In March 2024, IRDAI issued the IRDAI (Corporate Governance for Insurers) Regulations, 2024 (“Regulations”) which set out governance norms for insurers. Notably, IRDAI emphasized the independence of the board of directors (“Board”) from the management of the insurer, establishment of an ESG framework, regulatory oversight on appointment of the chairperson of the Board and minimum number of Independent Directors required on the Board and respective committees. Our detailed analysis of the Regulations can be found here.

In May 2024, IRDAI notified a consolidated master circular for all matters relating to corporate governance in insurance companies. Together, the IRDAI (Corporate Governance for Insurers) Regulations, 2024 (“Regulations”) and Master Circular on Corporate Governance for Insurers, 2024 (“Master Circular”), replaces the Guidelines for Corporate Governance for Insurers in India, 2016. According to IRDAI, the new regime prioritizes meeting the expectations of all stakeholders, especially policyholders, while ensuring the adoption of sound and prudent governance principles and practices.

The Regulations are effective from 20 March 2024 and the Master Circular from 22 May 2024. Insurance companies were required to comply with the Master Circular by 30 June 2024, unless the provisions prescribe otherwise. This article captures the key obligations in relation to corporate governance of insurance companies mentioned in the Regulations and Master Circular.

All capitalised terms in this article will have the same meaning as in the Master Circular and Regulations.

Key Compliance Requirements for Insurance Companies

1. Board of Directors

Composition: IRDAI has reiterated that the Board should have an optimum composition of Independent and Non-Executive Directors including (i) a minimum of three Independent Directors; and (ii) at least one woman Director. The exemption allowing only two Independent Directors for the initial five years after grant of registration to an insurance company, has been removed.

The CEO should be a Whole-Time Director of the Board. Prior approval of the Competent Authority (as defined in the Regulations) is now required for appointment of the Chairperson of the Board. Until now, the IRDAI left it to the discretion of the Board to choose its Chairperson. The incumbent Chairperson can continue up to 31 March 2026 or until they complete their current tenure, whichever is earlier.

IRDAI must be notified promptly in case the number of Independent Directors in an insurance company falls below three. The resignation / removal of an Independent Director must also be intimated, with reasons, to IRDAI within 30 days. The vacancy must be filled by the subsequent Board meeting or three months from the date of such vacancy, whichever is later.

Quorum for Board meetings: IRDAI has now mandated that the quorum for Board meetings is one-third of the total strength of the Board or three Directors, whichever is higher.

Fit and Proper Criteria: IRDAI has now mandated a new ‘fit and proper’ criteria for the Directors, which includes the following key requirements:

• age limit for non-executive directors including Chairperson is 75 years;
• age limit for Managing Director, CEO and Whole-Time Director is 70 years;
• Independent Directors can be appointed for a term of up to five consecutive years and, subject to a special resolution, thereafter be reappointed for a maximum of one more term;
• the post of Managing Director, CEO and Whole-Time Director cannot be held by the same incumbent for more than 15 continuous years (inclusive of present term) and if such persons are appointed by a promoter/ major shareholder, then the post cannot be held for more than 12 continuous years; and
• a promoter / shareholder cannot hold whole time positions in the company.

Appointment of Common Directors: IRDAI has provided a framework for appointment of Common Directors which was missing in the previous guidelines. Common Directors representing insurance agent, intermediary or insurance intermediary are now permitted on the Board of an insurer, subject to conditions.

Control functions: IRDAI has also emphasized the need to ensure the independence of ‘control functions’. The Board is required to adopt appropriate mechanisms and processes to ensure independence of control functions such as compliance, risk, audit, actuarial and secretarial actions. It should also lay down a requisite policy framework to ensure that group-wide risks are adequately addressed. Further, a KMP is now forbidden from simultaneously holding positions of conflict of interest, such as ‘business and control function’ or ‘two control functions’. In addition to the previous requirements, IRDAI has also laid down a framework for the internal audit control function.

Remuneration: IRDAI has introduced terms regulating remuneration of Directors and KMPs of a private sector insurer. Set out below are the key requirements under the Master Circular and the Regulations:

Non-Executive Directors/ Chairperson:

• Total remuneration of each Director should not exceed INR 30,00,000 per annum.
• Sitting fees and re-imbursement in relation to expenses for participation in meetings can be paid, in addition to the remuneration above.
• No such Director will be entitled to share linked benefits.
• Remuneration of the Chairperson will be subject to approval of IRDAI. If the Chairperson is a Non-Executive Director, remuneration may be proposed by the Board and the remuneration policy should specify the details of the remuneration and incentives to be paid to the Chairperson.

KMPs:

• The annual remuneration should be a combination of fixed pay (including monetary and non-monetary perquisites) and variable pay.
• Variable pay should be in the form of share linked instruments or a mix of cash and share linked instruments and should be at least 50% of the fixed pay for the corresponding period and should not exceed 300% of the fixed pay.
• If the variable pay is up to 200% of the fixed pay, at least 50% of it should be via share-linked instruments. If it is above 200%, at least 70% of it should be via share-linked instruments.
• At least 50% of the total variable pay must be under deferral arrangements for at least three years.
• For the determination of performance assessment of KMPs for payment of variable pay/ incentives or for revision of fixed pay, certain minimum parameters as set out in the Master Circular should be taken into account.
• The above parameters should constitute at least 60% of the total weightage in the performance assessment for Whole-Time Director/ CEO and at least 30% for other KMPs.
• The variable pay of all KMPs should be subject to malus and claw-back provisions, as incorporated in their employment contracts. Further, the remuneration policy of KMPs should confirm the existence of such provisions in their employment contracts, identifying situations under which the company can invoke such clauses with respect to the entire variable pay.
• Remuneration of the KMPs on deputation from their foreign promoter can be governed by the remuneration rules/guidelines of such promoter.
• KMPs should not be issued/granted any sweat equity shares.

ESOPs: Issuance of equity shares of an insurer with respect to share-linked benefits of KMPs under paragraph (ii) above or employees, should be in compliance with inter alia the following:

In case of unlisted insurers,

• The benefit calculations should be done as per the fair value of the equity shares certified by a Category 1 merchant banker registered with SEBI.
• The total number of ESOPs granted in a year should not exceed 1% of the paid-up equity shares of the company.
• The total number of shares held by employees, including KMPs, should not exceed 5% of the paid-up equity shares at any point of time.
• The company may issue ESOPs of its Indian promoter (whether listed or unlisted) provided that the cost is borne by the company.

In case of listed insurers, ESOPs should be reckoned at fair value as on date of the grant. The norms for grant, valuation and disclosure should be framed in accordance with applicable laws as part of the remuneration policy of the insurer.

• Prior approval of IRDAI is required for modification in the remuneration of Managing/ Whole-Time Director/ CEO.

Policies: IRDAI has now mandated that the Board formulate (i) a policy on related party transactions; (ii) an ESG framework and a climate risk management framework; (iii) a whistleblower policy; and (iv) a stewardship policy basis the prescribed principles in the Master Circular. Notably, the whistle-blower policy should allow employees to raise concerns internally about possible irregularities, governance weaknesses, financial reporting issues, or other such matters. IRDAI has noted that this could include employees reporting in confidence directly to the Chairperson of the Board or its committee, or the Statutory Auditor. The Board is also required to approve all policies formulated by its committees.

2. Committees of the Board

IRDAI has reiterated that the Board should mandatorily constitute (i) an audit committee; (ii) nomination and remuneration committee (“NRC”); (iii) a corporate social responsibility (“CSR”) committee; (iv) a risk management committee; (v) a policyholder protection, grievance redressal and claims monitoring committee (“PPGR&CM Committee”); (vi) an investment committee; and (vii) a With-Profits committee (for a life insurance company). The Board may optionally constitute an ethics committee.

Meetings: The audit committee, risk management committee, PPGR&CM committee and investment committee are required to meet at least four times in a year with a gap not exceeding four months.

Quorum: IRDAI has set the quorum as two members or one-third of the members of the committee, whichever is greater. However, if an Independent Director(s) is/ are mandated to be in the committees, at least one Independent Director is required to form quorum. But, where an Independent Director is mandated to chair the committee, the meeting cannot be conducted in his/ her absence.

More details regarding the committees are provided in the table below:

S. No.	Committee	Composition	Key obligations
1.	Audit Committee	There should be a minimum of three Directors, majority of whom should be Independent Directors. The Chairperson should be an Independent Director with requisite experience but not a member of the committee.	The audit committee is directly responsible for the recommendation of the appointment, remuneration, performance and oversight of the work of the auditors.
2.	NRC	The committee should be constituted as per the Companies Act with an Independent Director as chairperson.	The committee is responsible for formulating a policy on remuneration packages and compensation payment (for CEO, Directors and KMPs) and on retirement/ superannuation.
3.	CSR Committee	The committee should be constituted as per the Companies Act.	The committee is responsible for formulating a CSR policy.
4.	Risk Management Committee	The committee should comprise of at least two Non-Executive Directors, one Independent Director, the CEO, the CFO, the Appointed Actuary and the CRO. The meetings should be chaired by an Independent Director who is not the chairperson of the Audit Committee.	The committee is responsible for formulating a risk management policy and a fraud monitoring policy. IRDAI has now made asset liability management a function of this committee. The risk management function should be under the overall supervision of the CRO. The role of the CRO, which was mentioned in detail in the previous guidelines, has not been specified in the Master Circular.
5.	PPGR&CM Committee	The committee should be headed by an Independent Director and may include an expert/ representative of customers.	The committee is responsible for formulating a policy on customer education. The committee should ensure that a grievance officer is appointed, whose details are published on the company’s website.
6.	Investment Committee	The committee should comprise of at least two Non-Executive Directors, the CEO, the CFO, the Chief Investment Officer, the CRO and the Appointed Actuary. The Board is required to approve any new appointment or removal of members of the committee.	The committee is responsible for formulating an investment policy.
7.	With Profits Committee	The committee should comprise an Independent Director, the CEO, the CFO, the Appointed Actuary and an Independent Actuary. Experts in relevant fields may also be invited to join the committee.	The functions of the committee shall be in accordance with the Master Circular on Actuarial, Finance and Investment Functions of Insurers.

3. Key Management Persons (KMPs) and Statutory Auditor

KMPs can be appointed by the Board as per the recommendations of the NRC. Further, IRDAI should be notified in the event of any vacancy along with reasons. Positions of KMPs should not remain vacant for a continuous period of more than 180 days. Any appointment/ change in the persons holding the position of the KMP should be intimated to IRDAI.

CEO / Whole time Director / Managing Director: IRDAI approval is required for appointment of the managing/ Whole-Time Director/ CEO, unless appointment is governed by other specific laws. The Board must ensure that they are ‘fit and proper’ before recommending their names to IRDAI.

Auditors: The Board should appoint, subject to the shareholders’ approval, a minimum of two auditors as joint statutory auditors on the recommendation of the Audit Committee. Notably, now, the tenure of an audit firm has been reduced to four years at the first instance with a cooling-off period of three years.

4. Reporting Requirements

Key reporting requirements set out in the Master Circular and Regulations are set out below.

S. No.	Description of event	Manner of reporting	Provisions of the Master Circular
1.	Appointment of Managing / Whole-time Directors / CEO / Chairperson	In Form A, B, C of Annexure 1 of Master Circular	2.1(f), 5.2(g), 5.2(h)
2.	Certificate for compliance on appointment of common Directors, filed by CEO	To be reported annually before 30 June in format as shown in the Master Circular on Submission of Returns.	2.2(e)
3.	Deed of Covenant to be entered into with a Director	Deed as shown in Annexure 3 of Master Circular	2.3(f)
4.	Declaration from the proposed/ existing Directors at the time of appointment / reappointment	In format as in Annexure 4 of Master Circular	2.4(h)
5.	Appointment and reporting of KMPs	In Form KMP-1 and Form KMP-2 as in Annexure 5 of Master Circular	4.5(e), 5.2(f)
6.	Declaration regarding eligibility of proposed Auditors	In Form A1 of Annexure 6 of Master Circular	7(b), Annexure 6 – point 8
7.	Appointment of Auditors	Within seven working days of such appointment in Form A2 of Annexure 6 of Master Circular	7(b), Annexure 6 – point 9
8.	Return giving details of Chartered Accountant firms engaged in various capacities	In Form A3 of Annexure 6 of Master Circular	7(b), Advisory, Annexure 6 – point 10
9.	Remuneration and other payments to Managing Director / CEO / Whole-Time Director & KMPs	In format as shown in Annexure 7 of Master Circular	9.5(b), 9.5(d)(i)
10.	Additional information	To be reported annually before 30 June in format as shown in the Master Circular on Submission of Returns.	9.5(d)
11.	Report on status of compliance with the Master Circular	To be reported annually before 30 June in format as shown in the Master Circular on Submission of Returns.	10.3(a)
12.	Certificate of Chief Compliance Officer in annual report	In format as shown in Annexure 9 of the Master Circular	10.3(b)
13.	Disclosure regarding voting activities as per Stewardship Principle 6(v)	As shown in Annexure 8 of Master Circular	12
14.	Annual Certificate of Compliance with the Stewardship Principles, approved by the Board and certified by CEO and Compliance Officer per Stewardship Principle 7(ii)	To be reported annually before 30 June in format as shown in the Master Circular on Submission of Returns.	12

Authors: Deepa Christopher – Partner, Sonakshi Verma – Senior Associate and Aanchal Kabra – Associate

Disclaimer: This alert highlights only key issues and is not intended to be comprehensive. The contents of this alert do not constitute any opinion or determination on, or certification in respect of, the application of Indian law by Talwar Thakore & Associates (“TT&A”). No part of this alert should be considered an advertisement or solicitation of TT&A’s professional services.