There was huge destruction in the stock market on Thursday. Especially the biggest devastation was seen in the shares of insurance companies, where the shares of PB Fintech fell by 36 percent. After this, the shares of Turtlemint fell by about 20 percent. Besides, a sharp decline was also seen in shares like HDFC Life and ICICI Prudential Life. Even today a decline is being seen in these shares.
One major reason for the fall in all these shares was a proposal by IRDAI. Some such things have been mentioned in it, which will reduce the revenue of these companies. Besides, it is expected that there will be a strong impact on profit and margin also. Due to this, there was a huge fall in the shares of these companies, but now the question is, what is there in this proposal, due to which the shares of a company can fall by 36 percent? Let us know the complete details…
What is there in the policy paper?
1. Preparation to impose limit on commission
IRDAI has proposed to re-impose commission limits in life, health and motor insurance according to products and distribution channel. The segmental limit on commission was removed in the year 2023.
2. Commission in health and term insurance
According to experts, under the proposed structure, commission on new business of health and term insurance can be significantly reduced. In some cases, the estimated reduction can be around one-third to two-thirds.
3. Commission in life insurance
Currently, a major part of the commission can be received at the time of selling the policy or in the initial period. It has been said in the proposal that there should be more spread during this policy term. This will impact that the initial earnings of distribution will be affected and the revenue of the companies may decrease.
4. Proposal to reduce the expenditure limit of insurance companies
IRDAI has also proposed to rationalize Expenses of Management (EoM). It is proposed to bring the EoM limit for general insurance from 30% of GWP to 20% of domestic GDPI in five years. This can have a strong impact on the earnings of companies.
5. Prohibition on forcibly selling insurance along with loan
It has been proposed to stop banks and NBFCs from making insurance mandatory along with loans. Due to this, there is a fear in the market that the insurance distribution fee income of those banks will also be affected.
6. Stop the dork patterns
Companies have to be prevented from using such designs or processes in which customers are being misled or forced towards a particular option. Like asking for complete details from the customers before knowing the price of the product or other features.
In simple words, IRDAI’s proposal says that companies or distributors will have more control over how much commission they can take on selling insurance, how much they can spend and how they can sell the policy to customers. The market fears that these commission-based earnings may cause a major blow to the earnings of companies.
Why did the government bring this proposal?
- Reducing mis-selling in insurance sales
- reduce insurance costs
- Let the customer know to whom his money is going and why
- Stopping complaints of forced selling of insurance while taking loan from banks
This report came on July 3
This proposal became public in July itself. It was said in the Reuters report that the IRDAI commission is preparing a major change in the system. Especially considering the payment over the term of the policy by reducing the large upfront commission. Then there was a proposal to bring it in 4 to 5 weeks, but it has been introduced after 2 to 3 months.
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Source: www.aajtak.in
