Trupti Upadhyay


The Insurance Regulatory and Development Authority of India (‘IRDA’) has come up with the exposure draft on “Stewardship Code for Insurers in India” on 19th January, 2017.

In the recent years, insurance sector has witnessed growth in our country. The growth in the insurance sector has led to the significant increase in funds of insurance companies. The government of India has also increased the limit of Foreign Direct Investment (‘FDI’) in insurance sector from 26% to 49% under the automatic approval in order to boost investment in the insurance industry.

The insurance companies are significant investors in the securities markets and act as investors on behalf of their policyholders.

With the growth in the industry the emphasis on corporate governance is required to be increased and in turn the need for following the applicable laws and regulations is also intensified.

IRDA in its exposure draft has defined 7 Principles of Stewardship which an insurance company as an institutional investor will be required to adopt. The intention of Stewardship Code is to strengthen the role of insurers as stewards on behalf of the policyholders. The literal meaning of stewardship is to supervise or take care of something especially the organization or property. In the context of insurance companies, such companies are acting as institutional investors and investing on behalf of policyholders. Therefore, the insurer acts as stewards for their policyholders.

The following table enlists the 7 Principles of Stewardship Code along with the brief analysis of the same in the form of remarks:

Serial No. Principle Description Remarks
1. Insurers should formulate a policy on the discharge of their stewardship responsibilities and publicly disclose it. The policy should clearly define the stewardship responsibilities as identified by the insurer and how it intends to fulfill the same to enhance the wealth of its clients. The policy should disclose how the insurer applies stewardship with the aim of enhancing and protecting the value for the ultimate beneficiary or client.

In case some of the activities are outsourced to some external service providers, the policy should provide the responsibilities to be delegated to such service providers and the mechanisms to ensure that the overall stewardship responsibilities are carried out seamlessly.


Insurance companies will have a stewardship policy which will clearly define the stewardship responsibilities of the company and how the insurer implements the policy in order to protect and enhance the wealth of ultimate beneficiary or client.

The suggestion of IRDA to formulate the policy on stewardship is a welcome initiative as the same will increase the confidence of policyholders.


2. Insurers should have a clear policy on how they manage conflicts of interest in fulfilling their stewardship responsibilities and publicly disclose it. Insurers should put in place, maintain and publicly disclose a policy for identifying and managing conflicts of interest with the aim of taking all reasonable steps to put the interests of their client or beneficiary first. The policy should also address how matters are handled when the interests of clients or beneficiaries diverge from each other.


The stewardship policy will be approved by the Board of Directors of the company and will be disclosed on the website of the company within 30 days from the date of approval of the Board of Directors.

The different ways to manage conflict of interests should be covered in the stewardship policy.

The above principle will increase the accountability of the members of the Board and will enhance the corporate governance and decision making of insurance companies.


3. Insurers should monitor their investee companies. Insurers should have mechanisms for regular monitoring of their investee companies in respect of their performance, leadership effectiveness, succession planning, corporate governance, reporting and other parameters they consider important.

Insurers may or may not wish to be made insiders (actively involved with the investee companies). An insurer who may be willing to become an insider should indicate in its stewardship statement the willingness to do so, and the mechanism by which this could be done.

Insurers will expect investee companies and their advisers to ensure that information that could affect their ability to deal in the shares of the company concerned is not conveyed to them without their prior agreement. Insurers should have in place a mechanism to monitor the activities of their investee companies on a regular basis.

However, in doing so the insurer may or may not be allowed as insiders in the investee companies, i.e. to have an active involvement in the investee companies.

A stewardship statement will disclose the willingness of insurers to become insiders and the mechanism followed by them for becoming insiders.

The information which will affect insider’s ability to deal in the shares of the concerned investee company is not conveyed to them without their prior agreement.

4. Insurers should have a clear policy on intervention in their investee companies. Insurers should set out the circumstances in which they will actively intervene and regularly assess the outcomes of doing so. Intervention should be considered regardless of whether an active or passive investment policy is followed. In addition, a low volume of investment is not, in itself, a reason for not intervening. Instances when insurers may want to intervene include, but are not limited to, when they have concerns about the company’s strategy, performance, governance, remuneration or approach to risks, including those that may arise from social and environmental matters.

The meetings should be held in a confidential manner with the view to resolve the issue constructively. If dissatisfied with the response of the investee company, the insurer may decide to escalate the matter, in accordance with the pre-defined policy.

The insurer has been given power to intervene with the activities of investee companies whether they are active or passive investors. In the meeting held in a confidential manner if the issue is not resolved then insurers can escalate the matter in accordance with the pre-defined policy.

Thus, power has been vested with the insurers to regulate the affairs of investee companies.

5. Insurers should have a clear policy for collaboration with other institutional investors, where required, to preserve the interests of the policyholders (ultimate investors), which should be disclosed. For issues that require larger engagement with the investee company, institutional investors may choose to act collectively in order to safeguard the interests of their investors. For such situations, the insurers should have a policy to guide their actions and extent of engagement. Matters which need collective actions by all institutional investors in order to protect the interest of their policyholders will be collectively taken over by the all the institutional investors in a manner as laid down in the policy.
6. Insurers should have a clear policy on voting and disclosure of voting activity. Insurers should not just blindly support the board of the investee company but, instead, take their own voting decisions to promote the overall growth of the investee companies and, in turn, enhance the value of their investors.

The voting policy should be publicly disclosed. The voting decisions taken in respect of all the investee companies should also be disclosed publicly along with the rationale for such decision in Annexure B.

Insurers should disclose the use made, if any, of proxy voting or other voting advisory services. They should describe the scope of such services, identify the providers and disclose the extent to which they follow, rely upon or use recommendations made by such services.

Insurers should disclose their approach to stock lending and recalling lent stock.

The insurer who is institutional investors should take their voting decisions on their own in order to promote the overall growth of investee companies and, in turn, enhance the value of their investors.

The voting activity of insurer should be disclosed publicly.

7. Insurers should report periodically on their stewardship activities. In addition to the regular fulfillment of their stewardship activities, institutional investors should also provide a periodic report to their ultimate beneficiaries (policyholders) of how they have discharged their responsibilities, in a format which is easy to understand.

However, it may be clarified that compliance with the aforesaid principles does not constitute an invitation to manage the affairs of a company or preclude a decision to sell a holding when this is considered in the best interest of clients or beneficiaries.

A periodic compliance report stating the compliance with all the stewardship activities is required to be given to all policyholders of insurers.


The proposed stewardship principals will in enhancing the existing corporate governance practice of the insurance industries and will in keeping a check on the operations of the investee companies of the insurers. This will help in increasing the transparency and effectiveness of the board of the insurers and will also increase the confidence of policyholders. IRDA’s initiative on bringing stewardship code will instill confidence in the policyholders against the backdrop of an emerging economy.

(Author is associated as an Executive with Vinod Kothari & Company)

Join Taxguru’s Network for Latest updates on Income Tax, GST, Company Law, Corporate Laws and other related subjects.

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Telegram

taxguru on telegram GROUP LINK

Download our App


More Under Corporate Law

Leave a Comment

Your email address will not be published. Required fields are marked *

Search Posts by Date

February 2024