Insurance regulator Irdai has proposed revised guidelines to be applicable for remuneration payable to key managerial persons of private sector insurers from the current financial year to ensure alignment of their compensation with prudent risk taking, effective supervisory oversight and stakeholders engagement.
Issuing an exposure draft, the regulator has proposed to replace the extant guidelines on remuneration of non-executive directors and key managerial person of private sector insurers, which came into effect from October 1, 2016. These guidelines have been in force for over six years and based on the experience of implementation and compliance by the insurers, Irdai has decided to bring remuneration of other key managerial persons (KMPs) also within the ambit of the guidelines.
Irdai said the objectives of the revised guidelines are to ensure effective governance of compensation, alignment of compensation with prudent risk taking and effective supervisory oversight besides stakeholders’ engagement.
“Insurers should formulate and adopt a comprehensive board approved remuneration policy covering all key managerial persons. The policy shouldbe formulated such that the performance-based variable remuneration shall not encourage key managerial persons to take inappropriate or excessive risks,” said the exposure draft on Insurance Regulatory and Development Authority of India (Remuneration of Key Managerial Persons of Insurers) Guidelines, 2023.
Insurance company’s boards should ensure that in structuring, implementing and reviewing the remuneration policy, the decision-making process identifies and manages conflicts of interests and is properly documented, it said, adding members of the boards should not be placed in a position of actual or perceived conflict of interests in respect of remuneration decisions.
“In case the annual remuneration of MD/CEO/WTD (Whole-Time Director) and other KMPs individually exceeds Rs 3 crore, such excess shall be borne by theshareholders and debited to profit and loss account,” the draft proposed.
The draft proposed in respect of remuneration of the MD / CEO / WTDs, no revision shall be permitted by the IRDAI before the expiry of one year from the date of earlier approval. And, the cost of remuneration paid to MD/CEO/WTD/KMPs shall be borne by the respective insurer only.
On the age and tenure of MD/ CEO/ WTD, the draft proposed, “Subject to the statutory approvals required from time to time, the post of the MD & CEO or WTD shall not be held by the same incumbent for a continuous period of more than 15 years. Thereafter, the individual shall be eligible for re-appointment as MD&CEO or WTD in the same insurer, if considered necessary and desirable by the board, after a cooling off period of at least three years, subject to meeting other applicable conditions.”
The regulator has asked comments and suggestions on the exposure draft by May 15, 2023.