X is a director of an insurance broking company. C, a general insurance company, wants to induct him on the Board of the company as an independent director. You are the company secretary of the company C. How will you pr

The rule and regulation of corporate governance are applicable to insurance companies. The IRDAI has adopted the principle and notified them to be followed by all insurers, insurance intermediaries, auditors, directors, actuaries and other key managerial personnel connected with the industry are prohibited from holding positions which are conflicting with each other. This is to ensure that the business decisions are taken without any bias. For example, the Appointed Actuary cannot be undertaking claims settlement functions, an appointed actuary is required to evaluate the impact of the variance between with actual and expected claims and the impact on the insurers. Section 48A of Insurance Act, 1938, prohibits interlocking directorships between an insurance company and Insurance intermediary, without prior approval of IRDAI. The term Insurance intermediary includes distributors of insurance products such as agents, brokers, web aggregators, Insurance Marketing Firms etc. Approval may be granted by IRDAI, subject to conditions being imposed to avoid conflicts of interest or to protect interests of Policyholders. For example, if the Director of the Insurance Company is an Independent director and wishes to be appointed as an independent director on the board of an intermediary, IRDAI may grant its approval as the chances of conflicts of interest is low in such cases. IRDAI views such situation in two manners. For auditor or officer who becomes aware of a material conflict of interest two options are open viz, to eliminating the conflict or to reassign within 30 days. Common directorship among insurance firms, insurance company and its promoters, insurance company and its intermediaries will be subject to certain conditions. IRDAI may positively feel that its pre sanction/ pre approval is not needed when the common director /official is an independent director in both the organization under the same group and where the annual remuneration does not exceed ₹ 10 lakhs. Let us apply these principles to the facts given in the question. The individual director is an independent director in one insurance broking company undoubtedly an insurance intermediary. The individual wants to be appointed as an independent director in general insurance company. The role of an insurance broker is mostly manifest in general insurance business where he acts as an independent professional and advises on the policy contents. He also apprises the products offered by different insurers and advise to the customers on the type of cover that will best suit the requirement of the customers. The broker also do liasoning between the insurers and insured on settlement of the claims. Hence the connection between an insurance broker and a general insurance company is very strong. By becoming an independent director in the general insurance company, there is a distinct possibility of developing a bias to his brokerage home which will lead to unwanted complications. The independence of the director will be completely lost in the development of the broking business. In the circumstances it is felt that under the corporate governance rules, this selection will be frowned upon by the regulator.