A proposed change in insurance distribution rules could redraw the economics of the industry. The Insurance Regulatory and Development Authority of India (IRDAI) has proposed limits on commissions and expenses of management. The objective is to make insurance products more cost-efficient and improve outcomes for customers and other stakeholders.
But will every part of the insurance chain feel the impact equally?
According to the Kotak Institutional Equities report, the effect could be uneven. Insurance companies may face some near-term pressure, while large distributors and non-banking financial companies could see a sharper impact.
Kotak continues to prefer SBI Life Insurance and HDFC Life Insurance, while it has flagged risks for PB Fintech.
Why distributors could feel the pressure: Kotak explains
The IRDAI has proposed commission limits across different insurance products and distributor categories.
This could particularly affect non-banking financial companies (NBFCs) that sell credit protection insurance alongside loans. According to the brokerage report, insurance commissions accounted for 3% to 25% of profit before tax for selected non-banking financial companies in FY26.
The proposed caps are significantly lower than some existing payouts.
“Commissions on life insurance packaged with credit will be capped at 2-2.5%,” added the report.
The report also noted that first-year commissions paid to non-banking financial companies across products averaged 42% to 67%, according to the regulator.
Life insurers may get time to adjust
Kotak expects some pressure on volumes initially, particularly in savings and credit-protection products. However, it does not expect the impact to permanently damage their distribution networks.
The proposed rules could be implemented from April 2027, giving companies time to adjust their distribution strategies.
Kotak continues to prefer SBI Life Insurance and HDFC Life Insurance. SBI Life is identified as the lowest-cost and commission-paying player in the brokerage’s comparison.
For HDFC Life, the report highlighted its sizeable credit-protection business. However, the brokerage believes it could gain a greater share of business through its parent bank as the rules remove the advantage of uncapped commissions.
General insurers could see some relief
Kotak expects ICICI Lombard and other motor-heavy general insurers to benefit from lower commissions, particularly as these companies are dealing with higher third-party claims.
Health insurance could also see stronger volumes if lower distribution costs translate into lower prices.
Why PB Fintech faces a tougher adjustment
The bigger question is what happens to large insurance platforms such as PB Fintech.
According to the brokerage report, distribution entities such as corporate agents, banks and multi-insurer platforms could face larger commission cuts than individual agents.
For health insurance, PB Fintech’s key segment, the proposed commission cap is 15% for new policies and 5% for renewals. Agents, by comparison, would have higher proposed limits of 20% and 10%.
“the haircut for PB Fintech will be higher than for smaller distributors,” added Kotak report.
Kotak says the company has business advantages but will need to navigate the adjustment period. “We do believe that the business has moats but will need to ride through rough times.”
What investors need to watch
The proposed rules do not create one uniform impact across insurance stocks. Life insurers could face weaker volumes for a few quarters, while lower motor commissions may help general insurers. Standalone health insurers could benefit if volumes rise further.
Disclaimer: This article is based on research reports from one or more brokerage firms and is for informational purposes only. The views, target prices, and recommendations expressed are those of the respective brokerage firms and do not reflect the official policy or position of Financial Express. This should not be construed as an offer, solicitation, or recommendation to buy or sell securities. Investors must conduct their own independent due diligence and seek advice from a SEBI-registered financial advisor before making any investment decisions.