PB Fintech plans slower growth, selective spending to protect margins post IRDAI proposal

New business data points to the fact that PB Fintech held a management call with market watchers today, providing detailed commentary on the Insurance Regulatory and Development Authority of India’s (IRDAI) proposed distribution overhaul, which triggered a 36% single-day plunge in the firm’s stock on Thursday. This was the steepest decline in the stock since its stock-exchange debut, taking it to Rs 1,210.

During the call, management addressed the likely impact on its non-life business and outlined a slower-expansion strategy aimed at protecting profitability, including moderation in hiring and marketing spend.

As per market watchers tracking the tape who participated in the call, management described IRDAI’s consultation paper as quite extreme in its current form. The firm is exploring options across insurance, reinsurance and manufacturing as it works out its response to the proposed framework. The firm is not revisiting its international business foray as part of this reassessment, they further noted.

On the life insurance side, management does not expect a major impact on net present value (NPV) from the proposed changes, the market watchers stated. The pressure, instead, is concentrated on the general insurance business, where the firm anticipates a serious hit to topline.

The firm is not planning mass layoffs or drastic cost cuts. Instead, PB Fintech intends to continue prioritising expansion while reducing the proportion of spending on marketing and operational hiring, and making expansion investments more selective.

Management anticipates FY28 to stay a volatile year as the business adapts to the proposed changes, with a targeted earnings recovery by FY29.

PB Fintech’s pace of hiring could slow going forward, the market watchers stated, with management expecting expansion to resume after an adjustment period of around six months.

A key change under the proposed framework is a reduction in commissions available to insurance distributors. Management stated commissions for an agent selling a fresh health insurance policy could decline by more than half from the current Rs 15,000 figure, the market watchers stated.

Larger agents may find the proposed commission marks less attractive, according to the market watchers. The industry could respond by shifting some agents towards salary-based compensation, while softer distribution costs could eventually backing elevated volumes over time.

For PB Fintech, this creates a transition period in which immediate pressure on non-life economics has to be weighed against the potential long-term benefit of softer distribution costs. Management anticipates both the firm and the broader distribution ecosystem to adapt to the new economics, the market watchers stated.

IRDAI’s proposals include a recalibration of Expenses of Management, segmental commission limits and greater disclosure around commissions, along with restrictions on certain sales practices, changes to motor insurance distribution and limits on incentives to agents and banks.

The firm has additionally submitted a separate distribution consultation paper with inputs from distributors, the market watchers stated, as the industry works through the proposed changes.

The proposed commission reset is likely to make FY28 a transition year for PB Fintech, with management focused on adapting its cost structure and distribution model while targeting a return to earnings expansion by FY29, according to the market watchers.

PB Fintech is yet to inform the exchanges of these developments and has not responded to Moneycontrol’s queries seeking confirmation of the information.