The proposed cap on insurance commissions could have serious implications for insurance intermediaries, with banks and NBFCs also likely to feel the heat, analysts and industry insiders said. The insurers also face a strict timeline for achieving lower expense management targets.
In a consultation paper floated on Wednesday, the regulator proposed reducing insurers’ Expenses of Management (EoM) to 12.5% of premium for life insurers and 20% of gross direct premium income (GDPI) for general insurers over five years. The paper also proposes product-wise commission caps, with commissions on term insurance coming down from 51% to 25-30%, health insurance from 24% to 15-20%, motor insurance from 26% to 0-15% and savings insurance plans from 14-37% to 5-25%.
Insurance intermediaries, particularly corporate agents, said sustaining distribution networks for lower-value policies such as two-wheeler insurance could become difficult, potentially making the segment less attractive for distributors.
“If that commission goes away, the number of uninsured vehicles on the road, already almost 60% in the two-wheeler segment, is likely to rise further,” said Indraneel Chatterjee, COO and co-founder of InsuranceDekho.
PB Fintech, the parent company of PolicyBazaar, said in an investor call that the proposed changes would have a “meaningful” impact. It estimated that 25-33% of the net present value (NPV) of its non-life business could be affected, while its life insurance business would remain largely unaffected. The company said agents who previously earned up to Rs 15,000 from selling a health insurance policy could see their earnings decline to Rs 3,500-3,750.
An IIFL report on Thursday estimated that the changes could reduce PB Fintech’s core insurance revenue by 33%. PB Fintech shares fell 34% during the day to close at Rs 1,244 apiece.
Banks and NBFCs, among the largest distributors of insurance products, are also likely to bear the brunt of the proposed changes. The banking system’s bancassurance pool has grown at a 28% CAGR over the last three years to over Rs 20,000 crore, contributing 10% of banks’ fee income.
Among larger banks, exposure is relatively higher at Axis Bank, followed by HDFC Bank and Kotak Mahindra Bank, while it is negligible for ICICI Bank and PSU banks.
For NBFCs, the proposed changes could result in a 12-15% hit to profit before tax, analysts said.
Insurers that fail to meet the EoM targets could face restrictions on product launches, dividend payments and new business through the channel responsible for the breach.
General insurers’ retail health business could be affected by restrictions on agents, which would benefit standalone health insurers. Meanwhile, curbs on bundling could erode credit-linked insurance business.