PB Fintech to SBI Life: Kotak lists out impact of IRDAI rules for insurers, NBFCs

The brokerage expects some weakness in life insurance volumes during the initial adjustment period, but continues to favour SBI Life Insurance Company Ltd. and HDFC Life Insurance Company Ltd. among life insurers. It also retains a positive view on ICICI Lombard General Insurance Company Ltd. and Star Health and Allied Insurance Company, while PB Fintech Ltd. faces a tougher period as the proposed commission caps are more restrictive for large, multi-insurer distributors. 

Among NBFCs, L&T Finance faces the biggest exposure to the proposed changes, according to Kotak.

The consultation paper proposes lower expense-of-management (EoM) limits and hard commission caps across insurance products and distribution channels. Kotak expects the changes to benefit insurers with lower distribution costs, while NBFCs that earn significant fees from credit-protection products could see a much larger impact.

IRDAI commission caps could hit NBFCs hardest

The sharpest proposed cuts are in credit-linked insurance. Kotak noted that commissions on life insurance packaged with credit could be capped at 2-2.5%, against much higher payouts under the current framework. Credit-protection single-premium products currently carry average commissions of 22% and maximum commissions of 57%, while first-year commissions paid to NBFCs across products have averaged 42-67%.

Kotak expects NBFCs to move customers from credit-protection products towards individual protection policies to partly offset the reduction in commissions.

The brokerage said, “The most prominent are NBFCs who earn large commissions from the sale of credit protect products; Exhibit 16 shows that insurance commissions were 3% to 25% of PBT for select NBFCs in FY2026. Commissions on life insurance packaged with credit will be capped at 2-2.5%; the commission on credit-protect single premium products was 22-57%; first-year commission to NBFCs (across products) averaged 42-67%, as per IRDA.”

L&T Finance had insurance fees equivalent to 25.4% of PBT in FY2026, according to Kotak’s table. The brokerage identifies it as the worst hit among the NBFCs covered in the report.

Kotak on SBI Life: ‘Buy’

Kotak Institutional Equities has a ‘Buy’ rating on SBI Life with a fair value of Rs 2,550, implying about 45% upside based on the valuation levels shown in the report.

The brokerage sees SBI Life as relatively well placed because of its lower commission payouts. Its overall commission rate stood at 10.6% in FY2026, below several private-sector peers.

Kotak said, “SBI Life, the lowest cost and commission-paying player (Exhibit 19) is best placed. Although HDFC Life has large credit-protect business, it may gain counter share at the parent bank, in the absence of uncapped commissions.”

Kotak estimates SBI Life’s VNB to rise from Rs 6,670 crore in FY2026 to Rs 10,270 crore by FY2029, while VNB margin is projected to increase from 27% to 29%.

Kotak on HDFC Life: ‘Buy’

Kotak has a ‘Buy’ rating on HDFC Life with a fair value of Rs 820, implying about 46% upside based on the report’s valuation levels.

HDFC Life has a sizeable credit-protection business, which could face lower commissions under the proposed rules. However, Kotak expects the company to potentially gain business through its parent bank as the new framework reduces the benefit of uncapped commission arrangements.

The brokerage said, “Although HDFC Life has large credit-protect business, it may gain counter share at the parent bank, in the absence of uncapped commissions.”

Kotak expects HDFC Life’s VNB to rise from Rs 4,030 crore in FY2026 to Rs 6,300 crore by FY2029, while VNB margin is estimated to increase from 24% to 26%.

Kotak on ICICI Lombard: ‘Buy’

Kotak has a ‘Buy’ rating on ICICI Lombard General Insurance Company Ltd. with a fair value of Rs 2,050, implying about 37% upside based on the report’s valuation levels.

The brokerage expects lower motor insurance commissions to provide some relief to general insurers at a time when higher third-party claims have been weighing on the sector. The proposed reduction in commissions on new-vehicle motor policies could partly offset claims inflation.

Kotak said, “ICICI Lombard and other motor-heavy general insurers are reeling under the pressure of higher TP claims. The IRDA has proposed to cut TP commissions on new vehicles to NIL for distribution entities (including OEM dealers) and 2.5% for agents; OD commissions are also down substantially.”

The brokerage expects the impact on motor volumes to remain limited because third-party insurance is a regulatory product and own-damage insurance has strong customer demand.

Kotak on Star Health: ‘Add’

Kotak has an ‘Add’ rating on Star Health and Allied Insurance Company Ltd. with a fair value of Rs 675, implying about 23% upside based on the report’s valuation levels.

The brokerage expects standalone health insurers to benefit from higher retail health volumes. Kotak said health insurance has seen strong growth following the GST exemption, with demand showing significant price sensitivity. Lower commissions could therefore support lower prices and further lift volumes.

Kotak said, “SAHIs benefit from higher retail health volumes. Exhibit 20 shows high growth post GST cuts in the term and health businesses. These businesses are highly price elastic; the health business may see another tailwind from lower commissions leading to further price correction.”

The brokerage expects stronger health insurance volumes to partly or fully offset the impact of lower commissions paid to retail distributors.

Kotak on PB Fintech: ‘Add’

Kotak has an ‘Add’ rating on PB Fintech with a fair value of Rs 1,875, implying roughly 1% downside based on the valuation levels shown in the report.

PB Fintech faces a larger commission adjustment than smaller distributors because the proposed framework sets lower caps for multi-insurer distribution entities. Health insurance, a key segment for PB Fintech, could see first-year commissions capped at 15% for distribution entities and 20% for agents, compared with an average retail-health new-business commission of 24% and a maximum of 70% under the existing framework.

Kotak said, “The IRDA has proposed lower commissions on distribution entities (corporate agents, banks, PB Fintech, etc.), i.e., largely multi-insurer shops, rather than agents (largely single-insurer distributors). The latter is compensated for the constraints on the bouquet of products available for sale.”

The brokerage said PB Fintech has structural advantages in its business but will have to operate through a period of lower commissions. Kotak plans to revisit its estimates and view after getting more clarity on the company’s strategy.

Life insurers may see a short-term volume hit

Kotak expects lower commissions on savings products and credit protection to weigh on life insurance volumes for a few quarters if the proposed rules are implemented from April 2027.

The brokerage does not expect the changes to permanently damage distribution franchises. Instead, it expects insurers and distributors to adjust their business models as the new commission structure takes effect.

Kotak said, “Lower commissions on credit protect, a large VNB driver for select players, and lower commissions to distribution entities, especially in non-par, pose risk of lower volumes for a few quarters in FY2028E, assuming these guidelines are implemented from April 2027.”

The brokerage expects insurers to push customers towards individual protection policies from credit protection, while some of the savings from lower commissions could be retained to maintain VNB.

New EoM limits will force cost changes

The proposed EoM framework would reduce the ceiling for life insurers to 15% of premium within two years and 12.5% within five years. General insurers would move to a 25% ceiling within two years and 20% within five years, based on domestic gross direct premium income.

The framework also changes the calculation of expenses. Technology spending, insurance awareness and certain rural and government-scheme expenses that were previously allowed outside the ceiling would be brought within the single EoM limit. Reinsurance commission would also no longer be netted off.

Kotak expects the gradual adjustment to benefit insurers with lower operating and distribution costs.

Motor commissions face steep cuts

The proposed framework would set commission on new-vehicle motor third-party insurance at nil for distribution entities and 2.5% for agents. Commission on new-vehicle own-damage insurance would be capped at 5% for distribution entities and 10% for agents.

Kotak expects the changes to help multi-line general insurers by reducing acquisition costs, even as motor own-damage growth could face some pressure.

The brokerage said, “Motor TP is a regulatory product; OD also has a large customer pull and as such, impact on volumes may be low. The benefits of the same will help offset high claims inflation in the sector.”

The report notes that motor premium grew 34% between FY2023 and FY2025, while motor commission increased 259% over the same period. Third-party commission rose from 4.3% to 22%.

Health insurance could see a volume boost

The proposed commission cap for individual health insurance would be 15% for distribution entities and 20% for agents on first-year business, falling to 5% and 10%, respectively, on renewal and porting.

Kotak expects lower distribution costs to support lower prices in a business it describes as highly price elastic. This could support retail health volumes and partly offset the impact of lower commissions on distributors.

The chart on page 13 of the report shows a strong pick-up in retail health growth during 1QFY27, alongside growth in individual annualised premium equivalent and sum assured.

Insurance distribution is being redesigned

The consultation paper also proposes a major restructuring of the distribution framework. The existing 17 categories would be consolidated into three broad categories: insurance distribution entities, insurance distribution persons and market infrastructure institutions.

The proposed framework would allow all distribution entities to adopt open architecture, with no limit on the number of insurers they can work with. Entry capital would also fall to Rs 10 lakh for all distribution entities, while registration would become permanent subject to an annual fee.

At the same time, qualification and training requirements would increase. New distribution persons would require at least Class 12 qualification, while training would rise to 100 hours per segment.

The rules would also allow hospitals to register as distribution entities for health products and non-dealer automobile garages to become associates for motor insurance.

Credit-linked insurance faces tighter rules

The proposed framework would prohibit compulsory bundling of insurance with loans. A lender seeking portfolio-level protection would have to purchase a group policy and bear the premium itself.

Kotak noted that credit-linked insurance has grown rapidly through NBFC channels. Life insurance premium through the NBFC channel rose from Rs 3,600 crore in FY2023 to Rs 10,300 crore in FY2025, with 93% of that premium coming from single-premium group credit life.

The brokerage said, “Compulsory bundling of insurance with loans is prohibited; a lender wanting portfolio cover must take a group policy and bear the premium itself.”

Complimentary group term cover for borrowers and depositors would still be permitted, provided customers are told the loan rate with and without the additional insurance, can choose the insurer and pay the premium separately.

Mis-selling rules will become more stringent

The consultation paper also proposes documented needs and suitability assessments for specified life insurance sales. Customer consent would not remove the insurer’s responsibility for an unsuitable sale.

Kotak said mis-selling would carry a financial consequence through commission claw-backs, while each policy would be linked to the functional identity of the person who sold it.

The proposed framework also codifies examples of mis-selling, including selling non-par products as alternatives to bank deposits and selling ULIPs to risk-averse or post-working-age customers.

Kotak’s insurance calls

Kotak’s valuation table assigns ‘Buy’ ratings to HDFC Life, ICICI Prudential Life, LIC, Max Financial Services and SBI Life. Among general and health insurers, it rates ICICI Lombard ‘Buy’, while Star Health, Niva Bupa and PB Fintech carry ‘Add’ ratings. Go Digit, GIC Re and New India Assurance are marked ‘NC’ in the table.

The proposed IRDAI framework creates different pressures across the insurance distribution chain. NBFCs and large distribution platforms face the sharpest commission cuts, while insurers have to manage the possibility of lower near-term volumes alongside potential savings in distribution costs. Kotak’s sector view remains ‘Attractive’, with the brokerage retaining a positive stance on selected life, general and standalone health insurers.

Disclaimer: This article is based solely on Kotak Institutional Equities’ September 24, 2026 insurance sector report and presents the brokerage’s ratings, fair values, estimates and views. The upside and downside figures stated in the article are based on the valuation levels shown in Kotak’s report and are presented on an approximate basis. The proposed IRDAI rules are consultation proposals and not final regulations; the report says comments are due by October 25, 2026. Ratings, estimates and fair values can change with regulatory developments, business performance, industry conditions and valuation assumptions. Readers should refer to the original research report and independently assess the risks before making financial decisions.