Regulatory headwinds may cloud dealmaking in a buzzing insurance sector

India’s insurance sector, buoyed by a flurry of deals as foreign insurers seek greater ownership of local ventures and new players prepare to enter following the liberalisation of foreign direct investment (FDI) norms, could see dealmaking slow as investors reassess valuations and business plans amid regulatory uncertainty over proposed changes to commissions and expense of management (EoM) limits, industry insiders said.

 

In September, the Insurance Regulatory and Development Authority of India (Irdai) proposed an overhaul of insurance distribution economics, including lower EoM limits and product- and channel-specific commission caps. It also proposed separate limits for individual and corporate distributors, with higher caps for individuals to reflect the greater effort involved in their sales. The proposed product-level caps are below prevailing industry rates in several segments.

 

Insurers and distributors have warned that the changes could constrain near-term growth, hit distributor revenues and affect employment. Until the framework becomes clearer, potential mergers and acquisitions (M&As), initial public offerings (IPOs), strategic tieups and distribution partnerships between insurers and intermediaries could be put on hold or reassessed, industry insiders said.

 

“Commission structures sit at the core of how insurance is priced and distributed, so the proposed changes will cause the market to pause and recalibrate. Until there is clarity, M&A, IPOs and strategic partnerships across the sector will be evaluated more cautiously, with valuations and timelines revisited,” said Aravind Venugopal, partner at Khaitan & Co.

 

Lower commissions could improve insurers’ distribution economics, he said, but risk reducing sales volumes, particularly for businesses reliant on intermediaries. For distributors, commission income is the primary driver of value, making valuations difficult amid uncertainty over the future framework.

 

The changes could also test the sustainability of business models with limited scale or revenue diversification, favouring well-capitalised intermediaries and accelerating consolidation over time, Venugopal added. “In the near term, deal activity across the sector will depend on better regulatory clarity.”

 

The proposed overhaul comes after a series of significant transactions in the sector.

 

Bajaj Finserv and promoter group entities acquired Allianz’s 26 per cent stakes in Bajaj’s life and general insurance businesses for about ₹24,180 crore, ending a 24-year partnership. Prudential agreed to acquire a 75 per cent stake in Bharti Life Insurance for an initial ₹3,500 crore, with up to ₹700 crore in additional consideration. Patanjali Ayurved and the DS group received regulatory approval to acquire Magma General Insurance in a deal valued at ₹4,500 crore.

Aviva agreed to buy Dabur Invest Corp’s remaining 26 per cent stake in Aviva Life Insurance India, taking its ownership to 100 per cent.

 

BNP Paribas Cardif agreed to acquire about 26 per cent of IndiaFirst Life Insurance from Warburg Pincus, while Mahindra & Mahindra and Canada’s Manulife agreed to establish a 50:50 life insurance joint venture, with each committing up to ₹3,600 crore.

 

Separately, Jio Financial Services and Allianz’s 50:50 reinsurance joint venture, Allianz Jio Reinsurance, began operations in March 2026. The partners later agreed to form a separate 50:50 general and health insurance venture and signed a non-binding agreement to explore opportunities in life insurance. Prudential and the HCL group’s 70:30 standalone health insurance venture began operations in August 2026. Piramal Finance completed the sale of its 14.72 per cent stake in Shriram Life Insurance to Sanlam Emerging Markets for about ₹600 crore in March 2026.

 

“The proposed guidelines may create regulatory uncertainty, impacting investor confidence and potentially delaying IPOs, M&A, strategic partnerships, and bancassurance deals,” said Vivek Iyer, partner and financial services risk leader at Grant Thornton Bharat. The changes could prompt investors to reconsider business plans, affecting both insurers and distributors, he added.

 

The proposals have drawn opposition from the insurance and banking industries, with concerns over their implications for growth and distributor profitability. The impact is likely to become more visible in FY28. Banks, too, could face pressure on revenue, as insurance commissions account for a substantial share of the fee income they earn from selling products of partner insurers.

 

The Reserve Bank of India has said it will firm up its views on the proposals and convey them to Irdai, if necessary.

 

Amid the backlash, Irdai chairman Ajay Seth told Business Standard in an interview published on September 30 that the proposals were not simply about cutting commissions or making insurance cheaper. Their broader objective, he said, was to improve value for policyholders through greater affordability, accessibility and quality, while making the insurance ecosystem more cost-efficient and transparent.

 

The proposed framework aims to align remuneration with the effort involved and value delivered to customers, curb mis-selling and improve market conduct. A more disciplined EoM framework and differentiated commission structures should improve affordability and policyholder outcomes over time, Seth said. The intention, he added, is to make insurers compete on the price and quality of their products and services rather than their ability to pay higher distribution costs. 

Uncertain outlook 

• Investors may revisit valuations and business plans
• Insurers and distributors warn of impact on growth, revenue and jobs
• M&As, IPOs and tieups may stall pending regulatory clarity
• Effects of the changes may heighten in FY28
• RBI is reviewing the proposals; will convey its views to Irdai