India’s non-life insurance industry has seen a major shift in how distribution and acquisition costs are reported since FY24, when the revised Expenses of Management (EOM) framework came into effect. While broker commissions have surged, the increase needs to be viewed alongside overall insurance costs, premium growth, and changes in accounting practices, according to industry data and an IRDAI consultation paper.
The Insurance Regulatory and Development Authority of India’s (IRDAI) consultation paper, released in September, has brought a 173% increase in general insurance broker commissions between FY23 and FY25 into focus. However, comparing this figure with premium growth alone does not capture the full picture, as insurers also reclassified certain distribution-related payouts from operating expenses to commissions under the revised framework, sources privy to the development said.
Between FY23 and FY25, broker commissions rose 173% while premiums generated through general insurance brokers increased 37%. In motor insurance distributed through brokers, commissions climbed 259%, against premium growth of 34%. However, total commissions and operating expenses across the non-life insurance industry increased 25% over the same period, compared with premium growth of 19.7%. This broader measure offers a more comprehensive view of the cost burden borne by insurers, the sources said.
Why the 173% commission increase needs context
According to the sources, the sharp rise in broker commissions partly reflects a change in how insurers classify their expenses. Under the revised EOM framework, distribution-related payouts previously recorded as operating expenses were shifted to the commission category from FY24.
Consequently, reported commissions increased while expenses under categories such as advertising, publicity, business development, and sales promotion declined. The reclassification changed how costs appeared in financial statements, without necessarily representing an equivalent increase in the total amount spent by insurers.
Public disclosures illustrate the shift. Spending on advertising and publicity fell to ₹2,875 crore in FY24 from ₹10,267 crore in FY23, a drop of nearly 72%. Business development and sales promotion expenses declined 76% to ₹991 crore from ₹4,197 crore, as per consolidated NL-7 public disclosure data of non-life insurance companies.
Broker commissions, including rewards, increased from ₹6,348 crore in FY23 to ₹17,348 crore in FY25. Over the same period, total commissions and EOM expenses across all distribution channels and operating cost categories rose from ₹77,057 crore to ₹96,305 crore.
The distinction matters because commission growth in a particular distribution channel does not necessarily reflect the overall increase in the cost of selling and servicing insurance policies.
Are insurers spending more on distribution?
The broader cost figures show that expenses have continued to rise, although the pace of increase has moderated since the introduction of the revised EOM framework. Between FY19 and FY23, the industry's cost ratio increased from 25.1% to 29.6%, implying that insurers spent ₹29.60 on commissions and operating expenses for every ₹100 of premium in FY23. By FY26, the ratio had risen to 32.1%.
The annual increase in the cost ratio slowed from 1.1 percentage points between FY19 and FY23 to 0.8 percentage points between FY23 and FY26. Annual EOM growth also moderated from 15.5% before the revised rules to 12.3% after their introduction, according to the IRDAI data cited in the analysis.
Nevertheless, reported EOM growth of 12.3% a year since FY23 has outpaced annual premium growth of 9.3%. This indicates that the industry's overall cost burden remains a concern, even if the increase in broker commissions exaggerates the extent of the underlying change.
The reported increase in EOM as a proportion of premiums in FY25 and FY26 also needs to be assessed against changes in the premium base used for the calculation.
Decline in crop insurance premiums
One factor is the decline in crop insurance premiums. Crop premium fell 27.2% in FY26, with its share of total premiums declining from 10.6% in FY24 to 6.5%. Since crop insurance attracts very low commission rates, typically 0–1%, a decline in its share of total premiums can push up the overall cost ratio even without a corresponding increase in commission expenditure.
Another factor is the treatment of long-term policy premiums. From October 1, 2024, premiums from long-term policies stopped being included in the reported premium base. The excluded amounts stood at ₹6,988.5 crore in FY25 and ₹12,986.5 crore in FY26, while the associated selling costs continued to be recorded.
This creates a comparability issue. Expenses remain in the numerator while a portion of the premium base is excluded from the denominator, mechanically increasing the reported cost ratio.
An adjustment for crop and multi-year premiums among private insurers shows a different trend. The reported EOM ratio increased from 29.4% in FY24 to 32.1% in FY26. After the adjustments, however, the ratio stood at 32.6% in FY24 and 31.9% in FY26, a decline of 0.7 percentage points. On this adjusted basis, EOM costs grew at an annual rate of 13.4%, against premium growth of 14.7%. The calculations are estimates based on reported data and assumptions about the distribution of multi-year premiums, rather than ratios published by the regulator.
Why enforcement of existing EOM limits matters
The sources also said that the industry's rising cost burden remains relevant to the debate over distributor remuneration. The existing EOM limits cap expenses at 30% of premiums for general insurers and 35% for standalone health insurers.
According to the data, 14 of 29 insurers were within the applicable limits in FY24, allowing for a one-percentage-point buffer. By FY26, the number had increased to 21, or 72% of insurers. Eight insurers remained above the limit, including six private-sector insurers and two public-sector insurers.
Public-sector insurers saw a deterioration in compliance, with the number within the limit falling from four out of four in FY24 to two out of four in FY26. The figures suggest that enforcement of existing limits remains an important regulatory priority. A more targeted approach would focus on total EOM expenditure and compliance before considering further restrictions on distributor commissions.