New Delhi [India], June 17 : Regulatory uncertainty around proposed distribution reforms has weighed on India's life insurance sector in the near term, but the long-term growth outlook remains favourable as lower product costs and improved affordability could support insurance penetration, according to a Kotak Institutional Equities sector update report.
The report noted that life insurance companies have faced pressure from frequent policy changes, which have created uncertainty for investors and disrupted near-term business planning.
"Life insurance stocks have been significant underperformers, likely reflecting investor frustration with frequent regulatory changes, leading to near-term disruption and uncertainty," the report said.
According to the brokerage, growth across major life insurers has moderated, and some companies have refrained from providing near-term guidance due to a lack of clarity on proposed changes to commission structures paid to insurance distributors.
The report said annual premium equivalent (APE) growth for the top four private life insurers moderated to 11 per cent in FY2026, while uncertainty around proposed changes to commissions and payouts paid to insurance distributors has made planning and budgeting more challenging for insurers.
Despite these concerns, Kotak believes some positive developments are being overlooked by the market.
The report said lower commissions could eventually make insurance products more affordable, similar to the strong demand seen in health and term insurance products after GST reductions.
"Tailwinds to growth post GST cut," the report said, adding that lower commissions "can make products cheaper/further cheaper and hence, lead to better offtake."
According to the report, the strongest demand response is likely to be seen in term and health insurance products, while the impact may be more limited in other categories.
Kotak also expects the industry narrative to improve if reforms lead to better product value for customers.
"A positive narrative goes a long way," the report said, noting that distributors may be encouraged to increase volumes despite lower commission income if insurance products become more attractive and affordable.
The report said concerns in the market are centred on the possibility that significant changes in commission structures could temporarily disrupt distributor cash flows and affect sales momentum as the industry adjusts to a new framework.
"While distribution reforms are aimed to rationalize payouts, which will, over the long term, augur well for industry growth, it has been a challenge for players in near-term planning and budgeting," it said.
However, Kotak argued that reforms aimed at rationalising payouts could ultimately strengthen the sector by improving customer value propositions and supporting broader adoption of insurance products.
The brokerage maintained an "Attractive" view on the insurance sector, saying the current risk-reward profile remains favourable for investors willing to look beyond near-term regulatory uncertainty.
The report added that current market valuations suggest very modest long-term growth expectations for the sector, even as structural drivers such as rising insurance penetration and improving product affordability remain intact.