Page 26 - Life Insurance Today July - December 2020

rules. In India, the concept of CG is still in nascent stage. considerable complexity and it is essential that controls
Recommendations of Kumaramangalam Birla and CII exist for the protection of policyholders.
Committees are the first steps in India towards ensuring 3. Competence: Both the buying and selling of insurance
better CG. Prior to the above recommendations, SEBI had
are unlike many other forms of product purchasing. A
taken various steps to strengthen CG in India. tangible product is not being purchased; a promise to
1. Responsibility for ensuring good corporate conduct provide indemnity, an exact compensation, is what is
shifted from Govt. to a free-market economy. being bought and sold. Those who deal in such promises
2. Active participation of individual and institutional must be competent persons and able to fulfill their
investors. pledges when the need arises. Therefore, regulations
3. Increasing competition in global economy. are necessary in the management of insurance and
investment business.
4. The enhanced competition in the Global economy has
compelled corporations to perform better by going in 4. Insurable interest: Insurable interest is one of the
basic doctrines of insurance. Governments have found
for cost-cutting, corporate restructuring, M&As,
downsizing, etc. All these activities can be carried out it necessary to introduce legislation in order to
successfully only if there is proper CG. eradicate any element of gambling. It was not
acceptable that unscrupulous persons could benefit by
5. Thus, market forces, active individual and institutional
effecting policies of insurances where they had no
investor participation, and enhanced competition have financial interest in the potential loss, other than the
helped CG to evolve beyond a set of static rules.
profit they would make if it occurred.
5. Provision of certain forms of insurance: An element
IRDAI and Corporate Governance of
of intervention has been in evidence where forms of
Outsourcing: cover have been made compulsory, as in the case of
If a firm outsources any aspects of its business, that part of employers' liability and third party motor accident
the business cannot escape the requirements of the IRDAI. injuries. The intervention is not in the provision of cover
This has particular relevance to claims handling as many by government, but in establishing the nature of the
companies have outsourced this work to companies outside cover to be granted.
the insurance sector. The main justification for State control 6. National Insurance: For some areas of social risk, the
is to protect the public, but this aim is also accompanied Government's intervention has been total and it has
by one relating to socially desirable measures. In the assumed the responsibility for providing certain covers.
following list, the first three items relate to protection, and This has been the case in areas such as micro-insurance,
the last three to social measures: MSME Specific, unemployment, sickness and widows'
1. Maintain solvency: Perhaps the greatest step taken benefits; the State carries the risk under the national
by legislation was to introduce solvency margins that scheme.
were related to premium income. In this way, a ratio
was established between the margin and the amount Corporate Governance Guidelines for
of business undertaken. This prevented certain people, Insurers by IRDAI:
with fraudulent aims, from providing insurance and
The objective of the guidelines is to ensure that the
acted as a continual monitor on those already
structure, responsibilities and functions of Board of Directors
transacting it.
and the senior management of the company fully recognize
2. Equity: The term equity has been used, but equally the expectations of all stakeholders as well as those of the
suitable would have been morality, fairness or regulator. The structure should take steps required to adopt
reasonableness, as each implies the fact that an sound and prudent principles and practices for the
element of fairness must exist between companies and governance of the company and should have the ability to
policyholders. The insurance contract is one of quickly address issues of non-compliance or weak oversight

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26 July - December 2020 Life Insurance Today