Banking and Insurance - Laws and Practice · General and Health Insurance

Limitation of Management Expenses under Section 40C of the Insurance Act

Updated 11 October 2026 · Fact-checked

Expenses of management are the costs an insurer incurs to run its business, such as commission and operating costs. Under the current section 40C, every insurer must furnish details of these expenses to the Authority (IRDAI) in the manner and form specified by regulations. Section 64M links older limit and warning powers to it.

Understand Limitation of Management Expenses (Section 40C)

Expenses of management are the costs of running an insurance business. They include commission paid to agents and other operating costs. If an insurer spends too much on these, less money is left for policyholders. That is why the law controls them.

Section 40C originally limited expenses of management in general insurance business. The Insurance Laws (Amendment) Act, 2015 (Act 5 of 2015, w.e.f. 26-12-2014) substituted sections 40B and 40C. The current heading is: limitation of expenses of management in general, health insurance and re-insurance business.

The current text is short. Every insurer transacting insurance business in India shall furnish to the Authority the details of expenses of management, in the manner and form specified by regulations made under the Act. So the section now works through a duty to report, with the detailed rules left to regulations.

Section 40B is the life insurance counterpart. It says no insurer shall spend as expenses of management in a financial year any amount exceeding the amount specified by regulations. Keep the two sections apart: 40B is a spending cap for life business, 40C is a furnishing duty.

Section 64M supports the control. The Executive Committee of the General Insurance Council must meet at least once before 31 March every year to advise the Authority on limits. If an insurer contravenes section 40C, the Authority may, after giving a hearing, warn it. After two warnings are disregarded, the Authority may take prescribed action. Note that section 64M still refers to a proviso to section 40C(1) that the substituted text does not contain, so state its wording carefully and say so in answers.

Key rules to remember

Section 40C duty (current): Every insurer transacting insurance business in India → furnish details of expenses of management → to the Authority → in manner and form specified by regulations; Applies to general, health insurance and re-insurance business per the heading. It is a reporting duty, not a numeric cap.
Section 40B (life business): Expenses of management in a financial year ≤ amount specified by regulations; Use this only to contrast with 40C. It applies to life insurance business.
Section 64M(1) advice: Executive Committee of General Insurance Council meets at least once before 31 March every year → advises the Authority on limits; Authority has due regard to conditions in general insurance business in the preceding year and may fix different limits for different groups of insurers.
Section 64M(2) warning: Contravention of 40C → hearing → Authority may administer a warning; Hearing must be given first.
Section 64M(3) escalation: Two warnings disregarded → Authority may take such action as may be prescribed; Action is as prescribed, so do not invent a specific penalty.
Section 64L(1)(b): Executive Committee advises the Authority on controlling expenses of insurers, in commission and other expenses; Source of the Committee's advisory role on expenses.

How to solve Limitation of Management Expenses (Section 40C) questions

Use this method for any question on expenses of management, whether it is a theory question or a short case.

1Identify the business class in the facts: life, or general, health or re-insurance. Life goes to section 40B; the rest to section 40C.
2State the rule in plain words: every insurer must furnish details of expenses of management to the Authority in the manner and form specified by regulations.
3Check the facts for a contravention, for example failure to furnish details or reporting in the wrong form.
4Bring in section 64M: the Authority must give the insurer a hearing before it warns.
5If warnings were already given, count them. Only after two warnings are disregarded may the Authority take prescribed action.
6Mention the advisory role of the Executive Committee of the General Insurance Council (sections 64L(1)(b) and 64M(1)).
7Conclude clearly on what the Authority can do, and add a compliance point such as maintaining records and reporting in the specified form.

Quickest way: Four-line answer frame

When to use it: Use when you have little time or the question is a short note on section 40C.

Line 1: define expenses of management as the cost of running the business, including commission.
Line 2: state the section 40C duty to furnish details to the Authority in the form specified by regulations.
Line 3: add section 64M: Committee advice before 31 March, warning after hearing, prescribed action after two disregarded warnings.
Line 4: contrast with section 40B for life business.

Common mistakes in Limitation of Management Expenses (Section 40C)

Stating that section 40C fixes a percentage cap on expenses.
Older books describe the pre-2015 section with numeric limits.
Fix: Say the current section requires insurers to furnish details in the manner and form specified by regulations. Mention the substitution by Act 5 of 2015.
Applying section 40C to life insurance.
Students mix 40B and 40C.
Fix: Life business is under 40B, which uses an amount specified by regulations. 40C covers general, health and re-insurance.
Saying the Authority can penalise at once for a breach.
Students skip the graded steps in section 64M.
Fix: First a hearing and a warning. Only after two warnings are disregarded may prescribed action follow.
Omitting the hearing before a warning.
The hearing is a short phrase in 64M(2).
Fix: Write: after giving the insurer an opportunity of being heard.
Naming the regulator as the Controller of Insurance.
Old texts use that word.
Fix: The word Controller was replaced by Authority with effect from 19-4-2000. Use Authority (IRDAI).
Inventing a specific penalty for the final step.
Students want a complete answer.
Fix: Write that the Authority may take such action as may be prescribed.

Worked examples

Example 1

Sunrise General Insurance Ltd., a general insurer, did not furnish its details of expenses of management to the Authority in the specified form for the year. Advise what the Authority can do.

Show the solution

Provision: section 40C requires every insurer transacting insurance business in India to furnish details of expenses of management to the Authority in the manner and form specified by regulations.
Analysis: Sunrise is a general insurer, so section 40C applies. It did not furnish the details in the specified form, so it has contravened the section.
Section 64M(2): the Authority may, after giving Sunrise an opportunity of being heard, administer a warning.
Section 64M(3): if two warnings are disregarded, the Authority may take prescribed action.
Compliance point: Sunrise should file the details in the specified form and keep supporting records.

Answer: The Authority can first warn Sunrise after hearing it. Prescribed action is possible only if two warnings are disregarded.

Example 2

Write a short note on the role of the Executive Committee of the General Insurance Council in controlling expenses of management.

Show the solution

Section 64L(1)(b): the Committee renders advice to the Authority in controlling the expenses of general insurers in commission and other expenses.
Section 64M(1): it must meet at least once before 31 March every year to advise the Authority on limits.
The Authority has due regard to conditions in general insurance business in the preceding year and may fix different limits for different groups of insurers.
The Committee only advises. The Authority decides and enforces through warnings under 64M(2) and (3).
Conclusion: the Committee is an advisory body, not an enforcer.

Answer: The Committee advises the Authority on expense control, meeting at least once before 31 March each year. The Authority makes the decision and enforces it.

Exam tips

Always quote the current wording of section 40C and say it was substituted by Act 5 of 2015.
Contrast 40B and 40C in one line. Examiners like this.
In case questions, show the sequence: hearing, warning, second warning, prescribed action.
Use the word Authority, not Controller.
Do not quote any percentage or amount limits.

Practice questions from General and Health Insurance

Limitation of Management Expenses (Section 40C) in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

CMA FinalInsurance Act 1938: Limits on Benefits and Management Expenses

Limitation of Management Expenses (Section 40C): frequently asked questions

What is section 40C of the Insurance Act, 1938?

It requires every insurer transacting insurance business in India to furnish details of expenses of management to the Authority. The manner and form are specified by regulations. Its heading covers general, health insurance and re-insurance business.

What are expenses of management in insurance?

They are the costs of running the insurance business, including commission and other operating expenses. The law controls them so that policyholders' interests are protected.

What happens if an insurer contravenes section 40C?

Under section 64M(2), the Authority may warn the insurer after giving it a hearing. If two warnings are disregarded, it may take such action as may be prescribed.

How is section 40C different from section 40B?

Section 40B applies to life insurance business and bars spending above the amount specified by regulations. Section 40C applies to general, health and re-insurance business and requires furnishing details to the Authority.