Corporate Governance & Insurance Industry.

8/19/2019 Corporate Governance & Insurance Industry.

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CORPORATE GOVERNANCE & INSURANCE INDUSTRY.

CHAPTER 1

DIFINATION OF CORPORATE GOVERNANCE

The concept of corporate governance i poor!" #efine# $eca%e it cover vario%

econoic apect. A a re%!t of thi #ifferent peop!e have coe %p 'ith

#ifferent #efinition on corporate governance. It i har# to point on an" one

#efinition a the %!tiate #efinition on corporate governance. So the $et 'a"

to #efine the concept i to provi#e a !it of the #efinition given $" oe

note'orth" peop!e.

Various definitions of corporate governance

According to !ir Adrian Cad"ur#.

The "te $" 'hich copanie are #irecte# an# contro!!e#

Corporate Governance i concerne# 'ith ho!#ing the $a!ance $et'een econoic

an# ocia! goa! an# $et'een in#ivi#%a! an# co%na! goa!. The corporate

governance frae'or( i there to enco%rage the efficient %e of reo%rce an#

e)%a!!" to re)%ire acco%nta$i!it" for the te'ar#hip of thoe reo%rce. The ai

i to a!ign a near!" a poi$!e the interet of in#ivi#%a!* corporation an#

ociet"+

According to $at%iesen &'((')

,Corporate Governance i a fie!# in econoic that invetigate ho' to

ec%re-otivate efficient anageent of corporation $" the %e of incentive

echani* %ch a contract* organiationa! #eign an# !egi!ation. Thi i

often !iite# to the )%etion of iproving financia! perforance* for e/ap!e*

ho' the corporate o'ner can ec%re-otivate that the corporate anager 'i!!

#e!iver a copetitive rate of ret%rn.0

The #efinition given $" 1athieen ean that corporate governance i a etho#

'hich trie to fin# o%t the #ifferent incentive 'hich 'o%!# otivate the

anager of a corporate to give a goo# ret%rn to the o'ner of the corporation.

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Corporate governance th% refer to the anner in 'hich a copan" i anage#

an# tate the r%!e* !a' an# reg%!ation that affect the anageent of the fir.

It a!o inc!%#e !a' re!ating to the foration of the fir* eta$!ihent of the

fir an# the tr%ct%re of the fir. The ot iportant concern of corporate

governance i to en%re that the anager an# #irector act in the interet of thefir an# for the hareho!#er.

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CHAPTER '

HI!TORICA6 PER!PECTIVE OF CORPORATE

GOVERNANCE

The ee# of o#ern corporate governance 'ere pro$a$!" o'n $" the

9atergate can#a! in the Unite# State. The g!o$a! oveent for $etter

corporate governance progree# in fit an# tart fro the i#:2;. There 'ere the o## co%ntr":!eve! initiative %ch a the Ca#$%r"

Coittee Report in the Unite# ?ing#o 32;;74 or the recoen#ation of

the Nationa! Aociation of Corporate Director of the US 32;;@4. It 'o%!# $e

fair to a"* ho'ever* that %ch initiative 'ere fe' an# far $et'een. An# 'hi!e

there 'ere the occaiona! internationa! conference on the #eira$i!it" of goo#

corporate governance* ot copanie $oth g!o$a! an# In#ian (ne' !itt!e of 'hat the phrae eant* an# care# even !e for it ip!ication. 1ore recent!"*

the firt a6or ti%!% for corporate governance refor cae after the So%th:

Eat an# Eat Aian crii of 2;;>:;


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Secon#!"* %n!i(e other Aian co%ntrie* the initia! #rive for $etter corporate

governance an# #ic!o%re* perhap a a re%!t of the 2;;7 toc( ar(et caF*

an# the onet of internationa! copetition cone)%ent on the !i$era!iation of

econo" that $egan in 2;;=* cae fro a!!:In#ia in#%tr" an# $%ineaociation* an# in the Departent of Copan" Affair.

Thir#!"* it i fair to a" that* ince Apri! 7==2* !ite# copanie in In#ia are

re)%ire# to fo!!o' oe of the ot tringent g%i#e!ine for corporate

governance thro%gho%t Aia an# 'hich ran( aong oe of the $et in the

'or!#.

Even o* there i cope for iproveent. Hor one* 'hi!e In#ia a" have

e/ce!!ent r%!e an# reg%!ation* reg%!ator" a%thoritie are ina#e)%ate!" taffe#an# !ac( %fficient n%$er of (i!!e# peop!e. Thi ha !e# to !e than cre#i$!e

enforceent. De!a" in co%rt copo%n# thi pro$!e. Hor another* In#ia ha

ha# it fair hare of corporate ca an# toc( ar(et can#a! that ha ha(en

invetor confi#ence. 1%ch can $e #one to iprove the it%ation.

%t a the g!o$a! corporate governance oveent 'a going into a $it of

hi$ernation* there cae the Enron #e$ac!e of 7==2* fo!!o'e# $" other can#a!

invo!ving !arge US copanie %ch a 9or!#Co* J'et* G!o$a! Croing an#

the e/po%re of !ac( of a%#iting that event%a!!" !e# to the co!!ape of An#eren.

After having ha(en the fo%n#ation of the $%ine 'or!#* that too in the

trongho!# of capita!i* thee can#a! have triggere# another ore vigoro%

phae of refor in corporate governance* acco%nting practice an# #ic!o%re

thi tie ore coprehenive!" than ever $efore.

A a US $ae# e/pert recent!" p%t it* ,Enron an# 9or!#Co have #one ore

to f%rther the ca%e of corporate tranparenc" an# governance in !e than one

"ear* than 'hat activit co%!# #o in the !at t'ent".0

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Thi i tr%!" o. In %ne 7==7* !e than a "ear fro the #ate 'hen Enron fi!e#

for $an(r%ptc"* the US Congre intro#%ce# in recor# tie the Sar$ane:O/!e"

5i!!. Thi piece of !egi!ation 3pop%!ar!" ca!!e# SOK4 $ro%ght 'ith it

f%n#aenta! change in virt%a!!" ever" area of corporate governance an#

partic%!ar!" in a%#itor in#epen#ence* conf!ict of interet* corporatereponi$i!it" an# enhance# financia! #ic!o%re. The SOK Act 'a igne#

into !a' $" the US Prei#ent on 8= %!" 7==7. 9hi!e the US Sec%ritie an#

E/change Coiion 3SEC4 i "et to fora!ie ot of the r%!e %n#er

vario% proviion of the Act* an# #epite there $eing r%$!e of protet in the

corporate 'or!# againt oe of the ore #raconian ea%re in the ne' !a'* it

i fair to pre#ict that the SOK Act 'i!! #o ore to change the conto%r of $oar#

tr%ct%re* a%#iting* financia! reporting an# corporate #ic!o%re than an" other

previo% !a' in US hitor".

A!tho%gh In#ia ha $een fort%nate in not having to go thro%gh the pain of

aive corporate fai!%re %ch a Enron an# 9or!#Co* it ha not $een fo%n#

'anting in it #eire to f%rther iprove corporate governance tan#ar#. On 72

A%g%t 7==7* the Departent of Copan" Affair 3DCA4 %n#er the 1initr" of

Hinance an# Copan" Affair appointe# thi Coittee to e/aine vario%

corporate governance i%e.

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CHAPTER 7

CORPORATE GOVERNANCE IN IN!8RANCE

Goo# governance in a corporate entit" ho%!# $e a vo!%ntar" e/ercie an#

anageent ho%!# not re#%ce it to a f%nction that i tat%tori!" enforce#.

9hi!e the $otto !ine %n#o%$te#!" i a(ing a point* entitie ho%!# rea!ie that

the" are in $%ine to enhance the toc(ho!#erF va!%e. Th% the" o'e a

fi#%ciar" reponi$i!it" to each of their hareho!#er. One can ana!"e corporate

governance a a #e!icate $a!ance $et'een the t'in ta( of perforance an#

cop!iance. 9hen profit a(ing $ecoe the o!itar" o$6ective* anageent

ten# to !oe ight of their reponi$i!itie an# thro' ca%tion to 'in#. 9hen the

a%#itor an# other officia! aociate# 'ith %rvei!!ance 6oin the $!ac( #ee#* the

pro$!e a%e h%ongo% proportion. It i e/act!" in thi $ac(gro%n# that

'e ha# the occaion to 'itne evera! a6or corporate #e$ac!e an# %##en!"corporate governance hog the !ie!ight !i(e never $efore. The erie of fiaco

!e# to evera! iportant !egi!ation $eing enacte# in oe of the ot

#eve!ope# econoie an# $eing fo!!o'e# c!oe!" g!o$a!!". 9e hear of

corporate governance in a!ot a!! ection of $%ine* irrepective of their

ie. Corporate governance ha a #ifferent #ienion a far a the in%rance

$%ine i concerne#. On the one han#* in%rer have to $e pr%#ent in

protecting the po!ic"ho!#erF interet a regar# reaona$!ene in charging

prei% o$6ectivit" in ett!ing the c!ai an# o on. On the other* the" a!o

have the reponi$i!it" of profita$!" inveting the po!ic"ho!#erF f%n#. Thi#ean# that in%rer a##itiona!!" have to $e enitive to the anageent

t"!e of

the organiation 'here the f%n# are $eing !o#ge#. To thi e/tent* the" have a

#%a! f%nction to p!a".

!TEP! TA9EN 2: THE IRDA

The %!ti:#icip!inar" 9or(ing Gro%p on Enhance# Dic!o%re* appointe# $"

the IRDA* 'hi!e e/aining the nee# for iproving the p%$!ic #ic!o%re practice of financia! intere#iarie* p%t for'ar# three $roa# recoen#ationM

3i4 a pecific et of #ic!o%re that ho%!# $e provi#e# $" financia!

intere#iarie that inc%r a ateria! !eve! of the re!evant ri( thro%gh

perio#ic report to their hareho!#er* cre#itor an# co%nterpartie

3ii4 i#entification of other #ic!o%re 'hich co%!# $e inforative $%t

'ith repect to 'hich f%rther invetigation i necear" of their cot

an# $enefit or precie!" ho' the" ho%!# $e a#e an#

3iii4 I#entification of certain area 'here )%antitative inforation 'i!! fi!!

the gap in #ic!o%re.

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O2*ECTIVE! OF DI!C6O!8RE

The 'or(ing Gro%p 'hi!e giving it recoen#ation reiterate# the nee# for

e/tenive #ic!o%re* tating that thee ,can increae ar(et #icip!ine an# a"

increae the ta$i!it" of the financia! "te an# !ea# to an iprove# a!!ocationof capita! an# other reo%rce. Greater tranparenc" can a!!o' participant in

the financia! "te to a(e ore infore# 6%#gent a$o%t ri( an# ret%rn

an# to p!ace ne' inforation in proper conte/t. 1ore genera!!"* 'ith greater

tranparenc" there a" $e fe'er ten#encie for ar(et to p!ace ephai on

poitive or negative ne' an# in thi 'a" vo!ati!it" in the financia! ar(et an#

an iportant o%rce of fragi!it" can $e re#%ce#.0 The 9or(ing Gro%pF

conc!%ion ha# three genera! theeM firt* a hea!th" $a!ance i necear"

$et'een )%antitative an# )%a!itative #ic!o%re econ#* intere#iarieF

#ic!o%re ho%!# $e conitent 'ith ho' the" ae an# anage their ri(an# thir#* intra:perio# inforation i necear" for a ore cop!ete vie' of an

intit%tionF e/po%re to ri(. The IAIS Ta( Horce on Enhance# Dic!o%re

approve# the G%i#ance Note on P%$!ic Dic!o%re $" In%rer in an%ar"*

7==7. P%$!ic #ic!o%re of re!ia$!e an# tie!" inforation faci!itate the

%n#ertan#ing $" propective an# e/iting po!ic"ho!#er an# other ar(et

participant of the financia! poition of in%rer an# the ri( to 'hich the" are

e/poe#. S%pervior are concerne# 'ith aintaining efficient* afe* fair an#

ta$!e in%rance ar(et for the $enefit an# protection of po!ic"ho!#er. Ri(

#ic!o%re i critica! in the operation of a o%n# ar(et. 9hen provi#e# 'ith

appropriate inforation that a!!o' the to ae an in%rerF activitie an# the

ri( inherent in thoe activitie* ar(et can repon# efficient!"* re'ar#ing

thoe copanie 'hich anage ri( effective!" an# pena!iing thoe that #o not.

Thi i often referre# to a 1ar(et Dicip!ine* an# it act a an a#6%nct to

%perviion. Corporate Governance 3CG4 encopae the procee*

tr%ct%re* inforation an# re!ationhip %e# for #irecting an# overeeing the

anageent of the intit%tion in the $et interet of the intit%tion an# the (e"

ta(eho!#er that have a ignificant interet in the on:going via$i!it" of the

copan". CG i a cop!e/ inter'eaving of !egi!ation* reg%!ation $%ine

practice* intit%tion* c%!t%re an# ocia! va!%e. Goo# governance i the eanof en%ring that there i a#e)%ate contro! over o$6ective* trategie* contro!

an# operation 'ithin the copan". In a##ition* factor %ch a $%ine ethic

an# corporate a'arene of the environenta! an# ocieta! interet of the

co%nitie in 'hich a copan" operate can a!o have an ipact on it

rep%tation an# on it !ong ter %cce. T'o e!eent of CG 'hich a(e it an

iportant part of effective in%rance %perviion areM


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3i4 effective CG can iprove the confi#ence that invetor have in

a copan" an# therefore trengthen the acce that a copan"en6o" to capita!* an# other for of financing* a an# 'hen it

ight $e re)%ire# an#

3ii4 Effective CG trengthen the contro! 'ithin a copan" to

en%re that the trategie a#opte# an# #eciion a#e $" the

5oar#* acting on $eha!f of the ta(eho!#er* are effective!"

ip!eente#.

Effective CG a!!o' the %pervior to re!" on the 'or( perfore# $" the 5oar#of #irector an# enior anageent an# in #oing o a!!o' the %pervior"

proce to operate ore efficient!" an# effective!" than it 'o%!# in the a$ence

of %ch a re!ationhip. Thi re!iance re!ationhip* ho'ever* nee# a revie' fro

tie to tie to en%re that it i 'e!! fo%n#e#. 5oth the capita! ar(et reg%!ator

an# the in%rance %pervior are interete# that copanie a#opt CG practice.

In cae of the capita! ar(et reg%!ator it i to en%re that the interet of the

invetor are protecte#. In repect of in%rance %pervior* the interet in goo#

CG practice te not 6%t fro the nee# to protect the right an# interet of

the hareho!#er. It i the one" that the invetor have tie# %p in a copan"

that for at !eat a part of it capita! $ae that the %pervior are re!"ing on to

protect the right of the po!ic"ho!#er in the event that the copan" fai!.

In%rance %pervior are interete# in having in%rance enterprie that are 'e!!

anage#* that treat their c%toer fair!"* that are in cop!iance 'ith the

!egi!ation an# other re)%ireent* an# are 'e!! anage# $" copetent ethica!

in#ivi#%a!. In an" in%rance copanie* there i ore po!ic"ho!#erF one"

than the hareho!#erF one" the ie of the po!ic" an# c!ai !ia$i!itie 3an#

proviion or reerve4 e/cee# the ao%nt of aet he!# in repect of hare an#

other capita! intr%ent that the copan" ha i%e#. The invetor 'hi!e

a(ing a #eciion to invet in the in%rance copan" i a'are of the ri(.Po!ic"ho!#er* on the other han#* are %na'are of the ri( rather the" ee( the

ervice of the in%rance copan" to re!ieve their %n'ante# ri( e/po%re.

9hi!e* $oth the hareho!#er an# the po!ic"ho!#er have a coon interet in

the copan" $eing r%n in a pr%#entia!* profita$!e an# o%n# anner* $oar#

#eciion 'hich a" $enefit the hareho!#er a" not neceari!" $enefit the

po!ic"ho!#er* an# vice:vera.

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Thi i 'here the ro!e of the %pervior in ip!eenting CG ac)%ire greater

cop!e/it". CG for one of the corner tone of the IAIS 3internationa!

Aociation of In%rance S%pervior4 core princip!e 3ICP4. 9hi!e ICP ;

foc%e on Corporate Governance* the other ICP 'hich cover vario% apect

re!ating to CG areM

2. S%ita$i!it" of Peron 3ICP:>4

7. Change in Contro! & Portfo!io Tranfer 3ICP:4. The ICP provi#e* ,The ignificant o'ner* $oar# e$er* enior

anageent* a%#itor an# act%arie of an in%rer are fit an# proper to f%!fi!!

their ro!e. Thi re)%ire that the" poe the appropriate integrit"*

copetenc"* e/perience an# )%a!ification0. ICP:; #efine the CG frae'or(

a one 'hich recognie an# protect the right of a!! interete# partie. The

%pervior" a%thorit" re)%ire cop!iance 'ith a!! app!ica$!e corporate

governance tan#ar#. The core princip!e of CG ret on another preie*

'hich i et o%t in ICP:2=* vi.* interna! Contro!. Interna! contro! repreent a

ver" iportant too! that $oar# have to en%re that their #eciion are

ip!eente#. Once in p!ace* interna! contro! $ecoe a ver" po'erf%! too! for

the %pervior. The ICP:2< e$o#ie the princip!e of Ri( Aeent an#

1anageent. A critica! coponent of CG i the a$i!it" of in%rer to recognie

the range of ri( that the" face* an# to ae an# anage thoe ri(

effective!". Effective an# pr%#ent ri( anageent "te appropriate to the

cop!e/it"* ie an# nat%re of the in%rerF $%ine %t e/it* an# the in%rer

ho%!# eta$!ih appropriate to!erance !eve! to ri(. The f%n#aenta! of CG i

#ieination of inforation to a!! the ta(eho!#er* an# thi fin# a cornertone

in ICP:7L pertaining to Inforation* Dic!o%re an# Tranparenc" to'ar# the

ar(et* an# ICP:27 on Reporting to S%pervior an# Off:ite 1onitoring. Hor inforation to $e %ef%!* it %t $e tie!"* acc%rate* cop!ete an# re!evant.

In%rer %t #ic!oe re!evant inforation on tie!" $ai in or#er to give the

ta(eho!#er a c!ear vie' of their $%ine activitie an# financia! poition an#

to faci!itate %n#ertan#ing of the ri( to 'hich the" are e/poe#.

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THE FO8NDATION OF GOOD CORPORATE GOVERNANCE RE6IE!

ON

2. Tranparenc" on financia! reporting an# the #etai! of #ic!o%re.

7. In#epen#ence of a%#itor.

8. In#epen#ence an# e/pertie of the ,in#epen#ent #irector0

. Reg%!ator" enforceent an# it overight.

@. Bega! "te to reo!ve #ip%te ear!" an# 'ith a ene of fairne.

Ro!e of the 5oar#

The 5oar# of Director i the !in( $et'een the peop!e 'ho provi#e capita!

3hareho!#er4 an# thoe 3anager4 that %e the capita! to create va!%e. It

priar" ro!e i to onitor anageent on $eha!f of the hareho!#er. There

have to $ tr%ct%re an# echani to (eep anageent acco%nta$!e to the

5oar#. Sii!ar!" there have to $e tr%ct%re an# echani to (eep the 5oar#

acco%nta$!e to the hareho!#er. There ha to $e a $a!ance of t'o #itinct

po'er.

D%tie of DirectorM

The Director have t'o #%tieM #%t" of care an# #%t" of !o"a!t" the ret i

$%ine 6%#gent. D%t" of !o"a!t" ean %n"ie!#ing !o"a!t" to the

hareho!#er. D%t" of care 'o%!# ean that a #irector %t e/ercie #%e

#i!igence in a(ing #eciion. e %t #icover a %ch inforation a

poi$!e on the )%etion at i%e an# $e a$!e to ho' that* in reaching a

#eciion* he ha coni#ere# a!! reaona$!e a!ternative. In the cae of 9a!tDine" v. it hareho!#er* it ha $een he!# that 'hen a #irector ha

#eontration that he ha acte# 'ith a!! #%e !o"a!t" an# e/ercie# a!! poi$!e

care* the co%rt 'i!! not econ#:g%e hi #eciion. In other 'or#* the co%rt

'i!! #efer to hi ,$%ine 6%#gent0. Un!e a #eciion a#e $" the #irector

i c!ear!" e!f #ea!ing or neg!igent* the co%rt 'i!! not cha!!enge it* 'hether or not

it 'a a ,goo#0 #eciion in the !ight of %$e)%ent #eve!opent.

A #itinction ha $een a#e $" US co%rt $et'een a #irector a(ing a 'rong

#eciion 'ith or#inar" neg!igenceF $%t not acting in $a# faithan# #oing 'rong 'ith i!! coni#ere# an# rec(!e neg!igence.

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The 5oar# ha reponi$i!itie for the fo!!o'ingM

2. S%pervie the perforance of the CEO

7. Revie' an# approve financia! o$6ective* a6or trategie an# p!an8. 9hether the reo%rce are $eing anage# 'ithin the !a'* 'ithin

ethica! coni#eration* an# for enhancing hareho!#er va!%e.

. Revie' the a#e)%ac" of "te of interna! contro! to itigate ri(

e/po%re*

@. Provi#e a#vice an# co%ne! to the anageent.

The 5oar# i e/pecte# to en%re that the perforance of the corporation i

efficient $%t not to r%n it #a":to:#a" a#initration* It i reponi$!e for theovera!! pict%re* not the #ai!" $%ine #eciion* It 6o$ i a!! to #o 'ith creating

oent%* oveent* iproveent an# #irection. It ha to create toorro'F

corporation o%t of to#a". 5%t 'ho i reponi$!e for the copan" The 5oar#

or the 1anageent It i the 5oar# that $ear reponi$i!it" $%t in practice it i

the anageent that ha the infratr%ct%re* e/pertie* tie* contro! an#

inforation. Given thi anageent #oination ho' can a 5oar# e/ercie it

reponi$i!it" 9ho act%a!!" 'ear the cro'n The para#o/ i ho' to a!!o'

$oth to have #"naic contro! 'itho%t #iinihing initiative an# otivation of

either. The tenion $et'een the i to enhance creative an# pro#%ctivit".

9hat inforation ho%!# the 5oar# have for that p%rpoe

2. Hinancia! tateent* an# p!an an# revie'.

7. 1ar(et inte!!igence a$o%t copetitor

8. Ne'paper report an# reg%!ator" circ%!ar an# i%e.

. 1anageent Coittee eetingF in%te.

@. Con%er i%e.

L. Ep!o"ee attit%#e.

5oar# are fo%n# to $e %%a!!" reactive an# not proactive. The" a" e/ercie

negative virt%e of cop!iance. 1a(ing %re that thing are r%nning in or#er

a" $e goo# eno%gh. 5%t it ain 6o$ i to overee anageent i effective

an# atif" ite!f that the anageent i o!ving copan" pro$!e an# i ri(:

ta(ing eno%gh to $%i!# iprove# perforance.

Ro!e of CEOM

9hat one 'ant fro a CEO i that he i a$!e $" virt%e of a$i!it"* e/pertie*reo%rce* otivation an# a%thorit"* to (eep the copan" not on!" 6%t rea#" for

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change $%t rea#" to $enefit fro change* an# i#ea!!" to !ea# the. The CEO

%t $e po'erf%! eno%gh to #o the 6o$* $%t acco%nta$!e eno%gh to #o the 6o$

correct!". The #eciion he a(e ho%!# $e in the !ong:ter interet of the

hareho!#er. 9ho i the $et poition to a(e a #eciion a$o%t the #irection of

the corporation* an# #oe that peron or gro%p have the necear" a%thorit"That i #eterine# $" t'o factorM conf!ict of interet an# inforation.

Deciion %t $e a#e 'ith the fe'et of conf!ict an# ot inforation.

Acco%nta$i!it" %t coe fro 'ithin an# that re)%ire a corporate

governance "te that i ite!f acco%nta$!e. It %t $e contin%a!!" reeva!%ate#

o that the tr%ct%re ite!f can a#apt to changing tie an# nee#.

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CHAPTER ;

GOVERNANCE CODE FOR THE INDIAN

IN!8RANCE IND8!TR:

In the area of corporate governance in India, the approaches would require to

be refined. However, the task of the regulatory bodies would be considerably

eased once proper governance

standards are in place, observes R. Krishna Murthy (M, !atson !yatt

Insurance "onsulting and for#er M $ "%& of 'I )ife Insurance "o. )td.*.

Corporate governance ip!" p%t i 6%t $eing honet a$o%t in ever" 'a" an

enterprie i r%n governing re!ationhip 'ith ever" ta(eho!#er in the copan".

9hi!e honet" i the $et po!ic" ever"'here an# at a!! tie* it nee# to $e

practice# partic%!ar!" in the cae of in%rance in#%tr" 'hich $ear a fi#%ciar"

re!ationhip 'ith c!ient* an# 'here the in#%tr" i 6%#ge# $" it !ong ter

perforance. At a tie 'hen financia! intit%tion are increaing!" %n#er p%$!ic

canner an# oe of the icon in the in%rance in#%tr" in at%re ar(et are

%n#er attac( for $rea(ing !a' an# their (e" anageent peronne! charge# for

perona! aggran#ieent the i%e of corporate governance ac)%ire ne'

#ienion.

8rgenc# in India

There are fo%r a6or factor 'h" #ra'ing %p a et of governance tan#ar# for

the In#ian in%rance in#%tr"* covering !ife a 'e!! a genera! in%rance

copanie* p%$!ic an# private ector* i iportant at thi tage.

Firstly, in !ife in%rance* a 'e!! #rafte# governance co#e an# their a#herence

'o%!# he!p to hore %p the !eve! of p%$!ic confi#ence in the ne' generationin%rance copanie* 'hich ee to %ffer in coparion to BIC #%e to the

a$ence of a !eve! p!a"ing fie!#* 'ith the in%rance po!icie i%e# $" the !atter

carr"ing the tap of overeign g%arantee. 9hi!e there i reporte#!" a ove $"

the governent to !eve! thi fie!# $" reoving the privi!ege en6o"e# $" BIC* it

i perhap )%ite a !ong 'a" off. 1ean'hi!e* a an in#%tr" 'hich engage 'ith

c!ient on !ong ter contract* the ne' generation !ife in%rance copanie

ho%!# $e (een to have a et of tan#ar# againt 'hich the" co%!# $enchar(

their o'n governance to trengthen the p%$!ic iage that the ne' p!a"er can $e

coni#ere# a tr%t'orth" an# #epen#a$!e a their p%$!ic ector co%nterpart.

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Secondly, the In#ian In%rance in#%tr" i et to 'itne a a6or phae of

change* an# poi$!" e/p!oive gro'th* 'ith the !ifting of the foreign e)%it" cap

an# #i!%tion of #oetic prooterF ta(e in the foreeea$!e f%t%re* a 'e!! a

reova! of tariff reg%!ation in the non:!ife ector. There are p!an to pave 'a"for the entr" of !arge n%$er of p!a"er to open $%ine in pecia!ie#

in%rance fie!# %ch a hea!th in%rance $" re!a/ing the capita! an# o!venc"

r%!e. 9e 'o%!# poi$!" 'itne ore foreign fir entering the co%ntr"* an#

(e" anageent peronne! 'ith !iite# in#%tr" e/perience repreenting

#oetic an# foreign partner r%nning the copanie. There are p!an to pave

'a" for the entr" of !arge n%$er of p!a"er to open $%ine in pecia!ie#

in%rance fie!# %ch a hea!th in%rance $" re!a/ing the capita! an# o!venc"

r%!e. At the ae tie* the e/iting copanie in the !ife in%rance ector*

a!ong 'ith facing copetition fro ne' p!a"er* 'i!! pro$a$!" grapp!e 'ithgreater operating cha!!enge* %ch a increaing n%$er of at%rit"* #eath an#

other c!ai on the c%%!ative $%ine $%i!t $" the over the !at fe' "ear.

9e nee# goo# governance tan#ar# againt 'hich the copanieF con#%ct an#

perforance 'o%!# get ea%re# in thi $ac(#rop. On the genera! in%rance

i#e* 'ith the in#%tr" oving a'a" fro the tariff regie* there are going to $e

p!ent" of i%e concerning fair p!a"* tranparenc" an# po!ic"ho!#er ervicing.

Thirdly, the nee# for proper governance tan#ar# in the in%rance in#%tr"

a%e iportance in the conte/t of the In#ian corporate ector getting rea#"

to accept an# !ive %p to a et of corporate governance r%!e* than( to the

initiative ta(en $" the ec%ritie ar(et 'atch#og #%ring the !at t'o "ear.

Copanie that are !ite# in the toc( e/change* an# having pai# %p capita! of

R*8crore or net 'orth of R.7@crore or ore 'o%!# no' nee# to a$i#e $" the

ne' co#e. SE5I ha $o!#!" intro#%ce# a "te of #iincentive:c%:pena!t"

for #efa%!ting copanieM the" r%n the ri( of $eing #e:!ite# fro $o%re* or

the prooter $eing fine# %p to R.7@crore 3the highet in the corporate !a'

$oo(4 or face iprionent %p to 2= "ear. Since in%rance copanie are not

!i(e!" to get !ite# in $o%re in the near f%t%re an# 'o%!# reain c!oe!" he!#copanie* the" nee# to confor to a et of governance r%!e of rea%re ta(e:

ho!#er a$o%t their tan#ar# of perforance an# con#%ct.

Fourthly, there i increaing evi#ence of p%$!ic ector financia! intit%tion

evincing interet to enter in%rance $%ine in partnerhip 'ith foreign

in%rance fir* an# in oe cae a three:'a" partnerhip 'ith private

corporate enterprie. 9hi!e a fe' %ch vent%re have recent!" $een !icene#*

evera! ore are et to ta(e off in the !ife an# non:!ife ector. There i

a$iva!ence 'hether %ch p%$!ic:privateF partnerhip are %$6ect to the r%!enora!!" app!ica$!e to PSU enterprie.

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PSU anageent in genera! have no %nifor vie' in regar# to the

app!ica$i!it" of corporate governance tan#ar# to the. It i iportant that

in%rance vent%re proote# $" PSU are governe# $" c!ear governance princip!e to en# the right igna! that the" are via$!e an# #epen#a$!e tan#

a!one entitie in their o'n right. On a 'i#er conte/t* thi 'o%!# reinforce the

gro%n# on 'hich the financia! ector convergence i ta(ing p!ace in the In#ian

ar(et.

2L


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CHAPTER <

CORPORATE GOVERNANCE AND IN!8RANCE

IND8!TR:

,9e #onFt have to accept that the 'or!# ha $ecoe a !e ethica! p!ace an#

!earn to !ive 'ith it. Even if it ha* 'e can change it0 a" Dr. ?.C*

1ihra3Director Nationa! In%rance Aca#e"* P%ne4 & Dr. Geetan6a!i

Pan#a31gt Hac%!t"* Hinance & Econoic* I1IS* 5h%$ane'ar4.

1o#ern ociet" can p!ace in#ivi#%a! in it%ation 'here the" fin# thee!ve

at o## 'ith princip!e of perona! ethic an# character. O%r #eire for

in#epen#ence an# free#o ha !eft % !e co%nit":oriente#. O%r p%r%it of

happine in the for of 'ea!th ha a#e a #it%r$ing #egree of ocia!!"

accepta$!e gree# an# e!fihne. O%r a$i!it" to #eontrate integrit" i

cha!!enge# $" conf!icting va!%e an# ocia! iperative .

Seven accepte# princip!e of perona! ethic an# character encopaM

2. 9i!!ing cop!iance 'ith the !a'

7. Ref%a! to ta(e %nfair a#vantage

8. Concern an# repect for other

. Prevention of har

@. Tr%t'orthineL. 5enevo!ence

>. Hairne

In#ivi#%a! in a onetie# ociet" contit%te the co%nit" of corporate

citien. Corporate Governance i a$o%t prooting corporate fairne*

tranparenc" an# acco%nta$i!it". H%nctiona!!"* Corporate Governance ean

#oing ever"thing $etter* to iprove re!ation $et'een copanie an# their

hareho!#er to iprove the )%a!it" of Director to enco%rage peop!e to thin(

!ong:ter* to en%re that inforation nee# to a!! ta(eho!#er are et an# to

en%re that e/ec%tive anageent i onitore# proper!" in the interet of hareho!#er. Corporate Governance $ecoe an organic "te 'hen

copanie are #irecte# an# contro!!e# $" the anageent in the $et interet of

the ta(eho!#er an# other en%ring greater tranparenc" an# $etter an# tie!"

financia! reporting.

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9e# Princip+es in t%e Indian conte=t

The OECD ha #efine# corporate governance a a et of re!ationhip $et'een a

copan"F anageent* it $oar#* it hareho!#er an# other ta(eho!#er.Corporate governance provi#e the tr%ct%re thro%gh 'hich the o$6ective of the

copan" are et* an# the ean of attaining thoe o$6ective an# onitoring

perforance are #eterine#. Corporate governance i of co%re an ongoing

proce. 9hi!e the et tan#ar# a" %n#ergo reviion $ae# on e/perience#

an# #eve!opent in the ar(et* the core princip!e 'o%!# reain %nchange#.

Hro an in%rance copan" perpective* corporate governance invo!ve the

anner in 'hich the $%ine of the copan" i governe# $" it $oar# an# the

enior anageent re!ating to fo%r (e" e!eentM

i. o' the copan" et it corporate o$6ective* inc!%#ing the

e/pecte# rate of ret%rn on the hareho!#erF f%n#. IRDA re)%ire

in%rance !icene app!ication to #ecri$e fro the firt tage 3R:24*

the o$6ective of the copan" an# it viion an# iion* a 'e!! a

#etai! of the financia! ret%rn anticipate# $" prooter fro

in%rance operation. The financia! acco%nting r%!e in the In#ian

in%rance in#%tr" re)%ire copanie to egregate po!ic"ho!#erF

f%n# an# hareho!#erF f%n# at an" given tie* an# con#%ct the

tranaction pertaining to hareho!#erF f%n# in a anner that i

fair to the po!ic"ho!#er.

ii. o' the #a" to #a" affair of the in%rance copan" are propoe#

to $e r%n in ever" f%nctiona! area in the copan"* an# 'hat (in# of

interna! contro! are o%ght to $e eta$!ihe# an# enforce#.

iii. o' the copan" propoe to a!ign the activitie an# the

$ehavio%r 'ith the e/pectation that the copan" 'o%!# operate in

a afe an# o%n# anner an# in accor#ance 'ith the app!ica$!er%!e an# reg%!ation.

iv. o' the copan" 'o%!# protect the interet of po!ic"ho!#er.

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CHAPTER >

2OARD ? IT@! RE!PON!I2I6ITIE!

9hi!e the IRDA !icening nor. The ot iportant apect of governanceco#e i to en%re that the co!!ective e/pertie i avai!a$!e on the $oar# to eet

the copetitive cha!!enge of the ar(et p!ace 'hi!e aintaining o%n#ne of

the copan"* re)%ire that the copan" i r%n $" peron 'ho are fit an#

properF for the repective poition* the reg%!ator ha !arge!" !eft i%e

concerning the contit%tion of $oar# an# #efining it reponi$i!itie to the

'i#o of the prooter. The ot iportant apect of governance co#e i to

en%re that the co!!ective e/pertie i avai!a$!e on the $oar# to eet the

copetitive cha!!enge of the ar(et p!ace 'ith aintaining o%n#ne of the

copan". It i iportant to en%re that $oar# e$er* epecia!!" thoe

appointe# to repreent the po!ic"ho!#er interet* are )%a!ifie# for the poition*

an# the" have a c!ear %n#ertan#ing of their ro!e an# are a$!e to e/ercie o%n#*

in#epen#ent 6%#gent #%t" of !o"a!t" a 'e!! a #%t" of care.

There are five (e" apect of governance e/pecte# of $oar# in in%rance

copanieM

Setting an# enforcing c!ear !ine of reponi$i!it" an# acco%nting

thro%gho%t the organiation. In in%rance copanie 'here the ri(

e/perience eerge over evera! "ear* #earcating area of

reponi$i!it"* an# en%ring that there i an appropriate overight $" theenior anageent in ever" f%nctiona! area are cr%cia!.

• Perio#ica!!" ae the effectivene of the copan"F o'n

governance practice 'ith #%e %n#ertan#ing of the reg%!ator"

environent* i#entif" area of 'ea(ne an# a(e change 'here

necear".

• Reg%!ar!" ae that the ri( anageent "te an# po!icie in

the copan" are o%n# an# the" are rigoro%!" a#here# to.

• I#entif"* #ic!oe an# reo!ve conf!ict $et'een the perona!

interet of prooter a 'e!! a enior anager an# the

copan". The conf!ict reo!%tion i%e i partic%!ar!" iportant

'here the in%rance operation are part of a !arge $%ine gro%p of

a financia! cong!oerate.

• Overea that ever" t"pe of co%nication to c!ient an# potentia!

c!ient i c!ear* fair an# not i!ea#ing.

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It i iportant that the $oar# conit of peron 'ho have the e/pertie* a 'e!!

a a$i!it" to coit %fficient tie an# energie to f%!fi!! their reponi$i!itie.

The 5oar# e$er ho%!# reg%!ar!" eet 'ith the enior anageent* a 'e!!

a the interna! a%#it tea* to onitor progre to'ar# the corporate o$6ective.

The" ho%!# ho'ever never participate a e$er of the $oar# 'ith the #a" to#a" anageent of the copan". The $oar# a 'e!! a the enior anageent

'o%!# nee# to en%re that the corporate o$6ective an# the corporate va!%e are

c!ear!" et* an# the" are c!ear!" co%nicate# thro%gho%t the organiation. A

the" a"* the tone i a!'a" et at the top.

7=


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ORGANIATIONA6 !TR8CT8RE AND

F8NCTIONINGB

The $oar# ho%!# e/ercie overight in regar# to a!! po!ic" for%!ationgoverning the operation of an in%rance copan"* %ch a invetent po!ic"

%n#er'riting po!ic" pro#%ct #eve!opent an# ri( anageent po!ic" an#

ta(e reponi$i!it" for overeeing the anageentF action to en%re their

conitenc" 'ith the po!icie approve#. Senior anager contri$%te to an

in%rance copan"F o%n# corporate governance $" e/erciing proper

overight over !ine anager in pecific $%ine area in a anner conitent

'ith the po!icie !ai# #o'n $" the $oar#. The enior anageent i reponi$!e

for proper #e!egation to the taff* 'hi!e at the ae tie $eing cogniant of the

reponi$i!it" on their part an# acco%nta$i!it" to the $oar# to overee the proper e/ercie of the #e!egate# reponi$i!it". It i therefore iportant that enior

anageent en%re an effective "te of interna! an# e/terna! a%#itor in

enforcing proper governance i 'e!! (no'n. The $oar# an# the enior

anageent can enhance the effectivene of the a%#it f%nction in in%rance

copanie $" recogniing it iportance an# the interna! contro! procee an#

effective!" co%nicating the ae thro%gho%t the organiation. In o%r c%rrent

tage of ar(et #eve!opent 'here evera! i%e concerning prei%

acco%nting an# reconci!iation are eerging a the in%rance $%"ing i

prea#ing to far f!%ng area an# covering vario% trata of pop%!ation* tie!"a%#it i an iportant f%nction. It i an e)%a!!" iportant corporate governance

princip!e that the fin#ing of the a%#itor are %ti!ie# in a tie!" an# effective

anner to correct the pro$!e area. Corporate governance tan#ar# ho%!#

a##re corr%ption* e!f:#ea!ing an# other i!!ega! or %nethica! practice in

in%rance copanie. There ho%!# The enior anageent i reponi$!e for

proper #e!egation to the taff* 'hi!e at the ae tie $eing cogniant of the

reponi$i!it" on their part an# acco%nta$i!it" to the $oar# to overee the proper

e/ercie of the #e!egate# reponi$i!it" $e a po!ic" to enco%rage 'hit!e

$!o'er* a 'e!! a %pport ep!o"ee to free!" e/pre an# point o%t vio!ation

to $oar# or enior anageent 'itho%t fear of repria!* either open!" or

anon"o%!".

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Co4pensation po+icies and et%ics

There are a!rea#" i%e %rfacing in the In#ian ar(et concerning the

appropriatene of copenation po!icie in in%rance copanie. Hai!%re to

!in( copenation an# incentive to enior anageent to the !ong ter $%ine goa! can re%!t in action that can r%n co%nter to the po!ic"ho!#er

interet. In genera!* the copenation po!icie ho%!# $e conitent 'ith the

c%!t%re of the in%rance copan"* it !ong ter o$6ective an# trateg".

Transparenc# as t%e core of governance

The iportant of tranparenc" a the core princip!e in corporate governance i

'e!! (no'n. 9ea( tranparenc" an# ina#e)%ate #ic!o%re ten# to f%e! ar(et(eptici* an# in a ne'!" #ereg%!ate# an# !ong ter oriente# in#%tr"* thi

co%!# affect the interet of a!! ta(eho!#er. It i 'e!! (no'n that cop!e/

o'nerhip tr%ct%re contri$%te to opacit". 9hi!e !ite# copanie are

genera!!" ore tranparent* c!oe!" he!# fir %ffer on thi acco%nt $"

coparion. The In#ian in%rance reg%!ation ephaie the iportance of

tranparenc" in ever" apect of copan" operation. At the c%rrent tage* there

i )%ite a 'a" to go for copanie to achieve the #eire# !eve! of #ic!o%re.

Acc%rate an# tie!" #ic!o%re of inforation in in%rance copanie ho%!# $e

in p!ace in ever" area of operation.

S%ch #ic!o%re are #eira$!e $" 'a" of ann%a! report re!eae# $" copanie*

a 'e!! a thro%gh their 'e$ite* covering vario% area* ore partic%!ar!" the

fo!!o'ingM

• 5oar# tr%ct%re an# enior anageent tr%ct%re

• The copan"F e!f:#eterine# co#e of con#%ct* if an"* an# the proce

$" 'hich it i ip!eente#* inc!%#ing a e!f aeent $" the $oar# of

it perforance re!ative to the co#e

• The pecia! o$!igation of the in%rance copan" %n#er the reg%!ation*

%ch a the r%ra! an# ocia! ector o$!igation an# the !eve! of their

f%!fi!!ent

• Nat%re an# e/tent of inter:part" tranaction 'ithin the prooter gro%p

an# atter on 'hich the #irector an# enior anager have ateria!

interet on $eha!f of thir# partie.

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• Iportant apect of perforance that have a $earing on the afet" an#

o!venc"* %ch a c!ai ratio 9ea( tranparenc" an# ina#e)%ate

#ic!o%re ten# to f%e! ar(et (eptici* an# in a ne'!" #e:reg%!ate#

an# !ong ter oriente# in#%tr"* thi co%!# affect the interet of a!!

ta(eho!#er. 5etter than in#%tr" average of interna!!" pro6ecte# !eve!*%ne/pecte# #ep!etion in the va!%e of aet an# action or 'arning

i%e# $" reg%!ator.

• Inforation on the n%$er of cae of po!ic"ho!#er cop!aint or

#ip%te an# #irective againt the copan" i%e# $" O$%#an or

other con%er protection $o#ie. 9hi!e financia! tateent a" $e

pote# on the 'e$ite* ever" po!ic"ho!#er ho%!# $e entit!e# to a( for a

f%!! et of acco%nt tateent inc!%#ing note an# the %pporting

che#%!e.

E/itence of o%n# corporate governance tan#ar# !o'er the ora! ri( haar#

fro the reg%!ator" vie'point. IRDA ho%!# vie' corporate governance a an

iportant e!eent of po!ic"ho!#er protection. Corporate governance co#e an#

the earnetne of in%rance copanie to a#here to the 'o%!# enco%rage

reg%!ation to p!ace ore re!iance on the interna! procee in in%rance

copanie an# there$" $ecoing !e trict or ore pragatic in operationa!

area* a for e/ap!e* re!a/ing the rigo%r of Hi!e an# UeF proce for pro#%ct

approva!. The !eve! of e!f:po!icing $" the p!a"er i in#ee# a $aroeter of

at%rit" of the ar(et* ince o%n# corporate governance erve a $e#roc( to $%i!# p%$!ic tr%t an# confi#ence.

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CHAPTER .

CORPORATE GOVERNANCE

- In A Ris3 2ased Rating Environ4ent

In a de+tariffed regi#e, governance for the insurers would be a different ball

ga#e and various issues would co#e up in the areas of fair rating, equitable

policy conditions etc. feels Mr. -.". a#es(%/ecutive irector, 0on+)ife,

IR1*.

Insurance and Corporate Governance

Corporate Governance i a %$6ect of ignificance for the in%rance in#%tr".

In%rer anage the f%n# of the p%$!ic* i.e. the prei% of their c%toer* a

'e!! a capita! an# other reo%rce on $eha!f of the hareho!#er. Copanie

a!o have other ta(eho!#er %ch a ep!o"ee* partner* intere#iarie* the

governent an# the ociet". There i a gro'ing concern that a copan"F

acco%nta$i!it" an# tranparenc" re)%ireent nee# to $e a!igne# 'ith the

e/pectation of ta(eho!#er concerne#. In%rance Core Princip!e No.; $ro%ght o%t $" the IAIS 3Internationa! Aociation of In%rance S%pervior4*

a" that the corporate governance frae'or( recognie an# pro6ect the right

of a!! interete# partie. Corporate governance i th% re)%ire# a a vo!%ntarit

agen#a for the 5oar# an# the top anageent on ho' to overee the %cce

an# %taina$i!it" of the organiation in the 'i#er conte/t of atifaction of a!!

the ta(eho!#er concerne#. 5%ine organiation 'or( in an environent of

increaing ri(. Ri( i an"thing that can ipe#e on the negative i#e or

acce!erate on the poitive i#e* the achieveent of $%ine o$6ective.

Repon#ing to ri( invo!ve intit%ting the necear" too! to #icover* ana!"ean# a(e tranparent the potentia! ri(. It a!o ean that 'hi!e ta(ing tep to

iniie or e!iinate the #o'ni#e of ri(* the %pi#e that can $e generate# $"

anaging ri( %ccef%!!" nee# to $e f%!!" e/p!oite#. Thi !in(age $et'een

$%ine o$6ective* ri(* contro! an# their a!ignent to $%ine o%tcoe i

iportant for enhancing hareho!#er an# ta(eho!#er va!%e. A!! %ccef%!

copanie e/ce! $eca%e the" have the necear" ri( anageent capa$i!it"*

interna! contro! "te an# proce#%re to %tain the. Thi nat%ra!!" invo!ve

5oar# !eve! intervention in #eci#ing trategie an# po!icie 'hich can en%re

that the entire copan" $ecoe ri( a'are an# ha one %nifor ri(F

!ang%age in the organiation.

7


25/42


Ris3s and Insurers

The core of in%rance $%ine i the $earing of ri( tranferre# to the in%rer

$" c%toer either thro%gh intere#iarie or #irect!". 5ae# on acceptance of the ri( an# the prei% thereof in%rer are %$6ect to vario% organiationa!

ri( 'hich are (no'n a technica! ri(* invetent ri( an# other operationa!

ri(. Technica! or %n#er'riting ri( inc!%#e prei% #eficienc" ri(*

concentration ri(* catatrophe ri(* fre)%enc"-everit" ri( an# o on.

Invetent ri( inc!%#e cre#it ri(* ar(et ri( inc!%#ing interet rate ri(*

!i)%i#it" ri( etc. Vario% t"pe of operationa! ri( a!o face in%rer* 6%t a

the" #o other $%ine organiation. S%ch ri( inc!%#e g!o$a! ri( genera!*

econoic an# po!itica! ri( in#%tr" ri( an# copan" pecific ri(. The

5oar# i e/pecte# to have a grap of the trategic i%e invo!ve#* an# et thenecear" po!icie an# proce#%re regar#ing ri( ta(ing an# the #eira$!e ri(

anageent techni)%e.

Thi ena$!e the organiationF an" !a"er an# operationa! !ine to tran!ate the

nee# for ri( anageent into rea! an# verifia$!e activitie inc!%#ing the

fo!!o'ingM

• The approach to ri( ta(ing.

• Interna! contro! inc!%#ing anageent inforation "te.

9or!#'i#e* copanie are $eing enco%rage# to go $e"on# !egi!ative an#

reg%!ator" cop%!ion to 'here goo# governance nor are e!f

generate# ariing fro the $aic fi#%ciar" ro!e of the 5oar# an# the top

anageent. A the in%rance ector gro'* there 'i!! $e a re#%ction of

%pervior" reo%rce an# it p!ace 'i!! nee# to $e rep!ace# $" e!f

reg%!ation an# $etterent thro%gh vario% e!f:governing echani.

Thi 'i!! en%re that the copan" i operate# in accor#ance 'ith the $et

tan#ar# of $%ine an# financia! practice. Hro the point of vie' of

the reg%!ator an# other* corporate governance i necear" to proote

tranparent an# efficient ar(et. It he!p to !a" a trong an# %taina$!e

fo%n#ation to the $%ine o#e! the 5oar# 'ihe to et %p o a to

e/p!oit ar(et opport%nitie. 5%ine ri( that nee# to $e tac(!e#

inc!%#e #ean# ri( 'here c%toer or inten#e# c%toer #o not $%"

copetitive ri(* 'here$" the initiative ta(en $" copetitor can %pet

trategie #ra'n %p an# capa$i!it" ri(* 'here the copan"F va!%e

propoition #oe or #oe not atch the re)%ireent of the ar(et. A

copan"F rea#ine to $e a'are an# act in thee area to %n#ertan#*

report an# $e acco%nta$!e for %ch ri(* a(e copanie face aheightene# pro$a$i!it" of not eeting the e/pectation of ta(eho!#er.

7@


26/42


Ris3 Governance

9hen in%rer are e to ove fro a r%!e $ae# tariff regie to a ri( $ae# pricing environent* ri( for %ch in%rer generate $oth opport%nitie a

'e!! a v%!nera$i!itie. Ri( e/po%re heighten $eca%e the #eep!" he!#

enta! o#e! of "eter#a" 'hich 'ere vere# in interpretation of given

r%!e nee# to ove onto #ivination of an ever changing ri( !an#cape in the

an" $%inee that the copan" a" 'ih to offer protection. The 5oar#

nee# to p%t in p!ace ne' enta! o#e! an# "te thin(ing that can

create an# n%rt%re the necear" (i!! of eeing the in%ra$!e 'or!# in the

har# rea!it" of ri( an# rea!itic pricing of %ch ri( 'itho%t the cofort of

tariff. Sii!ar!" it i to $e en%re# that the in#epen#ence of the ri( a%ing f%nction i c!ear!" aintaine# an# not %$or#inate# to the

cop%!ion of thoe #epartent not fai!iar 'ith the #icip!ine of

in%rance ri( an# pricing characteritic. G%i#e!ine 'i!! nee# to $e given

for the #icip!ine# app!ication of %n#er'riting po'er* 'ith c!ear reporting

!ine an# acco%nta$i!itie. The %n#er'riting #epartent %t $e en#o'e#

'ith tat%re* e/perience an# a%thorit" to carr" o%t it e/pecte# f%nctioning.

There %t $e the p!anne# ch%rning an# rotation of peronne! to garner ever:

richer e/perience an# $ring in ne' !earningF* e/perience an# perpective.

Ne' (i!! an# (no'!e#ge 'i!! have to $e $%i!t %p an# %t f!o' thro%gh the

organiation to en%re contant %p gra#ation an# $enchar(ing againt the

$et in the ar(et. Ri( pecia!it nee# to $e enco%rage# to pro$e an#

)%etion ti!! atifactor" an'er an# o!%tion are o$taine#* an# there ho%!#

an openne that i not afrai# to cha!!enge the e/pertF.

7L


27/42


CHAPTER

REG86ATOR: RE8IRE$ENT! AND

CORPORATE GOVERNANCE

Senitivit" to reg%!ator" re)%ireent i an iportant part of corporate

governance.

Copanie nee# to g%ar# againt poi$!e c!ah $et'een the interet of the

po!ic"ho!#er an# the o'ner of copanie. It i 'e!! accepte# that having

atifie# an# happ" con%er i goo# $%ine* an# the 5oar# nee# to

contin%o%!" trengthen the a!ignent of interet $et'een the copan" an#

it con%er thro%gh $etter governance tan#ar#. Cop!iance

anageent i the $eginning of corporate 'i#o an# i an e/preion of

the 'i!ine to #eve!op the contin%% to'ar# #eve!oping e!f:accepte#

nor of governance $ae# on an inc!%ive agen#a that !oo( to the

$etterent of a!! interet in a ho!itic anner. A

#i#ain for reg%!ator" acco%nta$i!it" a anifet in non:cop!iance of !a'*

reg%!ation* g%i#e!ine i in#icative of a in#et that a" $!oc(

interna!iation of the $et practice co#e that can he!p to enhance $%ine

%cce. In%rance a!o

invo!ve i%e of p%$!ic goo# an# the !egi!ative an# 6%#icia! intent

'herever pe!t o%t an# point to the #eve!opent of the $%ine in the $et

interet of the co%nit"* nee# to $e (ept in in# 'hi!e #ea!ing 'ith $%ine practice. Thi ean that in%rer are prevente# $" the intent of

!a' an# 6%#icia! prece#ent fro acting in a anner that i ar$itrar"* %nfair*

%ntena$!e or a#vere to the interet of the con%er. Th% there cannot $e

ar$itrar" free#o for private contract. Corporate governance 'o%!# have to

interna!ie the nat%re of in%rance $%ine in the conte/t of the !a' of the

!an# an# ho%!# (eep in in# the ora! an# ocia! reponi$i!itie invo!ve#

'hi!e fahioning the tep!ate of corporate %cce. Vario% i%e th%

coe %p in the area of fair rating* e)%ita$!e po!ic" con#ition* proper

#ic!o%re* accepta$!e etho# of o!icitation* ter of rene'a!*cance!!ation of po!icie* !oa#ing of prei%* #enia! of in%rance* rep%#iation

of c!ai an# o on. Thee 'i!! nee# to $e a##ree# an# hoogenie#

acro the copan" to prevent reg%!ator" or 6%#icia! trict%re that can have

a $earing on the rep%tation or !egitiac" of the in%rer. Hai!ing to eet

ociet"F e/pectation can poe ri( to organiation an# at the ae tie a

proper %n#ertan#ing an# effective anageent of genera!!" recognie#

ocia! #%tie can he!p to $%i!# hareho!#er va!%e* corporate recognie# ocia!

#%tie can he!p to $%i!# hareho!#er va!%e. Corporate ocia! reponi$i!it" i

a!o an area 'hich* if neg!ecte#* can poe ri( for in%rer.

7>


28/42


1anaging co%nit" perception $ac(e# $" $eneficia! action in the area of

ocia! goo# can he!p to re#%ce #o'ni#e ri( an# a!o open %p opport%nitie

for profita$!e $%ine a thoe e/c!%#e# fro the $enefit of #eve!openta!

in%rance are far too an". Invo!veent 'ith ocia! concern inc!%#ing !ac(

of protection to the vat a6orit" 'ho are e/c!%#e# o'ing to povert" or ignorance he!p to $%i!# %p !ong:!ating intangi$!e aet for the copan". It

he!p not on!" to capita!ie on co%nit" reo%rce an# re#%ce reg%!ator"

intervention $%t a!o he!p to o$tain copetitive a#vantage fro a !ong:

!ating f%n# of p%$!ic goo#'i!!. 5oar#F Concern for oothening the

Ro!!over Detariffing invo!ve erio% tranitiona! i%e epecia!!" for the

o!#er in%rer. Active invo!veent of the 5oar# an# the top anageent i

re)%ire# a!ong 'ith aive invetent of tie an# one" in eta$!ihing

proper "te thro%gh necear" har#'are an# oft'are* a a!o in training

of %n#er'riter an# in creating the necear" #ata infratr%ct%re an# it!earning conte/t.

In partic%!ar* the fo!!o'ing area 'o%!# $e iportant in the conte/t of

corporate governance.

2. Detariffing %t not #egenerate into in#!e rate c%tting an# o

ca!!e#

cah:f!o'F %n#er'riting. E)%ita$!e rating an# o!venc" i%e are

parao%nt in #icip!ine# %n#er'riting. ence c!ear g%i#e!ine fro

the !eve! of 5oar# %t $e given* #ra'ing %p the etho#o!ogie of

ratea(ing an# a!o 'herever poi$!e g%i#e tariff* o that in#ivi#%a!

#icretion at non:reponi$!e !eve! i re#%ce# to the ini%.

7. Un#er'riting %t $e %pporte# $" a trong technica! $ae. Rating

factor nee# to $e i#entifie# for ever" %$:c!a* an# ever" t"pe of

ri(. The re)%ire# #ata nee# to $e capt%re# in repect of ever" ri(

%n#er'ritten an# ever" c!ai !o#ge#. Co!!ection* copi!ation an#ana!"i of #ata 'i!! for the $e#roc( of #eve!oping %n#er'riting

e/pertie. Sii!ar!" pre:acceptance ri( inpection an# #ata

generate# $" c!ai %rve" an# inpection 'i!! a!o for iportant

part of the (no'!e#ge $an( for %n#er'riter.

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29/42


8. De!egation of a%thorit" 'i!! $e $ae# on the (no'!e#ge of the peron

concerne# $ae# on e/perience a 'e!! a )%a!ification. There %t

$e proven a$i!it" to eva!%ate a!! ri( factor. The financia!

ip!ication of %n#er'riting #eciion on factor %ch a a#e)%ac" of

pricing* the concentration of ri( 'ritten* the fre)%enc"-everit"apect* etc. 'i!! nee# to $e %n#ertoo# $" peron 'ho are vete#

'ith #icretionar" a%thorit". Reponi$i!it" nee# to $e fi/e# o that

#e!egate# po'er are %e# on!" a #eire#.

. Deterining the $ai of rating. Rating can $e on the $ai of c!a for

'hich interna! tariff can $e #eve!ope#. Rating can a!o $e on

co%nit" $ai for ri( %ch a gro%p hea!th or PA* 'here there i

an incentive for co%nitie-gro%p to re#%ce ri( an# o$tain

favo%ra$!e ter. Hina!!" rate can $e fi/e# on in#ivi#%a! $ai#epen#ing on the %ni)%ene of the ri( an# the financia! agnit%#e

6%tif"ing in#ivi#%a! rating. In a!! thee cae a $ae rate ha to $e et

an# !oa#ing an# #ico%nt ho%!# app!" $ae# on ri( perception*

$ac(e# $" fact%a! ri( feat%re.

@. Rea#" avai!a$i!it" of in%rance ho%!# $e en%re# at fair ter for a!!

c%toer. In the retr%ct%ring that a" ta(e p!ace on acco%nt of

#etariffing it 'i!! $e %nfort%nate if the nora! in%rance en6o"e# $"

the p%$!ic prior to #etariffing are not avai!a$!e rea#i!" %n#er interna!

tariff an# at fair ter.

L. Un#er'riting a%#it prograe %t $e intit%te# to chec( the

a#e)%ac" of pricing an# other #icip!ine of %n#er'riting an#

cop!iance to interna! tariff. %tification of rate* 'hether

in#ivi#%a! or c!a* nee# to $e e/aine# $" the a%#it #epartent an#

necear" corrective nee# to $e %ggete# for ip!eentation.

>. Training of %n#er'riter an# etting %p or R&D for #eve!oping

%n#er'riting practice i to $e intit%tiona!ie#. Ne' pro#%ct#eve!opent $ae# on o%n# ar(et reearch an# innovation in area

that can capt%re va!%e for the organiation in containing ri( for the

con%er 'o%!# $e a core ta( to eet copetitive cha!!enge.

Detariffing 'i!! ee the eergence of an" ne' copetencie an#

#ifferentiation 'hich 'i!! he!p ar(et #eve!opent.


30/42


;. Hina!!" c%toer ervice an# grievance han#!ing nee# to $ecoe a

thr%t area in the #etariffing era for the 5oar#* a there are $o%n# to $e

#iatifaction that co%!# arie fro the a"etrie perceive# in the

changeover. A!!eviating the #iffic%!tie of the average con%er intie of poi$!e %ncertaintie 'i!! he!p to 'in goo#'i!! of the p%$!ic

an# the reg%!ator a 'e!! a the con%er $o#ie.

C%toer an in%rer !oo( to the copan" to eet proie a#e to

protect a per it !icene# an#ate. In%rance i a cop!e/ $%ine $%i!t

aro%n# the proie to cover an# pa" on the occ%rrence of the pecifie# event

i.e. !o occ%rring. The c%toer i not the e/pert on in%rance an# hence re!ie

on the integrit" an# (i!! of the in%rer to eet the o$!igation a proie#.

In%rer th% nee# to coni#er eeting their o$!igation not on!" in the en# $"

pa"ing c!ai 'hen covere# !oe occ%r* $%t a!o %pfront in their rea#ine to

cover fair!" an# e)%ita$!" o a to ena$!e con%er to ta(e on econoic ri(

that are necear" to create #"nai an# oent% in the econo".

8=


31/42


CHAPTER -

CORPORATE 2E!T PRACTICE!

5RECO$$ENDATION! FOR DIRECTOR!

2or ensuring good corporate governance, the i#portance of overseeing the

various aspects of the corporate functioning needs to be properly understood,

appreciated and i#ple#ented avers 3epa Ka#esa# (2or#er eputy 4overnor

of RI, 2or#er M of 'I and presently M, institute of Insurance and Risk

Manage#ent, Hyderabad*.

itorica!!" attention 'a pai# to the %$6ect fo!!o'ing the co!!ape of Saving

an# Boan copanie in USA in the i# 2;


32/42


- A!! Director ho%!# have acce to the a#vice an# ervice of the

Copan" Secretar"* 'ho i reponi$!e to the 5oar# for en%ring that

5oar# proce#%re are fo!!o'e# an# that app!ica$!e r%!e an# reg%!ation

are cop!ie# 'ith. An" )%etion of the reova! of Copan" Secretar"

ho%!# $e a atter for the 5oar# a a 'ho!e.

Re+ating to t%e Non5e=ecutive Directors t%e reco44endations are

- Non:e/ec%tive Director ho%!# $ring an in#epen#ent 6%#geent to

$ear on i%e of trateg"* perforance* reo%rce* inc!%#ing (e"

appointent* an# tan#ar# of con#%ct.

- The a6orit" ho%!# $e in#epen#ent of the anageent an# free fro

an" $%ine or other re!ationhip* 'hich co%!# ateria!!" interfere

'ith the e/ercie of their in#epen#ent 6%#geent* apart fro their feean# hareho!#ing. Their fee ho%!# ref!ect the tie* 'hich the"

coit to the copan".

- Non:e/ec%tive Director ho%!# $e appointe# for pecifie# ter an#

reappointent ho%!# not $e a%toatic.

- Non:e/ec%tive Director ho%!# $e e!ecte# thro%gh a fora! proce

an# $oth* thi proce an# their appointent* ho%!# $e a atter for

the 5oar# a a 'ho!e.

For t%e E=ecutive Directors t%e reco44endations in t%e Cad"ur#

Code of 2est Practices are

- DirectorF ervice contract ho%!# not e/cee# three "ear 'itho%t

hareho!#erF approva!.

- There ho%!# $e f%!! an# c!ear #ic!o%re of their tota! eo!%ent

an# thoe of the Chairan an# the highet:pai# Director*

inc!%#ing penion contri$%tion an# toc( option. Separate

fig%re ho%!# $e given for a!ar" an# perforance:re!ate#

e!eent an# the $ai on 'hich perforance i ea%re# ho%!#

$e e/p!aine#.- E/ec%tive Director pa" ho%!# $e %$6ect to the recoen#ation

of a Re%neration Coittee a#e %p 'ho!!" or ain!" of Non:

E/ec%tive Director.

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And on Reporting and Contro+s t%e Cad"ur# Code of 2est Practices

stipu+ate t%at

- It i the 5oar#F #%t" to preent a $a!ance# an# %n#ertan#a$!e

aeent of the copan"F poition.- The 5oar# ho%!# eta$!ih an A%#it Coittee of at !eat three Non:

E/ec%tive Director 'ith 'ritten ter of reference* 'hich #ea!

c!ear!" 'ith it a%thorit" an# #%tie.

- The Director ho%!# e/p!ain their reponi$i!it" for preparing the

acco%nt ne/t to a tateent $" the A%#itor a$o%t their reporting

reponi$i!itie.

- The Director ho%!# report on the effectivene of the copan"F

"te of interna! contro!.

-

The Director ho%!# report that the $%ine i a going concern* 'ith%pporting a%ption or )%a!ification a necear".

The report create# i/e# fee!ing an# 'ith oe ore fra%# eerging in

U?* Governance cae to ean the e/tenion of DirectorF reponi$i!it" to

a!! re!evant contro! o$6ective inc!%#ing $%ine ri( aeent an#

iniiing the ri( of fra%#. The hareho!#er are %re!" entit!e# to a(* if

a!! the ignificant ri( ha# $een revie'e# an# appropriate action ta(en to

itigate the an# 'h" a 'ea!th #etro"ing event co%!# not $e anticipate#

an# acte# %pon.

The one coon #enoinator $ehin# the corporate fai!%re an# fra%# 'a

the !ac( of effective ri( anageent an# the ro!e of the 5oar# of Director.

9hen it $ecae c!ear that ere!" revie'ing the interna! procee of contro!

'ere not eno%gh an#* therefore* ri( anageent ha# to $e e$o#ie#

thro%gho%t the organiation* an ea" o!%tion 'a fo%n# $" paing on thi

reponi$i!it" to the interna! a%#it.

In In#ia* the CII cae o%t 'ith it o'n vie'* $%t SE5I* a the c%to#ian of

i!!ion of invetor cae o%t 'ith it g%i#e!ine an# ?%ar 1anga!aCoittee recoen#ation $ecae an#ator" an#* therefore* a!! the !ite#

copanie 'ere o$!ige# to cop!" in accor#ance 'ith the !iting agreeent

'ith thee Stoc( E/change. The c!ean %p of ot copanie ha $eg%n in a

$ig 'a" an# the Section ; of the SE5I Act ha no' a!ot $ecoe the

ha!!ar( of cop!iance in thi co%ntr".

88


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The an#ator" recoen#ation of the ?%ar 1anga!a Coittee

inc!%#e the contit%tion of A%#it Coittee an# Re%neration Coittee

in a!! !ite# copanie appointent of one or ore in#epen#ent Director

recognition of the !ea#erhip ro!e of the Chairan of a copan"

enforceent of acco%nting tan#ar# the o$!igation to a(e ore#ic!o%re in ann%a! financia! report effective %e of the po'er an#

inf!%ence of intit%tiona! hareho!#er an# o on.

The Coittee a!o recoen#e# a fe' proviion* 'hich are non:

an#ator". Soe of the an#ator" recoen#ation areM

- The 5oar# of a copan" ho%!# have an opti% co$ination of

e/ec%tive an# non:e/ec%tive Director 'ith not !e than @= of the

5oar# copriing the none/ec%tive Director.

- The 5oar# of a copan" ho%!# et %p a )%a!ifie# an# an in#epen#ent

A%#it Coittee. The A%#it Coittee ho%!# have ini% three

e$er* a!! $eing none/ec%tive Director* 'ith the a6orit" $eing

in#epen#ent* an# 'ith at !eat one Director having financia! an#

acco%nting (no'!e#ge. The Chairan of the A%#it Coittee ho%!#

$e an in#epen#ent Director. The" are reponi$!e for $a!ance heet

copi!ation an# c!arificator" note appearing thereto an# to en%re

that enitive inforation i not t%c(e# a'a" in a!! print.

T%e C%air4an of t%e Audit Co44ittee s%ou+d "e present at Annua+

Genera+ $eeting to ans,er s%are%o+der5ueries0

• The Copan" Secretar" ho%!# act a the ecretar" to the A%#it

Coittee.

• The A%#it Coittee ho%!# eet at !eat thrice a "ear. The )%or%

ho%!# $e either t'o e$er or one:thir# of the e$er of the A%#it

Coittee.

• The A%#it Coittee ho%!# have po'er to invetigate an" activit"

'ithin it ter of reference* to ee( inforation fro an" ep!o"ee to

o$tain o%ti#e !ega! or profeiona! a#vice* an# to ec%re atten#ance of

o%ti#er if necear".

8


35/42


• The A%#it Coittee ho%!# #icharge vario% ro!e %ch a* revie'ing

an" change in acco%nting po!icie an# practice cop!iance 'ith

acco%nting tan#ar# cop!iance 'ith Stoc( E/change an# !ega!

re)%ireent concerning financia! tateent the a#e)%ac" of interna!

contro! "te the copan"F financia! an# ri( anageent po!icieetc.

• The 5oar# of Director ho%!# #eci#e the re%neration of the non:

e/ec%tive Director.

• H%!! #ic!o%re ho%!# $e a#e to the hareho!#er regar#ing the

re%neration pac(age of a!! the Director.

• The 5oar# eeting ho%!# $e he!# at !eat fo%r tie a "ear.

• A Director ho%!# not $e a e$er in ore than ten coittee or act a

the Chairan of ore than five coittee acro a!! copanie in

'hich he i a Director. Thi i #one to en%re that the e$er of the5oar# give #%e iportance an# coitent of the eeting of the 5oar#

an# it coittee.

• The anageent %t a(e #ic!o%re to the 5oar# re!ating to a!!

ateria!* financia! an# coercia! tranaction* 'here the" have perona!

interet.

• In cae of the appointent of a ne' Director or re:appointent of a

Director* the hareho!#er %t $e provi#e# 'ith a $rief re%e of the

Director* hi e/pertie an# the nae of copanie in 'hich the peron

a!o ho!# Directorhip an# the e$erhip of coittee of the 5oar#.

• A 5oar# coittee ho%!# $e fore# to !oo( into the re#rea! of

hareho!#erF cop!aint !i(e tranfer of hare* non:receipt of $a!ance

heet* #ivi#en# etc.

• There ho%!# $e a eparate ection on Corporate Governance in the

ann%a! report of the copanie 'ith a #etai!e# cop!iance report.

Apart fro4 t%ese/ t%e 9u4ar $anga+a4 Co44ittee a+so 4ade so4e

reco44endations t%at are non4andator# in nature0 !o4e of are

• The 5oar# ho%!# et %p a Re%neration Coittee to #eterine the

copan"F po!ic" on pecific re%neration pac(age for E/ec%tive

Director.

• a!f:"ear!" #ec!aration of financia! perforance inc!%#ing %ar"

of the ignificant event in the !at i/ onth ho%!# $e ent to each

hareho!#er.

• Non:e/ec%tive chairan ho%!# $e entit!e# to aintain a chairanF

office at the copan"F e/pene. Thi 'i!! ena$!e hi to #icharge the

reponi$i!itie effective!".

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It 'i!! $e intereting to note that ?%ar 1anga!a Coittee 'hi!e

#rafting it recoen#ation 'a face# 'ith the #i!ea of tat%tor" v-

vo!%ntar" cop!iance. One a" a!o $e a'are that the #eira$!e co#e of

Corporate Governance* 'hich 'a #rafte# $" CII 'a vo!%ntar" in nat%rean# #i# not pro#%ce the e/pecte# iproveent in Corporate Governance.

It i in thi conte/t that the ?%ar 1anga!a Coittee fe!t that %n#er

the In#ian con#ition a tat%tor" rather than a vo!%ntar" co#e 'o%!# $e far

ore p%rpoive an# eaningf%!.

Thi !e# the Coittee to #eci#e $et'een an#ator" an# non:an#ator"

proviion. The Coittee fe!t that oe of the recoen#ation are

a$o!%te!" eentia! for the frae'or( of Corporate Governance an#

virt%a!!" fro it co#e* 'hi!e other co%!# $e coni#ere# a #eira$!e.

5ei#e* oe of the recoen#ation nee#e# change of tat%te* %ch athe Copanie Act for their enforceent. Hace# 'ith thi #iffic%!t"* the

Coittee ett!e# for t'o c!ae of recoen#ation.

SE5I ha given effect to the ?%ar 1anag!a CoitteeF

recoen#ation $" a #irection to a!! the Stoc( E/change to aen#

their !iting agreeent 'ith vario% copanie in accor#ance 'ith the

an#ator" part of the recoen#ation.

Hor en%ring goo# corporate governance in a $an(ing organiation the

iportance of overeeing the vario% apect of the corporate f%nctioning

nee# to $e proper!" %n#ertoo#* appreciate# an# ip!eente#. There are

fo%r iportant for of overight that ho%!# $e inc!%#e# in the

organiationa! tr%ct%re of an" $an( in or#er to en%re the appropriate

chec( an# $a!anceM

24 overight $" the $oar# of #irector or %pervior" $oar#

74 overight $" in#ivi#%a! not invo!ve# in the #a":to#a" r%nning of the

vario% $%ine area

84 #irect !ine %perviion of #ifferent $%ine area an#

4 in#epen#ent ri( anageent an# a%#it f%nction. In a##ition to thee* it

i iportant that the (e" peronne! are fit an# proper for their 6o$ 3thi

criterion a!o e/ten# to e!ection of Director4.

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CHAPTER 1(

RECENT DEVE6OV$ENT!

The Departent of Copan" Affair* in 1a" 7===* invite# a gro%p of !ea#ing

in#%tria!it* profeiona! an# aca#eic to t%#" an# recoen# ea%re to

enhance corporate e/ce!!ence in In#ia. The St%#" Gro%p in t%rn et %p a Ta(

Horce* 'hich e/aine# the %$6ect of Corporate E/ce!!ence thro%gh o%n#

corporate governance an# %$itte# it report in Nov. 7===. The ta( force in

it recoen#ation i#entifie# t'o c!aification nae!" eentia! an#

#eira$!e 'ith the forer to $e intro#%ce# ie#iate!" $" !egi!ation an# the

!atter to $e !eft to the #icretion of copanie an# their hareho!#er. Soe of

the recoen#ation of the ta( force inc!%#eM

• Greater ro!e an# inf!%ence for none/ec%tive in#epen#ent #irector

• Stringent p%nihent for e/ec%tive #irector for fai!ing to cop!" 'ith

!iting an# other re)%ireent

• Biitation on the nat%re an# n%$er of #irectorhip of anaging an#

'ho!e:tie #irector

• Proper #ic!o%re to the hareho!#er an# inveting co%nit"

• Interete# hareho!#er to a$tain fro voting on pecifie# atter

• 1ore eaningf%! an# tranparent acco%nting an# reporting

• To%gher !iting an# cop!iance regien thro%gh a centra!ie# nationa!

!iting a%thorit"

•

ighet an# to%ghet tan#ar# of Corporate Governance for !ite#copanie

• A co#e of p%$!ic $ehavio%r for p%$!ic ector %nit

• Setting %p of a centre for Corporate E/ce!!ence

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Recent!"* the Governent ha anno%nce# the propoa! for etting %p the Centre

for Corporate E/ce!!ence %n#er the aegi of the Departent of Copan" Affair

a an in#epen#ent an# a%tonoo% $o#" a recoen#e# $" the t%#" gro%p.

The centre 'o%!# %n#erta(e reearch on Corporate Governance provi#e a

chee $" 'hich copanie co%!# rate thee!ve in ter of their corporategovernance perforance proote corporate governance thro%gh certif"ing

copanie 'ho practice accepta$!e tan#ar# of corporate governance an# $"

intit%ting ann%a! a'ar# for o%ttan#ing perforance in thi area.

GovernentF initiative in prooting corporate e/ce!!ence in the co%ntr" $"

etting %p %ch a center i in#ee# a ver" iportant tep in the right #irection. It

i !i(e!" to prea# greater a'arene aong the corporate ector regar#ing

atter re!ating to goo# corporate governance otivating the to ee(

accre#itation fro thi $o#". C%%!ative effect of the copanie achieving

!eve! of corporate e/ce!!ence 'o%!# %n#o%$te#!" $e vii$!e in the for of %ch enhance# copetitive trength of o%r co%ntr" in the g!o$a! ar(et for

goo# an# ervice.

A !arge n%$er of p%$!ic ector copanie $oth in the $an(ing in#%tr" an#

financia! ector have on their 5oar# repreentative of the Governent -

Reerve 5an( of In#ia. It i for #e$ate 'hether f%nctionarie of the

Governent ho%!# it on their $oar#. 9hi!e there i no ea" or

traightfor'ar# an'er to thi )%etion* at oe #itant f%t%re it i hope#* a!! the

Director 'o%!# $e tr%!" in#epen#ent. The %$6ect i no #o%$t cop!e/ an# can

$e !oo(e# %pon fro vario% ang!e. Hra%# in the $an(ing "te are a!o

increaing $%t cop%ter 1anageent Inforation S"te ho%!# $e a$!e to

#etect the ear!" an# the 5oar# %t have the 'i!! to #ea! 'ith %ch ichief

a(er in an e/ep!ar" anner. Qero to!erance ho%!# $e the goa! for fra%# in

the $an(ing "te. It i the !ea#er at the he! of affair 'ho a(e a

#ifference. A c!oe coor#ination e/it thro%gh igh Beve! Co:or#ination

Coittee 3BCC4 $et'een R5I* SE5I* IRDA an# the Secretar" Hinance*

Governent of In#ia 'ho ha a fora! tr%ct%re for revie'ing the affair 'hich

ipact the 'ho!e financia! "te. A!tho%gh the US an# U? o#e! are

#ifferent* thi o#e! ha erve# % 'e!! an# 'e ee to $e coforta$!e to

contin%e 'ith the ae for oe ore tie to coe. It 'o%!# $e appropriate to #'e!! %pon the Corporate Governance tan#ar#

a app!ica$!e to the in%rance in#%tr". Capita! ar(et* $an(* in%rer an#

other financia! intit%tion are a!! c!oe!" !in(e# an# internationa! $enchar(

have $een eta$!ihe# an# a#opte# $" the reg%!ator %n#er the aegi of IAIS at

5a!e. The $aic princip!e are no #o%$t a#opte# fro the OECD o#e!.

Un!i(e active reg%!ation an# %perviion in the $an(ing ector* in%rance

reg%!ation are ti!! %n#er evo!%tion a f%n#aenta!!" the contract of in%rance

i $aica!!" a proie to pa" at oe tie in the f%t%re.

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Event !i(e Enron* S%itoo* ;-22 or even nat%ra! ca!aitie !i(e the T%nai

or ?atrina can a!! change the ri( coprehenion an# ca!! for %perior

%n#er'riting an# act%aria! (i!!. The pro$!e of opacit" arie #%e to the

%n#er!"ing contract 'hoe ri(:ret%rn profi!e (eep changing. Therefore* the

aet !ia$i!it" anageent in in%rance copanie %t $e ver" #"naic an#trategie nee# to $e fine t%ne# on a contin%o% an# #ai!" $ai #epen#ing %pon

the ar(et in 'hich thee copanie operate an# the ri( get covere#.

In%rance in#%tr" i a!o confronte# 'ith intenifie# agenc" pro$!e fro

inforationa! a"etrie an# cop!e/ tr%ct%re of the principa! agent

re!ationhip an# often tie* conf!ict of interet arie aongt the in%rance

copanie an# 'ith other p!a"er in the financia! ar(et. Therefore* there i a

c!ear nee# for aintaining e/ce!!ent Corporate Governance tan#ar# in thi

in#%tr". The IAIS princip!e ICP ; i the anchor princip!e 'hich give theentire criteria of the reponi$i!itie of the 5oar# of Director an# the enior

anageent* an# the overight reponi$i!itie. Si%!taneo%!" it a!o cover

the re!ationhip $et'een the reponi$!e act%ar" an# the $oar# of the in%rance

copan". A!! the other in%rance core princip!e are coheive!" connecte# to

ICP ; an# it i 'orth referring to ICP >*


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CHAPTER 11

CONC68!ION

2


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CHAPTER 1'

REFERENCE

Corporate Governance & Insurance Industry.

Documents

Transcript of Corporate Governance & Insurance Industry.