The IRDAI published a circular on Remuneration to Key Management Persons, dated May 25, 2026 (“Circular”). This was soon after a concept paper revisiting the remuneration of Key Managerial Personnel (“KMP”) of Indian insurers was shared among a select group of stakeholders, inviting their comments. The Circular, which is now applicable law, amends the IRDAI Master Circular on Corporate Governance for Insurers, 2024 (“Master Circular”). The Circular has been issued in exercise of powers under Section 34 of the Insurance Act, 1938, Section 14 of the IRDA Act, 1999, and Regulation 12 of the Regulations.
Defining KMP performance metrics for determining variable pay
The remuneration of KMP of Indian insurers is governed by the IRDAI (Corporate Governance for Insurers) Regulations, 2024 (“Regulations”), and the Master Circular. Up until May 24, 2026, remuneration paid to KMPs was governed exclusively by clause 9.2 of the Master Circular. This provided for inter alia a requirement for insurers to have a remuneration policy in place and a broad principle-based framework on developing such a policy. It further provided for a break-up of fixed pay and variable pay of KMPs to ensure that remuneration reflected performance. Having said that, performance parameters were left for the Board of Directors (“Board”) and Nomination and Remuneration Committee (“NRC”) to determine in accordance with the remuneration policy.
The Circular now prescribes a minimum set of parameters that must be considered when assessing the performance of all KMPs for FY26-27 variable pay or incentives’ calculation. These parameters carry a combined mandatory weight of 50% of the total performance scorecard of a KMP. The six mandatory parameters are as follows:
- Overall financial soundness;
- Products’ performance;
- Claim responsiveness;
- Grievance redressal;
- Implementation of IndAS; and
- Removal of dark patterns.
The Circular provides for a detailed explanation of the metrics required to determine performance under (1) to (4) above. Further, the Board is empowered to determine the weightage of parameters (1) to (4) in the overall performance scorecard, such that the sum of their weightage in the overall performance scorecard is 30%. Parameters (5) and (6) have been assigned a mandatory weightage of 10% each in the overall performance scorecard and their assessment is required to be in binary terms. The remaining 50% weightage in a KMP’s performance scorecard has been left for the Board and the NRC to determine basis additional parameters aligned with the insurer’s business plan. Further, the performance of the insurer in respect of parameters adopted for remuneration of all KMPs, along with corresponding information for the preceding three years, are required to be disclosed on insurers’ websites. Also, since the Circular only provides parameters for FY 26-27, the IRDAI may refresh parameters for FY 27-28, and may remove transitional parameters (such as IndAS).
‘Principle’ to ‘Prescription’
By specifying a minimum set of performance parameters for assessment of performance of KMPs and calculation of their variable pay, the IRDAI has moved to a prescriptive approach, away from the ‘principle-based regime’ adopted in 2024. The IRDAI, in its annual report for FY 24-25, noted that there were 2,57,790 complaints lodged on the Bima Bharosa Portal, indicating a 20% surge compared to the previous year. The IRDAI’s Circular likely aims to combat the increasing complaints ratio and to redesign incentive structures to incentivise insurers more to achieve certain metrics. Given that there are 26 life insurers, 28 general insurers and 7 health insurers registered with the IRDAI, it can be argued that competition inter se insurers can be considered sufficient incentive for insurers and their KMPs to achieve customer satisfaction metrics. If the prescriptive approach has been developed to achieve customer satisfaction metrics, a holistic perspective is required to look into customer grievances rather than linking it to KMP remuneration. Additionally, there are multiple customer grievance channels in the form of insurance ombudsman and consumer forums to achieve satisfactory customer outcomes. Empowering and enhancing these channels is a more effective way of achieving better customer outcomes.
Regulatory benchmarking: Have such metrics been provided for by other regulators?
Other domestic regulators such as the RBI and SEBI only provide principles for designing remuneration policies. Individual performance metric design has been consistently left to the Board’s discretion. Even when benchmarked globally, no insurance regulator in the developed world has provided individual performance metrics of KMPs to indirectly achieve desired outcomes. Separately, Section 178 of the Companies Act, 2013, provides for the Board and NRC of a company to determine remuneration policy for KMPs. Under the current scheme of the Companies Act, 2013, remuneration and performance of KMPs is subject to Board and major shareholders’ scrutiny, where performance is linked to pay and growth. The Circular provides for an unprecedented approach of prescribing performance metrics of KMP remuneration. In prescribing such performance metrics, the IRDAI may be considered as curtailing the powers of the NRC and the Board, statutorily provided under the Companies Act, 2013.
Interaction with other laws
Apart from customary outcomes, there is a purely regulatory parameter in the form of ‘adoption of IndAS’. Under the scheme of the Insurance Act, 1938, regulatory compliance is envisaged to be achieved only through enforcement methods provided under the Insurance Act, 1938, such as the imposition of penalties, direction to the insurer and suspension of registration. An attempt to achieve regulatory compliance through KMP remuneration may be considered to be outside the scheme of Insurance Act, 1938.
Charting the Course
The IRDAI has begun the practice of defining parameters for KMP remuneration by employing a rather reasonable approach. The rationale for each parameter can be easily ascertained too. These parameters also align with shareholder interests, unlike certain other regulatory outcomes such as rural and social sector expansion, reduction in expenses of management, and participation in government schemes. That said, the Circular and its approach to achieving policyholder outcomes, remains an unprecedented move in the context of insurance regulatory frameworks globally. It is a bold move by the regulator at a time when India is looking to attract foreign capital by liberalising FDI limits to 100%. Further, the scope of the Circular may also be said to overlap with the statutory function of the NRC, under the Companies Act, 2013. Needless to say, both the regulator and the industry will watch closely whether the changes outlined by the Circular will, in reality, correlate to better customer satisfaction and financial health of insurers in India.