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Corporate governance in the insurance industry is directed by the corporate governance guidelines for insurance companies that were issued by the Insurance Regulatory and Development Authority of India (IRDAI). The regulatory body issued the guidelines in the year 2009. Corporate governance is vital as it seeks to prevent any form of unlawful economic activity that is partial towards a particular stakeholder. It is a continuous process that ensures fairness to all the stakeholders and strong corporate governance precedes long term success of an organization.
The guidelines for insurance companies issued by the IRDAI cover the major aspects affecting the Insurance Companies. These include:
The guidelines for insurance companies outline the structure for governance to be adopted by the insurance company. It lays down the way in which the Board of Directors shall exercise control in the appointment of the actuary, auditor, and remuneration committee and policyholders’ protection committee.
As per the guidelines, the insurance companies’ board of directors are required to have at least three independent directors. However, it may be noted that this requirement is relaxed for insurance companies in their initial years. They may have two independent directors in the board for the initial five years. The Independent director is required to fulfill the conditions prescribed under section 149 Companies Act, 2013.
It is important to know that the board will be held responsible for the actions of the insurance company. The Board is required to fulfill the expectations of the stakeholders.
The Board of Directors in consultation with the Key Management Persons is required to establish and evaluate strategies and policies to address these areas as mentioned below.
The guidelines for Insurance Companies direct the board to lay down the following control mechanism:
The Board can delegate essential corporate responsibilities to different committees of directors in order to save the Board’s time. The board may form the committees to monitor the whole company. The insurers as per the guidelines are advised by the IRDAI to mandatorily form committees for Policyholder protection, audit, Nomination, Risk Management, Investment and Remuneration, Corporate Social Responsibility (only for profit earning insurers). It may be noted that the Board may form committees additionally, but not mandatory, like the Asset-Liability management committee and the Ethics Committee.
The board may ensure that the information on the following are also disclosed in the annual accounts-
As per the guidelines for Insurance Companies, all outsourcing arrangements should be approved by the Committee of Key management Person and should satisfy the terms of the board approved outsourcing policy. The board or the Risk Management committee should be apprised periodically about the outsourcing arrangements entered by the insurer. The outsourcing contract must contain safeguards regarding the confidentiality of data, processes, and outputs where these were used.
As per the guidelines for Insurance Companies, the insurers are required to examine how much they comply with the prescribed guidelines. They must initiate action immediately to achieve compliance. They should file a report on compliance status to the corporate guidelines annually.
The insurers must have a whistleblower policy where the employees can raise their voices internally concerning the irregularities, weak governance, or such other matter.
These changes in corporate governance are vital for the proper functioning of the insurance companies and to regulate the insurers. These guidelines for Insurance companies were issued keeping in mind the overall growth of the Insurance sector.
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