Turtlemint shares slipped more than 3% in today's session, marking their third straight day of decline. PB Fintech pared most of its gains and was trading less than 1% higher. ICICI Lombard fell 2%, while HDFC Life Insurance and SBI Life Insurance declined 1% and 1.35%, respectively.
Jefferies noted that IRDAI's distribution consultation paper proposes stricter Expense of Management (EOM) limits for insurers, and 1/2-to-1/3 commission cuts in health, term and motor insurance. Jefferies said this is a risk for PB Fintech and Turtlemint, noting a 10% cut in new business commission rates translates to a 10-12% fall in their earnings.
“The scope for insurers to compensate distributors through opex is also limited, due to overall EOM caps and the regulator stating that any payments to distributors will be considered as commissions,” it added. The international brokerage sees limited impact on SBI Life and LIC.
Citi said proposed commission caps could significantly tighten insurance distribution economics, ET Now reported, adding that the Wall Street major estimates distribution economics to compress 70-90% in several high-margin categories if implemented as proposed.
Analysts on PB Fintech
International brokerage Bernstein reiterated its Outperform rating on the stock and a target price of Rs 2,310, indicating a potential 91% upside from the previous close.The brokerage said the proposed framework could result in a 40% reduction in insurance take rates for PB Fintech, translating into a potential 36% cut in FY28E consolidated revenue, with Paisabazaar cushioning some of the impact. A shift in term plans towards a trail-based structure could also defer cash flows, creating an initial working-capital drag.
Management indicated scope to rationalise growth-linked costs in FY28, particularly call centre hiring, variable payouts and performance-marketing spends. Under its scenario analysis, Bernstein assumes organic premium growth for PB Fintech, currently estimated at 35-40%, will reset to a lower level in FY28E, with lower customer pricing partly offsetting the impact through higher volumes.
Jefferies has cut its target price for PB Fintech to Rs 1,540 from Rs 2,050, implying 28% upside from the current level, while retaining its Buy rating. The brokerage said PB Fintech indicated that non-life NPV could fall to 33-40% of the original NPV if IRDAI's proposed commission cuts in health and motor insurance are implemented. Life insurance NPV, however, is expected to remain broadly similar to current levels, supported by higher renewal commissions in term insurance.
Motilal Oswal has maintained a Neutral rating on PB Fintech with a target price of Rs 1,150, a downside of 5% against the current market price of Rs 1,210. The brokerage estimates that the proposed changes could result in around a 30% hit to FY28 core online insurance revenue. A 30% revenue cut, without any expense reduction or other revenue offsets, could lower its earnings estimates by 46%, under which scenario the stock would trade at around 73x earnings.
What did IRDAI’s consultation paper say?
The regulator proposed replacing the existing complex and fragmented distribution structure with three broad categories of entities: Insurance Distribution Entities (IDEs), Insurance Distribution Persons (IDPs) and Market Infrastructure Institutions (MIIs).It proposed a set of structural reforms aimed at lowering insurance costs, expanding coverage among underserved sections and putting the sector on a sustainable growth path. The draft paper focuses on several key areas, including rationalising Expenses of Management (EoM), reintroducing segmental commission limits and prohibiting "dark patterns".
Under the proposed framework, insurers would have to disclose product and pricing information without requiring customers to share personal details. The paper also proposes disclosing commission rates on policy documents and streamlining motor insurance.
Other distribution-related proposals cover the types of policies banks can sell, a ban on incentives to agents, enabling insurers to use Market Infrastructure Institutions (MIIs) for insurance sales and prohibiting compulsory bundling of insurance products, such as credit life insurance.
At present, the public can access product features and pricing information only after providing personal details. IRDAI said this is one of the ‘dark patterns’ frequently seen on insurer and distributor websites and is also against guidelines issued by the Central Consumer Protection Authority under the Consumer Protection Act, 2019.
The regulator defines dark patterns as practices or deceptive design patterns using user interface or user experience interactions on any platform that are designed to mislead or trick users into doing something they did not originally intend or want to do.
IRDAI has proposed recalibrating the commission framework alongside these changes. Rather than applying a uniform approach, commission limits would factor in the segment, line of business, distribution channel, product complexity and the effort involved in selling and servicing the product.
Disclaimer: This article has been written by Veer Sharma, who is not a SEBI-registered Research Analyst or an Investment Adviser. Veer Sharma and his ‘relative(s)’ (as defined under Section 2(77) of the Companies Act, 2013) do not hold any financial interest in the companies mentioned in this article as of the date of publication. The views/recommendations mentioned in this article, wherever applicable, are those of the respective SEBI-registered Research Analyst/brokerage and have been reproduced/reported with due attribution. They should not be construed as the views or recommendations of The Economic Times Digital or the journalist. Readers are advised to consider the original research report and make their investment decisions based on their own assessment. Brokerage disclaimers here.
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