Over the past couple of days, while going through the insurance regulator’s much-talked-about consultation paper, I kept going back to something I saw.
Initially, I thought I had misread it, mainly because it seemed to invert something I thought I understood about markets.
Banks that sell only one life insurer’s products paid an average total distribution payout of 13% of new business premium.
Banks that sell multiple insurers’ products, which you would assume is the more competitive, more customer-friendly arrangement, paid 33%, more than double.
Between FY23 and FY25, life insurance commissions on new business grew 2.25X against premium growth of 1.28X.
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Over the past couple of days, while going through the insurance regulator’s much-talked-about consultation paper, I kept going back to something I saw. Initially, I thought I had misread it, mainly because it seemed to invert something I thought I understood about markets.
Banks that sell only one life insurer’s products paid an average total distribution payout of 13% of new business premium. Banks that sell multiple insurers’ products, which you would assume is the more competitive, more customer-friendly arrangement, paid 33%, more than double.
When you think about it, though, the mechanism isn’t all that mysterious. With one insurer on the shelf, nobody has to bid against anyone. With several, insurers start competing for the bank’s shelf space, and that competition shows up as higher commissions, not lower premiums. So you, the customer, pay the same either way.
Which is essentially to say that more competition made the product more expensive to sell, and the regulator’s paper more or less says so.
That paper, “Recalibrating Economics of Insurance Distribution,” came out this week, and PB Fintech, Policybazaar’s parent, promptly fell as much as 36% on the day, its worst single day on record. Max Financial dropped close to 10%. HDFC Life and ICICI Prudential Life fell too. ICICI Lombard, a general insurer rather than a life one, understandably rose.
Insurance itself didn’t get riskier on a Wednesday. What changed is that everyone got a very specific look at how the product gets sold, and how much of every rupee handed over never reaches anyone’s actual cover.
Irdai’s paper is almost apologetic about how little this is a new diagnosis. Reform attempts in 2016, then again in 2023 and 2024, all went after commission-driven mis-selling. Each time, per the paper, commissions grew faster than premiums anyway, erasing whatever the previous round achieved, until the industry arrived at what Irdai now calls a “high cost and commission-led business”.
Between FY23 and FY25, life insurance commissions on new business grew 2.25X against premium growth of 1.28X. Motor insurance is the number that actually made me put the paper down for a second. Premiums on motor policies rose 34% over that period, while commissions on the exact same policies rose 259%, very nearly tripling the distributor’s cut on a product whose price to you didn’t move nearly that much.
