Regulatory updates

Section 48A of the Insurance Act, 1938 prohibits the appointment of an insurance agent, intermediary or insurance intermediary (agents or intermediaries) as common directors of a company. However, the second proviso of Section 48A of the Insurance Act, 1938 provides that the Insurance Regulatory and Development Authority of India (IRDAI) may permit agents or intermediaries to be on the board of an insurance company, subject to certain prescribed conditions or restrictions. For this, companies are required to file an application with the IRDAI seeking approval under section 48A of the Insurance Act, 1938, for new appointment or continuation of common director(s) representing such persons.

In this regard, IRDAI, vide a circular dated 2 September 2022 issued the framework for appointment of common director(s) on the board of an insurance company. Subsequently, IRDAI issued certain clarifications on the proposed framework vide a circular dated 13 September 2022.

As per the circulars, the appointment or continuation of common director(s) is permitted subject to the following conditions and restrictions:

• Not to hold office of Chief Insurance Executive/Specified Person: The proposed director should not be working in the capacity of the Chief Insurance Executive/Specified Person, or any other officer responsible for soliciting insurance business for or on behalf of agents or intermediaries, while holding the position of director in the insurance company
• No conflict of interest: There should not be any conflict of interest or prejudice against the interest of the policyholders as a result of such an appointment. Consequently, common director must recuse himself/herself from the discussion and voting on any matter pertaining to an area having potential conflict of interest or where the agents or intermediaries hold common directorship.
• Remuneration of non-executive directors: Insurers should not pay any remuneration to non-executive directors without prior approval of the IRDAI. However, sitting fees can be paid as per the applicable norms.
• Compliance with appropriate corporate governance requirements: Insurers must comply with the relevant disclosure requirements specified under the Corporate Governance Guidelines for Insurers in India, IRDA (Preparation of Financial Statement and Auditor’s Report of Insurance Companies) Regulations, 2002 and other applicable laws.
• Resolution for appointment: A resolution must be passed by the board of directors approving the appointment of the agents or intermediaries.
• Number of directorships: The number of directorships held by the common director must not exceed, at any point of time, the maximum number of directorships²³ as specified under the Companies Act, 2013.
• Executive Director/Whole-Time Director of an agent or intermediary: An individual, who is already acting or proposed to act as the Executive Director/Whole-Time Director on the board of an agent or intermediary, should not be appointed as a nominee/common director. However, this provision would not be applicable in case any director is appointed or proposed to be appointed as a nominee of a promoter of the insurer.
• Appointment as a chairperson: The common director may be appointed as the chairperson on the board of the insurance company, or an agent or intermediary subject to the necessary safeguards to protect the interest of policyholders and avoid any conflict of interest, that may arise due to such appointment.
• Certificate of compliance: The insurers should file a certificate on an annual basis, duly certified by the CEO, confirming compliance with the aforementioned conditions on a financial year basis. The compliance must be filed with the IRDAI not later than 30 April of the succeeding financial year.

IRDAI has further clarified that directors appointed under Section 48A of the Insurance Act, 1938 after obtaining due approval of IRDAI may continue to hold the directorship till completion of tenure of appointment.

The above provisions are effective from the date of issuance of the circular (i.e., 2 September 2022), and they override the previous circular issued in August 2018²⁴ (2018 circular).

23. Section 165 of the Companies Act, 2013 specifies the maximum number of directorships that an individual can hold. It states that no person shall hold office as a director, including any alternate directorship, in more than 20 companies at the same time. Provided that the maximum number of public companies in which a person can be appointed as a director shall not exceed 10.
24. Circular No. IRDA/F&A/CIR/MISC/141/08/2018 dated 30.08.2018

To access the text of the circular, please click here

To access the text of the clarification, please click here

The Insurance Regulatory and Development Authority of India (IRDAI), vide a circular dated 2 September 2022 (2 September circular) had issued a framework for appointment of common director(s) on the board of an insurance company. One of the conditions that had been prescribed for the appointment or continuation of common director(s) was regarding the payment of remuneration to non-executive directors. The 2 September 2022 circular stated that insurers should not pay any remuneration to non-executive directors without prior approval of the IRDAI.
However, sitting fees could be paid as per the applicable norms.

In order to further simplify the process for appointment/continuation of common director(s), IRDAI, vide a circular dated 30 January 2023 (30 January circular) has specified certain conditions subject to which the insurers would be permitted to pay profit related commission to the non-executive director(s). The conditions stipulated in the 30 January 2023 circular are as follows:

1. The insurer has reported positive Profit After Tax (PAT) for the period for which the said commission is proposed to be paid
2. The Board of the insurer has passed the resolution approving such payment
3. The amount of payment of remuneration in the form of profit related commission to each of the non-executive director should not exceed the limits specified in the Guidelines on remuneration of non-executive directors and managing director/chief executive officer/whole-time directors of insurers, as amended from time to time
4. Disclosures with regard to the said payment should be made in the financial statements for the respective financial year, and
5. The insurer must comply with all other applicable laws in this regard.

Effective date: The provisions of the IRDAI circular are applicable with immediate effect.

To access the text of the circular, please click here

In 2016, the Insurance Regulatory and Development Authority of India (IRDAI) had issued the framework for remuneration of non-executive directors/chief executive officer/whole time director/managing director of private sector insurers (the framework).

On 2 May 2023, IRDAI had issued an Exposure Draft (ED), thereby proposing to replace the extant guidelines of the framework. Based on the feedback received from various stakeholders, on 30 June 2023, IRDAI issued the final guidelines on remuneration of directors and KMPs of insurers (the guidelines). The guidelines aim to:

• Bring the remuneration of other KMPs also within the ambit of the proposed guidelines, and
• Provide better clarity to the extent of variable pay with respect to the total remuneration of directors and KMPs, variable pay deferral, malus and claw back provisions, accounting, disclosures, etc.

Some key aspects discussed include:

• Remuneration policy: It has been provided that the process of framing/reviewing the remuneration policy should be completed within three months of the issuance of the guidelines in this behalf
• Components of remuneration structure: The remuneration policy should cover all aspects of the remuneration structure and the remuneration policy should be reviewed annually by the Nomination and Remuneration Committee (NRC).
• Disclosures: Certain quantitative and qualitative disclosures have been mandated in the notes to accounts forming part of the annual report.

Effective date: The guidelines would be applicable w.e.f. F.Y. 2023-24.

To access the text of the guidelines, please click here

With an aim to establish a robust governance framework for insurers, on 20 March 2024, IRDAI notified the IRDAI (Corporate Governance for Insurers) Regulations, 2024 (Corporate Governance Regulations) which replace the extant guidelines relating to corporate governance practices¹³ Circular titled Guidelines for Corporate Governance for Insurers in India dated 18 May 2016. issued in 2016. With greater focus on ethics, accountability and transparency it aims to ensure implementation of sound governance practices and enhance confidence among stakeholders.

As compared to the extant guidelines, some of the additional points covered in the Corporate Governance Regulations pertain to the following:

Environment, Social and Governance (ESG

• Insurers are required to put in place a board approved ESG framework which should be annually reviewed by the board.
• The board is required to establish a comprehensive climate risk management framework based on the size, nature and complexity of operations.

Tenure of Key Management Persons (KMPs)

• The minimum fixed tenure of the Chief Compliance Officer (CCO) should not be less than three years.

Further, in line with the extant guidelines, the Corporate Governance Regulations lay down detailed requirements on the below mentioned aspects:

• Guidelines related to the board of insurers
• Appointment and remuneration of KMPs
• Appointment of statutory auditors
• Disclosure and reporting requirements

To access the text of the directive issued, please click here