Insurance stocks are down 20%, but Anil Ghelani sees a contrarian opportunity. Here’s why

India’s insurance stocks have fallen about 20% this year even as the industry continues to expand, putting the sector at the centre of a debate over valuations, regulation and future growth. The proposed changes to commissions and distribution by the Insurance Regulatory and Development Authority of India (IRDAI) have added to investor uncertainty, raising concerns over the economics of insurers, agents and digital platforms.

But Anil Ghelani, executive director and head of passives and product at DSP Mutual Fund, sees no structural deterioration in the business model. With insurance density still low and valuations under pressure, he believes the sector could be emerging as a contrarian opportunity for long-term investors. Edited excerpts from a chat:

The BSE Insurance Index is down around 20% year-to-date despite continued industry growth. Is the underperformance a valuation reset, a temporary sentiment issue or a sign that investors are becoming more cautious about the insurance business model?


I would say all three points are at play in the markets today. But in my view, there is no structural deterioration of the business models and the growth outlook. The BSE Insurance Index does not have any insurance distribution companies but is a mixed basket of both life insurance as well as general and health insurance companies. For these companies, lower distribution costs could temporarily affect volume growth, but lower acquisition costs could eventually benefit efficient insurers. Products having enhanced customer benefits at possibly lower costs, could lead to a customer pull factor for volume growth. Markets often overreact to regulatory uncertainty in the short term and underappreciate structural growth in the long term.

India’s insurance density is only $97 per person, compared with $558 in China. What are the biggest structural bottlenecks preventing faster penetration?

Limited awareness and clear understanding of the need for protection is a key reason. Insurance is still often taken as a tax planning product rather than as protection against unforeseen risks, mortality, health and longevity risks. Reaching to customers requires trusted advice and suitable servicing. This is gradually changing with rising incomes, financialisation, digital infrastructure and greater awareness. We have already seen increasing density and gradually penetration will also increase. The IRDAI consultation paper has a clear focus on this and one key proposal is higher commissions for insurance policies sold in smaller cities, towns, and rural areas which will help faster penetration.

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IRDAI’s proposed changes to insurance distribution and commissions will alter the economics for insurers, agents, brokers and digital distributors. Do you think digital distributors could be the worst affected?

We should first remember that this is a consultation paper, not a final regulation, and the eventual framework may differ. I would not generalise that every digital distributor will be affected equally. The paper proposes tighter commission norms and aligns focus on rewarding “selling effort” over “distribution leverage”. Efficient platforms with strong technology, low acquisition costs, renewal income, customer engagement and diversified revenue streams could adapt better and may even emerge stronger.

On the flip side, tighter commissions can also lead to consolidation in the industry, reduce competition and increase moat of existing players. Can that play out?

As we see margins getting lower in any business, larger scale and operating efficiency become more valuable. For the insurance companies having a brand recall with customers, diversified channels and strong renewal rates may be better placed to absorb the transition. Weaker companies might rationalise operations or exit their relatively less profitable segments. So yes, we can see some consolidation, but we can also see new players entering. The IRDAI consultation paper has proposed lower entry barriers and common digital infrastructure. So, the moat visible today may change in the future.

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Could lower commissions improve customer value and transparency, or could they weaken distribution incentives and slow insurance penetration?

Better customer value and commercially sustainable distribution should not be viewed as opposing objectives. Both outcomes are possible, which is why calibration matters. The broader regulatory direction appears to be aligning towards better customer outcomes, greater transparency and more sustainable distribution economics. Lower commissions could support better suitability practices and potentially allow some cost savings to reach customers. The new proposed guidelines have a very clear focus on increasing insurance penetration. So, in my view, it will be rewarding selling effort in a very positive way which would strengthen discipline and encourage more rational selling including bringing newer customers under the insurance coverage.

For investors considering a dedicated insurance ETF, how should sector exposure be sized within a broader portfolio, and what are the biggest risks they should understand?

My favourite sweet ‘sandesh’ is in big focus this month. But I would never skip my lunch for it, at best instead of just 1, have 2 pieces with my lunch. A dedicated sector ETF is like your sweet dish. You can use it to complement a diversified core portfolio, not replace it. A well measured 5 to 10% of your equity allocation may be appropriate, depending on your risk appetite and investment horizon. A single sector index fund or ETF carries concentration risk. The key risk is that the insurance sector grows slower than expected despite the apparent opportunity. The second risk is valuations – at times even if business grows well in a structurally attractive sector but still, we can have low stock price returns depending on the valuations at the time of buying.

Do you think that most of the regulatory risk in the industry is already priced in and that insurance could be a good contra bet at this stage?

With the consultation paper now released, the uncertainty is clear and most of the risks appear to be priced in. But the final implementation may change the forward earnings estimates. We will have to wait for that. As of today, with the growth potential and relative undervaluation since the start of 2026, we have a strong case for a contrarian opportunity: weak sentiment, reasonable valuations and structural growth potential. In my view, insurance is among the more interesting contrarian sector opportunities today, provided you have a long horizon and are prepared for some volatility in the near term.