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The IRDAI or Insurance Regulatory & Development Authority of India, is a regulatory body th...
Corporate governance guidelines have been issued by the IRDA in order to regulate the insurance business in India. In this article, we will discuss the corporate governance requirement & IRDA Compliance for an Insurance company.
What is Corporate Governance Guidelines for the Insurance Sector in India?
Corporate Governance is the process of promoting corporate fairness, transparency, and accountability. Corporate Governance has come to occupy a very prominent place on the agenda of business houses. Corporate management would do well to realize that it is not merely the appreciation of shareholders’ value which is the ultimate objective but the way it is achieved.
When it comes to insurance companies, the fiduciary responsibility of the management takes a two-pronged direction. As they deal with the policyholders’ money, insurers have to be cautious not just about their own management but also the way the companies where the funds are invested, conduct their business. Failure in achieving would amount the interest of the insurance company.
Insurance companies are surrounded by a complicated pattern of economic, social ideas and expectations. They have a responsibility to themselves, to one another and to their constituencies to make a reasonable and effective response. Insurance is responsible for their day to day business. It must be a thoughtful institution, which rises above the bottom line to consider the impact of its actions on all, from shareholders to the society at large. All acts of the company should not only be the right course of action but also be perceived so. The means are as equal, if not more, important than the goals.
Corporate Governance is better if it’s accepted within:
The insurance company has a fiduciary duty towards the stakeholders. The regulated body i.e IRDAI has issued the comprehensive Corporate Governance Guidelines in 2016 to confirm good governance under the insurance industry.
The IRDAI guideline has put the responsibility of good governance upon the board of the insurance company. IRDAI will oversee the maintenance of the guideline. The guideline is an addition to the Companies Act, 2013 and any other laws or regulations. If the requirements of these guidelines and other rules or guideline of other statute are conflicted then the stricter guideline shall be followed.
The guidelines for insurance companies issued by the IRDAI cover the following aspects:
Let’s look at these one by one.
Corporate governance guidelines for insurance companies outline the structure for governance that is to be adopted by insurance companies. It provides for the way in which the Directors shall exercise control in the various appointments.
Board of Directors-
The guidelines mandates that the insurance companies should have three independent directors but this is relaxed for companies in their initial years. The board shall be held liable for the actions of the insurance company. The board should fulfil the expectations of the stakeholders.
The board of directors have to perform varied functions like complying with the insurance act and there should be fair treatment of employees and policyholders. It must ensure adequate business disclosure procedures.
Control function of the board-
Board is required to have an efficient mechanism for identifying, assessing, controlling and monitoring risks. There has to be appropriate measures to ensure that the policies of the board are complied with.
Committees and their functions-
The board in order to save time can delegate essential corporate responsibilities to different committees of directors. The board can form committees to monitor whole company.
All outsourcing arrangements would be approved by the committee of key management person and it should also satisfy the terms of board approved outsourcing policy.
The board may ensure that information on quantitative and qualitative information on financial and operating ratios of insurance company are also disclosed. The details of actual margin of solvency and the required margin is disclosed. Apart from it details of risk management architecture, details of number of claims disposed, intimated, pending claims, disclosure of remuneration package and any other material fact are also disclosed in the annual accounts.
Reporting to IRDAI-
The insurers are required to examine how much they comply to the guidelines prescribed. They are required to initiate action to achieve compliance.
The insurers are required to have a whistleblower policy which would allow the employees to raise their voice against irregularities etc.
The changes in corporate governance is required to ensure proper functioning of the insurance companies. The insurance sector growth is the main objective behind these guidelines released by IRDAI.