Not just PB Fintech, this smallcap stock fell 36% in two days on IRDAI proposals

New business data points to the fact that Apart from PB Fintech, a smallcap stock bore the brunt of the IRDAI proposals by falling 35% in two sessions.

After hitting 20% softer circuit on September 24, Turtlemint stock declined another 16% on September 25, extending its two-day decline to 35%.

Shares of PB Fintech, Turtlemint came under heavy selling pressure after the Insurance Regulatory and Development Authority of India (IRDAI) proposed a sweeping overhaul of insurance distribution economics.

The sharp reaction comes after IRDAI released a consultation paper titled 'Recalibrating Economics of Insurance Distribution', proposing changes to insurance distribution structures, expenses, commissions, market conduct and transparency.

At 11:10 am on September 25, Turtlemint shares were trading 16% softer at Rs 91.7 apiece. In the meantime, PB Fintech shares declined a whopping 40% in two sessions.

The insurance regulator proposed overhauling commission rules to ​cap payouts, ⁠link them to product complexity and spread life insurers' commissions beyond a policy's first year.

PB Fintech and Turtlemint face earnings risk from softer new business commissions. 10% trimmed in commission rates could translate into 10-12% earnings slide for PB Fintech and Turtlemint, stated Jefferies.

Turtlemint is an insurtech platform that uses digital tools to connect insurance firms, local financial advisors, and customers.

Here are the key details of ​the proposals:

*The paper proposes linking commission marks to complexity of products and effort required to sell.

*It prescribes softer commissions for products sold via an "open architecture" such as through ​brokers and banks, which are large channels of sales for health, motor ​and life insurance.

*Mandatory insurance covers such as third-party motor policies would earn little or ‌no ⁠commission.

*Commissions for banks and lenders selling insurance alongside loans are proposed to be capped at 2% to 5% depending on the product.

*Compulsory bundling of insurance with credit would be banned.

*Commissions on health insurance are proposed to be capped ​between 15% and ​20% for distributors ⁠for the first time when insurance is taken. Commissions on renewal and porting of insurance to a different ​insurer have been capped at a softer level of ​5% to ⁠10%.

*Commissions on motor insurance will be capped at 5% to 10% for personal accident cover, the regulator proposed.

*For life insurance, the first-year commission has been ⁠capped at ​between 5% and 20% for distributors depending ​on the tenor of the policy.

The regulator has sought feedback until October 25 before finalising ​the proposals.