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Pursuant to the concerns initially raised by it in Dec-25, about higher (and even rising) acquisition cost, especially for private life insurers and general insurers, the RBI in its Jun-26 FSR (Read: https://tinyurl.com/RBIFSRJUN2026) has again flagged the issue—of higher acquisition cost resulting in operating efficiencies not kicking in and, hence, causing hinderance to policyholder value creation and leading to possible mis-selling. This underscoring comes at a time when sector regulator IRDAI is likely to issue a draft regulation on Commissions (and possibly on Expenses of Management-EoM) in coming weeks. Earlier this year, we argued in our note (Read: Elephant in the room back in focus) that high acquisition cost remains a huge sector concern, though such cost must be seen in the context of product and distribution channel. Against this backdrop, the regulator is likely to prescribe commission limits based on a combination of the product (risk, savings, and investments) and distribution channel (dedicated, high touch, and high-effort vs incidental and low-effort sales).

The RBI once again highlights higher acquisition cost being the root of various problems

After flagging it in its Dec-2025 FSR, the RBI has, once again, highlighted that higher acquisition cost for private life insurers and general insurers is a cause for concern. It opines that this higher upfront acquisition cost is the root cause of various problems, including poorer policyholder value proposition, stagnant insurance penetration, poor margins for insurers, poorer persistency, and higher mis-selling

Higher acquisition cost – Correct symptom identification, but wrong

diagnosis Assessing insurers’ operating cost (acquisition and maintenance) calls for a nuanced perspective, not a simple yardstick evaluation. Per media reports, sector regulator IRDAI seems to be cognizant of this and is likely looking to release holistic regulations on commissions and EoM. Commission payout needs to be dependent on product construct (risk, savings, investment, and pension), distribution channel (High touch and Dedicated, Low touch and Incidental), and distribution outcomes (persistency and surrender). Against this backdrop, a lower upfront commission with higher renewal commissions, much stricter commission caps on credit life products, and lower commissions for banks, NBFCs, and large brokers vs Individual agents looks like a possibility

Brand and distribution edge must reflect in the cost advantage

In a sector where regulatory evolution is a norm rather than an exception, brand and distribution edge will be of meaningful advantage for shareholders and policyholders alike, only if they grant cost advantage to the insurer. Among life insurers, this has been demonstrated by SBILIFE and, to a certain extent, by ICICIGI and STARHEAL in the general insurance space.

Risk-reward favorable in life insurance; valuations turn undemanding

The sustained underperformance by life insurance stocks amid regulatory overhangs has made risk-reward favorable, with life insurance stocks trading almost at the lowest valuation multiples since their listing (Exhibits 12-15). We do not see the upcoming regulatory changes—such as commission regulations, Bima Sugam, or Ind AS implementation—hurting life insurers. Against this backdrop, we see current levels of life insurers’ share prices providing a good entry point. We prefer SBILIFE and MAXF. While valuations of HDFCLIFE and IPRU have turned highly attractive, their new business growth needs to stabilize. A likely OFS by the government is currently an overhang on LICI shares trading at undemanding valuation (FY28E P/EV 0.5x) with improving growth

Retail health maintains momentum, but unchanged TP tariff and pressure in commercial lines a dampener

Catalyzed by the GST exemption, retail health insurance continues to see strong growth. However, nil increase in Motor TP tariffs, persisting competition in Motor OD, and softer pricing environment in commercial lines have become areas of concern for General insurers’ growth and profitability. The underperformance of general insurers, though, seems to be already pricing in these challenges. ICICIGI is likely to see a meaningful boost in its net worth via MTM gains, on a possible NSE IPO. Based on risk-reward, we prefer STARHEAL and ICICIGI.

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