IRDAI Guidelines: Insurance sector regulator IRDAI has prepared a new blueprint for life insurance companies. Many other companies, including the country’s largest insurance company LIC, are going to be affected. IRDAI Chairman Ajay Seth has made it clear that insurance companies will have to make a major cut in their cost of management (EOM). The biggest benefit of this would be to the general consumer, as policyholders would expect better returns due to the reduction in costs for companies. Companies that are already operating at low cost will also have to make their systems more efficient.

A new target for cost reduction

Currently, the management cost of insurance companies is around 16 percent. The regulator has proposed to reduce it to 12.5 percent over the next five years. Ajay Seth believes that companies which are operating at 12 percent, have full scope to bring it up to 10 percent.

SBI Life currently charges 11 per cent, while LIC’s figure is around 12 per cent. As per the set rules, both these big companies are in the right range. Despite this, the regulator wants these companies to reduce their costs by around 10 percent over the next five years. According to a report, given SBI Life’s low-cost bancassurance model and LIC’s strong agency distribution network, it is possible for both to achieve this target. Ajay Seth says that if top-performing companies can operate at lower costs, even companies that spend 20 to 25 percent should change their models.

There will be a strong impact on the income of banks

With the implementation of this new structure, the payouts for insurance policies sold by banks may come down drastically. Commission on credit-life insurance may be limited to 2 percent. Currently this commission ranges from 28 percent to 45 percent.

This huge cut in commission will have a direct impact on banks’ balance sheets. According to Macquarie’s report, HDFC Bank and Axis Bank could be the most affected by this change. If we look at the figures, the share of bancassurance fees in Axis Bank’s total earnings has increased to 2.4 percent in FY2026. At the same time, its contribution to its profit (PBT) increased from 9.2 percent to 12.5 percent. Similarly, if we talk about HDFC Bank, the share of insurance fee has been 1.9 percent of earnings and 7.3 percent of profit in FY26.

On the other hand, the impact on ICICI Bank, Kotak Mahindra Bank and SBI will be much less. In fiscal 2026, insurance fees contributed just 0.6 percent to ICICI Bank’s profits. While Kotak Mahindra Bank has contributed only 5.8 percent in profit and SBI only 2.6 percent in profit. According to an estimate, other NBFCs may also have to bear a loss of 4 to 8 percent due to this.

Big opportunity for small companies

This new initiative of IRDAI can change the entire game of insurance market. Due to reduction in costs, new competition will be seen in the market. Ajay Seth has clarified that this rule is not limited to big companies only. If small insurers increase their capacity, they can easily overtake the big established players.