HDFC Life, SBI Life stock tumbles over 6% amid reports of IRDAI plan to introduce cap on insurance business emerging from banks

Life insurance stocks, including major players like SBI Life and HDFC Life, dropped up to 6% on Thursday, November 28, after a media report suggested that the Insurance Regulatory and Development Authority of India (IRDAI) is likely to limit the bancassurance business to 50%.

A CNBC-TV18 report said that the insurance regulator has reportedly asked the insurance companies to reduce the share of their business originating from banks to 50% of the total sales.

The report, quoting sources, added that IRDAI is concerned about insurance companies' concentration of business on bancassurance. The insurance regulator aims to limit the business originating from banks.

The report added that nearly 90% of SBI Life's business comes from the State Bank of India, while up to 85% of HDFC Life's bancassurance business originates through HDFC Bank. Private sector lender Axis Bank contributes up to 90% of Max Life Insurance’s total business. ICICI Bank’s contribution to ICICI Prudential Life Insurance is nearly about 50%.

The report also said that the regulatory authority is likely to give insurers a ‘glide path’ to reduce dependency on bancassurance.

IRDAI’s proposed capping of bancassurance comes after recently Finance Minister Nirmala Sitharaman highlighted the need to curb the insurance mis-selling practices.

The insurance regulator’s reported move could be prompted over the potential risks of heavy dependence of insurance firms on banks for their total business. According to IRDAI, any risk to banks could severely impact the insurers and negatively affect the policyholders, the report suggested.

Bancassurance refers to a partnership or arrangement between a bank and an insurance company. The partnership allows the insurance provider to sell its products to the bank’s customers. Generally, banks act as the major distribution and sales channels for the insurance products of their respective insurance partners.

The report also said that the IRDAI plans to monitor the situation for the next few months.

Max Financial Services, the parent company of Max Life Insurance, dropped the most, as its shares tanked up to 7.92%. However, the stock recovered some losses to trade at ₹1,112 apiece on the NSE, down by 6.4% at 2:20 pm.

HDFC Life Insurance shares traded at ₹643 apiece, down by 5.52% at 02:18 pm. Shares of SBI Life Insurance Company traded at ₹1,414.95 apiece, down by 6.01%, on the NSE.