lakh hospitalisation this can shave off tens of thousands of rupees. Use the room rent impact calculator before you assume a lower-premium plan is the better buy.

A co-payment clause requires you to bear a fixed share of every admissible claim, commonly 10 per cent or 20 per cent, which is frequently attached to senior-citizen and lower-premium policies. Because the 2024 EOM regime now lets insurers price distribution more flexibly, a plan sold to you as "cheaper" may carry a co-pay that transfers cost back to you at claim time, so read the schedule rather than the sales pitch.

Pre-existing disease waiting periods remain the classic denial ground. A pre-existing condition disclosed at proposal is typically covered only after a waiting period of up to 36 months under standard product structures, and non-disclosure can void the claim entirely. The EOM framework's Regulation 4 board policy targets mis-selling incentives, but it cannot cure a wording gap you did not read, so confirm the waiting-period clause and the definition of pre-existing disease before you sign.

FAQ

Does the 2024 EOM framework mean my agent can be paid an unlimited commission?

No. The IRDAI (Expenses of Management, including Commission, of Insurers) Regulations, 2024 remove the fixed product-wise commission caps but subsume commission within the overall EOM limit - 30 per cent of gross premium for general insurers, 35 per cent for health insurers, and the Regulation 8 build-up for life insurers. Total commission plus operating expenses cannot breach that ceiling, so the payout is bounded, just not slab-by-slab.

When did these rules take effect?

The Regulations were notified on 23 January 2024, and the Master Circular Ref IRDAI/F&I/CIR/79/5/2024 was issued on 15 May 2024 and came into force from the date of issuance. Insurers that were over the limit were given until the end of financial year 2025-26 under Regulation 17 to bring their expenses within the allowable range.

Who bears the cost if an insurer overspends its EOM budget?

Shareholders, not policyholders. Regulation 17 and the Master Circular require any EOM in excess of the allowable limit to be charged to the Profit and Loss Account. The policyholders' fund and the reserves backing your claim are protected from that overspend.

What additional allowances can insurers claim above the base limit?

Three, under Regulations 10 and 11: up to 5 per cent of the allowable EOM for Insurtech and insurance-awareness expenses; head-office expenses capped at 10 per cent of gross premium for general and health insurers and 5 per cent for life insurers; and a rural-and-schemes allowance of up to 15 per cent of the incremental premium over the prior year from the rural sector and schemes such as PMSBY, PMJAY and PMFBY.

Does this framework change what my claim will pay out?

No. The EOM Regulations govern insurer expenses and commission, not policy benefits. Sub-limits, room-rent caps, co-payment clauses and pre-existing disease waiting periods continue to govern claim settlement, so a lower premium made possible by flexible expense pricing does not guarantee a fuller claim.

Where can I read the primary documents?

Both are on the regulator's website: the Master Circular on Expenses of Management, including Commission, of Insurers, 2024 and the underlying regulations listed on the IRDAI consolidated gazette of notified regulations. Both carry the operative percentages cited throughout this article.