Need for transparency in investments of insurance companies

The Insurance Regulatory and Development Authority of India (IRDAI) had in January 2017 laid down guidelines for insurance companies about disclosures in respect of investments made by these companies in various other companies. These guidelines were called “stewardship guidelines”, wherein the insurance companies were required to make detailed disclosures about companies in which they have invested and their decision-making process regarding investee companies.

The IRDAI thought it fit to issue the guidelines as the insurance companies dealt with public money and it was incumbent upon these companies to reveal their portfolio of investments to the public, their rationale behind making investments in various companies and their decision-making at the investee companies. However, a year-and-half later, these guidelines have been implemented by only a handful of insurance companies.

The IRDAI guidelines were aimed at ushering in transparency in the investments made by insurance companies and ensuring better corporate governance standards for the benefit of the policyholders. The implementation of these guidelines by the insurance companies would have enhanced the confidence of the policyholders. But, except for a handful of listed insurers, most of the insurance companies appeared to have simply ignored the IRDAI guidelines.

The stewardship guidelines require the insurance companies to disclose the names of the companies in which they have invested, amount invested in each of the companies, rationale behind making the investment and the role played by them in the decision-making process of the investee companies. The insurers were required to formulate a policy on how they would manage conflict of interest in the discharge of stewardship responsibilities. They were also required to monitor the investee companies and formulate policies on intervention in the affairs of the investee companies and collaboration with other institutional investors for the protection of the interests of the policyholders.

But only listed entities such as SBI Life, ICICI Lombard, among others, have implemented stewardship guidelines till date. It is high time for other insurance companies to follow suit and ensure that the interests of the policyholders are safeguarded.