Aggressive business plans pursued by some major insurance players last fiscal are now forcing them to put the brakes on further expansion and rather head for consolidation of business. According to top officials in IRDA, six companies ” Reliance Life Insurance, Metlife, Kotak Mahindra Life insurance, Max New York Life and ICICI Prudential Life ” breached their respective limits on expenses incurred last fiscal.

"There are five to six companies that have spent more than what is allowed by the Act during the last fiscal. We have informally told them to bring this in control"R Kannan, member (actuary), IRDA, had said on the sidelines of a conference in Delhi a couple of months back.

The Insurance Act, 1938, prescribes a ceiling on management expenses. These include administration expenses such as commissions, fund management fees, custodial fees, and expenses on marketing and advertising. The percentage varies from insurer to insurer and primarily depends on the new business premium garnered in a year and the age of the company. According to a recent amendment, this rule is applicable only to companies that have been in operations for more than five years.

These six companies are, therefore, now in the process of consolidating their business. "Yes, we did breach our limit set on expenses last year. We are in consolidation mode this fiscal. We are not opening any new branches and haven't infused capital so far,"said Rajesh Sud, managing director and CEO, Max New York Life Insurance.

Besides, ICICI Prudential and Reliance Life, too, are understood to have put brakes on their expansion plans for a while. Reliance Life, according to sources in their HR department, retrenched more than 300 employees a couple of months back to rein in their management costs. Both these companies are also consolidating their branch network this fiscal.

According to industry experts, the limit on expenses is set to protect the long-term interest of the policy holders and ensure that reckless expenditure by insurance companies might not hurt their profitability and long term sustainability. Due to high expenses, most of the companies have accumulated losses running into thousands of crores of rupees.