Irdai has revised the performance parameters applicable to key management personnel (KMPs), including managing directors (MDs) and chief executive officers (CEOs). The changes take immediate effect and will apply to performance assessments from FY27 onwards.
Under the revised framework, insurers must evaluate KMPs on a combination of financial, operational, and customer-centric parameters when determining variable pay or incentives. Irdai has made it mandatory for insurers to incorporate metrics relating to product performance, claims responsiveness, grievance redressal, implementation of Indian Accounting Standards, and removal of “dark patterns” in customer interactions and distributor practices.
Irdai said the Nomination and Remuneration Committee (NRC), in consultation with the Risk Management Committee, must ensure that remuneration policies align with policyholder outcomes and adjust for risks. The framework also requires remuneration outcomes to remain symmetric with risk outcomes and sensitive to the time horizon of risks undertaken by insurers.
“Evolving expectations of customers and needs of the economy require us to place greater emphasis on measurable customer outcomes, transparency in decision-making, responsiveness, and sustainable value creation. Accordingly, the revised performance framework will move beyond traditional operational and financial metrics to include a stronger focus on customer-centric and governance-oriented outcomes,” Ajay Seth, chairman, Irdai, said.
The performance parameters include overall financial soundness of the companies, product performance and improvements, claims responsiveness and improvements, grievance redressal, implementation of Indian Accounting Standards, removal of dark patterns in the company’s own interaction with the public, and ensuring the same for the company’s distributors.
These parameters will have a total weight of 50 per cent, out of which implementation of the accounting standards and removal of dark patterns carry 10 per cent weight each. The weight of the other four parameters may be decided by the board, Irdai said.
The remaining 50 per cent weightage will be based on company performance, for which the NRC or board may adopt additional parameters in line with the insurer's business plan.
The weightage for each of the additional parameters may be configured suitably for MDs, CEOs, whole-time directors (WTDs), and other KMPs depending on their respective roles.
For life insurers, the overall financial soundness is determined by looking at the ratio of assets under management (AUM) to total premium, renewal premium-to-new business premium (NBP) ratio, persistency-related measures tracking policy exits, and expense of management ratios. For general and standalone health insurers, the parameters include line-wise incurred loss ratios, renewal ratios, and expense ratios.
The framework places particular emphasis on customer-facing service standards. Insurers will now have to disclose the proportion of claims settled within 15, 30, and 60 days, along with the number of unresolved claims at the end of each reporting period. The disclosure requirements also extend to grievances, with insurers required to separately classify complaints and service requests and publicly disclose the number of grievances resolved within specified timelines.
Irdai has also sought greater transparency around remuneration-linked performance metrics. Insurers will have to disclose on their websites the parameters used for determining KMP remuneration, along with performance trends for the preceding three years, in an “easy-to-access” and “easy-to-understand” format. The disclosures relating to financial soundness will have to be updated quarterly, while information on claims responsiveness, grievance redressal, and product performance will need monthly updates.
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