Insurers wary as Irdai tightens executive compensation framework

Irdai's revised compensation norms linking executive pay to customer outcomes and compliance metrics have sparked concerns over growing regulatory intervention

The insurance regulator’s move to link senior executives' variable pay and incentives  more closely to customer outcomes such as claims servicing and grievance redressal, has sparked some concern within the industry as it is seen increasing regulatory focus on operational matters.

 

The regulator’s focus on customer outcomes and transparency is largely an extension of an already stringent framework, they said. However, some executives indicated that the regulator appeared to be taking a more active role in board-level and operational matters at insurance firms. 

 

At the same time, some industry officials defended the move, noting that the Reserve Bank of India (RBI) has similar guidelines governing compensation structures for senior executives at banks. Given that insurers manage public money, they said, companies should remain accountable to all stakeholders.

 

On Tuesday, the Insurance Regulatory and Development Authority of India (Irdai) revised the performance parameters applicable to key management personnel (KMPs), including managing directors and chief executive officers, with the changes taking immediate effect for performance assessments from FY27 onwards.

 

Under the revised norms, 50 per cent of the performance assessment for KMPs will be linked to parameters including the insurer’s financial soundness, product performance, claims responsiveness, grievance redressal, implementation of Indian Accounting Standards, and removal of “dark patterns” in customer interactions and distribution practices.

 

Implementation of accounting standards and removal of dark patterns will each carry a weightage of 10 per cent, while boards can decide the weight assigned to the remaining parameters. The remaining 50 per cent of the assessment may be based on additional metrics aligned with the insurer’s business plan, as determined by the Nomination and Remuneration Committee (NRC) or the board.

 

“The norms build on existing frameworks for linking executive compensation to compliance and customer outcomes. The latest changes amount to a tightening rather than a fundamental shift. The broad structure — balancing compliance and business metrics for CEOs and KMPs — was already in place, with only the weightage and certain parameters being adjusted, including a move toward a 50-50 split and the addition of newer customer-centric indicators such as grievance redressal and claims settlement,” said an executive at an insurance company, requesting anonymity.

 

This reinforces the regulator’s intent to strengthen customer protection and service discipline, which is difficult to dispute in principle, he said. However, there is an industry perception that the framework reflects a degree of over management into board-level decision-making, he added.

 

Another senior official at an insurance company said the revised version gives some additional leeway to boards and NRCs to decide relevant parameters. However, the official said the framework continues to hard-code key aspects of performance evaluation and extends regulatory reach into areas that should primarily remain within board discretion.

 

“The intent appears to be policyholder protection through tighter linkage of remuneration to metrics like cost efficiency and claims experience, especially in the context of concerns around aggressive premium discounting in the industry. However, the framework does not adequately account for functional differences across KMP roles and imposes uniform expectations that may not be relevant to all functions. Also, the public disclosure of managements’ KPIs on the company website is too much. The regulator’s move is more micro-management of internal governance,” the senior official said.