Stewardship guidelines for insurers: IRDAI norms not yet industry standard

In January 2017, Insurance Regulatory and Development Authority of India (IRDAI) had brought out norms for companies to follow as far as disclosures were concerned. Termed “stewardship guidelines”, these meant insurance companies had to make detailed disclosures for their investments and how they took decisions in investee companies. A year on, the guidelines seem to have been implemented by only a handful of insurers (primarily listed ones).

The insurance regulator had said that adoption of principles would improve confidence of policyholders and ensure better corporate governance and decision-making at investee companies. However, it is quite a task to look for this information on an insurer’s website.

IRDAI had asked companies to formulate a policy on the discharge of their stewardship responsibilities and publicly disclose it. It also said that insurers should have a clear policy on how they manage conflict of interest in fulfilling their stewardship responsibilities and disclose the same.

Getting information about investments made by insurance companies and voting decisions is a mammoth task. Not only are these companies extremely secretive, there is no disclosure about why an investment was made in a particular company. Ask any chief investment officer of a large insurance firm and you get a standard response, “We do not comment on individual investments we make”. This is despite the fact that these companies deal with public money.

The seven-point IRDAI guideline included facts like insurers should monitor their investee companies, and should have a clear policy on intervention in these firms. For protection of policyholder interests, the regulator said that insurers should have a clear policy for collaboration with other institutional investors, where required, to preserve the interests of the policyholders (ultimate investors), which should be publicly disclosed.

The regulator had clarified that insurers should have a clear policy and disclosure on voting as well. However, except listed entities, there is no public information on how insurance companies vote in investee firms.

Policyholders’ needs

ICICI Lombard, SBI Life and New India are among few insurers who disclose information.

From a policyholder’s perspective, it is crucial that this information is shared with them because investments are made from their account. Why an insurer has taken a particular decision and what will be its strategy with respect to that investment is something that a policyholder should be made aware of.

Similarly, there have been cases in the past where concerns have been raised and large insurers have been questioned on their investment in companies whose financial value has eroded to a large extent. No such disclosures have been made by them on these activities and the rationale behind their decisions.

The insurance industry has taken a long time to build trust among customers. Enhancing disclosures will not only help improve the transparency, but also set a benchmark for other industries to follow suit.

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