From Harshad Mehta to NSE
Shenoy points to the early 1990s market crisis as an example of how regulatory intervention can reshape an industry. He notes that the National Stock Exchange emerged after the problems surrounding the existing exchange structure and the Harshad Mehta episode, while SEBI’s role expanded in the aftermath.
He also cites subsequent changes in securities markets, including restrictions on brokers using client securities, improved corporate disclosures and reforms in the mutual fund industry.
According to Shenoy, these changes did not necessarily mean that every incumbent was acting improperly. “Each of those regulations hurt existing players, some of whom were doing things in the right spirit,” he said.
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But the longer-term outcome, in his view, was greater confidence in the financial system. “The trust that SEBI has generated in the securities ecosystem has allowed financial investments to flourish,” Shenoy said.
Why insurance is now facing a similar reset
Shenoy sees a similar dynamic playing out in insurance, where the Insurance Regulatory and Development Authority of India (IRDAI) has proposed changes to distribution economics, commissions, insurer expenses and customer protection.
One proposal seeks to allow consumers to access insurance product details—including prices, performance and quality information—without first providing phone numbers, email addresses or identification documents.
IRDAI has proposed standardised access to product information sheets, FAQs, brochures and premium rates. It has also proposed making information on claims, insurer performance and grievance redressal easier to access and compare.
The regulator has described requiring personal information before displaying basic product information or prices as a potential “dark pattern” and proposed prohibiting the practice.
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Commission reforms could hurt incumbents
The consultation paper also proposes lower limits on first-year commissions for life insurance and a five-year reduction in Expense of Management limits, with proposed ceilings of 12.5% for life insurers and 20% for general insurers.
IRDAI has highlighted the divergence between premium and commission growth in certain channels. Between FY23 and FY25, premiums generated through brokers in general insurance increased 37%, while commissions rose 173%. In life insurance, premiums generated through corporate agents grew 28%, while commissions increased 125%.
The regulator has argued that such trends could shift competition away from price and product quality towards sales incentives.
Short-term pain, longer-term market
For Shenoy, the immediate impact on insurers and distributors should not be viewed in isolation from the broader objective of creating trust.
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“More regulation will come, and our mutual fund and PMS will also see more changes that are unfavourable, but this is the cost of building trust,” he said.
At the same time, Shenoy does not suggest that every regulation is automatically beneficial. He says there should be room to discuss reversing rules that may actually benefit investors.
His broader message to investors is that regulatory pressure can create both risks and opportunities. Companies facing higher costs may see near-term pressure on profitability, while businesses that were disadvantaged by competitors exploiting regulatory arbitrage could benefit from tighter rules.
“This is how we will grow better, not just ‘grow’,” Shenoy said.
