Regulatory updates

Section 48A of the Insurance Act, 1938 prohibits the appointment of an insurance agent, intermediary or insurance intermediary (agents or intermediaries) as common directors of a company. However, the second proviso of Section 48A of the Insurance Act, 1938 provides that the Insurance Regulatory and Development Authority of India (IRDAI) may permit agents or intermediaries to be on the board of an insurance company, subject to certain prescribed conditions or restrictions. For this, companies are required to file an application with the IRDAI seeking approval under section 48A of the Insurance Act, 1938, for new appointment or continuation of common director(s) representing such persons.

In this regard, IRDAI, vide a circular dated 2 September 2022 issued the framework for appointment of common director(s) on the board of an insurance company. Subsequently, IRDAI issued certain clarifications on the proposed framework vide a circular dated 13 September 2022.

As per the circulars, the appointment or continuation of common director(s) is permitted subject to the following conditions and restrictions:

• Not to hold office of Chief Insurance Executive/Specified Person: The proposed director should not be working in the capacity of the Chief Insurance Executive/Specified Person, or any other officer responsible for soliciting insurance business for or on behalf of agents or intermediaries, while holding the position of director in the insurance company
• No conflict of interest: There should not be any conflict of interest or prejudice against the interest of the policyholders as a result of such an appointment. Consequently, common director must recuse himself/herself from the discussion and voting on any matter pertaining to an area having potential conflict of interest or where the agents or intermediaries hold common directorship.
• Remuneration of non-executive directors: Insurers should not pay any remuneration to non-executive directors without prior approval of the IRDAI. However, sitting fees can be paid as per the applicable norms.
• Compliance with appropriate corporate governance requirements: Insurers must comply with the relevant disclosure requirements specified under the Corporate Governance Guidelines for Insurers in India, IRDA (Preparation of Financial Statement and Auditor’s Report of Insurance Companies) Regulations, 2002 and other applicable laws.
• Resolution for appointment: A resolution must be passed by the board of directors approving the appointment of the agents or intermediaries.
• Number of directorships: The number of directorships held by the common director must not exceed, at any point of time, the maximum number of directorships²³ as specified under the Companies Act, 2013.
• Executive Director/Whole-Time Director of an agent or intermediary: An individual, who is already acting or proposed to act as the Executive Director/Whole-Time Director on the board of an agent or intermediary, should not be appointed as a nominee/common director. However, this provision would not be applicable in case any director is appointed or proposed to be appointed as a nominee of a promoter of the insurer.
• Appointment as a chairperson: The common director may be appointed as the chairperson on the board of the insurance company, or an agent or intermediary subject to the necessary safeguards to protect the interest of policyholders and avoid any conflict of interest, that may arise due to such appointment.
• Certificate of compliance: The insurers should file a certificate on an annual basis, duly certified by the CEO, confirming compliance with the aforementioned conditions on a financial year basis. The compliance must be filed with the IRDAI not later than 30 April of the succeeding financial year.

IRDAI has further clarified that directors appointed under Section 48A of the Insurance Act, 1938 after obtaining due approval of IRDAI may continue to hold the directorship till completion of tenure of appointment.

The above provisions are effective from the date of issuance of the circular (i.e., 2 September 2022), and they override the previous circular issued in August 2018²⁴ (2018 circular).

23. Section 165 of the Companies Act, 2013 specifies the maximum number of directorships that an individual can hold. It states that no person shall hold office as a director, including any alternate directorship, in more than 20 companies at the same time. Provided that the maximum number of public companies in which a person can be appointed as a director shall not exceed 10.
24. Circular No. IRDA/F&A/CIR/MISC/141/08/2018 dated 30.08.2018

To access the text of the circular, please click here

To access the text of the clarification, please click here