Summary of this article
Irdai proposed lower expense limits, tighter insurance commission structures, and ban on "dark pattern"
PB Fintech shares crashed over 32 per cent after the proposals
New rules could pressure earnings from insurance distribution and bancassurance
Insurance stocks came under heavy selling pressure on September 24, 2026 after the Insurance Regulatory and Development Authority of India (Irdai) released a consultation paper proposing tighter commissions, lower expense of management (EoM) limits, and a ban on “dark patterns” on insurance websites.
PB Fintech, the parent company of online insurance marketplace Policybazaar, was the biggest casualty. It fell over 36 per cent to Rs 1,207.20 apiece from its previous close of Rs 1,886.30.
Turtlemint, an insurance distribution platform, which made its stock market debut earlier this year, also nosedived 20 per cent to hit the lower circuit at Rs 109.04.
Max Financial Services declined 9.81 per cent to Rs 1,403, while HDFC Life Insurance fell 6.16 per cent to Rs 526.90. ICICI Prudential Life Insurance tumbled 4.13 per cent to Rs 464.50 and Niva Bupa Health Insurance declined 4.98 per cent to Rs 76.18.
What Irdai Proposes
The consultation paper, titled ‘Recalibrating Economics of Insurance Distribution’, issued on September 23, proposes changes in insurance distribution, expenses, commissions, market conduct, and transparency.
On dark patterns, Irdai wants customers to access product features, pricing and quality-related information without submitting personal details first. The regulator considers collecting personal data before displaying such information a dark pattern, which it defines as a deceptive interface or user experience designed to influence consumers into actions they did not intend.
For general insurers, Irdai has proposed calculating (EoM) on domestic gross direct premium income (GDPI) instead of gross written premium (GWP). The limit would gradually fall from 30 per cent of GWP to 20 per cent of GDPI over five years. For life insurers, the proposed company-level EoM limit would be 15 per cent within two years and 12.50 per cent within five years.
Irdai also wants to replace the uniform commission structure with segment-specific limits. These would depend on the business segment, line of business, distribution channel, product complexity, and the effort required to sell and service a policy. Insurers and large distribution entities would have to disclose their commission policies, while policy documents would also include commission-related disclosures.
The regulator has proposed three categories for insurance distribution. These are insurance distribution entities (IDEs), insurance distribution persons (IDPs) and market infrastructure institutions (MIIs). Insurers could use MIIs for insurance sales, subject to the applicable framework. The proposal also seeks to prohibit compulsory bundling of insurance products, including insurance sold with credit, and restrict certain agent incentives.
Irdai has also proposed making suitability an enforceable obligation to curb mis-selling. For specified life insurance sales, insurers and distributors would have to document customer requirements and suitability as well as maintain an audit trail.
How Will Irdai’s Proposals Impact The Insurance Sector
The new proposals have raised concerns about the earnings impact on insurance distributors, particularly banks where insurance distribution has become a core source of fee income. Large lenders distribute life, health and general insurance through their branch networks, relationship managers and digital platforms.
Ishank Gupta, analyst, banking and financial services at Choice Institutional Equities, said the proposed commission caps put a meaningful part of this income under scrutiny. “Bancassurance is the single most important distribution channel for private life insurers in India, and a meaningful contributor in health and general insurance,” Gupta said.
According to Gupta, insurance distribution has evolved from an ancillary business into a “core pillar of the fee franchise” for large private banks. The income carries limited incremental cost, as banks use their existing customer base and infrastructure, making it a “high-margin, high-visibility component of non-interest income”.
The proposed commission caps could, therefore, put pressure on banks’ fee income and operating profit. Gupta noted that first-year commission on life policies of 10 years or more would be capped at 20 per cent for distribution entities, while individual health policies would face a 15 per cent first-year cap and 5 per cent renewal cap.
Banks with captive insurance subsidiaries, including HDFC Bank, ICICI Bank, SBI and Kotak Mahindra Bank, could retain part of the benefit from lower commissions through higher insurer margins. Gupta said this benefit would accrue at the consolidated level rather than the standalone fee line.
Gupta added: “For bank stocks, the earnings trajectory now hinges on regulatory detail and management response. Final caps, the transition timeline, and product-mix redeployment will separate banks that absorb the reset from those that carry lasting fee pressure.”
Ajit Mishra, senior vice president of research at Religare Broking, said Irdai’s proposal is “structurally negative for insurers with high distribution costs”, but its impact on profitability should not be viewed as a direct margin hit. “The five-year glide path takes life insurers’ EoM to 12.50 per cent of GDPI and general insurers’ to 20 per cent, while product- and channel-specific commission caps will curb excess distributor payouts,” Mishra said.
He expects the changes to initially pressure growth and channel economics, particularly in bancassurance and high-commission products. However, lower acquisition costs can partly offset the impact and create room for sharper pricing or higher retention of savings. The eventual earnings impact will depend on insurers’ current cost structures, product mix and their ability to recalibrate distribution, Mishra said.
Mitesh Dalal, head of broking at Sanctum Wealth, said the proposed changes could weigh on insurers’ profitability in the near term as they adjust their cost structures. “Irdai’s proposed tighter EoM caps and product-linked commission limits will compress distribution expenses, pressuring near-term insurer profitability as cost structures adjust, while enabling more competitive pricing and greater policyholder value,” Dalal said.
Dalal expects some moderation in growth during the transition, but sees scope for industry expansion over the medium term. “One can expect short-term growth moderation in the near term amid recalibration, but medium-term industry expansion via higher volumes, expanded risk pools and improved affordability,” he said.
What Investors Should Understand
The sharp sell-off reflects concerns over the earnings impact of Irdai’s proposals, but analysts are still assessing the extent of the hit. Mishra said, “The sell-off reflects a legitimate reset in expectations, but the magnitude of the correction appears to be pricing in a relatively severe near-term earnings impact before the final framework is known.”
“These are consultation proposals with a five-year implementation glide path, rather than immediate changes to insurer economics,” Mishra said. He added that “the bigger structural risk is for businesses dependent on high distributor commissions, particularly digital aggregators and certain bancassurance-led models.”
For insurers, the impact will vary based on “EoM headroom, product mix and distribution efficiency”, Mishra said. “The key variable for investors is not the headline EoM reduction, but how much of the proposed cost reduction is ultimately retained by insurers versus passed through to customers.”
Dalal said the immediate market reaction reflects concerns over tighter EoM and commission norms, which could pressure distribution economics and moderate growth. However, the consultation process is still underway, and the final rules could offer greater clarity on the long-term impact.
“Medium-term positives from efficiency and volume gains maybe potentially offsetting the immediate hit,” Dalal said.
