Disclose expense ratios for grater transparency:IRDA

NEW DELHI: To promote greater transparency, the insurance regulator wants companies to disclose their expense ratios. While it is not mandatory for insurers, the regulator wants the information in public domain. The expense ratio is an indicator of the income of the insurer over its administrative expenses.

Some insurance companies already disclose expense ratios. This will prove to be beneficial for investors while arriving at valuation of the companies. For instance, SBI Life has declared its expense ratio at 11% compared to the industry average of 15-17%.

“We don’t want to make it mandatory, but we want to ensure that expense ratios are in public domain,” IRDA chairman C S Rao said. The regulator recently initiated phasing out of actuarial-funded Ulips on account of non-transparency of charges.

“The companies’ expense ratios will differ on account of stage of evolution. A larger company will have lower expense ratios. The way operating expenses evolve over time is a function of how many years of operation it has had,” Boston Consulting Group (BCG) principal Neeraj Aggarwal said.

For large life insurance players such as ICICI Prudential, with an annualised premium of Rs 4,000 crore in 2006, its operating cost as a percentage of annualised premium is 20%. ING Vysya, with the lowest annualised premium, has the highest operating cost as a percentage of annualised premium, according to data sourced from BCG.

HDFC Standard Life had annualised premium at Rs 1,300 crore with operating expenses as a percentage of annualised total premium at 30%. For Max New York Life, the annualised premium stood at Rs 800 crore and its operating expenses as a percentage of annualised premium was nearly 50%.

“Why is it important for a customer to know how I manage my costs? As long as his returns are as promised, he should not worry about what I pay my agents,” an insurance company official said. Only investors find the information relevant, he added.

Markets regulator Sebi has mandated mutual fund houses to declare annual expense ratio of individual schemes twice a year. Further, there is a 2.5% cap on expenses. For non-life companies, the operating expense ratio is close to 40% and is expected to go up under the free pricing regime.