← Policy & Regulation: Pricing and Tariff Control (all topics)
1/n premium recognition norm (long-term policies)
What it is
IRDAI's rule effective 1 Oct 2024 requiring premium on long-term policies to be recognised evenly across the policy period rather than booked upfront. A three-year policy now earns one-third of its premium in each year
It aligns revenue recognition with the period of risk cover, and applies across long-term motor, health and other multi-year products
Impact on industries
- Correct in principle - it matches revenue to the risk actually borne, removing a distortion that let insurers front-load reported income from multi-year sales
- Created an optical growth shock - reported premium growth was depressed through FY25-26 with no underlying business deterioration
- Hit long-term motor and multi-year health hardest, discouraging exactly the multi-year products that improve persistency and cut acquisition cost
- The distortion is transitional - growth rates are expected to normalise from FY27 once the comparison base is clean, so the drag is a base effect rather than a permanent one