Life insurance companies can spend as much as 90% of the first-year premium as expense. In the case of renewal premium, life insurers can spend up to 20%, shows the draft IPO prospectus of LIC citing IRDAI data.
As per the document, insurance companies which are less than 10-year-old can spend a maximum of 90% of first year premium and 20% of renewal premium to acquire customers. For insurance companies more than 10-year-old, the caps stand at 80% and 15%, respectively.
"The expense was capped at 90% of first-year premium and 20% of renewal premium (for newer players). IRDAI provided a higher cap on expense due to high costs involved in the first few years of operations," the draft red herring prospectus noted.
These caps are even higher for pure protection products.
The above limits on expenses are for products with premium paying term of 10 years or more. The limit is lower for products will premium paying term of less than 10 years.
|
For life insurance firms less than 10 year old |
||
|
Premium payment term |
% of first-year premium |
% of renewal premium |
|
5 - 7 years |
70 |
18 |
|
8-9 years |
80 |
19 |
|
10 and above |
90 |
20 |
|
For life insurance firms over 10 year old |
||
|
Premium payment term |
% of first-year premium |
% of renewal premium |
|
5-7 years |
60 |
15 |
|
8-9 years |
70 |
15 |
|
10 and above |
80 |
15 |
