Provision in new Insurance Bill sparks fears of board shake-ups

board composition as the current wording, industry believes, could unintentionally disqualify a large number of directors. Particularly at risk are bank-promoted insurance ventures that share directorial talent with the lenders and other banking subsidiaries. The clause bars a director or officer of an insurer from simultaneously serving as a director or officer of another insurer in the same business line, a bank or an investment firm, except in cases related to amalgamation or transfer of business, where the regulator may grant exemptions. While the intent appears to be strengthening governance and avoiding conflicts of interest, insurers say the language could have far reaching consequences for existing board structures. If applied strictly, the provision could force several nominee and independent directors to step down from insurance company boards, particularly in bank-led joint ventures. Senior executives point out that most life and general insurers promoted by banks such as SBI Life , SBI General Insurance, HDFC Life and IndiaFirst Life, have nominee directors from their parent banks' boards or senior management. "Banks that are promoters of the insurance companies have their nominee directors to represent the interests of their promoter banks, who may also be on the board of such promoter banks. The prohibition 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 shall not be a director or officer of any other insurer carrying on the same class of insurance business, or of a banking company, or of an investment firm. "A plain reading of the clause suggests that a director of a banking company cannot be on the board of an insurer," said a senior industry executive. "That would mean nominee directors from promoter banks would have to exit, which was clearly not the intent." The concern extends to independent directors as well. Many independent board members serve across multiple financial institutions, including banks and insurers. A strict interpretation could render such directors ineligible, leading to sudden vacancies and disruption in governance across life, general and health insurance companies. Executives said the issue is particularly acute for joint ventures, where board representation from promoter institutions is a core element of oversight and alignment. In some cases, insurers could be left with no option but to appoint junior officials as nominee directors, undermining the quality of board supervision. "Even a clarification would suffice," said Ashvin Parekh, managing partner, Ashvin Parekh Advisory Services LLP. "Without it, the industry could face unnecessary confusion and board-level churn, which is not good for governance or stability." (What's moving Sensex and Nifty Track latest market news , stock tips , Budget 2025 , Share Market on Budget 2025 and expert advice , on ETMarkets . Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .) Subscribe to ET Prime and read the Economic Times ePaper Online.and Sensex...

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