New Delhi [India], September 28 (ANI): The insurance distribution industry could see a shift in business models as proposed regulatory changes by the Insurance Regulatory and Development Authority of India (IRDAI) prompt distributors to explore new products, services and revenue streams, according to a report by Nomura.
The report, which assessed management commentary from insurers and distributors following IRDAI’s proposed overhaul of the insurance distribution framework, said companies are already evaluating how to adapt to changes in commissions and expense limits.
The shift is particularly visible at PB Fintech, where management indicated that the company is moving away from a “growth at any cost” approach towards a more “rationalised growth” model in response to changes proposed by the regulator.
“Though it has indicated no mass layoffs or radical reactions, the company plans to trim marketing expenses and slow down hiring,” Nomura said in its report.
The report said PB Fintech is also evaluating new products and businesses as it considers changes to its business model. These include life insurance savings, credit life and mutual funds on the product side, while reinsurance broking, reinsurance or insurance manufacturing are being considered as new business opportunities.
The developments come after IRDAI proposed a major overhaul of the insurance distribution framework through its consultation paper on “Recalibrating Economics of Insurance Distribution”.
Under the proposed framework, IRDAI plans to replace the existing fragmented distribution architecture with three broad categories — Insurance Distribution Entities (IDEs), Insurance Distribution Persons (IDPs) and Market Infrastructure Institutions (MIIs).
The proposed framework would allow distributors greater flexibility to undertake insurance as well as other financial and non-financial activities, potentially creating additional business and income opportunities.
Nomura’s report also highlighted that insurers are assessing the impact of lower expense and commission limits differently.
Niva Bupa management indicated comfort with the proposed Expense of Management (EoM) cap, saying commission caps and operating leverage could help the company achieve the proposed 25-20 per cent EoM cap over the next two and five years, respectively.
The proposed EoM changes are also expected to alter the economics of insurance distribution. For life insurers, IRDAI has proposed shifting the EoM limit to a company-level basis linked to Gross Direct Premium Income (GDPI), with a ceiling of 15 per cent within two years and 12.5 per cent within five years.
For general insurers, the calculation would shift from Gross Written Premium (GWP) to domestic GDPI, while the EoM limit would progressively decline from 30 per cent of GWP to 20 per cent of GDPI within five years.
Nomura’s scenario analysis also shows that the impact of the proposed EOM caps could vary significantly across insurers.
Among the covered life insurers, Axis Max Life may need the highest reduction in operating expenses at 9.1 per cent over five years, followed by HDFC Life at 3.7 per cent and ICICI Prudential Life at 2.3 per cent, after factoring in the estimated benefit from lower commissions.
SBI Life, with an EOM of 10.6 per cent as of FY26, would require an estimated 0.6 per cent reduction in operating expenses.
The analysis also shows a wider adjustment requirement among health and general insurers, with Star Health requiring an estimated 9.4 per cent reduction in opex and Niva Bupa 6.2 per cent, while ICICI Lombard’s estimated opex reduction requirement is nil.
Nomura said the proposed changes could therefore lead distributors to reassess their existing business models, while insurers look to improve operating leverage and manage distribution costs. (ANI)
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