PB Fintech, Turtlemint hit hard as Irdai commission overhaul pressures business models 

Irdai on Wednesday launched a consultation paper proposing specific caps on insurance commissions and linking commission levels to the complexity of products and the effort required to sell and service them. The draft proposes commissions of 5%-20% on individual life insurance policies for intermediaries, depending on the premium payment term, while agent commissions would range from 6.25%-25%. Similarly, commissions on health insurance are proposed to be capped between 15% and 20% for distributors when a policy is taken for the first time. Commissions on renewals and porting of insurance policies to a different insurer have been proposed at a lower level of 5-10%.

“We see this as a risk for distributors like PB Fintech and Turtlemint, noting a 10% cut in new business commission rates translate to a 10-12% fall in their earnings,” Jefferies said. The brokerage added that the scope for insurers to compensate distributors through operational expenses is also limited as Irdai has proposed caps on overall expenses of management (EoM) for life and general insurers while qualifying any payments to distributors as commissions.

The proposals triggered a sharp sell-off in listed insurance distribution platforms. PB Fintech shares plunged 32% to a low of ₹1,282.30 on the NSE, marking their steepest single-day decline on record, while newly listed Turtlemint hit the 20% lower circuit at ₹109.04.

According to Emkay Global, the business model of PB Fintech, the parent company of PolicyBazaar, will come under question as it faces sharp cuts in health renewal and porting commissions, first-year term life commissions, and motor own-damage and third-party commissions.

In general insurance, Irdai has proposed zero commission for distributors on motor third-party (TP) insurance, while agents and associates would be allowed 2.5%. For motor own-damage (OD), the proposed commission is 5% for intermediaries and 10% for agents and associates. The impact could be particularly significant for lower-ticket motor insurance, where distributors have to spread customer acquisition and servicing costs over relatively small premiums.

“A 5% commission on an (Motor) own-damage premium of ₹800 would leave around ₹40 at the distribution entity level, before the economics of the PoSP are considered,” said Indraneel Chatterjee, COO and Co-Founder, InsuranceDekho. He added that it is difficult to sustain a distribution network for lower-value policies, potentially making this segment less attractive to those on the ground.

Chatterjee also said Third-party motor insurance is distributed on the strength of its commission. “If that commission goes away, the number of uninsured vehicles on the road, already almost 60% in the two-wheeler segment, is likely to rise further.”

A PoSP typically sells three to four policies with a combined premium of about ₹20,000. At a 4% commission, net of broker retention, this translates to roughly ₹800, which may not provide sufficient incentive to retain distribution personnel, particularly when considered against the effort involved in customer acquisition and servicing.

Irdai Chairman Ajay Seth recently said the Point of Sales Person (PoSP) model is an integral part of the insurance ecosystem but should not become a channel that pushes up distribution costs.

In its consultation paper, Irdai said the commission of PoSP brokers has increased sharply as retail distribution has expanded. “This suggests that insurers are increasingly willing to offer higher remuneration to secure access to retail customer networks, where customers generally have limited visibility of distributor remuneration.” 

PB Fintech, for instance, has a dedicated vertical for PoSP called PB Partners, with 4.5 lakh-plus registered PoSP partners and over one lakh active PoSP partners.