Insurance commission revamp to push insurtech firms to the brink

The new-age insurance distribution industry could potentially undergo a major reset in its business economics, with the Insurance Regulatory and Development Authority of India’s (IRDAI) proposed commission caps threatening to squeeze earnings at companies such as PB Fintech, Turtlemint and InsuranceDekho, industry executives and analysts told ET.

Also, banks and non-banking finance companies will face greater pressure on their insurance distribution income from the proposed commission caps, as bancassurance fees account for a relatively large share of their revenue and profit, according to analysts.

The regulator has proposed lower commission limits for distributors that sell products from several insurers, with sharp cuts across health, term and motor insurance. Shares of PB Fintech plunged 36% on Thursday to Rs 1,210 on the BSE, while Turtlemint stock tumbled 20% at Rs 109.10 to hit its daily lower circuit. The impact could be particularly significant for PB Fintech, the parent of Policybazaar, which lost around Rs 31,000 crore in market cap on Thursday.

Among banks, Macquarie said Axis Bank and HDFC Bank are more exposed than ICICI Bank and Kotak Mahindra Bank to the proposed changes because of the larger contribution of insurance fee income to their revenue and profit before tax.

For Axis Bank, bancassurance fee income rose to 2.4% of revenue in FY26 from 2.1% in FY25, while its contribution to profit before tax increased to 12.5% from 9.2%, according to Macquarie’s analysis. For HDFC Bank, insurance fee income accounted for 1.9% of revenue and 7.3% of PBT in FY26, compared with 1.8% and 7.1%, respectively, a year ago.

By comparison, insurance fee income contributed 0.2% of revenue and 0.6% of PBT at ICICI Bank in FY26, while the corresponding figures for Kotak Mahindra Bank were 1.6% and 5.8%. At SBI, the contribution stood at 0.5% of revenue and 2.6% of PBT. Most NBFCs could face a 4%-8% hit, IIFL estimated, assuming lenders offset about half the impact through lower operating costs, fees or lending returns.

While IRDAI has only proposed changes, PB Fintech said that if they get implemented, its topline could come under pressure. In an analyst call following the IRDAI’s consultation paper, the company’s cofounder and group chairman Yashish Dahiya said the proposals were "quite extreme", and added that PB Fintech would initially look at slowing marketing and operational hiring to avoid overspending. He, however, ruled out any immediate drastic action.

Almost 90% of PB Fintech’s operating revenue is earned through insurance commission. In fiscal 2026, it made Rs 6,089 crore under this head out of total Rs 6,794 crore in revenue from operations.

Brokerage firm Jefferies estimates that a 10% reduction in new-business commission rates could translate into a 10-12% decline in earnings for distributors such as PB Fintech and Turtlemint.

Jefferies said the proposed changes could cut new-business commissions in health and term insurance by at least half and motor own-damage insurance by about a third. The brokerage also said insurers would have limited ability to compensate distributors through other payments because the regulator has proposed treating all such payments as commissions.

Simplifying distribution structure

The proposed framework also seeks to simplify the distribution market by bringing brokers, corporate agents, web aggregators and other entities under a common structure, while allowing distributors to sell non-insurance financial products, subject to other regulations.

“This could eventually give companies such as PB Fintech, Turtlemint and InsuranceDekho more avenues to diversify revenue, but the immediate concern is the compression in insurance commissions,” an industry executive said.

For Turtlemint and InsuranceDekho, the impact will similarly depend on their product mix and the extent to which lower commissions translate into lower revenue per policy.

IRDAI’s proposal could also alter the economics of their large distributor and point-of-sale persons (PoSP) networks, although the proposed caps are on the commission received by the distribution entity rather than directly on what an individual PoSP earns.

The regulator has separately proposed that distributors receive commissions on time and specifically notes that distributors need the cash flow to pay employees and PoSPs.

InsuranceDekho, which is preparing for a Rs 3,000-crore IPO, could respond by changing its product mix and broadening its revenue sources. Indraneel Chatterjee, COO of InsuranceDekho, said the company could sell non-insurance products and increase the number of products sold to each customer, although it has not finalised a strategy.

Chatterjee said the IPO process would continue alongside discussions on the proposals, noting, “Everything moves in parallel; nothing stops.” He did not comment on any impact on the IPO’s timing or valuation.