IRDA

Latest IRDAI Circular on Section 48A of the Insurance Act 1938

The Insurance Regulatory Authority of India (IRDAI) released a circular IRDAI/F&I/CIR/MISC/183/9/2022on 02.09.22. Regarding the framework for the appointment or continuation of common directors under section 48A of the Insurance Act 1938, which shall come into force immediately after such release and will supersede the previous circular IRDA /F&A /CIR/MISC/141/08/2018 dated 30.08.2018 In addition to the framework, the IRDAI circular also enumerates the conditions that must be fulfilled in order for the authority to permit such appointment or continuation of common directors.

What is Section 48A of the Insurance Act 1938?

Section 48A of the Insurance Act 1938 prohibits the appointment of an agent, intermediary or insurance intermediary as common directors of the company. However, the second proviso of this section provides permission of the same to the authority subject to certain conditions or restrictions which may be imposed to protect the interest of policy holders or to avoid conflict of interest.

Entities to which the IRDAI Circular shall be Applicable

The IRDAI circular shall be applicable to the

• Chairman/ CEO of the insurance companies
• Insurance agents, Intermediaries and Insurance Intermediaries

Framework Under Section 48A of the Insurance Act 1938

The authority, through this circular exercise of its powers prescribed under section 14 (1) of the IRDA act 1999^[1], proposed the framework for the appointment or continuation of common directors under section 48A of the Insurance Act 1938.

There is a need to file an application with authority to seek approval regarding the appointment of new or continuation of common directors representing an Insurance Agent, Intermediary or Insurance Intermediary.

Through this IRDAI Circular, the authority may permit the appointment or continuation of common directors subject to the fulfilment of the following conditions –

1. The proposed director must not be working as a Chief insurance executive/ special person or any other officer, for that matter, soliciting insurance business either for or on behalf of the insurance intermediary, insurance agent or insurance intermediary while acting as a director of the insurance company.
2. Such appointment shall not be in conflict of interest or prejudice with the interest of the policyholders of the company.
3. After this circular under section 48A of the Insurance Act 1938, the non-executive directors won’t be entitled to any fees by the insurer until and unless the insurer takes approval from the authority in this regard.However, the directors can get sitting fees from the insurer as per the prescribed norms.
4. There must be compliance with the disclosure requirements as provided by the Corporate Governance Guidelines for Insurance in India IRDA (Preparation of Final Statement and Auditor Reports of Insurance Company Regulation 2002 along with any other applicable laws.
5. A resolution regarding the approval of the appointment of the director’s board must be passed by the board of the company insurance agent, insurance intermediary or insurance intermediary.
6. The common director must refrain from participating in any discussion or voting on matters related to
7.  Any area that could have a conflict of interest
8. Agent/Insurer /Intermediary/ insurance where the person is holding common directorship
9. The common directors must not hold the no. of directorships shall not exceed the maximum no. of directorship prescribed under the existing laws, including the Companies Act.
10. The Agent/insurer /intermediary/ insurance must comply with the other applicable laws.
11. Further, this Circular on section 48A of the Insurance Act 1938 states thatin case any individual already acting or proposed to act as a whole-time director/ executive director on the board of any Agent/Insurer /Intermediary/ Insurance Intermediary should not be appointed a nominee or a common director.
12. The insurer is obligated to file a certificate annually confirming compliance with the IRDAI circular on a financial year basis, and this certificate must be duly certified by the company’s CEO. The compliance must be filed by 30th April of the next financial year.

What are the Powers, Functions and Duties of the IRDA

The powers of IRDAI are specified in Section 14(1) of the IRDA Act 1999, which are enlisted below –

• Regulating, promoting and ensuring orderly growth of the insurance business as well as reinsurance business, as per the provisions of IRDA Act 1999 and any other law for the time being in force.
• Ensure compliance with the requirement of capital structure of the companies as also solvency margin, submission of their returns/reports, insurance business in the rural and social sector, preparation and approval of the amalgamation scheme and transfer of insurance business.
• Issuance of the certificate of registration, renewal, modification, withdrawal, suspension or cancellation of such registration to the applicant
• Protect the interests of the policyholders in matters related to nomination by policyholders, assigning of policy, insurable interest, surrender value of the policy and other terms and conditions of contracts of insurance, and settlement of Insurance claim.
• Call for information from inspection, enquiries and investigations, including audit of the intermediaries, insurance intermediaries’ insurers, and other organizations connected with the insurance business.
• Specifying the requisite qualifications, practical training for intermediary or insurance intermediaries and agents and code of conduct.
• Exercising control over the management of insurers.
• Search and seizure, protection of interest of policyholders.
• Promoting and regulating professional organizations engaged in conducting insurance business.
• Regulation of the investment of funds by insurance companies.
• Investigation and inspection of the affairs of the insurers.
• Adjudication of the disputes between insurers and insurance intermediaries.
• Supervised the functions of the Tariff Advisory Committee and framed regulations to carry out purposes of the Insurance Act, 1938.
• Providing the Code of Conduct for loss assessors and surveyors 
• Promoting efficiency in the conduct of the insurance business.
• Regulation and promotion of professional organizations connected with the insurance and reinsurance business.
• Levying fees and other relevant charges for carrying out the operations of this Act.

Conclusion

The well-defined framework provided in the IRDAI circular is issued after the approval of the competent authority and in the exercise of the powers conferred in Section 14(1) of the Insurance Regulatory and Development Authority Act 1999. The said framework will enable the appointment and continuation of common directors in an efficient manner which would be beneficial for the insurance authority and the policyholders as well as favourable for the insurance business.

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