Curbs on non-life Ins cos directors effective from Jan

Jasim Uddin Haroon The insurance regulator, Insurance Development and Regulatory Authority (IDRA), Wednesday said non-life insurers will be allowed to provide insurance coverage through policies to different kinds of related risks associated with businesses of their respective directors, their spouses, children, parents, brothers and sisters and dependants until December this year. It also said from next January, such companies will be able to issue insurance policies of their respective directors and their close relatives up to 25 per cent of the total business of a company achieved during each quarter. IDRA said directors' policies made in each quarter will not exceed 25 per cent of the total business of a company achieved during a quarter, subject to submission of regular quarterly business returns by the companies to IDRA. Companies will also have to furnish monthly return to IDRA within 10th of the following month in respect of directors' policies not exceeding 25 per cent, IDRA said. Earlier in September 2011, IDRA slapped a strict ban on insurance coverage policies, often issued by the directors of their own companies, which created mixed reactions in the industry. The IDRA officials said it has taken the fresh decision, considering the overall interest of the insurance industry. They said the new restriction would protect the interest of the policy-holders and shareholders as a long-term strategy to make the industry financially sound. The country's insurance regulatory body issued a circular in this connection Wednesday, signed by its Chairman M Shefaque Ahmed. It has been faxed to all 43 general insurance companies the same day. In view of likely fluctuation in the volume of directors' policies made in a quarter, the overall limit of 25 per cent will relate to the total volume of their (directors) policies made in the year. Directors from different non-life insurance companies, however, expressed their mixed reactions on the new decision. IDRA firmly believes that the decision that has been taken by it is indispensable for enforcing proper discipline and ensuring uniform practices in the market. The IDRA chairman said it will create a level-playing field for all and it will substantially improve the financial strength of the companies and their 'claim settlement capabilities'. He said any deviation from the circular would invite severe consequences for the defaulting insurance companies, including scrapping of their licences. The IDRA officials said the decision would ensure proper receipts of value added tax (VAT), stamp duties and income tax by the government. "The boards of directors of some insurance companies are dominated by some vested quarters and as a result, this creates a division at times within the board," said the managing director of a leading general insurance company. He said such interest groups create, promote and foster this division in the institutions just to serve their own interest and achieve their 'hidden agenda.' The managing director, who preferred anonymity, said directors often dictate the rates of premium and they are in the habit of taking their policies for insurance coverage, on credit. Directors often go for premiums on credit when air shipment is concerned, he added. He also said taking of insurance coverage policies by directors in their own insurance companies leads to lowering of premium earnings. Md Jahangir Alam, a director of Asia Insurance, told the FE: "Limiting of directors' policies with their own insurance companies will ensure professionalism for the industry and I welcome the move." Mr Alam, also chairman of MI Cement and GPH Ispat, said that this decision would help grow the skill of the insurance personnel.