The Insurance Regulatory and Development Authority of India (IRDAI) has made a proposal to link the salary of insurance company CEOs to customer outcomes. In addition to this, the insurance regulator plans to introduce malus and clawback provisions and increase transparency in remuneration.
The proposal comes after a study conducted by the insurance regulator that found wide variation in CEO salaries, according to the Economic Times report. In certain instances, key management personnel represent a considerable portion of total wage expenses of the insurance firm. The discussion paper circulated among CEOs emphasizes the importance of shifting focus from short term financial performance to sustainable policyholder-centric outcomes.
At present, compensation structures are primarily tied to revenue, profit and shareholder returns. However, IRDAI has observed that these metrics fail to adequately reflect the long-term value created via positive customer experiences.
Under the proposed framework of the insurance regulator, executive compensation would be linked to a combination of customer, shareholder and regulatory metrics and the highest emphasis would be placed on customer-related parameters.
The customer-related parameters include the timelines for claim settlement, transparency in product disclosures, grievance redressal and overall experience of customers. The aim of IRDAI is to make sure that customer satisfaction, trust and loyalty become central to evaluating performance of the top management.
Moreover, the paper proposed implementing penalties for compensation through malus and clawback provisions if insurers fail to meet conduct standards. Specifically, pay could be reduced in cases where there is an increase in customer complaints, instances of regulatory breaches or the identification of misselling/unethical practices.
The study revealed significant variation in salaries with the standard deviation in CEO pay among leading life insurers being Rs 7.9 crore, while for non-life insurers, it was Rs 11.4 crore. Additionally, the IRDAI expressed concerns regarding the top heavy structure of insurers. It noted that management remuneration can account for up to 14% of total salary expenditure of insurance company.
The insurance regulator suggested that better alignment of pay with customer outcomes could help address these issues. It would improve trust in insurance products as well as promote broader adoption of such products.
Source: The Hindu Business Line
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