Insurance stocks tumble up to 10%: Max Financial, HDFC Life lead sell-off on IRDAI proposal

Shares of insurance companies witnessed broad-based selling on Thursday after the Insurance Regulatory and Development Authority of India (IRDAI) proposed changes to insurance distribution, commission and expense structures.

The sentiment was dented after IRDAI proposed changes to expense-of-management (EOM) limits and commission structures, which brokerages said could significantly alter the economics of insurance distribution.

Weighed down by the development, HDFC Life Insurance shares fell 5.19% on the BSE to ₹532.95, while ICICI Prudential Life Insurance declined 2.76% to ₹471.60. Max Financial Services was the biggest loser among the listed insurers, hitting a 10% decline to ₹1,400.25.

Among others, LIC slipped 0.11% to ₹406.70, while SBI Life was largely flat at ₹1,758.

In the general and health insurance space, The New India Assurance fell 5.05% to ₹181.45, while Niva Bupa Health Insurance declined 3.08% to ₹77.70. GIC of India was down 1.10% at ₹340.45.

On the other hand, ICICI Lombard gained 4.58% to ₹1,574, while Star Health rose 0.31% to ₹551. Go Digit General Insurance was up 0.75% at ₹246.95.

What has IRDAI proposed?

In its consultation paper, “Recalibrating Economics of Insurance Distribution”, IRDAI has proposed new rules to reduce the maximum amount insurers can spend on management and distribution, while also bringing back separate limits on commissions paid to agents and distributors. These commission caps were removed from FY24.

The regulator has proposed lower expense-of-management (EOM) caps for life and general insurers, along with segment-level commission caps. The consultation also seeks to curb “dark patterns” on insurance websites, including practices that require customers to submit personal information before accessing product features, pricing and quality information.

IRDAI has proposed that product and pricing information be disclosed in a standard, easy-to-understand format without requiring consumers to share personal details. It has also proposed stronger safeguards against mis-selling, including making suitability an enforceable obligation for specified life insurance sales.

Stakeholders have been invited to submit comments by October 25, 2026.

JM Financial sees near-term growth pressure

In a report, JM Financial said the proposed reforms could lead to some growth sacrifice in FY28-29 as insurers adjust to lower distribution costs and commission structures.

However, the brokerage believes lower distribution costs could ultimately allow insurers to offer greater customer benefits and drive customer pull.

“Consequently, we believe these norms would be beneficial to insurance manufacturers over the medium term (3–5 years),” JM Financial said.

The brokerage continues to prefer SBI Life and Max Financial Services among life insurers and Star Health among health insurers.

Scale could become a bigger advantage

JM Financial expects larger insurers to benefit if the proposed norms are implemented in their current form, as scale can provide an advantage in managing non-commission operating expenses.

The brokerage said LIC and SBI Life already comply with EOM norms, while their higher share of closed-architecture business could limit the impact of commission caps.

For general insurers, JM Financial expects the impact to be lower than for life insurers because these products do not compete directly with non-IRDAI-regulated financial products such as mutual funds and deposits.

The brokerage sees ICICI Lombard and other large general insurers benefiting from scale, while Star Health stands out because it owns around 90% of its distribution.

By contrast, Niva Bupa could face relatively higher pressure, with around 30% of its business coming from corporate agents and another 30% from brokers, according to JM Financial.