Provisions in the new insurance law raise fears of management changes

Mumbai: A provision in the recently passed Insurance (Amendment) Bill has raised concerns among insurers over its potential impact on board composition as the current wording, the industry believes, could inadvertently disqualify a large number of directors. Particularly at risk are bank-promoted insurance companies that share managerial talent with lenders and other banking subsidiaries.The clause prohibits a director or officer of an insurer from simultaneously serving as a director or officer of another insurer in the same industry, a bank or an investment firm, except in cases relating to a merger or transfer of business, in which the regulator may grant exemptions.

While the intent appears to be to strengthen governance and avoid conflicts of interest, insurers say this language could have far-reaching consequences for existing governance structures. If strictly applied, this provision could force several nominee and independent directors to resign from the boards of insurance companies, especially in bank-led joint ventures.Senior executives point out that most life and general insurers promoted by banks like SBI Life, SBI General Insurance, HDFC Life and IndiaFirst Life have nominated directors from the boards or senior management of their parent banks.

“Banks that are promoters of the insurance companies have their nominated directors to represent the interests of their promoter banks, who can also sit on the board of such promoter banks. The ban under amended Section 32A may impact such common directorships,” said CL Baradhwaj, a company secretary.

Section 32 A (1) of the Insurance Amendment Bill 2025 says that a director or officer of an insurer must not be a director or officer of another insurer carrying on the same insurance business, or of a banking company or of an investment firm. “A plain reading of the clause suggests that a banking company director cannot sit on the board of an insurer,” said a senior industry executive. “That would mean that nominated directors of promoter banks would have to leave, which was clearly not the intention.”

The concern also extends to independent directors. Many independent board members work at multiple financial institutions, including banks and insurers. A strict interpretation could make such directors ineligible, leading to sudden vacancies and disruption to the governance of life, non-life and health insurers.

Executives said the issue is especially acute for joint ventures, where board representation from promoter institutions is a core element of oversight and coordination. In some cases, insurers may have no choice but to appoint junior officers as nominee directors, which would undermine the quality of board oversight.

“Even a clarification would be enough,” said Ashvin Parekh, managing partner of Ashvin Parekh Advisory Services LLP. “Without this, the sector could experience unnecessary confusion and churn at board level, which is not good for governance or stability.”