It was a rough week for several insurance-related stocks. IRDAI’s consultation paper, released on September 23, proposes tighter company-level expense limits and seeks to restore the product- and channel-specific commission caps removed in 2023.

For Insurance Distribution Entities (IDEs), including banks, NBFCs, brokers and web aggregators, the proposed first-year caps of 25 per cent on multi-year pure term plans and 20 per cent on participating savings with premium-payment terms of at least 10 years, are roughly half the FY25 industry averages of 51 per cent and 37 per cent, respectively.

The lender-specific cap on single-premium credit life insurance is 2 per cent, against an FY25 industry average commission of 22 per cent. This is insurance that repays a loan on the borrower’s death, with the entire premium paid upfront.

In non-life insurance, the proposed commission caps for IDEs are nil on new-vehicle third-party policies and 5 per cent on new-vehicle own-damage covers, compared with an FY25 average commission of about 26 per cent in each segment.

Read the BL Explainer, A much-needed course correction, for more details.

The impact of the proposals, when implemented, could be uneven. Lenders distributing credit-protection products face some of the steepest reductions, while institutional distributors generally face lower limits than individual agents. For insurers, lower commissions could support margins, but weaker distributor incentives and slower sales could offset part of the benefit. Remember that these are proposals for now, and the final shape of the regulations remains uncertain.

The stock market reacted on September 24 and 25. Seven of the 11 listed insurance companies fell 1-8 per cent, resulting in a net erosion of about ₹9,800 crore in market capitalisation. The reaction among insurance distributors/platforms was far more severe. Policybazaar parent PB Fintech crashed 38 per cent, wiping out over ₹33,000 crore, while the recently-listed Turtlemint Fintech fell 36 per cent, eroding nearly ₹1,500 crore.

Our recent calls include ‘subscribe’ on Canara HSBC Life’s October 2025 IPO, up about 42 per cent; ‘accumulate on dips’ on ICICI Pru Life in December 2025, down 28 per cent; ‘accumulate on dips’ on New India Assurance in March 2026, up 45 per cent; and ‘avoid’ on Turtlemint’s June 2026 IPO. We will analyse the paper’s implications for these stocks over the coming weeks.

Distribution shock

The correction in distribution-platform stocks is understandable. Their revenue is directly linked to commissions, while insurers can potentially retain part of the savings or pass them on to policyholders.

The PB Fintech management indicated that its general insurance revenue economics could fall to about one-third to 40 per cent of the present level. With life and general insurance each contributing roughly half of core insurance revenue, this implies a sharp revenue hit.

The secondary effects are also important. Payments to Point of Sale Persons (PoSPs) must fit within the principal distributor’s cap. Product information and pricing cannot be hidden behind forms seeking personal details, potentially affecting lead generation. Rewards, brand fees, expense reimbursements and payments to distributor-related entities would also face scrutiny.

PB Fintech plans to develop revenue from claims assistance, vehicle and health services, reinsurance broking and other activities. But these streams are unproven at the required scale or subject to regulatory restrictions.

The management believes lower premiums could improve volumes by 15-20 per cent and aims to restore broadly similar economics by FY29. This depends on insurers passing on commission savings, customers responding strongly and PB cutting costs without damaging growth. Therefore, the 38 per cent stock correction does not automatically make the shares inexpensive, especially at around 80 times trailing earnings. Loss-making Turtlemint faces similar concerns, with a shorter listed history and less evidence on its ability to absorb the cuts. The stock trades at around 3.6 times EV/adjusted LTM revenue (source: Bloomberg).

Investors should avoid bottom-fishing in these platforms until there is clarity on the final caps, implementation date, treatment of the existing renewal book, permitted service income and sustainable cost reductions.

Unequal burden

Life insurers face a more complicated equation. Lower commission reduces the cost of writing a policy and could improve new-business margins, but may also reduce distributor effort.

The EoM ratio measures an insurer’s operating and distribution expenses as a percentage of premium. SBI Life’s FY26 EoM ratio was 10.6 per cent, already below the proposed 15 per cent FY29 limit. ICICI Prudential Life and Canara HSBC Life were at 18.1 per cent and 18.7 per cent, respectively. HDFC Life was at 21.2 per cent and Axis Max Life at 25.1 per cent.

These EoM gaps do not translate directly into changes in profit. Premium growth can lower the ratio by expanding the denominator, while lower commission can improve margins. Nevertheless, companies starting further from the limit have less room for error.

SBI Life appears relatively better placed, with low expense and commission ratios and a large ULIP business, where prevailing commissions are moderate. ICICI Pru Life has the smallest gap among insurers currently above 15 per cent, although its protection and group businesses face some pressure.

HDFC Life and Axis Max Life have the heaviest adjustment burden. HDFC Life is relatively commission-intensive and depends substantially on institutional partners. Axis Max also carries high operating expenses, meaning commission cuts alone cannot close its EoM gap.

Investors should not rank these companies on EoM alone. Growth, valuation, product profitability, renewal income and the amount of commission saving retained for shareholders will determine the eventual outcome.

General insurers could benefit more directly, particularly in motor insurance. ICICI Lombard could consequently save meaningful distribution costs. Mandatory third-party cover and natural customer demand for own-damage insurance may limit the volume impact. But the saving will not translate fully into profit if insurers reduce prices, dealers pull back or claims inflation remains elevated.

The impact on New India Assurance will similarly depend on its product mix, claims experience and existing cost structure.

In conclusion, the direct risk is greatest for distribution platforms, while the insurer impact varies widely.

Until the final regulations and company mitigation plans emerge, investors should tread with caution.

Published on September 26, 2026