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Insurers are likely to seek an extension from the Insurance Regulatory and Development Authority of India (IRDAI) to rework their joint venture agreements and incorporate the Indian management controlled clause as stipulated by the regulator.
IRDAI had issued guidelines in October defining “Indian-owned and controlled” as mentioned in the Insurance Laws (Amendment) Act, 2015, and asked insurers to comply by January 19.
The IRDAI said “control” includes the right to appoint a majority of the directors or control the management or policy decisions. This means the majority of directors, excluding independent directors, will have to be nominated by Indian promoters or Indian investors.
According to the guidelines, even the appointment of key management persons, including chief executive officer, managing director or principal officer in the case of an insurance broker, will have to be through them or the board of directors.
Foreign partnerExperts say that all the current joint venture agreements envisage a fair bit of control for the foreign partner in terms of appointment of independent directors and key management positions in the insurance company and these will have to be reworked.
The CEO of a leading life insurer said that the foreign and domestic partners are yet to reach a consensus and have sought an extension from the regulator.
“Foreign partners have to let go of a lot of historical rights that they held in the insurance company. They have to renegotiate with the domestic partners as they have to let go of their control. There is a provision of asking an extension for six months and I believe many insurers will exercise this option,” said Anuj Sah (Associate Partner) with law firm Khaitan & Co. Recently, a number of foreign players in the sector have raised stakes in their Indian insurance joint ventures.
These include Ergo in HDFC Ergo, Nippon in Reliance Life Insurance, AXA in Bharti AXA Life Insurance and Bharti AXA General Insurance, Bupa in Max Bupa Health Insurance, and Sunlife Financial Inc in Birla Sunlife.
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