Sense & insurance

Irdai is right, insurers should put customers before shareholders. CEO incentives are a good place to start

Insurance is a business, but it’s no ordinary business. It exists to provide financial stability to families when a breadwinner dies, and to shield monthly budgets from hospital bills, and cracked windshields. So, unlike hair salons and cafes, it shouldn’t be driven by the profit motive alone. But it is, and not just in India, as the killing of UnitedHealthcare CEO Brian Thompson in Dec 2024 reminded us. Why don’t insurance and greed sit well together? Because an insurer with a profit-first business model isn’t above misselling – pitching unsuitable products to customers – pumping premiums, and arbitrarily denying claims. And insurance regulator Irdai has repeatedly flagged these problems in India.

So, Irdai’s new guidance to insurers, to link CEO pay to customer outcomes, is welcome. Essentially, it’s asking insurers to put customers, not shareholders, first. When CEO pay is linked to how satisfied customers are – measured by complaints against a company and regulatory breaches – the incentive structure changes. Greater transparency, better quality of service are key to growing business. In fact, they are pillars of any customer-centric business, from cookies to cars. Doing business honestly may result in lower profits this year, but a far bigger business in five years. Beyond linking executive pay to quality of service, Irdai wants penal clauses, or clawbacks, so that CEOs who don’t deliver have to surrender some of their remuneration.

Irdai has also expressed concern about upper management cornering a disproportionate share – up to 14% – of overall compensation. It says the pay gap between highest and lowest paid CEOs in life insurance is about ₹16cr, which rises to almost ₹23cr in general insurance. Are the highest paid CEOs being rewarded for delivering shareholder-pleasing results? That seems to be Irdai’s apprehension. Its 2024-25 annual report shows that complaints of misselling rose 14% over the previous year. In March, govt said the two main complaints against insurers relate to keeping claims pending (15%), and denying claims without a reason (6.5%). An image problem of that kind can slow down insurance coverage, which has become a necessity as healthcare and other costs rise. Insurers should pay heed.