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We highlight key comments made by companies in recent conference calls (of Q1FY24) regarding the impact of the Expense of Management (EOM) on the sector. Initial trends include: (1) Rejig between opex and commissions in many cases. This also true for earnings of distributors which might undergo some shuffle between line items. (2) possible higher demand for crop in non-life insurance (crop having lower expense ratio offers an avenue to earn more commission paying capability which can be used in other segments) which can lead to continued pressure on non-life ecosystem, (3) rise in partnerships to benefit from new regulations and (4) expectations of cost rationalisation to comply with EOM guidelines, especially in non-life insurance segment.

Key company comments related impact of EOM guidelines

Bajaj Finserv – Possible pricing pressure in crop

Management believes that EOM guidelines might help to bring more discipline in commission pay-outs. It has been only one quarter post new EOM guidelines (effective 1st Apr 2023) and as such, the real effect will be seen in coming quarters. However, bulky businesses like crop have seen higher level of engagement from many private players leading to higher competition/lower prices as there is arbitrage on the EOM ratio (crop having lower expense ratio offers an avenue to earn more commission paying capability). Management believes FY24 may pass through with similar levels of numbers as in the past, but from now on, it is going to be stressful because people have clearly identified this crop arbitrage and have started focusing on it. Traditionally, companies that were avoiding crop will now begin it for top line to increase their EOM expense allowance and in the process, they will bring down the prices, resulting in premium drop. BAGIC was well below the EOM limit and hence, did not need crop to achieve the EOM limit.

HDFC Life – all distributor payments grouping into commissions

New EOM guidelines were meant to usher responsible behaviour among life insurance companies, especially big players. HDFC Life would want to respect the ethos of guidelines that any increase in commissions may only be done responsibly. At an industry level, companies might now not pay for some activities which were earlier paid for separately to the distributor. Instead, it could be paid as a fully-loaded commission towards all activities, including customer outreach and so on.

ICICI General – Expect pricing sanity as many players remain above the EOM limit

ICICIGI is expecting pricing improvement because of expense of management constraints. A lot of companies have improved some element of pricing, but it is not to the extent that one had expected. A large number of companies in the sector are over the specified limit. In Q1FY24, ICICIGI saw an increase in commission ratio (12.5% in Q1FY24 vs 2.3% in Q4FY23) and an imp

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