The Insurance Regulatory and Development Authority of India’s (IRDAI) consultation paper has put the spotlight on the economics of insurance distribution, with PB Fintech among the companies facing heightened investor scrutiny after the proposed changes.
PB Fintech shares crashed 36% during Thursday’s session to close at ₹1,210, marking their biggest single-day fall on record.
In an analyst call following the sell-off, PB Fintech said the consultation paper was “quite extreme” and could have a serious impact on revenue on the general insurance side. The company, however, said the net present value of its life insurance business would not see a big impact.
The company also raised concerns over the proposed commission levels for distributors, saying larger agents may not find it lucrative to sell insurance at the proposed rates.
“If distribution was the engine, taking it out won’t make the car lighter and faster,” PB Fintech said, highlighting its concerns over the potential impact on the distribution ecosystem.
It also questioned the rationale for agents receiving higher commissions than Point of Sales Persons (PoSPs), saying it did not seem convincing that agents should necessarily be paid more.
PB Fintech said it is exploring options across insurance, reinsurance and manufacturing as it assesses the implications of the proposed framework. It also indicated that hiring may slow down, while saying it is not revisiting its international business foray.
What IRDAI has proposed
IRDAI’s consultation paper proposes a broad recalibration of insurance distribution economics, including rationalising Expenses of Management (EoM), reintroducing segmental commission limits and increasing transparency around pricing and commissions.
The draft also proposes restrictions on “dark patterns”, including practices that seek personal details before providing product and pricing information. It proposes disclosure of commission rates on policy documents and changes to the way motor insurance is distributed.
On distribution, the regulator has proposed restrictions on how banks sell insurance, limits on incentives to agents and curbs on compulsory bundling of products such as credit life insurance.
For PB Fintech, one of the key concerns is the impact of the proposed commission and distribution changes on customer acquisition economics.
Bernstein flags pressure on PB Fintech economics
Brokerage firm Bernstein said PB Fintech could face near-term pain from the proposals, arguing that the cuts outlined in the draft could put pressure on the company’s unit economics.
Bernstein said call centre costs may not hold up at the proposed take rates and described the proposed commission cuts as “ugly”, adding that PB Fintech’s unit economics could “unravel” at the proposed take rate.
The brokerage also flagged IRDAI’s proposal to bar the collection of contact details for generating insurance quotes. Bernstein identified this as a key acquisition funnel for PB Fintech.
It added that the proposed closure of advisory fee and marketing expense loopholes could further pressure the company and require it to find alternative ways to support its economics.
PB Fintech, meanwhile, said it has a separate distribution consultation paper with inputs from distributors, suggesting that industry participants could seek changes to the proposals during the consultation process.