Poor returns on life insurance savings products or delays in settling claims and grievances in health and motor insurance could now directly hit the pay packets of top insurance executives. The insurance regulator has mandated that at least 50% of the variable pay and incentives of key managerial personnel (KMPs) at insurance companies be tied to parameters such as product performance, claim responsiveness, grievance redressal and policy persistence from FY27.
The Insurance Regulatory and Development Authority of India (Irdai) on Tuesday amended certain provisions of its Master Circular on Corporate Governance for Insurers, 2024, aligning remuneration frameworks for managing directors, CEOs and other KMPs with customer outcomes and transparency standards.
Under the revised framework, six broad parameters including overall financial soundness, product performance, claim responsiveness, grievance redressal, implementation of Indian Accounting Standards, and removal of “dark patterns” in customer interactions will together carry a 50% weightage in the assessment of performance-linked pay and incentives for KMPs. Of this, accounting standards implementation and dark pattern removal will carry a 10% weightage each, while the remaining 30% weightage will be determined by the board.
This is the first time Irdai has explicitly included “product performance” and “claim responsiveness” among the metrics for evaluating executive incentives. “Evolving expectations of customers and needs of the economy require us to place greater emphasis on measurable customer outcomes, transparency in decision-making, responsiveness, and sustainable value creation,” Irdai Chairman Ajay Seth said.
Under product performance, insurers will have to publicly disclose detailed product information, including features, exclusions, premium trends, policy exits and returns generated by savings-oriented life insurance products over the preceding three years.
On claim responsiveness, insurers will be required to disclose the proportion of claims settled, rejected or closed within 15 days, 30 days and 60 days, along with the number of pending claims. Similarly, insurers must segregate grievances and service requests strictly in line with regulatory expectations and disclose the number and proportion of grievances resolved within prescribed timelines and those remaining unaddressed.
Seth said the revised framework moves beyond traditional operational and financial metrics to place greater emphasis on customer-centric and governance-oriented outcomes.
Earlier, 60% weightage was given to overall financial soundness, compliance with Expenses of Management regulations, claim efficiency, grievance redressal, reduction in unclaimed amounts of policyholders, and improvement in persistence for life insurers and renewal rates for general and health insurers.
“This is certainly a much more balanced and watered-down version compared to the draft. Allowing a 50-50 say between the regulator and shareholders is a welcome move,” said the chief executive of a private life insurer.
In its draft proposal circulated to CEOs, Irdai had suggested a 40-30-30 performance evaluation structure, with 40% weightage linked to customer-related metrics, 30% to shareholder-linked parameters and 30% to regulatory compliance metrics.
The updated framework also empowers boards to place greater focus on customer satisfaction, timely settlement of claims and grievances, reduction in repeat complaints and service failures, and delivery of fair and transparent processes. The balance 50% weightage for performance assessment has been left to the board or nomination and remuneration committee, which can adopt additional parameters in line with the insurer’s business plan.
However, some insurers also feel certain provisions of the latest circular to be operationally cumbersome. For instance, parameters forming the basis of remuneration package (including incentives) of MD & CEO and all other directors and Key Management Persons will now have to be disclosed on their websites along with corresponding information for the preceding three years in an “easy to access” and “easy to understand” manner.
“Putting all the executive pay parameters on the website is a bit too much. After all, it is an employment contract between the individual and the board, while the regulator already has visibility into it,” said a senior executive from the life insurance industry.
Typically, insurance CEO remuneration comprises 50% fixed pay and 50% variable pay. The revised norms applying to the variable component. The regulations apply to private insurance companies.
Irdai also said refinement and revisions related to reducing Expense of Management, promoting Rural and Social Obligations and boosting coverage of Government promoted schemes such as PMJJBY and PMSBY will be taken up in the proposed revision of respective regulations and master circulars.