The expense ratio of several general insurers increased, instead of falling, after the Insurance Regulatory and Development Authority of India (Irdai) introduced the Management Expenditure (EoM) guidelines, according to Kamesh Goyal, president of Go Digit General Insurance.

Addressing the Q2FY25 earnings call, Goyal said the expense ratio is increasing as insurers focus more on writing business in low commission segments while increasing also commissions on the retail side. “This leads to a situation where the growth rate (of industry) has decreased and expense ratios are increasing.

The expense ratio measures how much an insurance company spends to operate, relative to the premiums it collects.

In January, Irdai introduced the Management Expenditure, Including Commission, of Insurers Regulations, 2024. The new regulations, which came into force in April, cap the expenses of insurers. life and general insurers. The EoM of property and casualty insurers is limited to 30% of their gross premium written during a financial year.

Last week, Irdai issued a show cause notice to Go Digit after its operating expenses exceeded the prescribed limits for the six months ending September 2024.

Goyal said that while large private insurers recorded an increase in EoM during the first half of the current financial year, Go Digit’s expense ratio actually declined by 2.8% – from 41.1 % in H1FY24 to 38.2% in H1FY25.

He added that Irdai had issued a show cause notice as it had “no visibility” over Go Digit’s expenses in FY25. “We filed a forbearance application with Irdai in May 2023 and a detailed business plan in December 2023 based on the performance of the first half of FY24. We have not heard from the regulator from December 2023 to October 2024.”

The company has already submitted a progress plan (on expenses) to the regulator and will be able to achieve it in three years, he added.

“Companies have become aggressive as a group health (employer-employee insurance) to compensate for EoM. They will actually see a very poor result in terms of loss ratios because their profitability will suffer…,” Goyal said.