Insurance distributors bleed as Irdai proposes sharp commission cuts

PB Fintech plunged 36 per cent and Turtlemint fell 20 per cent as analysts warned proposed commission cuts in health, term and motor insurance could hit earnings

Shares of insurance distributors tumbled on Thursday after the Insurance Regulatory and Development Authority of India (Irdai) proposed sharp cuts in distributor commissions. 

 

Online distributors PB Fintech and Turtlemint bore the brunt of the sell-off as the proposed changes are expected to hit commissions in health, term and motor insurance. PB Fintech, the largest online insurance distributor, plunged 36 per cent — its biggest single-day fall — wiping out ₹31,425.5 crore from its market capitalisation (mcap). Shares of Turtlemint, another online insurance distributor, fell 20 per cent to ₹109.

 

Shares of insurers, meanwhile, witnessed a mixed trend as investors weighed the impact of the commission cuts against Irdai’s proposed changes to expense of management (EoM) limits. 

 

 

Irdai late on Wednesday had released a consultation paper on distribution reforms, proposing that commission limits be determined based on the segment, line of business, distribution channel, product complexity and the effort involved in selling and servicing the product.

 

According to analysts, the proposals could result in commission cuts of nearly one-third to two-thirds for health, term and motor insurance, posing a significant risk to distributors such as PB Fintech and Turtlemint.

 

Analysts at Jefferies said a 10 per cent cut in new-business commission rates could translate into a 10-12 per cent decline in earnings for these distributors. The proposed structure would reduce new-business commissions for health and term insurance by at least half and for new motor own-damage (OD) policies by a third, they said.

 

Renewal commissions for health insurance could also fall to 5–10 per cent from 15 per cent for non-senior-citizen policies, Jefferies said. “The scope for insurers to compensate distributors through opex is also limited, due to overall EOM caps and the regulator stating that any payments to distributors will be considered as commissions,” the brokerage said.

 

Macquarie analysts also said PB Fintech appears to be the most exposed to the proposed changes because of its earnings sensitivity to take rates.

 

Among insurance companies, HDFC Life Insurance fell 6.2 per cent to ₹526.90, while Max Financial Services, which owns Axis Max Life Insurance, declined 9.8 per cent to ₹1,410. ICICI Prudential Life Insurance fell 4.23 per cent to ₹464.50.

 

Life Insurance Corporation of India (LIC) was broadly flat at ₹406, while SBI Life Insurance and Canara HSBC Life Insurance were also largely unchanged at around ₹1,755 and ₹151.50, respectively.

 

Analysts at Emkay said SBI Life and LIC could be relatively better placed to absorb the proposed EoM and commission changes. SBI Life’s EoM of nearly 11 per cent and LIC’s nearly 12 per cent are already close to the proposed 10 per cent limit, they said, making the required adjustment less onerous.

 

On commissions, the two insurers could also be better placed because of SBI Life’s relatively low-commission bancassurance model and LIC’s predominantly agency-driven business, where commission compression is expected to be lower, Emkay said.

 

General insurers ICICI Lombard General Insurance and Go Digit General Insurance, meanwhile, bucked the broader trend, gaining 5.1 per cent and 2.08 per cent to ₹1,577 and ₹250.20, respectively.

 

Analysts said commissions were already relatively high for these insurers and rationalisation could reduce competition in the segment.

 

“Go Digit/ICICI Lombard General Insurance face risk of slower motor own-damage growth, as commissions have been cut by a third. However, in the medium term, lower commissions may reduce competition in motor insurance, benefitting ICICIGI/Go Digit,” Jefferies analysts said.