- IRDAI proposed major changes to insurance distribution regulations including commission caps
- Motilal Oswal expects insurers' profitability to improve over medium term despite near-term disruption
- Brokers and bancassurance channels will face the greatest impact from the proposed regulatory changes
Revenue of insurance brokers and banks, NBFCs will be hit more than that of individual agents; hence, the impact on banca-heavy insurers, especially on open architecture, will be higher. Multiple changes in the proposed regulations will call for significant overall changes in the way businesses are carried out across products and channels, adds Motilal Oswal.
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Motilal Oswal Report
Insurance stocks could remain in focus after the Insurance Regulatory and Development Authority of India (IRDAI) proposed sweeping changes to insurance distribution regulations, including the reintroduction of hard commission caps, tighter expense management norms and a simplified distributor framework. Motilal Oswal said the proposed reforms could have significant ramifications across insurers, distributors, banks and brokers.
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According to the brokerage, lower distribution costs are likely to improve profitability and margins for life, general and health insurers over the medium term, although business growth may face near-term disruption as distribution channels adjust to the new framework. The brokerage believes distributors, particularly brokers and bancassurance channels, could see the biggest impact if the proposals are implemented in their current form.
Motilal Oswal's preferred life insurance picks remain SBI Life and Canara HSBC Life, citing their relatively easier transition to the proposed expense management norms. The brokerage also noted that LIC appears better placed than peers due to its lower dependence on broker and bancassurance channels.
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