The National Times - PB Fintech Shifts to Non-Insurance Services Amid IRDAI Commission Caps

PB Fintech, the operator of the Policybazaar platform, is preparing for a fundamental restructuring of its business model in response to new regulations proposed by the Insurance Regulatory and Development Authority of India (IRDAI). During its second-quarter fiscal year 2027 earnings call, company leadership confirmed that it plans to expand into non-insurance services to mitigate significant revenue losses caused by tighter caps on insurance commissions.

Yashish Dahiya, chairman and group CEO of PB Fintech, acknowledged during the post-earnings discussion that the company’s insurance distribution revenue would inevitably decline once the proposed regulatory changes take effect. While expressing support for the regulator’s objective to reduce mis-selling and lower consumer prices, Dahiya warned that the financial impact on the insurtech giant would be substantial.

"Lower distribution payouts will reduce our insurance distribution revenue, for sure," Dahiya stated. He had previously cautioned during a separate analysts' call in September that the proposed commission caps could erase up to 30% of PB Fintech’s total revenue. The impact is expected to vary significantly across different insurance segments.

"We think life insurance should not have a major impact," Dahiya explained. "But in terms of general insurance, revenue could decline between one-third and 40% of what we have today. That’s a very serious impact on revenue."

To illustrate the potential financial contraction, Dahiya provided a hypothetical scenario based on the company's current revenue structure. He noted that roughly half of PB Fintech’s core business comes from general insurance and half from life insurance. If general insurance revenues were compressed by 60%, the company’s total revenue would decrease by approximately 30%.

The regulatory shift stems from IRDAI’s consultation paper titled 'Recalibrating Economics of Insurance Distribution.' The regulator argued that commission payouts have grown disproportionately since caps were removed in 2023. According to data shared by IRDAI, distributor remuneration in the life insurance corporate agency channel increased by 125% between fiscal years 2023 and 2025, while new business premiums rose by only 28%. Distributor remuneration now accounts for nearly 27% of first-year premiums, with additional rewards and incentives adding another 30% to 60% on top of base commissions.

The proposed framework aims to link commissions to the complexity of insurance products and the effort required to sell them. IRDAI has also called for stronger safeguards against mis-selling, including a ban on the compulsory bundling of insurance with loans and credit, except where such packages serve the policyholder’s interests.

Under the current draft rules, Dahiya admitted that renewal profitability and fresh payouts from insurance distribution would be "extremely limited." To offset the hit to its Net Present Value (NPV), PB Fintech plans to align its variable and marginal acquisition costs with lower expected payouts. The company also intends to expand non-insurance and ecosystem offerings, such as PB Pay and PB Care+, once final regulations are notified.

When Policybazaar sells policies, such as health, term life, or motor insurance, it earns an upfront commission in the first year and smaller trailing or renewal commissions in subsequent years. The NPV calculates the present value of all future expected cash inflows minus upfront customer acquisition and servicing costs. With insurance distribution economics facing severe strain, PB Fintech may begin charging for services it currently provides for free, including claims assistance.

"We will see, whatever the regulation permits," Dahiya said. "The regulation has made an explicit mention of non-insurance services being allowed. We will explore those, in their entirety."

While Dahiya had previously floated the idea of entering insurance manufacturing to capture value, he clarified that taking minority stakes in existing insurers is off the table. Instead, PB Fintech is in formal discussions with IRDAI to seek regulatory guidance on its broader strategic options. Dahiya stressed that the company has operated "with the heart of a manufacturer" from the beginning by prioritizing insurers’ combined operating ratios (COR) and claims ratios over raw sales volume.

Discussions with insurance partners are increasingly centered around this COR model, which already delivers a 30% to 40% return on equity to partners. Dahiya noted that if distributor take rates drop sharply, customer benefits may need to increase to keep insurer profitability at fair levels.

Management also pushed back against the characterization of Policybazaar as merely a high-commission intermediary. Joint Group CEO Sarbvir Singh noted that Policybazaar performs "at least three and a half" of the four core insurance functions: creating awareness, helping customers choose policies, managing sales and claims support, and assisting with risk management and underwriting.

"If you look at a company’s Expenses of Management (EoM), what do they have to do on Policybazaar’s business, over and above what Policybazaar has already done? The cost may be 1% to 3% at most," Dahiya noted. He added that Policybazaar helps insurers achieve lower claims ratios through better risk selection.

This defense comes after IRDAI proposed capping insurers’ EoM at 12.5% of premiums for life insurers and 20% of gross direct premium income (GDPI) for general insurers over five years. EoM includes operating expenses of insurance business, including commission, remuneration, rewards to agents, and intermediaries.

Perhaps the most significant casualty of the proposed regulatory overhaul is PB Fintech’s offline agent network, PB Partners, which generated roughly Rs 700 crore in revenue during the quarter ended September 2026. Management revealed that the point-of-sale person (POSP) business is currently loss-making and warned its existing model may not survive the proposed rules.

A POSP is an IRDAI-certified insurance agent who sells pre-approved, simple insurance products directly to customers. The model was introduced in 2015 by the regulator to increase insurance penetration across the country. Highlighting that draft regulations propose paying open-architecture intermediaries less than closed-architecture channels, Dahiya questioned the viability of paying agent commissions in a segment dominated by motor insurance.

"Let’s look at the POSP business. We do make a loss there today," Dahiya told analysts. "I think the way the regulations are, that entire business is a bit under a question mark because to an extent, it relies on being able to pay people."

He added that the current regulatory structure does not leave scope for POSP as it exists today, noting that pivoting agents to sell mutual funds or non-insurance products is not an easy transition. Pointing to working capital strains, since PB Fintech pays POSP agents upfront before receiving payouts from insurers, Dahiya said the company is hoping the regulator grants sufficient transition time once final rules are notified.

Regulatory scrutiny also extends to lead collection practices. Bernstein analyst Manas Agrawal asked management whether the way Policybazaar and other insurance aggregators collect personal data, including phone numbers, from customers constitutes a dark pattern.

"So, on dark patterns, we and other players in the industry are engaging with the regulator, and there is increasing clarity on what the expectations are, and we are fully committed to aligning on those," Dahiya responded. His comments followed IRDAI’s proposal to restrict insurance platforms from demanding personal data merely to let users view basic policy details or quotes.

When pressed by Investec’s Nidhesh Jain on how much call-center-converted business could be lost under tighter lead norms, Dahiya declined to disclose figures, calling it "not prudent" while discussions are ongoing.

Even as the regulator pushes for lower distribution expenses across the sector, PB Fintech reported a sharp jump in selling and marketing expenses during the second quarter. This increase was driven by sluggish market demand compared to the post-GST rate-cut surge seen a year earlier. While Dahiya noted that the company is shifting from an "all-in growth" mindset to a sharper focus on cost discipline—including using generative AI to boost advisor productivity by 15% to 20% and slowing down October hiring—management maintained that cutting brand-building ad spend is not an option.

"The biggest challenge in insurance is demand," Sarbvir Singh said. "See, everything else is manageable. The only thing that you can’t manage is demand. So, I think, we will have to spend money to keep the awareness to continue with the focus on building the categories. And, frankly speaking, I think it doesn't impact just Policybazaar, I think it impacts the industry, because, when we advertise, it helps everyone, and I think that’s something that we will have to keep doing."

Dahiya echoed this stance, emphasizing that while upper-end marginal acquisition costs will be trimmed if NPV drops, Policybazaar will not pull back on its core customer proposition.

"If at the marginal level, if your NPV was X, if at the marginal level you were operating at X in terms of cost. If your NPV becomes 0.5x, then your marginal level spend will be 0.5x," Dahiya explained. "There is no reason why you will spend X for 0.5x of business, on a net present value basis."

S.Collins--TNT