The government has tabled the long-awaited insurance amendment bill, Sabka Bima Sabki Raksha, in Parliament. Most of its provisions were on expected lines, barring one. According to a research note published by Nomura on December 17, the bill gives the insurance regulator, IRDAI, the authority to impose commission caps on distributors.
Nomura noted that this provision marks a reversal of the regulatory stance taken in 2023, when IRDAI removed product-wise commission caps and allowed insurers to pay distributors freely within overall cost limits.
Nomura on Insurance Bill: Commission cap concerns
The international brokerage house pointed out that the operating framework is already constrained. Expenses of Management (EOM) caps remain in force, limiting total costs for insurers, while the amendment bill allows commissions to be capped separately. In Nomura’s assessment, this places two regulatory controls on the same cost base.
Nomura describes EOM as the regulator’s mechanism for limiting how much an insurer can spend to run its business. This includes commissions, employee costs, marketing, and other operating expenses, all within a prescribed ceiling.
In terms of scale, Nomura estimates that total commissions paid by the insurance industry stood at about Rs 1 lakh crore in FY25.
Stocks in focus as distribution risk comes into view
Market participants appeared to factor in the regulatory signal during Thursday’s trading session.
PB Fintech, identified by Nomura as one of the largest insurance distributors, rose about 4% during the session. Nomura’s report places PB Fintech directly within the distribution layer most exposed to commission policy.
Among insurers, HDFC Life Insurance was up around 0.4%, while SBI Life Insurance gained about 0.2%. Nomura does not link the muted stock response to near-term earnings impact, instead framing the regulatory change as a longer-term constraint on distribution economics. New India Assurance saw the sharpest decline among insurance stocks, falling around 2% during the session.
Nomura on how commission caps flow through to HDFC Life and SBI Life
Nomura’s analysis centres on the distribution layer rather than individual insurers, but the brokerage outlines a clear transmission mechanism.
The report identifies PB Fintech, HDFC Bank, State Bank of India, and Axis Bank as the largest insurance distributors in the country. As of FY25, Nomura estimates that each accounted for between 2.8% and 6.5% of the total commission pool, which stood at about Rs 1 lakh crore.
In Nomura’s view, PB Fintech faces direct exposure because commission income is central to its insurance distribution model.
For insurers such as HDFC Life Insurance Company and SBI Life Insurance Company, Life Insurance, Nomura argues that the exposure runs through bancassurance. Commission payouts influence how actively banks sell insurance products and how much shelf space insurers receive within bank branches.
Nomura adds that any regulatory ceiling on commissions limits the ability of insurers to use pricing incentives to defend or expand distribution through these channels.
Unequal dependence, but similar direction of risk
Nomura also highlighted the differences in earnings sensitivity across distributors.
According to the report, SBI, despite its large insurance distribution footprint, derived only about 4% of its “other income” from insurance sales in FY25. Nomura notes that this limits the direct earnings impact on the bank.
However, Nomura cautioned that this insulation does not fully extend to insurers.
For HDFC Life and SBI Life, the brokerage argues that slower momentum in bancassurance affects growth economics more directly. Nomura points out that discretion over commissions, which was loosened in 2023, now sits back with the regulator.
Nomura characterises the outcome not as an immediate earnings shock, but as a narrower path to buy growth through commissions, even as overall cost limits remain unchanged.
Nomura on the 2023 rule change
To place the current proposal in context, Nomura traces the shift back to 2023.
That year, IRDAI removed product-wise commission caps and relied instead on overall EOM limits, the report notes. General insurers were required to operate within a 30% EOM cap, while standalone health insurers faced a 35% ceiling.
Nomura estimates that between FY19 and FY24, insurance premiums grew at a 10% CAGR, while commissions grew at an 18% CAGR. The brokerage attributes this divergence to internal cost reallocation rather than higher total spending.
By FY25, Nomura estimates that life insurers were paying around 6% of premium income as commissions, while non-life insurers were paying about 13%. These higher payouts were offset by reductions in other operating expenses, allowing insurers to remain within regulatory limits.
Nomura’s view on what changes now
Nomura argues that the amendment bill tightens this framework.
With Rs 1 lakh crore of commissions in play, commission ratios of about 6% in life insurance and 13% in non-life, and fixed EOM caps already in force, Nomura says insurers have fewer levers to defend growth without putting pressure on profitability.
In Nomura’s assessment, the constraint is not higher costs, but reduced flexibility over how existing costs are deployed.
That, according to Nomura, is why stocks such as PB Fintech, HDFC Life, and SBI Life are likely to remain under scrutiny as the regulatory process moves forward.