Insurance Stocks Slide for 2nd Day Following IRDAI Proposal to Cap Commissions

Insurance Stocks Under Pressure for Second Day

Shares of major insurance companies and insurance distribution businesses remained under pressure on Friday, September 25, following a sharp selloff in the previous session.

The selling came after the Insurance Regulatory and Development Authority of India (IRDAI) proposed changes to insurance distribution economics, including new commission limits, tighter expense norms and greater transparency in how insurance products are sold.

The proposals have raised concerns about the potential impact on distributor revenues, insurer profitability and the economics of selling certain insurance products.

PB Fintech Shares Extend Decline

PB Fintech, the parent company of Policybazaar, was among the biggest casualties of the proposed reforms.

The stock plunged about 36% on Thursday, wiping out more than ₹31,000 crore in market capitalisation. On Friday, the shares remained volatile and were trading around 5% lower at one point, extending the previous day's selloff.

The sharp reaction reflects concerns that lower commissions could affect the economics of insurance distribution platforms, particularly in health and protection products.

What Has IRDAI Proposed?

IRDAI's consultation paper proposes a broad restructuring of insurance distribution rules.

The proposed framework would link commission limits to factors such as:

• Type of insurance product

• Distribution channel

• Policy size

• Premium structure

• Effort and complexity involved in selling the product

The regulator has also proposed lower Expense of Management limits for insurers over a phased period.

The consultation paper was released on September 23, 2026, and stakeholders have been invited to submit feedback until October 25, 2026.

Proposed EoM Limits Could Change Insurance Economics

Under the proposed framework, life insurers would move towards an EoM limit of 15% by FY29 and 12.5% by FY32.

For general insurers, the proposed limits are 25% by FY29 and 20% by FY32.

The proposed changes are intended to reduce distribution and operating costs over time, but analysts say the impact could differ significantly across insurers depending on their existing cost structures and product mix.

Private Life Insurers Could Face Different Levels of Impact

Analyst assessments suggest that the proposed EoM framework could affect private insurers differently.

A Moneycontrol report citing IIFL Capital said LIC, SBI Life and New India Assurance were already below the proposed FY29 EoM limits among the listed insurers covered in its analysis.

SBI Life's reported EoM ratio was 10.6%, while LIC's was 11.9%. New India Assurance's ratio was 21.7%, compared with the proposed 25% FY29 ceiling for general insurers.

Other insurers with higher current costs could need greater adjustments if the proposals are implemented in their current form.

Why Are Banks and NBFCs Also Affected?

The proposed commission changes could extend beyond insurance companies.

Banks and NBFCs earn fees by distributing insurance products, particularly through bancassurance and lending-related insurance arrangements.

ETBFSI reported that insurance commission income accounts for a significant share of earnings for some financial institutions. L&T Finance, for example, was reported to have insurance commission income equivalent to around 26% of FY26 profit before tax. Axis Bank was reported to have insurance income exposure equivalent to 12.5% of FY26 PBT.

Therefore, lower insurance commissions could affect fee income for financial institutions that rely significantly on insurance distribution.

What About Insurance Distributors?

Distributors could face a particularly significant impact because commissions are an important component of their revenue model.

For example, analysts cited by Moneycontrol noted that the proposed commission caps for some products are substantially below the payouts observed in certain segments.

For new health business, the proposed commission cap is 15% for Insurance Distribution Entities (IDEs) and 20% for agents. For individual pure-term insurance, the proposed limits are 25% for IDEs and 30% for agents.

The final impact will depend on the rules ultimately adopted after the consultation process.

Could Lower Commissions Benefit Policyholders?

One objective of the proposed reforms is to reduce distribution costs and improve transparency.

Lower costs could potentially give insurers more room to reduce prices, improve margins or invest in servicing. However, lower expenses do not automatically mean lower premiums for customers.

The eventual benefit to policyholders would depend on how insurers use any savings created by lower distribution and operating costs.

IRDAI Also Wants to Address Dark Patterns

The proposed reforms extend beyond commissions.

IRDAI has also proposed measures against dark patterns on insurance websites and greater transparency around insurance distribution.

The objective includes making it easier for consumers to access product information and pricing without being pushed through potentially misleading digital processes.

What Happens Next?

The current proposals are not final regulations.

IRDAI has opened the consultation process and invited stakeholders to submit their comments. The final framework could therefore differ from the proposals currently being discussed.

Investors are watching the consultation process closely because any change to commission structures or EoM limits could affect insurers, insurance distributors, banks and NBFCs differently.

Key Takeaways

• Insurance stocks remained under pressure for a second session after IRDAI's commission proposals.

• PB Fintech fell sharply after a 36% decline on Thursday.

• IRDAI has proposed product- and channel-specific commission caps.

• The regulator has also proposed lower EoM limits for insurers.

• Banks and NBFCs could see pressure on insurance-related fee income.

• Insurance distributors could face significant changes to their revenue economics.

• Lower distribution costs could potentially benefit insurers and policyholders, but the outcome is not yet certain.

• The proposals are still under consultation, with feedback invited until October 25, 2026.