1 month ago
Insurance stocks witnessed a decline on Tuesday (November 19) following Finance Minister Nirmala Sitharaman's comments advising banks to focus on core banking activities and avoid excessive selling of insurance products.
At the time of writing, SBI Life Insurance shares were down over 3%, making it one of the worst performers in the sector.
HDFC Life Insurance and ICICI Prudential Life Insurance both declined nearly 3%.
Meanwhile, ICICI Lombard General Insurance slipped 1.3%, and Star Health Insurance dropped 1.24% to ₹457.75 apiece on BSE.
Speaking at a recent event, the Finance Minister raised concerns over mis-selling of insurance products by banks, citing its impact on customers.
"Sale of insurance by banks has raised concerns of mis-selling. This indirectly contributes to the cost of borrowing for customers. Banks should focus on core banking activities and not burden customers with unnecessary insurance products," she said.
This statement has put pressure on insurance stocks, especially those heavily reliant on bancassurance—the distribution of insurance through banks.
SBI Life Insurance is likely to face the most scrutiny as it receives 60% of its Annualised Premium Equivalent (APE) from bancassurance, primarily through the State Bank of India (SBI), which is government-controlled.
Analysts believe that stricter regulations or a shift in focus for public sector banks could significantly affect SBI Life's business.
On the other hand, HDFC Life Insurance derives 65% of its APE from bancassurance, mostly through HDFC Bank. Max Life Insurance relies on bancassurance for 52% of its business, with Axis Bank being its largest distributor.
ICICI Prudential Life Insurance relies less on bancassurance, with only 29% of its APE from this channel. ICICI Bank primarily sells term life policies, which are low-premium products.
LIC, the country's largest insurer, has minimal exposure to bancassurance, with just 4% of its business coming from this channel.
Debasish Panda, Chairperson of the Insurance Regulatory and Development Authority of India (IRDAI), emphasised the importance of trust in bancassurance channels.
Speaking at an SBI conclave, he stated, "Banks are crucial to the insurance sector due to the trust they command. However, issues like mis-selling and force selling through bancassurance need to be addressed to maintain customer confidence."
Adding to market uncertainty, the central government plans to introduce significant reforms in the insurance sector, including allowing 100% foreign direct investment (FDI) and easing restrictions on insurance agents.
