PB Fintech Sheds Over ₹34K Cr In M-Cap In 3 Sessions, Turtlemint Loses ₹1,549 Cr

Shares of insurtech companies Turtlemint and PB Fintech continued to spiral today, losing over ₹35,705 Cr in cumulative market capitalisation over the past three trading sessions. While Turtlemint hit a new loss of ₹81.45 during intraday trade today, PB Fintech’s shares lost over ₹30 apiece during early hours of today’s trade.

While Turtlemint’s stock closed today’s trading session 4.07% lower at ₹83.75, PB Fintech’s stock ended 1.17% lower at ₹1,151.90. With this, PB Fintech’s stock has seen an erosion of ₹34,155.78 Cr since Wednesday while Turtlemint’s stock has seen an erosion of ₹1,548.96 Cr.

The bearish momentum of the stocks comes as investors continue to react to the IRDAI’s proposed overhaul of insurance distribution economics. 

On Wednesday, post market hours, IRDAI’s consultation paper, ‘Recalibrating Economics of Insurance Distribution’, proposed bringing back capping product-level commission caps about three years after the regulator removed such limits and shifted to an expense of management (EoM) framework.

While the underlying reasoning for the regulatory body to propose the revision is to curb mis-selling and make distribution costs more reasonable for customers, it could potentially have a consequential impact for insurance distributors.

For companies like Turtlemint and PB Fintech, commissions play a key part in the overall business model, with these earnings contributing to the revenue earned on policies as well as influencing customer acquisition spending and sales incentives.

The proposal, as per PB Fintech cofounder Yashish Dahiya, could lead to these companies rethink their economics across products and channels. During an investor call, Dahiyan mentioned that the company could potentially explore insurance manufacturing, although it would wait for greater regulatory clarity before taking a decision.

However, the proposals are not final. IRDAI has invited comments from stakeholders until October 25, after which the regulator will decide on the final framework.

Understanding The Selling Pressure For Insurtech Stocks

The proposed framework would set different commission ceilings based on the insurance product, distribution channel and effort involved in selling and servicing a policy. 

Open-architecture insurance distribution entities, which include insurance brokers like Turtlemint’s insurance broking arm and Policybazaar, could face lower caps than individual agents and other distributors.

For digital insurance distributors, the proposed changes could put pressure on commissions from health, motor and life insurance policies. This could also affect customer acquisition costs, sales incentives and the economics of partnerships with insurers.

Jefferies has flagged the proposed commission cuts as a risk for both Turtlemint and PB Fintech. The brokerage estimates that a 10% reduction in new-business commission rates could translate into a 10-12% decline in earnings.

The proposed caps vary across insurance categories. For instance, IRDAI has proposed a 15% commission ceiling for insurance distribution entities on new individual health policies and 5% on renewals and portability. For agents, the proposed limits are 20% and 10%, respectively.

Motor insurance could also see a significant reset. 

The proposed framework includes zero commission for insurance distribution entities selling third-party cover on new vehicles, while own-damage, personal accident and legal liability insurance would have a 5% ceiling for such entities.

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