According to Bernstein, the cuts explained in the draft paper will hurt PB Fintech the most as the Call center costs do not hold up at these take-rates.
What Does the IRDAI Draft Paper Include?
The Insurance Regulatory and Development Authority of India (IRDAI) proposed structural reforms designed to lower insurance costs, expand coverage to underserved populations, and restore the sector to sustainable growth.
Some of the major aspects on which the draft paper throws light on include Rationalising Expenses of Management (EoM), reintroducing segmental commission limits, prohibiting “Dark Pattern” thereby ensuring that product, pricing disclosures are made without seeking personal details, disclosing commission rates on policy documents and streamlining motor insurance.
Among other proposals on the distribution reforms include how and which policies banks should sell and prohibition of incentives to agents, how can insurers from MIIs for the sale of insurance, and prohibition of compulsory bundling of insurance products like credit life.
Why Is The Draft Paper A Worry For PB Fintech?
Bernstein wrote in its note that the proposed commission cuts are “ugly” and that PB Fintech’s unit-economics “unravels” at the proposed take rate in the draft paper.
The brokerage said that insurers will also see some drag in health / term growth from proposed caps but insurers with lower costs and higher agency-ULIP mix will be less impacted such as SBI Life and LIC.
IRDAI’s draft paper explicitly bars collection of contact details for generating quotes, which, as per Bernstein, is a key acquisition funnel for PB Fintech.
With advisory fee and marketing expense loopholes also getting closed in the draft paper, PB Fintech will need to find solutions, the Bernstein note said.
Shares of PB Fintech have made headlines over the last month, on rumours of Yashish Dahiya stepping down, a news he went on to deny. The stock ended 4.9% higher on Wednesday at ₹1,893, and has gained only 5% so far this year.