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IRDAI consultation paper trigger’s sharp reaction across insurance ecosystem

ICICIdirect Research 25 Sep 2026 DISCLAIMER

Over the past two years, IRDAI had progressively liberalized the expense framework to give insurers greater flexibility, with the expectation that efficiency gains would translate into better affordability and benefit policyholders. However, distribution costs instead increased sharply, with the regulator highlighting that these benefits were not adequately passed on to customers.
As per media sources, among life insurers, new business premium grew only ~28% over FY23–FY25, while total distributor remuneration surged ~125%. In general insurance too, broker-sourced premiums grew ~37%, while commissions jumped ~173%, with average commission rates rising from ~8.5% to ~17%.
Against this backdrop, IRDAI’s latest consultation paper proposes a broad reset of insurance distribution economics through lower EoM limits, product/channel-wise commission caps, restrictions on compulsory bundling and tighter mis-selling controls. The proposed framework seeks to shift the industry towards lower acquisition costs, greater pricing transparency and reduced dependence on high distributor payouts. The gap verses prevailing payout is sizeable, for instance, pure term insurance (avg) ~51% vs 25% proposed, participating (bonus-linked savings plan) ~37% vs 20%, and single-premium credit life ~22% vs 2% for distribution entities.

Distributors – the sharpest earnings reset:

  • PB Fintech and Turtlemint are most exposed to the proposed framework. IRDAI has proposed that customers should be able to view product features and pricing without sharing their contact details, which could reduce lead generation opportunities for digital aggregators like Policy Bazar. Separately, Bima Sugam and other market infrastructure institutions could emerge as lower-cost competing distribution channel.
  • PB Fintech indicated a 50:50 life/non-life mix, with life NPV to remain broadly stable but non-life NPV potentially to decline by ~25–33%. Further, management highlighted that FY28E could remain volatile, with recovery targeted by FY29E. The stock fell 36% in a single session, erasing ~₹31,400 crore of market cap; however, the proposals are yet to be finalized.

Insurers

  • IRDAI proposes to bring life insurers’ EoM down to 15% of premium within two years and 12.5% within five years (vs ~21.2% for HDFC Life and ~25.1% for Max Financial), while general insurers move from the current 30% ceiling to 25% by Year 2 and 20% by Year 5. With this coming in, Insurers need to manage lower commission along with growth. Lower costs will be passed on to customers, bringing in some volume uptick. We expect a net-drag on near-term growth from the lack of push from distribution partners.
  • LIC and SBI Life are better placed given their agency mix (LIC)/ULIP mix (SBI Life) and their lower cost structures (LIC, SBI Life). Other life insurers will need to balance growth and commission/opex cuts. In general insurance, the proposed motor framework requires dealers to facilitate alternative purchase options for insurance, which could favour larger established insurers such as ICICI Lombard, given stronger brand recognition and customer pull.

Bancassurance – meaningful fee-income risk for select Banks/NBFCs:

  • Bancassurance economics could see a material reset, particularly for lenders distributing credit-linked insurance, posing a negative read-through for fee income. Compulsory bundling of insurance with loans would also be prohibited, while volume- or reward-linked incentives to bank/NBFC staff would no longer be permitted.
  • Insurance distribution forms a meaningful fee pool for select lenders, contributing ~16.3% of PPOP for Yes Bank, ~12.4% for IDFC First Bank, ~10.5% for IndusInd Bank, ~9.0% for RBL Bank and ~8.6% for Axis Bank, while exposure is lower for larger diversified banks. Among NBFCs, dependence is also meaningful for select players, at ~16.8% for L&T Finance, ~18.5% for Piramal Finance and ~10.3% for Chola.

Overall, the consultation paper points to meaningful redistribution of economics across the insurance ecosystem. Insurers could benefit from lower acquisition cost but the trade-off between growth and margins is hard to estimate, while distributors and lenders with higher dependence on insurance commission face the sharpest earnings pressure. We remain watchful for the final regulation and transition framework, which will determine the eventual earnings impact across the ecosystem.

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