Standalone health insurers want mandatory insurance products left out of the base used to work out expense-of-management (EoM) limits. They say including these products could leave them at a disadvantage if the regulator moves ahead with a common framework for general and standalone health insurers.
The products they want excluded include motor third-party cover, crop insurance and government-sponsored health schemes. The insurers have made this suggestion to the Insurance Regulatory and Development Authority of India (Irdai) while giving feedback on its proposed changes to the EoM rules, said Nilesh Kambli, chief financial officer of Star Health.
Star Health is one of India’s leading standalone health insurers.
Why insurers want the exclusion
Kambli said government health business and motor third-party business are mandatory in nature and involve no intermediary. In his view, they should not be counted towards the 25% limit.
“These should be removed from the base so that the EOMs are more reflective of the actual cost that is being used for distribution of consumer-facing products,” he said.
Standalone health insurers argue that government-sponsored schemes and mandatory products such as motor third-party and crop cover have different distribution economics from retail insurance. These lines may not involve intermediary commissions, yet their premiums can still form part of the base against which expenses are measured.
According to Star Health, counting them in the base could give general insurers more room to spend on other products. Standalone health insurers, whose business mix is different, could be at a relative disadvantage. The company said excluding these products would help create a level playing field as the regulator shifts to a common framework.
Questions over a uniform limit
Standalone health insurers have also asked whether they should face the same expense limits as general insurers at all, given how differently they operate.
The chief executive of another health insurer, who did not want to be named, said standalone players focus only on health insurance and retail customers. General insurers, by contrast, operate across several lines, including motor, crop and government-sponsored schemes.
That, the executive said, gives general insurers a different premium base and distribution-cost structure, and more flexibility to absorb expenses on retail products.
What the regulator has proposed
Irdai wants to bring general insurers and standalone health insurers under one EoM framework. The expense limit is set to come down to 20% over five years. Under the transition discussed on the call, insurers would have to bring the limit down to 25% within two years.
The regulator also plans to revise the method for calculating overall EoM limits and to prescribe product-wise caps on commissions.
At present, EoM is capped at 30% of gross written premium (GWP) for general insurers and 35% for standalone health insurers. Life insurers follow a separate formula based on different premium categories.
Irdai has proposed calculating EoM as a percentage of gross direct premium income (GDPI) rather than GWP. This would take inward reinsurance premiums out of the calculation.
What it means
The debate centres on what goes into the premium base. A broader base lets an insurer spend more in absolute terms within a given percentage cap. Standalone health insurers say that advantage would mostly go to multi-line general insurers, and they want the base to reflect only the products where distribution costs are actually incurred.