 "Irdai pushes for better governance of insurance firms")
The chief executive of a large life insurance company said the new norms are the first step towards motivating insurers to list on stock exchanges. “A stronger board is the maiden step towards listing on the exchanges. While we already have a strong system on the boards in the industry, it is the next step towards strengthening the structure,” he said on request of anonymity.
Irdai said the objective of new guidelines is to ensure the structure, responsibilities and functions of board of directors. It has asked shareholders to elect or nominate directors from various areas of financial and management expertise such as accountancy, law, insurance, pension, banking, securities, economics, with qualifications and experience that is appropriate to the company.
The regulator said the board of directors of an insurer belonging to a larger group structure should understand the material risks and issues that could affect the group entities, with attendant implication on the insurer. Currently, industry experts said, there is no particular difference between board of an insurer which is part of a larger group and others.
The board of directors is also required to have a minimum of three independent directors. As required under Section 149 of the Companies Act, 2013, there shall be at least one woman director on the board of every insurance company. This norm has not yet been followed by all insurers.
However, insurers which have less than three independent directors, have to ensure that they comply with this requirement within one year of the date of notification of these guidelines. As a matter of prudence, not more than one member of a family or a close relative of an independent director as defined in the Companies Act or an associate (partner, director etc) should be on the board of an insurer as independent director.
Irdai has prescribed a minimum lock-in period of five years from the date of certificate of commencement of business of an insurer for the promoters of the insurance company and no transfer of shares of the promoters is permitted within this period without the specific approval of the authority.
“Retired insurance company CEOs or managing directors will not be able to understand the business needs, but also provide expertise for decision making. Hence, boards will now have more number of such people,” said the head of a mid-size private general insurance company.
The board will be responsible for defining standards of business conduct and ethical behaviour for directors and senior management and also defining the standards to be maintained in policyholder servicing and in redressal of grievances of policyholders.
The board will be required to establish appropriate systems to regulate the risk appetite and risk profile of the company. It will also enable identification and measurement of significant risks to which the company is exposed in order to develop an effective risk management system.