Insurance stocks came under heavy selling pressure on September 24 after the Insurance Regulatory and Development Authority of India (IRDAI) released a consultation paper that proposes 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, falling 28.01 per cent to Rs 1,357.90 from its previous close of Rs 1,886.30. Max Financial Services declined 10.44 per cent to Rs 1,399.70, while HDFC Life Insurance fell 5.14 per cent to Rs 532.55. ICICI Prudential Life Insurance tumbled 2.59 per cent to Rs 471.95 and Niva Bupa Health Insurance declined 2.88 per cent to Rs 77.86.
What IRDAI Proposes
The consultation paper, titled ‘Recalibrating Economics of Insurance Distribution’, issued on September 23, proposes changes to 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 Expenses of Management (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 12.5 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 and maintain an audit trail.
