IRDAI asks LIC and SBI Life to drive further cost efficiency
IRDAI has proposed a 12.5% company-level expense-of-management limit for life insurers through a five-year glide path, with LIC and SBI Life urged to move closer to 10%. The reform could reshape commission structures and distribution economics across bank-led insurance channels.
The development
IRDAI proposed a 12.5% company-level EOM limit for life insurers over a five-year glide path, urging LIC and SBI Life to reduce costs closer to 10%.
The numbers
- 12%
- below 10%
- 12.5%
- five-year
- around 16%
- around 11%
- around 12%
- 20%
- 22%
- 25%
- 2%
- about 28%
- up to 45%
- 4%-8%
- 2.4%
- FY26
- 2.1%
- FY25
- 9.2%
- 1.9%
- 7.3%
- 1.8%
- 7.1%
- 0.2%
- 0.6%
- 1.6%
- 5.8%
- 0.5%
- 2.6%
Why it matters to operators and investors
Tighter distribution economics could make lower-cost digital, bancassurance and technology partnerships more attractive as insurers seek to preserve reach while reducing acquisition and servicing expenses.
What to watch next
- IRDAI's final EOM rules, glide-path milestones, exemptions, and treatment of new-business versus renewal acquisition costs.
- LIC and SBI Life disclosures on EOM ratios, employee and agency costs, branch footprint, and digital-sales contribution.
- Changes in bancassurance commission schedules, exclusive distribution contracts, or bank insurance-fee disclosures.
- Product-mix shifts toward protection and annuities versus commission-intensive savings products.
- Persistency, agent-count, and new-business-premium trends indicating whether cost cuts are impairing distribution reach.
- LIC and SBI Life are likely to publish phased expense-reduction programs focused on procurement, branch rationalization, agent productivity, and technology-enabled servicing.
- Bancassurance agreements may be renegotiated toward lower upfront commissions, higher persistence-linked payouts, and more exclusive or preferred-partner arrangements.
- Insurers may favor protection, annuity, and higher-ticket products where fixed distribution costs are absorbed across larger premiums.
- Banks may expand in-house insurance referral and digital lead-generation capabilities to preserve fee income despite lower insurer payouts.
- Smaller insurers and independent intermediaries may lobby for differentiated treatment or seek consolidation partnerships.
The counter-case
The headline may overstate the immediacy and retailer relevance of the change. A five-year glide path gives LIC, SBI Life and peers substantial room to adapt through productivity gains, product-mix changes, technology and revised internal cost allocations rather than materially cutting bank/distributor commissions. Large insurers may also absorb pressure more easily than smaller competitors, potentially strengthening bancassurance economics for dominant banks rather than disrupting them. Moreover, lower reported expense ratios do not necessarily translate into lower acquisition payouts if insurers offset costs through product pricing, renewal economics or reduced service spending.