Here is why Insurance stocks like HDFC Life, SBI Life and peers fell on Thursday

Insurance stocks fell in trade on Thursday, November 28, following reports that the Insurance Regulatory and Development Authority of India (IRDAI) may impose a cap on bancassurance contributions from parent banks.

HDFC Life Insurance Company’s stock dropped nearly 6% to an intraday low of ₹640.10 on the BSE. SBI Life Insurance followed suit, falling 6.51% to a low of ₹1,407.50 from its previous close of ₹1,505.50.

ICICI Prudential Life Insurance saw its shares dip to an intraday low of ₹668.00 from a previous close of ₹680.80. However, at the time of writing this report, it was trading 0.62% higher.

ICICI Lombard General Insurance also slipped to ₹1,850.00 against its prior close of ₹1,862.00.

How life insurance company’s shares fell in two minutes

Possible bancassurance cap in focus

Sources indicate that the IRDAI is considering limiting the share of bancassurance business contributed by parent banks to 50% of an insurer’s total distribution.

This move aims to reduce over-reliance on a single channel, thereby mitigating systemic risks.

Currently, parent banks contribute a significant portion of the bancassurance revenue for major insurers:

HDFC Life, Max Life, and SBI Life rely on their parent banks for 85%-95% of bancassurance sales. ICICI Prudential Life sees around 50% of its bancassurance business coming from ICICI Bank.

According to sources, the IRDAI believes that any potential risk to banks could disrupt the insurance business and negatively impact policyholders as well as shareholders of publicly listed insurance companies.

The regulator plans to monitor this situation over the next few months. If insurers fail to meet the target, the IRDAI might consider providing a glide path for compliance.