From product caps to board-approved limits: IRDAI's 2024 Expenses of Management Master Circular

The way your insurer pays the agent who sold you a policy changed shape on 15 May 2024, when the Insurance Regulatory and Development Authority of India (IRDAI) issued its Master Circular on Expenses of Management, including Commission, of Insurers, 2024 (reference IRDAI/F&I/CIR/79/5/2024). Running to 20 pages, the circular supplements the IRDAI (Expenses of Management, including Commission, of Insurers) Regulations, 2024, which were notified four months earlier on 23 January 2024.

The headline shift is deceptively simple. Until 2023, regulation told insurers exactly how much commission they could pay on each individual product; from 15 May 2024 the master circular lets each insurer's own board fix the commission structure, provided total costs stay inside an overall expenses-of-management (EOM) ceiling. This piece explains that framework, the arithmetic behind an "EOM ratio", and where a careful buyer should still read the fine print.

The Rule / Product

The 2024 master circular is not a stand-alone rule. It is issued under three legal pegs, named on the first page of the document: section 34 of the Insurance Act, 1938, section 14 of the IRDA Act, 1999, and Regulation 23 of the EOM Regulations, 2024. Section 34 of the 1938 Act gives the Authority its power to issue directions to insurers, and section 14 of the 1999 Act lists the Authority's duties, powers and functions, including regulating investment of funds and the margins of solvency. The circular expressly applies to life, general and health insurers and came into force from its date of issuance, 15 May 2024. It carries the approval of the Competent Authority and is signed by G R Surya Kumar, Chief General Manager.

Structurally the document has four chapters. Chapter I is a guidance note on the board policy of the insurer on the commission structure, tied to Regulation 4. Chapter II sets out the business plan every insurer must prepare under Regulation 5(1). Chapter III deals with returns of expenses of management, and Chapter IV with the return on payment of commission by the insurer. A closing Schedule-I lists the circulars repealed on 15 May 2024.

The core change lives in Chapter I. Under Regulation 4, every insurer must frame a board-approved policy for the payment of commission. The circular reasons that because "insurance agents, intermediaries or insurance intermediaries" play an important role in distributing insurance products, each insurer must hold a clear and transparent board policy on its commission structure to secure fairness, transparency, compliance, efficiency and the reputation of the industry. That board policy must, at a minimum, address seven elements: objectives and principles; fairness and reasonableness; appropriate distribution methods; a regular review; market conduct; monitoring and reporting; and applicability.

Two of those seven elements do real work for the policyholder. The "fairness and reasonableness" element states that the commission structure shall be fair and shall not result in higher compensation to intermediaries at the cost of the insurer's customers, and that intermediaries should be compensated in line with the effort required, without regard to their size or bargaining power. The "applicability" element states plainly that no new commission structure shall apply to policies already sold. The "regular review" element requires the audit committee to review the commission structure at least on an annual basis, testing its effectiveness, its impact on premium rates, benefit payouts and penetration.

This replaced an older, more rigid regime. Schedule-I of the circular repeals two earlier instruments: the guidance note on board policy on the commission structure (IRDAI/INT/CIR/MISC/82/3/2023 dated 31 March 2023) and the clarifications on the EOM of insurers transacting life insurance business (IRDAI/F&I/CIR/EOM/84/4/2023 dated 5 April 2023). Before that 2023 reset, commission had been governed product by product; the 2024 architecture folds commission into one overall management-expenses envelope set at the level of the whole insurer.

Why It Matters

For the buyer, the significance is not that commission has been abolished; it has not. The significance is that the ceiling now sits at the level of the whole insurer rather than on each product line, so the board carries the responsibility for keeping distribution costs proportionate. The circular's own words, in the Chapter I fairness element, are that the structure "shall not result in higher compensation to intermediaries at the cost of the insurer's customers"; that sentence, dated 15 May 2024, is the consumer promise embedded in the reform.

Distribution cost feeds directly into your premium, whether you buy a term plan, a health policy or a unit-linked product. You can see how the base premium is built for each of these on our term insurance premium calculator and health insurance premium calculator; a lower, better-governed expense load leaves more of your rupee available for the risk cover itself. For savings-linked cover, the trade-off between charges and returns is exactly what our ULIP versus mutual fund comparison is designed to surface.

The 2024 framework also links commission discipline to solvency. Chapter II requires every insurer to project, over four financial years, its management expenses as a percentage of gross written premium, its EOM ratio, its projected capital requirement and its projected solvency ratio. Because these are filed together under Regulation 5(1), an insurer that wanted to pay unusually rich commission would have to show the capital and solvency consequences in the same table it hands the regulator. That is a structural check that the repealed 31 March 2023 and 5 April 2023 instruments did not impose in the same integrated way.

Finally, the "no new commission structure on policies already sold" rule from Chapter I protects the book you already own. If you bought a policy before 15 May 2024, the commission economics that were disclosed to you at the time govern its renewals; the reform does not reach back to change them. This sits alongside the wider consumer-protection architecture we covered in the IRDAI 2024 Master Circular on Protection of Policyholders' Interests.

Worked Numbers

The one number the circular actually asks insurers to compute and disclose is the EOM ratio. The definition follows straight from the Chapter II business-plan table: management expenses equal operating expenses plus commission, and the EOM ratio is that total expressed as a percentage of gross written premium. Nothing is capped product by product; what matters is the aggregate.

The figures below are an illustration built to show the arithmetic, not numbers taken from the circular. Assume a general insurer files the Chapter II business plan for a financial year with a gross written premium of Rs 1,000 crore.

Now hold the total fixed and change only the mix, which is exactly the freedom the 15 May 2024 circular grants the board. Suppose the insurer decides to pay Rs 90 crore of commission on a fast-growing motor line and trims operating expenses to Rs 220 crore. Management expenses are still 90 + 220 = Rs 310 crore, and the EOM ratio is still 310 / 1,000 = 31.0%. Under the pre-2023 product-wise cap the higher motor commission might have breached a per-product limit; under the 2024 board policy it is permissible because the aggregate envelope is unchanged and the board has recorded the fairness reasoning required by Chapter I.

The four-year projection matters because it ties this to capital. If that same insurer expects premium to grow to Rs 1,300 crore by year four while holding management expenses to Rs 380 crore, its projected EOM ratio improves to 380 / 1,300 = 29.2%, and the Chapter II table would show the corresponding projected solvency ratio in the same row. A rising commission bill that is not matched by premium growth would push the ratio the other way, and the regulator would see it in the filing made under Regulation 5(1). For life insurers, the same table must be split into participating and non-participating business, per the note to Chapter II, with capital and solvency projected at the level of the whole insurer.

Pitfalls

The reform governs how much an insurer spends in total, not what any single policy pays your agent, and not what your policy actually covers. Four traps survive it.

First, commission is still not itemised for you at the point of sale. The 15 May 2024 circular disciplines the insurer's aggregate EOM ratio and requires monitoring and reporting to the board under Chapter I; it does not require a line on your proposal form telling you the rupee commission on your specific policy. Treat the premium quote as a bundle and compare across insurers rather than assuming a single "fair" number.

Second, a low overall EOM ratio at the insurer says nothing about the cover-level clauses that decide your claim. A sub-limit can cap what a hospital line pays regardless of your sum insured, and a room-rent capping can proportionately reduce every associated charge if you take a costlier room. Neither is touched by the EOM Regulations 2024 notified on 23 January 2024; they are underwriting terms, so read them in the policy wording, not the commission disclosure.

Third, the co-payment and the waiting-period rules for a pre-existing disease remain the single largest source of claim disputes, and the 2024 EOM circular does not address them at all. These clauses, together with any premium loading for your health profile, are governed by the separate health-insurance framework and the policyholder-protection rules, not by how your insurer pays its agents.

Fourth, when a commission dispute or mis-selling grievance does arise, the EOM circular is not your remedy. Redress runs through the grievance and ombudsman machinery, which we set out in how a policyholder complaint becomes a binding award under the Insurance Ombudsman Rules 2017. The 15 May 2024 circular is a prudential and governance instrument; it makes boards accountable for expense discipline, but it is not a consumer-complaints channel.

FAQ

What is the reference and date of the EOM master circular?

It is the Master Circular on Expenses of Management, including Commission, of Insurers, 2024, reference IRDAI/F&I/CIR/79/5/2024, issued on 15 May 2024. It supplements the EOM Regulations 2024, which were notified on 23 January 2024, and it applies to life, general and health insurers.

Did IRDAI abolish commission caps in 2024?

No. IRDAI replaced rigid product-wise commission caps with an overall expenses-of-management ceiling set at the level of the whole insurer. Under Regulation 4 and Chapter I of the 15 May 2024 circular, each insurer's board fixes the commission structure within that ceiling, subject to a fairness test and at least an annual review by the audit committee.

How is the EOM ratio calculated?

Per the Chapter II business-plan table, management expenses equal operating expenses plus commission, and the EOM ratio is that sum divided by gross written premium. On our illustration of Rs 240 crore operating expenses and Rs 70 crore commission on Rs 1,000 crore of premium, the EOM ratio is 310 / 1,000, or 31.0%.

Does the new commission structure affect my existing policy?

No. The applicability element in Chapter I of the 15 May 2024 circular states that no new commission structure shall apply to policies already sold. The economics disclosed when you bought a pre-2024 policy continue to govern it.

Which older rules did the 2024 circular repeal?

Schedule-I repeals two instruments: the guidance note on board policy on the commission structure, IRDAI/INT/CIR/MISC/82/3/2023 dated 31 March 2023, and the clarifications on EOM for life insurers, IRDAI/F&I/CIR/EOM/84/4/2023 dated 5 April 2023.

Does a lower EOM ratio mean my claim is safer?

Not directly. The EOM ratio, disclosed under Regulation 5(1), measures the insurer's expense discipline, not your policy's coverage. Sub-limits, room-rent caps, co-payment and pre-existing-disease waiting periods are underwriting terms in your wording; check them separately from the commission framework.

Where can I read the primary document?

The master circular is published on the IRDAI portal at irdai.gov.in under document reference IRDAI/F&I/CIR/79/5/2024 dated 15 May 2024. The enabling statutes, the Insurance Act 1938 (section 34) and the IRDA Act 1999 (section 14), are available on indiacode.nic.in.