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IRDAI proposes tighter insurance distribution rules that could hit bank fees
JM Financial estimates multi-tie-up banks paid out an average 33% of life new business premium, versus 13% for single-tie-up banks, highlighting how bancassurance economics may be affected.
India's insurance regulator, IRDAI, has issued a consultation paper outlining changes to insurance distribution rules that could pressure commission income, distribution margins, and new-business growth for banks, NBFCs, insurance broker platforms, and insurers, according to LiveMint Markets.
The proposed framework raises concerns for financial firms that rely on fee income tied to insurance, with banks focused on potential impact to bancassurance earnings. For NBFCs, the draft highlights exposure from credit-linked insurance as their reliance on insurance tied to lending grows.
JM Financial said the consultation draft underscores differences across bancassurance models, noting multi-tie-up banks generated average total payouts of 33% of life new business premium, compared with 13% for single-tie-up banks. The brokerage also pointed to NBFCs becoming more important in insurance distribution, saying new business premium sourced through NBFCs nearly tripled during FY23-25, with payouts to them reaching 42% of premium, and about 93% of that coming from credit life insurance.
IRDAI is seeking feedback until October 25, 2026, and JM Financial said it would wait for the final guidelines before revising estimates. Ventura’s research head Vinit Bolinjkar said the near-term outlook is negative for insurance stocks, particularly distributors and insurers dependent on high-cost channels, citing commission caps, tighter expense-management limits, greater transparency requirements, and restrictions on loan-linked insurance bundling that could affect distribution volumes.