PB Fintech faces 30% revenue risk from draft IRDAI rules, turns to costs, volumes for relief

PB Fintech's core online insurance revenue could take a 30% hit in FY28 if IRDAI's proposed commission rules are implemented as drafted, according to Motilal Oswal, after the Policybazaar parent told analysts that the new regime could materially alter the economics of its insurance distribution business.

The estimate followed a September 24 management call held a day after IRDAI released its consultation paper. Jefferies, which also analysed the call, said PB Fintech had indicated that non-life insurance NPV could fall to 33–40% of its original level under the proposed commission cuts.

The market has already reacted sharply to the proposals. PB Fintech closed at ₹1,886.30 on September 23, before the sell-off began, and fell to ₹1,081 by September 29, a decline of about 42.7% in four trading sessions. The stock hit a fresh 52-week low of ₹1,051.20 during Wednesday’s session.

The IRDAI proposals remain under consultation, with the final framework yet to be decided. Public feedback has been invited until October 25.

General insurance bears the bigger impact

The biggest pressure is expected to come from general insurance. Motilal Oswal said PB Fintech’s management indicated that the net present value (NPV) of its general insurance business could fall to around 35–40% of current levels, implying a 60–65% reduction, if the draft is implemented as written.

Jefferies put the potential impact in a similar range, saying PB Fintech indicated that non-life NPV could fall to 33–40% of the original level if the proposed cuts in health and motor insurance are implemented. It estimated that a 10% reduction in new-business commission rates could translate into a 10–12% decline in earnings.

The impact on life insurance is expected to be more limited, although the two brokerages differ on the extent. Motilal Oswal said life NPV is expected to remain “in the same neighborhood”, while Jefferies said higher renewal commissions in term insurance could keep life NPV closer to present levels.

PB Fintech’s core revenue is roughly split equally between general and life insurance. Motilal Oswal said a 60% reduction in general insurance economics would therefore translate into roughly a 30% hit to core revenue before any offsets.

Under the draft, new-business commissions for health and term insurance could fall by at least half, while commissions on new motor own-damage policies could fall to a third. Health insurance renewal commissions could also be 50–67% lower, according to Jefferies.

Motilal Oswal cited the example of a fresh health policy where an agent currently receives around ₹15,000, which could fall to about ₹3,500–₹3,750 under the proposed structure.

Costs, volumes seen as key offsets

PB Fintech is looking at costs and volumes to absorb part of the impact.

Motilal Oswal said the company’s cost base is around ₹3,000 crore, with management indicating potential savings of 10–15%. The brokerage said the company would take concrete steps depending on how the final regulations evolve.

Jefferies said core-platform expenses, excluding ESOPs, stood at around ₹3,000 crore in FY26, with about 80% of those expenses being variable. Around 20% of revenue, or roughly 40% of expenses, goes towards running call centres, according to the brokerage. PB Fintech could slow hiring and reduce marketing expenditure in the near term.

Motilal Oswal said the company hired around 6,000 people in the first half of FY27 and indicated that it would not have hired at that pace had the draft regulations come earlier. At the same time, management said there would be “no mass layoffs or knee-jerk decisions”.

Volume growth is another potential offset. Motilal Oswal said Policybazaar works with general insurers under a combined operating ratio model, meaning lower commissions could eventually be passed on through lower customer prices. With price elasticity at around one, management expects to “get back” 15–20% through volume growth, the brokerage said.

The company expects no impact in FY27, with implementation most likely from FY28. Management described FY28 as a year of “challenges and discovery” and aims to return to a similar position by FY29.

PB Fintech looks beyond commissions

The company is also exploring additional revenue streams, including service charges, reinsurance broking and potentially manufacturing-related opportunities, according to Motilal Oswal.

Jefferies highlighted managing general agent (MGA) opportunities, credit life, setting up an insurer and monetising businesses such as PB Wheels and PB Garages. It noted that MGAs would also bear underwriting risks.

Health renewal commissions remain the “biggest open risk”, according to Motilal Oswal, particularly because it remains unclear whether the proposed changes would apply retrospectively to existing business or only prospectively.

The two brokerages have taken different positions on the stock. Jefferies retains a "Buy" rating, while warning that the proposed regulations could have a “material adverse impact” on near-term earnings. It also stressed that the rules are still at the consultation stage and could change after feedback.

Motilal Oswal has a Neutral rating, estimating that a 30% reduction in FY28 core online insurance revenue, without any expense adjustments or new revenue streams, would result in a 46% decline in its FY28 earnings estimate. If employee and advertising costs are cut by 20% against its existing assumptions, the earnings impact would narrow to about 30%.

For now, the 30% revenue impact remains a scenario rather than an actual decline, with the final IRDAI rules and PB Fintech’s ability to offset lower commissions through costs, volumes and new businesses set to determine the eventual impact.

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