IRDAI Proposes Commission Caps Sparking Insurance Stock Crash

The Insurance Regulatory and Development Authority of India (IRDAI) released a consultation paper on September 23 proposing a comprehensive overhaul of insurance distribution to curb mis-selling and increase affordability. The proposal introduces a phased reduction of Expenses of Management (EoM) limits, requiring life insurers to lower limits to 15% within two years and 12.5% within five years, while general insurers must reduce limits to 20% over five years.

To rationalize costs, the regulator intends to reintroduce product-level commission caps and prohibit the compulsory bundling of insurance with loans. Specifically, first-year commissions on loan-bundled life cover could drop from approximately 45% to between 2% and 2.5%. The IRDAI also proposes banning volume-linked incentives for bank and non-banking financial company staff and restricting dark patterns on digital sales platforms.

Market reaction was immediate and severe. Shares of digital brokers PB Fintech Ltd and Turtlemint Fintech Solutions Ltd crashed, with PB Fintech plunging as much as 36% and Turtlemint hitting a 20% lower circuit. Major life insurers including HDFC Life and ICICI Prudential Life also saw declines of up to 10%. Analysts from Emkay Global warned that drastic cuts could make distribution an unviable business, while others noted that Life Insurance Corporation of India and SBI Life are better positioned due to lower existing costs.

The IRDAI has invited stakeholder feedback on these proposals until October 25, 2026. The reforms also aim to enhance digital infrastructure through Bima Sugam and provide additional rewards for distribution in underserved rural areas.