Zerodha Chief Warns of Policy Changes After Insurance Rule Overhaul

Zerodha founder and CEO Nithin Kamath warned that regulatory changes are the biggest threat to financial businesses after the Insurance Regulatory and Development Authority of India released new policy proposals. On Wednesday, the insurance regulator issued a consultation paper to revamp insurance distribution, expenses, and digital rules.

Proposed Changes

The draft proposes different commission caps based on the type of insurance and distributor, while allowing tied agents higher rates than other entities. It also sets a phased reduction in expense-of-management limits. For life insurers, this limit would fall to 15% of gross direct premium income within two years and 12.5% within five years. For general insurers, the limit would drop to 25% within two years and 20% within five years. First-year commissions on loan-bundled life cover are proposed at 2 to 2.5% for distribution entities, down from current effective payouts of about 45%. The rules would also ban the compulsory bundling of insurance with loans.

Market Impact

Kamath said that when valuing regulated businesses, investors cannot just extend current profits into the future because one rule change can alter business models and stock prices. Following the draft, insurance and fintech stocks dropped sharply. Shares of Max Financial Services fell 9.81%, HDFC Life Insurance Company dropped 6.13%, The New India Assurance Company declined 5.36%, Niva Bupa Health Insurance Company slipped 4.98%, Medi Assist Healthcare Services fell 4.79%, and ICICI Prudential Life Insurance Company dropped 4.23%. The BSE Insurance index fell 2.20% to close at 1,481.96. Among fintech firms, PB Fintech crashed 35.98% and Turtlemint Fintech Solutions fell 20%. Hariselvan Radhakrishnan, founder and CEO of HST Wealth, said the domestic decline was amplified by the proposals, which triggered heavy selling across insurers and distribution platforms.