Bank and financial services stocks cracked in trade on Thursday, 24 September, after bank-led insurance distribution have come under the regulator’s scanner.
The Insurance Regulatory and Development Authority of India (IRDAI) has questioned the current economics of bank-led insurance distribution, particularly the level of remuneration paid to banks under multiple tie-up arrangements. The regulator has raised the issue of whether these payouts adequately correspond to the work involved in selling insurance or instead reflect the value of access to the bank’s customer base.
The concerns form part of a wider push to overhaul insurance distribution and shift the focus from premium generation towards affordability, customer value and long-term policyholder outcomes.
Bank and Financial Services Stocks Fall
AU Small Finance Bank was the top dragger, down around 5% followed by IndusInd Bank, Axis Bank, IDFC First Bank declining around 4% each. Meanwhile, Kotak Mahindra Bank, HDFC Bank, Bank of Baroda, and State Bank of India also shed over 1% each.
The Nifty Bank index was down over 1.5% as against a 1% drop in benchmark indices Sensex and Nifty 50.
Meanwhile, Nifty Financial Services index tanked 2%. Cholamandalam Investment, Bajaj Finance, and Bajaj FinServ shed over 3% each, while HDFC AMC, Shriram Finance, Muthoot Finance, PFC, and REC also lost over 1% each
What is IRDAI saying
The concerns form part of IRDAI’s consultation paper on proposed reforms to insurance distribution. The regulator has pointed out that the existing model can incentivise premium generation over customer value, affordability and long-term policyholder outcomes.
IRDAI’s analysis showed that banks accounted for nearly ₹68,000 crore of corporate-agency life insurance premiums in its sample. It also found that payouts were considerably higher under multiple tie-up arrangements than under single tie-ups. The regulator said this could indicate that remuneration is being shaped by insurers competing for distribution partnerships, rather than solely by the effort involved in selling and servicing policies.
The issue is significant given banks’ extensive customer reach through branches and lending relationships.
The paper also raises concerns over transparency. Customers buying insurance through bank branches or loan desks often have limited visibility into commissions included in premiums and little influence over distribution costs. IRDAI said this can make product comparisons more difficult and reduce competitive pressure on pricing.
What IRDAI suggests
IRDAI has proposed banning banks and non-banking financial companies (NBFCs) from making insurance purchases compulsory alongside loans or other financial products. The proposal would cover insurance linked to home loans, motor loans and other forms of borrowing.
The regulator defines compulsory bundling as a situation where a loan is provided only if the borrower also purchases an insurance policy covering areas such as life, property, motor or health.
The proposal does not seek to end bancassurance. Instead, IRDAI wants to change distribution incentives and give customers greater control over insurance purchases by enabling easier product comparisons, expanding direct buying options and improving disclosure around insurers, products and distributors.
It has also proposed public disclosure of expense and commission performance by insurers and large distributors. The broader aim is to move the sector from a model focused on “selling” insurance towards one where informed customers can actively “purchase” policies.
Disclaimer: This story is for educational purposes only. Please consult with an investment advisor before making any investment decisions.
