Insurance News Details

Insurance regulator IRDAI asks private insurers to frame pay norms for kmps within 3 months

(01-Jul-23   09:55)

Insurance regulator IRDAI on Friday directed the insurers, within three months to complete the framing and reviewing of their remuneration policies based on issuing revised guidelines applicable for remuneration payable to key managerial persons (KMPs) of private sector insurance companies from the current financial year.

The regulator said, the primary objectives of the Insurance Regulatory and Development Authority of India (Remuneration of Key Managerial Persons of Insurers) Guidelines, 2023, are to ensure effective governance of compensation, alignment of compensation with prudent risk taking, effective supervisory oversight and stakeholders engagement and safety of interest of policyholders and other stakeholders.

IRDAI's revised guidelines stated that, insurance companies should formulate and adopt a ?comprehensive board approved? remuneration policy covering all KMPs. And, the policy should not encourage key managerial persons to take inappropriate or excessive risks for their performance-based variable remuneration. ?The board shall ensure and document that in structuring, implementing and reviewing the remuneration policy, members of the board shall not placed in a position of actual or perceived conflict of interests with respect of remuneration decisions,? the state.

According to the revised guidelines, the minimum parameters which an insurance company should take into account for determination of performance assessment of all KMPs for payment of variable pay or incentives are overall financial soundness such as net-worth position, solvency, growth in AUM and net profit, compliance with expenses of management (EoM) regulations, claim efficiency in terms of settlement and outstanding, among others. These parameters should constitute at least 60% of the total weightage in the performance assessment matrix of MD/CEO/WTDs (whole time director), and at least 30% of the total weightage in the performance assessment matrix of other KMPs individually.

?Variable pay shall be at least 50% of the fixed pay for the corresponding period and shall not exceed 300% of the fixed pay. Where variable pay is up to 200% of the fixed pay, a minimum of 50% of the variable pay shall be via non-cash instrument. The same limit would be 70%, in case the variable is above 200% of the fixed pay,? the guidelines said.

Adding a minimum of 50% of the total variable pay must invariably be under deferral arrangements and the deferral period should be a minimum of three years.

Annual remuneration of KMPs will be the aggregate of fixed pay (including monetary and non-monetary perquisites) and variable pay, for a particular financial year.

The regulator had asked comments and suggestions on the exposure draft by May 15, 2023.

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