Daijiworld Media Network - Mumbai
Mumbai, Sep 24: Shares of insurance companies and insurance distribution platforms were in focus on Thursday after the Insurance Regulatory and Development Authority of India (IRDAI) proposed changes aimed at curbing dark patterns, rationalising insurance distribution costs and recalibrating commission structures.
HDFC Life, SBI Life, ICICI Prudential Life, LIC, Max Financial Services, PB Fintech and Turtlemint Fintech Solutions were among the stocks in focus.
The proposals triggered a sharp sell-off in insurance distribution platforms, with PB Fintech and Turtlemint coming under significant pressure. Investors assessed the potential impact of the proposed changes to commissions and distribution costs on the companies' business models.
PB Fintech shares were locked in a 20% lower circuit at Rs 1,508.90 apiece on the NSE, while Turtlemint Fintech Solutions fell 20% to Rs 109.04 in early trade.
IRDAI has issued a consultation paper titled 'Recalibrating Economics of Insurance Distribution', proposing reforms covering insurance distribution, expenses, commissions, market conduct, transparency and digital infrastructure.
The impact on insurers is expected to vary depending on their distribution models, product mix and existing cost structures. Unlike insurers, which underwrite policies, distributors and aggregators earn income by selling and servicing insurance policies. Any cap on distributor commissions or take rates could therefore directly affect their revenue per policy.
Bernstein said the proposed commission cuts were more severe than expected and identified PB Fintech as the company most exposed to the changes. It said the proposed take-rate caps could put pressure on PB Fintech's unit economics, particularly in health and motor insurance.
A take rate refers to the percentage of an insurance premium earned by a platform as distribution income. A regulatory cap on the amount could reduce revenue earned on each policy and put pressure on margins if operating costs do not decline proportionately.
IRDAI has also proposed changes to insurers' Expense of Management limits and commission structures. For life insurers, the regulator has proposed a company-level EoM limit linked to Gross Direct Premium Income, with the limit set at 15% within two years and 12.5% within five years.
For general insurers, the EoM limit is proposed to be reduced from 30% of gross written premium to 20% of domestic Gross Direct Premium Income over five years.
Bernstein said LIC and SBI Life could be relatively better placed because of their lower-cost structures and higher agency and ULIP mix. However, the impact of the proposals will depend on the individual distribution and cost structures of insurers.
The market reaction was mixed across insurance stocks in early trade, with LIC trading in positive territory while HDFC Life and SBI Life were under pressure.
The proposed commission framework would vary according to the insurance segment, line of business, distribution channel, product complexity and the effort involved in selling and servicing policies.
IRDAI has also proposed greater transparency in commission structures, requiring insurers and large distribution entities to disclose their commission policies in a simple and accessible manner.
The consultation paper proposes additional safeguards against mis-selling, including making suitability an enforceable obligation, documenting customer needs and suitability for specified life insurance sales, and maintaining an audit trail.
IRDAI has proposed prohibiting dark patterns on insurance platforms. These refer to website or app designs that can mislead or manipulate users into taking actions they did not originally intend to take.
The regulator has also proposed that insurers provide standardised and easy-to-understand information on product features, pricing and quality without requiring customers to first provide personal details.
The proposals are currently part of the consultation process, with IRDAI inviting comments until October 25. They are not yet final regulations.