India’s bancassurance engine is beginning to lose momentum, with slower sales at key partner banks weighing on two of the country’s largest life insurers even as agency and other distribution channels continue to grow.
Both HDFC Life Insurance and ICICI Prudential Life Insurance Co. Ltd flagged pressure in bank-led distribution on Wednesday as part of their Q1FY27 earnings. Both insurers nevertheless reported healthy growth in the first quarter, with the pressure concentrated in bank-led distribution rather than their broader businesses.
The slowdown comes as the insurance industry faces growing scrutiny over its dependence on bank partnerships and the commissions paid to distributors. The Reserve Bank of India recently asked banks to monitor and temper accelerated distribution of third-party products, including insurance, to boost other income.
The Insurance Regulatory and Development Authority of India (Irdai) is also reviewing distributor models and commissions and is expected to issue a draft tightening norms around commissions paid to intermediaries and partners.
Bank slowdown weighs on HDFC Life
HDFC Life said distribution through promoter HDFC Bank remained subdued after slowing in the previous quarter because of a bank-level slowdown. HDFC Bank accounted for around 47% of the insurer's retail annualised premium equivalent (APE) during the quarter.
The insurer did, however, regain its share of HDFC Bank's insurance distribution to the level seen in the corresponding quarter a year earlier.
“We have worked closely with our parent and encouragingly our counter share within the bank improved in the quarter and is now trending closer to where it stood at the same time last year, on a run rate basis,” managing director and chief executive officer Vibha Padalkar said in the post earnings analyst call. “While it is early days we see growth pickup as a matter of time rather than anything structural. We expect the channel to progressively contribute to growth as a year progresses.”
Systematix Research said in a post-earnings note that distribution remained subdued and growth was flat from a year earlier “due to softer volumes at the overall parent bank level”. The non-HDFC Bank bancassurance channel, however, reported approximately 15% growth, “reflecting improving competitive dynamics across other partner banks,” it said.
HDFC Life, on Wednesday, reported a 12% year-on-year (YoY) rise in its standalone profit to ₹611.42 crore for Q1 FY27. Value of new business (VNB) for the quarter rose 9% YoY to ₹879 crore, while new business margins stood at 25% compared to 25.1% a year ago. The company's overall industry market share stood at 11.2% by the end of the quarter.
The insurer declared the results post market hours on Wednesday. On Thursday, the stock ended 0.2% lower at ₹567.60 on the National Stock Exchange (NSE).
ICICI Pru recalibrates partner mix
ICICI Prudential Life also pointed to a slowdown in bancassurance, although the channel remained a key contributor. It grew 5.6% from a year earlier and accounted for 27.3% of APE.
That share, however, fell from 29.7% a year earlier and 31.5% in the previous quarter.
Chief distribution officer Amish Banker said in the post-earnings call that the slower distribution reflected the “continued recalibration of business at some of our partner banks”. The insurer called it “a normal part of the business cycle” and said it remained focused on deepening existing relationships and adding new partnerships.
The insurer is also dealing with uncertainty around Standard Chartered Bank, a distribution partner that is tied to former co-promoter Prudential. Prudential has been reclassified as an ‘investor’ by the board of ICICI Prudential Life after deciding to acquire a majority 75% stake in peer Bharti Life Insurance.
ICICI Prudential Life reported a 27.8% on-year rise in standalone profit to ₹386 crore. VNB grew a strong 24.9% YoY to ₹571 crore, while VNB margin increased by 220 bps YoY to 26.7% for Q1FY27.
Shares of the company surged over 4% on Wednesday following the results. However, the stock pared most gains on Thursday, closing 3.1% lower at ₹508.85 on the NSE.
ICICI Prudential Life said the foreign bank “values” its tie-up with the insurer and that it remains keen to build on the relationship.
The insurer's management also pointed to the diversification of its distribution network. ICICI Bank is its largest partner, contributing approximately 15% of business, while no other individual partner contributes more than 5%, Centrum Institutional Research said in a note.
“We remain watchful of the developments with respect to the Standard Chartered Bank channel, following Prudential’s exit from ICICI Pru Life,” Emkay Financial Services said. The expected stake sale by Prudential to bring its holding below 10% as per regulatory requirements is likely to create an overhang on the share price, it added.