At the end of 2009 the Indian insurance market regulator, the Insurance Regulatory and Development Authority (IRDA), issued its Corporate Governance Guidelines for Insurers. This is a lengthy and comprehensive document containing a combination of specific measures and general guidelines to be adopted and implemented by Indian insurers by April 1 2010. The guidelines are supplemental to the requirements of the Companies Act 1956, the Insurance Act 1938 and any other law on the basis that where any provision of the guidelines conflicts with another enactment, that other enactment will prevail. However, where the requirements of the guidelines are more rigorous, they will take precedence.
There seems to be a number of driving forces behind these guidelines, including:
- the unprecedented revelations of the financial irregularities at Satyam;
- the impact of the credit crunch on a number of overseas insurers; and
- the perceived importance of the financial sector in general to Indian economic growth and the public at large.
Of equal importance is the fact that in the coming years a number of Indian insurers are expected to come to market for the first time. According to Section 6AA of the Insurance Act, the existing position is that the Indian promoter of an Indian insurer cannot hold more than 26% of the paid-up equity. For a newly formed insurer, a holding above 26% must be gradually brought down to 26%, starting at the latest from the 10th year after the insurer commenced business. A number of insurers will be commencing their 10th year in the near future and the IRDA has already announced that it intends to publish its guidelines on insurers making public offerings soon.
