Kolkata: Insurance stocks came under significant selling pressure during Thursday’s trading session after the Insurance Regulatory and Development Authority of India (IRDAI) released a consultation paper proposing changes to commissions, Expenses of Management (EoM) and insurance distribution.
Shares of several major insurers declined sharply during the session, with some stocks falling by more than 10%. The proposed changes could affect the way insurers structure their distribution networks and manage commissions.
Max Financial, ICICI Prudential and HDFC Life Among Major Decliners
Max Financial Services was among the biggest losers, with its shares falling as much as 11% to ₹1,390 during Thursday’s session.
ICICI Prudential Life Insurance Company shares declined 7.62% to ₹448, while HDFC Life Insurance Company fell 6.75% to ₹524.15.
The broader insurance sector saw mixed movement. SBI Life Insurance Company shares gained around 0.50% to ₹1,769, while Life Insurance Corporation of India (LIC) rose about 0.97% to ₹411. Star Health and Allied Insurance Company, however, declined 2.33% to ₹536.50.
Why Did Insurance Stocks Decline?
The IRDAI consultation paper was a key factor behind the selling pressure, with proposed changes focusing on commissions and Expenses of Management across the insurance industry.
For life insurers, the proposal seeks to reduce the EoM limit from the existing 30% of Gross Direct Premium Income (GDPI) to 15% over two years and eventually to 12.5% over five years.
For general insurance companies and Standalone Health Insurance (SAHI) providers, the proposed framework would reduce the EoM limit from the current 30% to 20% of GDPI over a period of five years.
The consultation paper also proposes notable reductions in first-year commissions for life insurance savings and term products, along with health and motor insurance products.
Another proposal seeks to prohibit the mandatory bundling of insurance products with loan products.
Proposed Commission Changes Could Affect Distribution
The consultation paper also proposes a maximum commission of 2% for single-premium credit life insurance.
In health insurance, commissions on renewals and policy porting could also be reduced. The proposal suggests a limit of 5% for distribution entities and 10% for agents.
These changes could have a direct impact on insurance agents, distributors and other channels that depend on commissions for their business.
According to Emkay Global, the proposed reforms are aimed at addressing concerns such as mis-selling and making insurance more affordable. However, the brokerage has also noted that a significant reduction in distribution commissions could create challenges for the viability of the insurance distribution business.
Potential Impact on Insurance Companies
Bernstein has indicated that LIC and SBI Life could be relatively less affected because of their lower cost structures and greater exposure to agency and ULIP (Unit Linked Insurance Plan) businesses. The brokerage has also suggested that the impact on SBI Life, LIC and Star Health could be less severe than on some other insurers.
If the proposed framework is eventually implemented, insurers may need to reassess their distribution strategies, agent economics, bancassurance arrangements and product mix.
Companies that depend more heavily on higher-commission products and distribution models could face greater changes to their existing business structures.
However, the proposals are not final regulations at this stage. IRDAI has issued them as a consultation paper, meaning the framework could be subject to changes before any final rules are introduced.
Disclaimer
This article is intended for general informational purposes and does not constitute investment or financial advice. Insurance stocks can be affected by regulatory changes, market conditions and company-specific developments. Investors should review official regulatory documents and conduct their own research or consult a qualified financial professional before making investment decisions.