Insurers to Reveal Insurance Claims and Corporate Governance: IRDAI Circular

Introduction

The Insurance Regulatory and Development Authority of India (IRDAI) has released a master circular on corporate governance for insurers, bringing forth a series of disclosure requirements for insurance companies. This circular aims to enhance transparency and accountability in the insurance sector. Let’s explore the key provisions and their implications in more detail.

Disclosure Requirements for Insurance Companies

The circular mandates insurers to disclose the following information in their annual accounts:

1. Commission and Expense Ratios: Insurance companies must provide quantitative and qualitative information on their financial and operating ratios. This includes incurred claim ratios, commission ratios, and expenses ratios.
2. Solvency Margin: Insurers need to disclose actual solvency margin details and compare them with the required margin. This ensures that insurers maintain adequate capital to meet their obligations.
3. Persistence Ratio: Life insurance companies must disclose the persistence ratio of policies sold. This metric indicates the persistency of policyholders in paying premiums and helps assess the quality of the insurance book.
4. Financial Performance: Insurers are required to disclose their financial performance, including growth rates and current financial position. This gives stakeholders insights into the company’s profitability and stability.
5. Risk Management: A description of the insurance company’s risk management architecture should be provided. This ensures that insurers have robust systems in place to identify, assess, and mitigate risks effectively.
6. Claims Information: Insurers must disclose details about the number of claims intimated, disposed of, and pending, along with the duration of pending claims. This enhances transparency and helps track claims efficiency.
7. Pecuniary Relationships: All pecuniary relationships or transactions of non-executive directors with the insurance company must be disclosed in the Annual Report. This promotes transparency and avoids conflicts of interest.
8. Remuneration Package: Elements of the remuneration package, including incentives, for the Managing Director (MD), Chief Executive Officer (CEO), directors, and key management personnel should be disclosed. This ensures transparency in compensation practices.
9. Payments to Group Entities: Insurers must disclose any payments made to group entities from policyholder funds. This promotes accountability and avoids misuse of funds.
10. Material Impact: Any other matters that have a material impact on the insurer’s financial position must be disclosed. This ensures stakeholders have comprehensive information for decision-making.

Fit and Proper Criteria for Directors

The circular also introduces fit and proper criteria for directors. Key points include:

• The maximum age limit for non-executive directors, including the chairperson, is set at 75 years.
• Independent directors can be appointed for a maximum of five consecutive years. Reappointment for a second term requires a special resolution by the insurer.
• No director can hold office for more than two consecutive terms, subject to approvals.
• The position of MD, CEO, or Whole-time Director cannot be held by the same incumbent for longer than 15 years. This promotes leadership rotation and fresh perspectives within the organization.

Benefits 

The IRDAI on corporate governance brings several benefits to the insurance sector:

• Transparency: Disclosure requirements enable stakeholders to make informed decisions, enhancing transparency in the insurance industry.
• Accountability: By disclosing key financial information and relationships, insurers are held accountable for their actions and decisions.
• Risk Mitigation: The focus on risk management ensures insurers have robust systems in place to identify and mitigate risks effectively.
• Efficient Claims Processing: Disclosure of claims information allows policyholders and other stakeholders to track claim settlement efficiency.
• Enhanced Governance: The fit and proper criteria for directors ensure that competent and capable individuals are appointed to key positions, contributing to better governance practices.

Conclusion

The IRDAI’s master circular on corporate governance and disclosure requirements for insurers is a significant step towards enhancing transparency, accountability, and governance in the insurance sector. By facilitating greater visibility into insurers’ operations and financials, this circular aims to safeguard the interests of policyholders and stakeholders. Insurance companies should study and implement these provisions to ensure compliance and build trust in the industry.

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