We would like to ensure that you are still receiving content that you find useful – please confirm that you would like to continue to receive ILO newsletters.
18 June 2019
The Insurance Act 1938 provides guidance on certain conflict of interest situations – for example:
However, with the rapid growth of the insurance industry over the past few years, there has been a surge in insurers and insurance intermediaries and multiple insurers being established under the umbrella of the same corporate group. This has led to an increase in multiple insurance entities having the same directors and thus an increase in situations where such directors may have to deal with a direct or indirect conflict of interest.
To address such conflicts of interest, the Insurance Regulatory and Development Authority (IRDAI) has issued the Exposure Draft on Insurance Regulatory and Development Authority of India (Conflict of Interest) Guidelines 2019, which seek to provide guidance on the conflicts of interest that arise between insurers and other insurance companies or intermediaries which have the same directors.
The draft guidelines define the term 'conflict of interest' as a situation in which:
This includes situations in which a person's impartial and objective performance of duties or decision making could be jeopardised because of their personal interests.
The draft guidelines propose norms to address the material conflicts of interest arising due to common promoter groups. These norms may be summarised as follows:
The draft guidelines propose norms to address the material conflicts of interest which arise due to an insurer and other insurers or insurance intermediaries having the same directors. These rules may be summarised as follows:
No permission is required where a person proposing to act as a common director is an independent director within the same group and the remuneration payable to such director does not exceed Rs1 million per year.
The draft guidelines also propose establishing a procedure for obtaining IRDAI approval under Section 48A of the Insurance Act. The draft guidelines stipulate that directorships among insurers and insurance intermediaries are allowed subject to the prescriptions set out in the table under Annexure A to the guidelines. Insurers and insurance intermediaries cannot appoint common directors under the 'not allowed' categories; however, certain kinds of common director may be permitted on the boards of the insurance entities which fall under these categories.
The draft guidelines seek to provide much-needed clarity to market players in regard to the establishment of general insurance companies, health insurance companies and insurance intermediaries within the same group and provide guidance on addressing conflicts of interest. However, the draft guidelines' retrospective effect (if any) on common directors who have already been appointed to the boards of insurers and insurance intermediaries remains unclear.
For further information on this topic please contact Shubhangi Pathak or Priya Misra at Tuli & Co by telephone (+91 11 2464 0906) or email (firstname.lastname@example.org or email@example.com). The Tuli & Co website can be accessed at www.tuli.co.in.
The materials contained on this website are for general information purposes only and are subject to the disclaimer.
ILO is a premium online legal update service for major companies and law firms worldwide. In-house corporate counsel and other users of legal services, as well as law firm partners, qualify for a free subscription.