The immediate reaction from insurers has been what Banerjee called a shock, one already visible in insurance stocks. PB Fintech, the parent of Policybazaar, told investors this week that it could be pushed to enter insurance manufacturing itself, taking on underwriting risk directly to protect its margins, rather than relying only on commissions from selling other companies’ policies. Roy said the regulator is also backing Bima Sugam, an open platform for buying insurance, as a way to cut distribution costs further, a move he and Banerjee compared to the impact UPI had on digital payments.
Why general insurance is hit hardest
Banerjee said the impact will vary by product line. “I think the impact is all over,” he said, ellipsis but general insurance, sold and renewed every year, will see the steepest drop in commission as a share of the premium. Life insurance, which runs over much longer periods, will feel less pressure. Health insurance sits in between: commissions on health policies have been halved under the draft, which worries Roy given how low health insurance penetration already is in India.
The paper also targets specific practices. Banerjee pointed to motor third-party (TP) insurance, a mandatory cover every car owner must buy, as a case where the acquisition cost should sit with the product itself rather than pay for a separate middleman. He gave a similar example for car loans, arguing that insurance sold alongside a loan should have its cost built into the loan process rather than tacked on separately.
What insurers are unhappy about
Working mainly with insurers rather than distributors, Banerjee said their concerns fall into two buckets: whether lower costs will still let them attract the right policyholders, and whether they can run their operations at the new, lower cost levels the paper demands. “Saying one thing and really operationalising and making it implementation is going to be like another,” he said.
Roy listed three concerns he is hearing directly from clients. Compliance costs could rise even as commission income falls. A hit to bancassurance, insurance sold through bank branches, would hurt sales volumes broadly, since banks currently have a financial incentive to push these products. And there is concern the changes could squeeze the so-called missing middle, groups such as gig workers, out of health cover altogether if commissions get too thin to justify the sales effort.
There is an upside case too, Roy said. If insurers pass on lower costs to customers by cutting unnecessary product features, or frills, policies could become both cheaper and easier to sell. “The game is shifting from volume-based to value-based,” he said, arguing that greater trust could ultimately expand the customer base rather than shrink it.
Rural areas get more room, final rules likely to soften
The draft carves out more flexibility on acquisition costs for rural and underpenetrated regions, which both experts read as confirmation that expanding coverage, not just cutting costs, is the regulator’s real goal. Banerjee expects the final rules to move toward a middle ground once the current round of industry feedback and pushback runs its course, whether through a longer transition period or higher caps than currently proposed.
Roy struck a similar note but flagged a lasting tension: India needs organised distributors such as PB Fintech and insurance brokers to reach a large, underinsured population, even as the direction of travel points toward the Bima Sugam platform, an ONDC equivalent for insurance. “The trust has to go up, and the money has to be justified money to the effort that they are making,” he said.
For the full interview, watch the accompanying video
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