Insurance stocks edged higher on Friday after a sharp selloff seen in the previous session following the consultation paper released by IRDAI, recommending significant changes to commissions.
PB Fintech share price jumped over 4% in early trade on Friday after a 36% crash in the previous session. Other gainers included Star Health and Allied Insurance Company, Niva Bupa Health Insurance Company, Go Digit General Insurance Ltd and ICICI Prudential Life Insurance Company shares.
The Insurance Regulatory and Development Authority of India (IRDAI) had proposed sweeping changes to insurance distribution regulations and Expense of Management (EoM) caps, leading a sharp crash in insurance stocks on Thursday.
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Some key proposals include Expense of Management (EOM) in Life Insurance to be 15% of GDPI in 2 years and 12.5% in 5 years, and 20% of GDPI in 5 years in case of General Insurance, including SAHI, from existing 30%. A drastic cut in first-year commissions across Life savings, and term, Health, and Motor is also proposed.
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IRDAI also proposed prohibition of mandatory bundling of insurance products with loan products and single premium credit life commissions capped at 2%; and commissions on health renewals and porting cut drastically to 5% in case of distribution entities and 10% in case of agents.
Analysts believe IRDAI's consultation paper is near-term negative for insurance stocks, particularly distributors and insurers dependent on high-cost channels.
“The proposed caps on commissions, tighter expense-management limits and greater transparency could pressure new-business growth and margins, while the restriction on loan-linked insurance bundling may affect distribution volumes,” said Vinit Bolinjkar, Head of Research, Ventura.
According to Emkay Global Financial Services, SBI Life Insurance, Life Insurance Corporation of India (LIC), and Star Health Allied Insurance Company will be among the less impacted, while HDFC Life Insurance Company, Max Financial Services, and ICICI Prudential Life Insurance Company will have to get their distribution economics right to comply with the proposed commission and EOM structure.
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