PB Fintech, which owns Policybazaar, plunged as much as 34%, while Turtlemint dropped 20%. Shares of HDFC Life, Bajaj Finserv, the holding company for Bajaj Life and Bajaj General Insurance and Max Financial Services, the holding company of Axis Max Life Insurance were also hit in big way as investors weighed the possible implications of the proposed changes for insurers and intermediaries.
Mumbai: Insurance stocks and digital distribution platforms came under intense selling pressure on Thursday after regulator IRDAI unveiled a far-reaching blueprint to overhaul the economics of insurance distribution, proposing lower expense ceilings, a more differentiated commission regime and a ban on practices it classifies as “dark patterns” on digital platforms.
PB Fintech, which owns Policybazaar, plunged as much as 34% and has lost almost Rs 50,000 crore of its market capitalisation, while Turtlemint Fintech Solutions dropped 20%. Shares of HDFC Life, Bajaj Finserv, the holding company for Bajaj Life and Bajaj General Insurance and Max Financial Services, the holding company of Axis Max Life Insurance were also hit in a big way as investors weighed the possible implications of the proposed changes for insurers and intermediaries.
However, share of Icici Lombard General Insurance rose over five per cent,while Life Insurance Corporation, New India Assurance, SBI Life saw their shares impacted marginally on Thursday.,
The sell-off came a day after IRDAI released its discussion paper, “Recalibrating Economics of Insurance Distribution,” setting out proposals aimed at reshaping the distribution architecture and addressing expenses, commissions, market conduct, transparency and digital practices.
A central element of the proposed framework is a phased reduction and recalibration of Expense of Management (EoM) limits.
For life insurers, the IRDAI has proposed moving to a company-level EoM framework linked to Gross Direct Premium Income (GDPI), with the ceiling targeted at 15% within two years and 12.5% within five years.
For general insurers, the regulator proposes replacing gross written premium with domestic GDPI as the basis for calculating EoM. The ceiling would be progressively reduced from the existing 30% of GWP to 20% of GDPI over five years.
The IRDAI said the proposed changes are intended to reduce the cost of insurance, deepen insurance penetration and improve value for policyholders, particularly in life savings products.
The commission regime is also set for a significant rethink. Rather than applying a common framework, commission limits would be calibrated according to the insurance segment, line of business, distribution channel, product complexity and the level of effort required for sales and servicing.
Insurers and large distribution entities would also be required to make their commission structures and policies transparent and easily accessible.
The proposed crackdown on “dark patterns” could have a particularly direct bearing on digital insurance platforms. IRDAI wants customers to be able to access information on product features, prices and quality without having to surrender personal details upfront.
The regulator has specifically flagged practices that require consumers to submit their name, mobile number or email address merely to view product or pricing information. Such mechanisms, it said, can convert an information-seeking exercise into a lead-generation process.
The paper also seeks to strengthen safeguards against mis-selling by making suitability an enforceable obligation. Insurers would have to document customer needs and suitability for specified life insurance sales and maintain an audit trail.
IRDAI has proposed reorganising the distribution ecosystem into three broad categories — Insurance Distribution Entities, Insurance Distribution Persons and Market Infrastructure Institutions.
Stakeholders have until October 25 to submit comments on the proposals.
The proposed reforms could have significant implications for the industry’s distribution economics, particularly for insurers, brokers, agents and digital platforms that depend heavily on commissions, customer acquisition and distribution expenditure.
Earnings risk for banks
Meanwhile, Jefferies said in a research report.said proposed tighter caps on insurance commissions could pose a slight earnings risk for banks, particularly through bancassurance fees from credit-protection products, as the insurance regulator seeks to recalibrate distribution costs and commission structures from FY28.
“Insurance regulator proposes to tighten caps on insurance commissions from FY28,” Jefferies said, adding that the proposed rules would be applicable prospectively and that the regulator has sought public opinion on the draft norms over the next month.
The brokerage said the changes would be “tad negative” for banks’ bancassurance fees, especially credit-protection premiums, which are largely single-premium products carrying relatively high commissions.
For banks and NBFCs, the proposals include tighter safeguards against incentives linked to volumes or rewards for employees selling insurance, alongside measures to bring direct and indirect remuneration within the regulatory definition of commission.
Jefferies’ assessment suggests that the commission changes could affect banks’ fee income from bancassurance, with the impact more pronounced in credit-protection products because of their high upfront commission structures.