IRDAI weighs January 2027 rollout of insurance commission caps amid selloff in insurance-linked stocks: Report

Insurance regulator IRDAI is considering implementing sweeping changes to the insurance distribution system as early as January 1, 2027, in a move aimed at controlling costs, expanding coverage and improving efficiency, Bloomberg News reported. April 1 is another possible date for introducing the reforms, according to Girijia Subramanian, a whole-time member overseeing distribution at the IRDAI.

The proposed overhaul has rattled insurance-linked stocks, particularly online brokers and fintech companies that depend on commission income. Last month, IRDAI proposed capping commissions paid by insurers to brokers and other distributors across most insurance categories, including life, health, property and casualty. It also plans to tighten limits on insurers’ management expenses over time.

The proposals follow concerns that commissions have grown faster than insurance premiums since regulatory relaxations introduced in 2023, without a corresponding improvement in insurance penetration.

Insurance stocks face pressure

The proposed changes have triggered a sharp selloff in companies exposed to insurance distribution. PB Fintech, the parent of online insurance marketplace Policybazaar, fell 36% after the measures were announced, while Turtlemint Fintech Solutions has lost about half its value since the proposals emerged, as per the report.

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Analysts cited by Bloomberg estimate that the proposed rules could reduce fee income for online brokers and lenders by as much as 90% in certain high-margin categories. The proposals also include a 10% reduction in commission rates for new business, potentially affecting fintech earnings.

Jefferies estimates that the changes could translate into a 10%-12% decline in earnings.

The Insurance Brokers Association of India has warned that the overhaul could affect as many as one million jobs in the sector.

Subramanian, however, rejected concerns about large-scale job losses, arguing that the reforms could widen the distribution network, lower entry barriers and create employment opportunities by allowing more participants to enter the market.

Focus on smaller cities

IRDAI’s proposals include incentives to encourage distributors to expand beyond major urban centres. Businesses originating in locations with populations below one million could qualify for an additional 10% of the applicable commission limit. The incentive could rise to 20% for towns with fewer than 50,000 residents.

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The regulator has also proposed easing entry requirements and allowing distributors to undertake other financial and non-financial activities.

Limits on insurers’ management expenses would be tightened gradually over five years, with the first interim milestone in the financial year ending March 2029.

Final rules may take time

Insurers, brokers and other stakeholders have until October 25 to respond to the consultation paper. IRDAI will consider the feedback before issuing draft regulations for another round of public consultation, Subramanian told Bloomberg News.

The regulator favours implementing commission caps without a prolonged transition, arguing that phased reductions could encourage distributors to accelerate sales before each cut and increase the risk of mis-selling.

“There is an earlier-the-better case, but getting the reforms right is more important than getting them early,” Subramanian said.

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